-----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, KtsqEsYGGO1TBp8zK7YqP+XHHN+8NMXSuJ83aLabf0tuhpGeC9ilREYjBruZQYMp VbecTGpJ9Qp1DQLEU/cpBQ== 0000950129-03-001339.txt : 20030312 0000950129-03-001339.hdr.sgml : 20030312 20030312163825 ACCESSION NUMBER: 0000950129-03-001339 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON RESOURCES INC CENTRAL INDEX KEY: 0000833320 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 911413284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09971 FILM NUMBER: 03601169 BUSINESS ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136249500 MAIL ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 10-K 1 h02234e10vk.txt BURLINGTON RESOURCES INC.- YEAR ENDED DEC. 31,2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-9971 BURLINGTON RESOURCES INC. Incorporated in the State of Delaware Employer Identification No. 91-1413284
5051 Westheimer, Suite 1400, Houston, Texas 77056 Telephone: (713) 624-9500 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share Preferred Stock Purchase Rights The above securities are registered on the New York Stock Exchange. Securities registered pursuant to Section 12(g) of the Act: None 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 ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ____ State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of January 31, 2003 and as of the last business day of the registrant's most recently completed second fiscal quarter. Common Stock aggregate market value held by non-affiliates as of January 31, 2003: $8,885,621,814 and as of June 28, 2002: $7,649,418,316 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class: Common Stock, par value $.01 per share, on January 31, 2003, Shares Outstanding: 201,488,023 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: Burlington Resources Inc. definitive proxy statement, to be filed not later than 120 days after the end of the fiscal year covered by this report, is incorporated by reference into Part III. Below are certain definitions of key technical industry terms used in this Form 10-K.
Bbls Barrels BCF Billion Cubic Feet BCFE Billion Cubic Feet of Gas Equivalent MBbls Thousands of Barrels MMBbls Millions of Barrels MCF Thousand Cubic Feet MMCF Million Cubic Feet MCFE Thousand Cubic Feet of Gas Equivalent MMCFE Million Cubic Feet of Gas Equivalent MMBTU Million British Thermal Units TCF Trillion Cubic Feet TCFE Trillion Cubic Feet of Gas Equivalent DD&A Depreciation, Depletion and Amortization NGLs Natural Gas Liquids
Appraisal well is a well drilled in the vicinity of a discovery or wildcat well in order to evaluate the extent and importance of the discovery. Artificial lift is the mechanical process of producing well fluids to the surface using a rod, tubing or bottom-hole centrifugal pump. Basin is a synclinal structure in the subsurface that is composed of sedimentary rock and regarded as a good prospect for exploration. Call options are contracts giving the holder (purchaser) the right, but not the obligation, to buy (call) a specified item at a fixed price (exercise or strike price) during a specified period. The purchaser pays a nonrefundable fee (the premium) to the seller (writer). Cash-flow hedges are derivative instruments used to mitigate the risk of variability in cash flows from crude oil and natural gas sales due to changes in market prices. Examples of such derivative instruments include fixed-price swaps, fixed-price swaps combined with basis swaps, purchased put options, costless collars (purchased put options and written call options) and producer three-ways (purchased put spreads and written call options). These derivative instruments either fix the price a party receives for its production or, in the case of option contracts, set a minimum price or a price within a fixed range. Consumer collar is an option strategy that combines a written put option and a purchased call option. The writer of a consumer collar writes a put option (ceiling) and buys a call option (floor). Developed acreage is the number of acres that are allocated or assignable to producing wells or wells capable of production. Development well is a well drilled within the proved area of an oil or natural gas field to the depth of a stratigraphic horizon known to be productive. Exploitation is drilling wells in areas proven to be productive. Dry hole is a well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. Exploratory well is a well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir. Generally, an exploratory well is any well that is not a development well, a service well or a stratigraphic test well. Fair-value hedges are derivative instruments used to hedge or offset the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment. For example, a contract is entered into whereby a commitment is made to deliver to a customer a specified quantity of crude oil or natural gas at a fixed price over a specified period of time. In order to hedge against changes in the fair value of these commitments, a party enters into swap agreements with financial counterparties that allow the party to receive market prices for the committed specified quantities included in the physical contract. Farm-in or farm-out is an agreement whereby the owner of a working interest in an oil and gas lease assigns the working interest or a portion thereof to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a "farm-in," while the interest transferred by the assignor is a "farm-out." Field is an area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or stratigraphic condition. Formation is a strata of rock that is recognizable from adjacent strata consisting mainly of a certain type of rock or combination of rock types with thickness that may range from less than two feet to hundreds of feet. Gross acres or gross wells are the total acres or wells in which a working interest is owned. Horizon is a zone of a particular formation or that part of a formation of sufficient porosity and permeability to form a petroleum reservoir. Infill drilling refers to drilling wells between established producing wells on a lease; a drilling program to reduce the spacing between wells in order to increase production and/or recovery of in-place hydrocarbons from the lease. Net acreage and net oil and gas wells are obtained by multiplying gross acreage and gross oil and gas wells by the Company's working interest percentage in the properties. Oil and NGLs are converted into cubic feet of gas equivalent based on 6 MCF of gas to one barrel of oil or NGLs. Permeability is a measure of ease with which fluids can move through a reservoir. Productive well is a well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. Proved reserves represent estimated quantities of oil and gas which geological and engineering data demonstrate, with reasonable certainty, can be recovered in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered proved if shown to be economically producible by either actual production or conclusive formation tests. For complete definitions of proved oil and gas reserves, refer to the Securities and Exchange Commission's Regulation S-X, Rule 4-10(a)(2), (3) and (4). Proved developed reserves are the portion of proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. For complete definitions of proved oil and gas reserves, refer to the Securities and Exchange Commission's Regulation S-X, Rule 4-10(a)(2), (3) and (4). Producer collar is an option strategy that combines a written call option and a purchased put option. The writer of a producer collar writes a call option (ceiling) and buys a put option (floor). When the premium received on the call option equals the premium paid for the put option, the collar is known as a zero-cost collar. Proved undeveloped reserves are the portion of proved reserves which can be expected to be recovered from new wells on undrilled proved acreage, or from existing wells where a relatively major expenditure is required for completion. For complete definitions of proved oil and gas reserves, refer to the Securities and Exchange Commission's Regulation S-X, Rule 4-10(a)(2), (3) and (4). Put options are contracts giving the holder (purchaser) the right, but not the obligation, to sell (put) a specified item at a fixed price (exercise or strike price) during a specified period. The purchaser pays a nonrefundable fee (the premium) to the seller (writer). Recompletion is an operation whereby a completion in one zone is abandoned in order to attempt a completion in a different zone within the existing wellbore. Reservoir is a porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock and water barriers and is individual and separate from other reservoirs. Seismic is an exploration method of sending energy waves or sound waves into the earth and recording the wave reflections to indicate the type, size, shape and depth of subsurface rock formation. (2-D seismic provides two-dimensional information and 3-D seismic provides three-dimensional pictures.) Sour gas is natural gas containing chemical impurities, notably hydrogen sulfide, carbon dioxide or other sulfur compounds. Spacing is the regulation of the number of wells which can be drilled on a given area of land. Swaps are contracts between two parties to exchange streams of variable and fixed prices on specified notional amounts. One party to the swap pays a fixed price while the other pays a variable price. Sweet gas is natural gas free of significant amounts of hydrogen sulfide or carbon dioxide when produced. Tight gas is natural gas produced from a formation with low permeability that will not give up its gas readily at high flow rates. Undeveloped acreage is lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas. Working interest is the operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production. Workover is operations on a producing well to restore or increase production. Writer refers to the seller of an option. The writer earns the premium on the option but bears the risk of fulfilling the obligations of the option. Zone is a stratigraphic interval containing one or more reservoirs. CONTENTS PART I Items One and Two Business and Properties 1 Employees 12 Web Site Access to Reports 12 Item Three Legal Proceedings 12 Item Four Submission of Matters to a Vote of Security Holders 13 Executive Officers of the Registrant 13 PART II Item Five Market for Registrant's Common Equity and Related Stockholder Matters 14 Item Six Selected Financial Data 14 Items Seven and Seven A Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk 14 Safe Harbor Cautionary Disclosure on Forward-Looking Statements 25 Item Eight Financial Statements and Supplementary Financial Information 28 Item Nine Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 62 PART III Items Ten and Eleven Directors and Executive Officers of the Registrant and Executive Compensation 62 Item Twelve Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 62 Item Thirteen Certain Relationships and Related Transactions 62 Item Fourteen Controls and Procedures 63 PART IV Item Fifteen Exhibits, Financial Statement Schedules and Reports on Form 8-K 63
PART I ITEMS ONE AND TWO BUSINESS AND PROPERTIES Burlington Resources Inc. (BR) is a holding company engaged, through its principal subsidiaries, Burlington Resources Oil & Gas Company LP, The Louisiana Land and Exploration Company (LL&E), Burlington Resources Canada Ltd. (formerly known as Poco Petroleums Ltd.), Canadian Hunter Exploration Ltd. (Hunter), and their affiliated companies (collectively, the Company), in the exploration for and the development, production and marketing of crude oil, NGLs and natural gas. The Company is one of North America's largest producers of natural gas. On December 5, 2001, the Company consummated a transaction with Hunter valued at approximately U.S. $2.1 billion, resulting in an excess purchase price of approximately $793 million which was reflected as goodwill. This acquisition was funded with cash on hand and proceeds from the issuance of $1.5 billion of fixed-rate notes and $400 million of commercial paper. The transaction was accounted for under the purchase method. The Hunter acquisition added a portfolio of producing properties, primarily located in the Western Canadian Sedimentary Basin, an area in which the Company already operated. The most significant of the assets is the Deep Basin, North America's third-largest natural gas field, with approximately 1.5 million gross acres and 17 major producing horizons. The acquisition added estimated proved reserves of 1.3 TCFE along with approximately two million net undeveloped acres. See Note 2 of Notes to Consolidated Financial Statements for more information related to this transaction. In October 2001, the Company announced its intent to sell certain non-core, non-strategic properties in order to improve the overall quality of its portfolio and at December 31, 2001, these properties were classified as held for sale. These properties along with others, which together held approximately 1 TCFE of reserves and yielded 228 MMCFE per day of production, were sold in 2002. Based on the purchase and sale agreements, the divestiture program sales price totaled $1.3 billion. Due to differences between purchase and sale agreement dates and closing dates, the Company generated proceeds, before post closing adjustments, of approximately $1.2 billion. The Company used a portion of these proceeds generated from property sales to retire commercial paper, to repay a $104 million promissory note and for general corporate purposes, including funding a portion of the Company's capital program. The Company also expects to use the remaining proceeds for general corporate purposes, including funding a portion of the Company's future capital program. In November 1999, BR consummated the acquisition of Poco Petroleums Ltd. valued at approximately $2.5 billion. The transaction was funded through the issuance of 38,393,135 shares of the Company's Common Stock and was accounted for under the pooling of interests method. The Company's reportable segments are U.S., Canada and Other International. For financial information related to the Company's reportable segments, see Note 14 of Notes to Consolidated Financial Statements. The Company's worldwide major operating areas are discussed below. NORTH AMERICA The Company's asset base is dominated by North American natural gas properties. Its extensive North American lease holdings extend from the U.S. Gulf Coast to the Arctic coast of Canada. The Company's North American operations include a mix of production, development and exploration assets. In 2002, oil and gas capital expenditures for the Company's U.S. operations totaled $463 million and consisted of $246 million for development projects, $39 million for exploration and $178 million for proved reserve acquisitions. U.S. production in 2002 represented 53 percent of the Company's total production and included 949 MMCF of natural gas per day, 35.4 MBbls of crude oil per day and 32.7 MBbls of NGLs per day. At December 31, 2002, proved reserves in the U.S. totaled 7.3 TCFE and represented 64 percent of the Company's total proved reserves. In 2002, oil and gas capital expenditures for the Company's Canadian operations totaled $839 million and consisted of $348 million for development projects, $139 million for exploration and $352 million for proved reserve acquisitions, primarily a property acquisition from ATCO Gas and Pipeline Ltd. (ATCO). The Company's Canadian production in 2002 represented 39 percent of the Company's total production and included 802 MMCF of natural gas per day, 27.4 MBbls of NGLs per day and 7.8 MBbls of crude oil per day. At December 31, 2002, Canadian proved reserves totaled 2.7 TCFE and represented 24 percent of the Company's total proved reserves. In 2002, the Company identified 15 to 20 areas for pilot testing and potential future development, which the Company describes as unconventional resource projects. Unconventional resource projects are defined as tight gas, basin-centered gas, coalbed methane, fractured shale and biogenic gas projects. The Company spent approximately $30 million evaluating these projects during 2002 and advanced the Barnett Shale program, in the Ft. Worth Basin, to the development stage. The Company is continuing to evaluate the remaining projects. 1 U.S. San Juan Basin The San Juan Basin, in northwest New Mexico and southwest Colorado, is one of the Company's major operating areas in terms of reserves and production. The San Juan Basin encompasses nearly 7,500 square miles, or approximately 4.8 million acres, with the major portion located in New Mexico's Rio Arriba and San Juan counties. The Company is a significant holder of productive leasehold acreage in this area with over 848,000 net acres under its control. The Company operates over 6,900 well completions in the San Juan Basin and holds interests in an additional 4,000 non-operated well completions. During the second quarter of 2002, the Company sold the Val Verde gathering and processing facilities and all associated equipment including 360 miles of gathering lines and 14 compressor stations. In 2002, the Company invested $125 million in oil and gas capital that included over 240 new wells and approximately 290 workovers of existing wells. The Company's net production from the San Juan Basin averaged approximately 569 MMCF of natural gas per day, 28.2 MBbls of NGLs per day and 1.3 MBbls of crude oil per day during 2002. A majority of the growth in the San Juan Basin during the 1990s came from production of coalbed methane gas from the Fruitland Coal formation. To mitigate Fruitland Coal production decline, the Company has an ongoing program that consists of performing workovers on existing wells, adding compression and installing artificial lift, where appropriate. The Company also continued to develop additional Fruitland Coal reserves by drilling new wells on 320-acre spacing, and added 62 BCFE of proved undeveloped reserves. In 2002, net production from the Fruitland Coal averaged 217 MMCF of natural gas per day from over 1,500 wells. In 2002, the New Mexico Oil and Gas Conservation Division (NMOCD) granted approval to allow infill drilling to 160-acre spacing in the lower-productivity portion of the Fruitland Coal pool. The Company conducted a successful pilot test of the concept during 2001. Beginning in 1997, with the Fruitland Coal play reaching maturity, the Company began placing greater emphasis on increasing production from conventional gas-producing formations, such as the Mesaverde, the Pictured Cliffs and the Dakota. The Mesaverde formation, which consists of the Lewis Shale, Cliffhouse, Menefee and Point Lookout sands, is the largest producing conventional formation in the San Juan Basin. In 2002, the Company continued its ongoing infill drilling program in this formation. This brought total proved undeveloped reserves added in the Mesaverde formation over the last five years to more than 450 BCFE and the Company has subsequently developed just over half of these reserves. In 2002, net production from the conventional gas-producing formations averaged 323 MMCF of natural gas per day and 28.2 MBbls of NGLs per day. In the first quarter of 2002, the Company also received approval from the NMOCD to infill drill the Dakota formation. As a result of the increased spacing order and a complete reservoir assessment, during 2002 the Company added 255 BCFE of proved undeveloped reserves in the formation. In addition, the Company drilled 11 80-acre Dakota wells in 2002 and has interests in over 5,000 additional undrilled 80-acre Dakota locations. In the Pictured Cliffs formation, during 2002 the Company, in partnership with two other operators, received approval from the NMOCD to complete 30 pilot wells on 80-acre spacing, in lieu of the 160-acre spacing currently permitted. This pilot will evaluate whether more wells are needed to extract the Pictured Cliffs formation's remaining gas. Basin wide, the Pictured Cliffs formation has yielded 3.6 TCF gross of natural gas from 6,200 wells. The Company operates about one- third of these wells and owns interests in many others. This pilot testing is expected to allow a more thorough evaluation of this potentially significant reservoir. During 2002, the Company continued its cost management efforts in the San Juan Basin. Year-over-year, net operated capital costs were reduced approximately $5 million from comparable projects in 2001 as a result of a variety of process improvements. Similarly, lease operating expenses were essentially the same as in 2001, despite inflationary and operational cost pressures. This was achieved primarily through compression optimization and salt water disposal cost savings. Wind River Basin The Madden Field, located in the Wind River Basin, covers more than 70,000 acres in Wyoming's Fremont and Natrona counties. Net production averaged 79 MMCF of natural gas per day in 2002 and came from multiple horizons ranging in depth from 5,000 feet to over 25,000 feet, where the deep Madison formation occurs. Investments in the Wind River Basin during 2002 totaled $19 million for approximately 20 newly drilled wells and workover projects in the deep Madison and shallower formations and $21 million on plant construction. During 2002, the Company completed and commissioned the Lost Cabin Gas Plant Train III, which increased total plant inlet capacity to 310 MMCF of sour gas per day and plant tail gate capacity to 200 MMCF of natural gas per day. The Company also initiated production from two new deep Madison wells, the Big Horn #7-34 and Big Horn #8-35, and began drilling the final deep Madison well, the Big Horn #9-4, which is expected to begin production in late 2003. The Company owns an approximate 50 percent working interest in the plant and a 42 percent revenue interest in the Madison reservoir. 2 Williston Basin The Williston Basin operations, in western North Dakota and eastern Montana, are now focused on the Cedar Creek Anticline area, following the divestiture in late 2002 of non-core producing assets located in the northern portion of the basin and characterized by their high cost structure. Total Williston Basin production averaged 14.0 MBbls of oil per day and 7 MMCF of natural gas per day. The Cedar Creek Anticline produced the largest portion of the total, with 11.1 MBbls of crude oil per day and 4 MMCF of natural gas per day. During 2002, the Company invested $32 million on drilling and workover projects in the Williston Basin. The Company continued its highly active waterflood development program in the Cedar Hills South Unit by drilling 23 new wells and increasing water injection volumes. The Company also completed implementation of an 8-well infill-drilling pilot in the East Lookout Butte Unit. This pilot will be monitored during 2003 to further assess the feasibility of drilling infill wells on 160-acre spacing to improve the efficiency of the waterflood. Anadarko Basin The Anadarko Basin, located principally in western Oklahoma, encompasses over 30,000 square miles and contains some of the deepest producing formations in the world. The Company controls over 250,000 net acres and produces from multiple horizons ranging in depth from 11,000 feet to over 21,000 feet. Net production from the Anadarko Basin averaged 91 MMCF of natural gas per day and 1.4 MBbls of NGLs per day in 2002. During 2002, the Company invested $5 million in the Anadarko Basin. Permian Basin Permian Basin operations, in west Texas and southeast New Mexico, are now focused on the Waddell Ranch Field. Total Permian Basin production in 2002 averaged 30 MMCF of natural gas per day, 1.6 MBbls of NGLs per day and 5.1 MBbls of crude oil per day, with the Waddell Ranch Field contributing 12 MMCF of natural gas per day, 1.3 MBbls of NGLs per day and 3.1 MBbls of crude oil per day. During 2002, the Company invested $4 million in Permian Basin operations. In mid-2002, the Company divested non-core Permian Basin operations, including the Sonora Field, all characterized by their high cost structure and limited growth opportunities. Fort Worth Basin The Fort Worth Basin, in north central Texas, is a new area of operations for the Company. Production during 2002 averaged 6 MMCF of natural gas per day and 0.2 MBbls of NGLs per day. The Company invested $29 million in oil and gas expenditures during the year in the Fort Worth Basin. After initially entering the basin by successfully testing an unconventional resource project, the Barnett Shale, on leasehold located in Wise County, Texas, the Company acquired a larger position located primarily in Denton County, Texas, for $141 million, and ultimately drilled a total of 40 wells during 2002. Onshore Gulf Coast The Onshore Gulf Coast includes a number of drilling trends in south Louisiana, as well as 660,000 acres of fee lands where the Company owns the mineral rights and surface lands. Net production from south Louisiana in 2002 averaged 79 MMCF of natural gas per day, 5.3 MBbls of crude oil per day and 0.4 MBbls of NGLs per day. The Company invested $41 million of oil and gas capital and participated in a total of 52 Onshore Gulf Coast projects in 2002. During the year, the Company also divested substantially all of its south and east Texas assets in order to focus its activities on onshore south Louisiana, specifically on development and exploration projects in and around core assets. The divested properties were characterized by their high cost structure and limited growth opportunities. Gulf of Mexico Shelf The Company previously held producing interests in the Gulf of Mexico Shelf, but over the past few years has de-emphasized its Gulf of Mexico Shelf activities due to the area's high cost structure and high production decline rates. The Company divested substantially all of its assets in the Gulf of Mexico Shelf during 2002. CANADA Western Canadian Sedimentary Basin In the Western Canadian Sedimentary Basin, the Company's portfolio of opportunities includes conventional exploration and development in Alberta, British Columbia and Saskatchewan, as well as frontier exploration of the Mackenzie Delta in the Northwest Territories. A key focus of Canadian activity during 2002 was on integrating and growing the assets acquired through the acquisitions of Hunter in December 2001 and the ATCO properties, in the Viking-Kinsella area, in January 2002. These assets 3 represent opportunities to expand existing programs into large scale, repeatable drilling programs in conventional and lower permeability zones. Oil and gas capital investment in Canada during 2002 was $839 million, including acquisitions, and resulted in the completion of 579 wells and the recompletion of 167 wells. During the year, the Company sold certain non-core, high-cost oil and gas properties which contributed to improving the cost structure of the Canadian assets. Throughout the year, continued emphasis on cost control and the lower lease operating expenses of the former Hunter and ATCO assets resulted in a reduction in average lease operating expenses in 2002. The Deep Basin area, in Alberta and British Columbia, consists of the Elmworth, Wapiti, Noel and Brassey Fields and largely represents properties acquired from Hunter. As a result of a successful drilling program in 2002, 198 MMCF of gas per day and 15.5 MBbls of NGLs per day were produced from the Deep Basin. In 2002, a $120 million oil and gas capital program was focused on exploration and development in the Deep Basin area. A total of 116 wells were drilled in the basin in 2002. As part of the Deep Basin 2002 program, a tight gas development project largely targeting the Cadomin and Chinook formations was implemented. A recompletion program was focused on testing tight gas concepts in existing multi-zone wellbores. Additionally, regulatory approval was obtained to reduce the normal well spacing requirements from 640 acres to 320 acres in the Cadomin interval in a 33-section area. The O'Chiese and Whitecourt areas in central Alberta, yielded 2002 production of 226 MMCF of natural gas per day, 8.0 MBbls of NGLs per day and 2.5 MBbls of crude oil per day. The O'Chiese and Whitecourt areas were the focus of a $156 million exploration and development program in 2002 that mostly targeted the Lower Cretaceous and Jurassic sands, the principal historical targets in these areas. At O'Chiese in 2002, the Company completed a regional study of a shallow gas exploration program and drilled 21 wells in this area. The Company has an 800 section land position within this area. In the Wolf area, 26 wells were drilled, adding 28 MMCF of natural gas per day. In addition, a five-well program to reduce spacing from 640 acres to 320 acres was implemented and resulted in an additional net production of 11 MMCF of natural gas per day. As a result of the successful drilling program, an expansion of the wholly-owned Wolf Plant and gathering system is expected to increase production from 32 MMCF of natural gas per day to 44 MMCF of natural gas per day and is targeted for early 2003. At Alder, 28 wholly-owned successful wells were drilled into the Rock Creek and Lower Cretaceous Ostracod sands with net initial production of 51 MMCF of natural gas per day and 1.9 MBbls of crude oil per day. The Company added assets in the Ring Border area on the border of northern Alberta and British Columbia as a result of the Hunter acquisition. Production during 2002 averaged 66 MMCF of natural gas per day and 1.3 MBbls of NGLs per day and the focus of activity was on the development and expansion of this asset base. The capital program in this area was $27 million in 2002 which targeted the Bluesky and Gething formations and resulted in 53 successful wells. Production from the outlying area along the border, between Alberta and British Columbia, averaged 58 MMCF of natural gas per day, 1.0 MBbls of NGLs per day and 0.7 MBbls of crude oil per day. The Company invested $42 million of oil and gas capital in this area to drill 34 wells. An exploration and development program focused on drilling for Slave Point reefs resulted in seven successful wells, the most notable being a discovery north of the prolific Ladyfern Field. This discovery well and a development well are anticipated to come onstream in early 2003. In the Kaybob area, production for the year averaged 45 MMCF of natural gas per day and 0.4 MBbls of NGLs per day and the Company invested $54 million in the area during 2002. An expansion of the wholly-owned Berland River gas plant commissioned in December 2002 resulted in an increase in production from 8 MMCF of natural gas per day to 23 MMCF of natural gas per day. During 2002, 32 wells were drilled in the Cretaceous and Lower Gething formations. During 2002, the Company added interests in the Viking-Kinsella area through the ATCO property acquisition. These assets yielded average production of 61 MMCF of natural gas per day during the year. Capital investments during 2002 totaled $34 million and included development drilling in the Viking and Mannville formations. New compressors were installed and a gas processing plant was started up in September 2002, a month ahead of schedule. During the year, the Company acquired 3-D seismic over a 125,000 acre area and drilled eight wells. Beaufort Basin In the McKenzie Delta, a 3-D seismic program funded by partners was shot on the Company's exploration acreage. The partners also agreed to drill a well on the North Langley prospect in the first quarter of 2003. The Company incurred no expenditures in this area during 2002. 4 OTHER INTERNATIONAL The Company's Other International operations include a combination of exploration projects, large field development projects and production operations. Other International production in 2002 represented 8 percent of the Company's total production and included 165 MMCF of natural gas per day and 5.9 MBbls of crude oil per day. At December 31, 2002, Other International proved reserves totaled 1.4 TCFE and represented 12 percent of the Company's total proved reserves. In 2002, oil and gas capital investments for Other International operations totaled $299 million and consisted of $185 million for development projects, $40 million for exploration and $74 million for proved reserve acquisitions. Key focus areas are Northwest Europe, North Africa, the Far East and South America. Northwest Europe Operations in Northwest Europe provided the majority of the Company's production outside of North America during 2002, largely from assets in the East Irish Sea and in the Dutch sector of the North Sea. The East Irish Sea assets consist of 10 licenses covering 267,000 acres. The Company has a 100 percent working interest in seven operated gas fields. First production from two sweet gas fields, Dalton and Millom, commenced in the third quarter of 1999. Early in 2002, the last of six producing wells drilled at Millom was completed. Net production from the East Irish Sea averaged 97 MMCF of natural gas per day during 2002 and the Company invested $128 million in capital. In 2002, the development of the sour gas fields in the East Irish Sea continued with first production planned in early 2004. During 2002, an offshore production facility was installed, with a pipeline and new onshore processing terminal currently under construction to receive and process the sour gas prior to sale. During 2002, the Company divested its interests in the Brae and T-Block complexes in the United Kingdom sector of the North Sea due to their limited growth opportunities. The Company's remaining Northwest European Shelf operations consist of non-operated production from the CLAM joint venture in the Dutch offshore sector with net production of 25 MMCF of natural gas per day in 2002. North Africa In North Africa, the appraisal and development of oil and gas fields in Algeria have resulted in 37 wells being drilled, including 13 exploration wells. The Company invested $138 million in Algeria in 2002. Significant achievements occurred in the Company-operated Menzel Lejmat Block 405a in the Algerian Berkine Basin, where work advanced on the first phase development project in which the Company currently has a 65 percent working interest. First oil production from this project is expected mid-year 2003 from the MLN and associated fields on the northern part of the block, at a net rate that is expected to reach about 13.0 MBbls of crude oil per day. Exploitation Licence Applications were also submitted during 2002 to Sonatrach, the Algerian national oil company, for ratification and Ministry approval for the next phase of development of oil fields in the southern part of the block from the MLSE area. Work continues on the potential commercialization of the significant gas discoveries that have been made on the block. Meanwhile, first production was achieved during 2002 in the Ourhoud Field, a portion of which extends onto Block 405a. Crude oil began flowing into newly constructed facilities in November 2002 with the first exports of crude oil for sale occurring in January 2003. The Company has a 3.7 percent working interest in the Ourhoud Field. In addition, the Company has a 75 percent working interest in Akfadou Block 402d, also in the Berkine Basin. During 2002, the Company acquired over 500 square kilometers (km) of 3-D seismic data on this block. The data has been processed and interpreted and work is underway to finalize a location for the first commitment exploration well. In Egypt, the Company has a 50 percent working interest in the Offshore North Sinai contract area. The partners contemplate drilling an additional appraisal well. The subsequent project definition and contract award for front-end engineering and design for the planned gas project is expected to follow in late 2003 or early 2004. Far East In the Far East, the Company continued to focus on selected basins in China, with an offshore oil development program scheduled for start-up in 2003, and an onshore gas development program working toward long-term commercialization. The Company is also targeting opportunities to add to its existing leasehold position. The Company invested $49 million in China in 2002. During the year, work on the Panyu offshore oil development project in the Pearl River Mouth Basin of the South China Sea continued with fabrication of all components well underway. The Panyu development involves two offshore oil fields, Bootes and Ursa, located in Block 15/34, in which the Company holds a 24.5 percent working interest. These fields contain net proved reserves of 14.7 MMBbls of crude oil and first production is expected in the second half of 2003. 5 Onshore, the Company holds a 100 percent working interest in the Chuanzhong Block in the Sichuan Basin, a natural gas project currently in the appraisal phase. The project represents an opportunity to apply the Company's expertise in the development of tight gas reservoirs in an area with substantial reserve potential. Significant milestones achieved in 2002 included the signing of a long-term gas marketing agreement and the submittal of a plan of development for the Bajiaochang Field. Completion of the appraisal program and initiation of development is expected to occur in 2003. South America The Company's efforts in South America during 2002 focused on expanding near-term production potential, enhancing long-term exploration opportunities and reducing the number of countries in which the Company operates. During the year, the Company divested its 13.7 percent working interest in the Casanare concession area in Colombia. Production from South America averaged 3.0 MBbls of crude oil per day and 18 MMCF of natural gas per day and the Company invested $90 million of capital in South America during the year. In Ecuador, capital investments totaled $79 million in 2002. An acquisition in Blocks 7 and 21 resulted in a 30 percent working interest in Block 7 and a 37.5 percent working interest in Block 21. Development drilling commenced in the Yuralpa Field in Block 21, with initial production planned for year-end 2003, provided pipeline construction is completed. Seismic operations also began in Block 7, as did permitting for development drilling during 2003. Block 7 average net production for the year was 2.7 MBbls of crude oil per day. The Company also reached agreement to farm-out half of its share of Ecuador Blocks 23 and 24 to Perenco Ltd. This will ultimately result in the Company holding a 25 percent working interest in Block 23 and a 50 percent working interest in Block 24. In Peru, the Company holds a 23.9 percent working interest in Block 35 and a 20 percent interest in Block 34, both located in the Ucayali Basin, 100 km north of Camisea. Elsewhere in Peru, a field geological study and a 293-km 2-D seismic acquisition program were completed in Block 87 in an effort to develop multiple prospects from previously identified leads. In Argentina, the Company holds a 25.7 percent working interest in the Sierra Chata concession in the Neuquen Basin. This asset has a gross sales capacity of 200 MMCF of natural gas per day from 39 producing wells. During 2002, gas sales were curtailed due to low gas prices in Argentina, with production thus averaging only 18 MMCF of natural gas per day net. Deferrals of capital programs and a close focus on operating costs have helped mitigate the economic impact of an approximate 70 percent devaluation of the Argentine peso. West Africa The Company participated in unsuccessful exploratory drilling offshore Angola and Gabon during 2002. In Angola, the Company participated as a 25 percent working interest holder in a well on the Kangandala prospect in Block 21. This $3 million net dry hole was the second commitment well on the block. The Company also holds a 25 percent working interest in each of the Mpolo, Chauillu and Meboun blocks in Gabon. One well was drilled in each block in 2002 but all proved uneconomical. 6 PRODUCTIVE WELLS Working interests in productive wells at December 31, 2002 follow.
GROSS NET - ------------------------------------------------------------------------------- NORTH AMERICA U.S. Gas 10,568 6,291 Oil 2,739 1,610 Canada Gas 4,641 3,570 Oil 1,155 597 OTHER INTERNATIONAL Gas 174 54 Oil 100 43 WORLDWIDE Gas 15,383 9,915 Oil 3,994 2,250 - -------------------------------------------------------------------------------
NET WELLS DRILLED Drilling activity in 2002 was principally in the Western Canadian Sedimentary, San Juan, Onshore Gulf Coast, Ft. Worth, Permian, Anadarko, Wind River and Williston Basins. The following table sets forth the Company's net productive and dry wells.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ---------------------------------------------------------------------------------------- NORTH AMERICA U.S. Productive Exploratory 4.5 6.0 1.2 Development 158.6 271.0 159.6 Dry Exploratory 6.3 8.5 3.9 Development 2.1 10.1 5.2 - ---------------------------------------------------------------------------------------- Total Net Wells--U.S. 171.5 295.6 169.9 - ---------------------------------------------------------------------------------------- Canada Productive Exploratory 73.3 22.9 56.5 Development 320.8 158.8 73.4 Dry Exploratory 44.7 13.4 44.1 Development 46.2 48.3 17.0 - ---------------------------------------------------------------------------------------- Total Net Wells--Canada 485.0 243.4 191.0 - ---------------------------------------------------------------------------------------- OTHER INTERNATIONAL Productive Exploratory 0.1 2.1 3.2 Development 1.5 5.8 2.4 Dry Exploratory 2.0 3.1 2.1 Development 0.1 0.1 0.1 - ---------------------------------------------------------------------------------------- Total Net Wells--Other International 3.7 11.1 7.8 - ---------------------------------------------------------------------------------------- WORLDWIDE Productive Exploratory 77.9 31.0 60.9 Development 480.9 435.6 235.4 Dry Exploratory 53.0 25.0 50.1 Development 48.4 58.5 22.3 - ---------------------------------------------------------------------------------------- Total Net Wells--Worldwide 660.2 550.1 368.7 - ----------------------------------------------------------------------------------------
As of December 31, 2002, 67 gross wells, representing approximately 48 net wells, were being drilled. 7 ACREAGE Working interests in developed and undeveloped acreage at December 31, 2002 follow.
GROSS NET - ---------------------------------------------------------------------------------------- NORTH AMERICA U.S. Developed Acres 4,882,611 2,619,716 Undeveloped Acres 10,243,918 8,506,237 Canada Developed Acres 3,313,745 2,235,166 Undeveloped Acres 5,846,763 4,114,377 OTHER INTERNATIONAL Developed Acres 625,813 210,164 Undeveloped Acres 23,107,665 9,367,373 WORLDWIDE Developed Acres 8,822,169 5,065,046 Undeveloped Acres 39,198,346 21,987,987 - ----------------------------------------------------------------------------------------
CAPITAL EXPENDITURES Following are the Company's capital expenditures.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ---------------------------------------------------------------------------------------- ($ Millions) - ---------------------------------------------------------------------------------------- NORTH AMERICA U.S. Oil and Gas Activities $ 463 $ 583 $ 412 Plants & Pipelines 28 70 56 Administrative 35 20 19 - ---------------------------------------------------------------------------------------- Total U.S. 526 673 487 - ---------------------------------------------------------------------------------------- Canada Oil and Gas Activities 839 2,282 316 Plants & Pipelines 29 276 20 Administrative 8 5 4 - ---------------------------------------------------------------------------------------- Total Canada 876 2,563 340 - ---------------------------------------------------------------------------------------- OTHER INTERNATIONAL Oil and Gas Activities 299 217 179 Plants & Pipelines 136 -- -- Administrative -- 1 6 - ---------------------------------------------------------------------------------------- Total Other International 435 218 185 - ---------------------------------------------------------------------------------------- WORLDWIDE Oil and Gas Activities 1,601 3,082 907 Plants & Pipelines 193 346 76 Administrative 43 26 29 - ---------------------------------------------------------------------------------------- Total Worldwide $1,837 $3,454 $1,012 - ----------------------------------------------------------------------------------------
In 2002, worldwide capital expenditures of $1,601 million for oil and gas activities include 49 percent for development, 13 percent for exploration and 38 percent for proved property acquisitions. Proved property acquisitions are primarily related to the property acquisition from ATCO and the acquisition of properties located in Wise and Denton Counties, Texas. Included in capital expenditures for oil and gas activities are exploration costs expensed under the successful efforts method of accounting. 8 OIL AND GAS PRODUCTION AND PRICES The Company's average daily production represents its net ownership and includes royalty interests and net profit interests owned by the Company. Following are the Company's average daily production and average sales prices.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ---------------------------------------------------------------------------------------- NORTH AMERICA U.S. Production Gas (MMCF per day) 949 1,121 1,265 NGLs (MBbls per day) 32.7 34.6 36.1 Oil (MBbls per day) 35.4 44.0 51.6 Average Sales Price Gas, including hedging (per MCF) $ 3.39 $ 3.99 $ 3.31 Gas, (gain) loss on hedging (per MCF) (0.25) 0.78 0.63 Gas, excluding hedging (per MCF) 3.14 4.77 3.94 NGLs (per Bbl) 13.23 14.75 17.70 Oil, including hedging (per Bbl) 23.16 22.63 24.18 Oil, (gain) loss on hedging (per Bbl) (0.24) 1.58 3.50 Oil, excluding hedging (per Bbl) $22.92 $24.21 $27.68 Canada Production Gas (MMCF per day) 802 433 341 NGLs (MBbls per day) 27.4 12.5 11.1 Oil (MBbls per day) 7.8 11.9 12.5 Average Sales Price Gas, including hedging (per MCF) $ 3.15 $ 4.60 $ 4.10 Gas, (gain) loss on hedging (per MCF) (0.06) (0.12) (0.05) Gas, excluding hedging (per MCF) 3.09 4.48 4.05 NGLs (per Bbl) 15.92 22.50 25.38 Oil, including hedging (per Bbl) 28.32 26.51 29.06 Oil, (gain) loss on hedging (per Bbl) -- -- 1.01 Oil, excluding hedging (per Bbl) $28.32 $26.51 $30.07 OTHER INTERNATIONAL Production Gas (MMCF per day) 165 170 118 Oil (MBbls per day) 5.9 7.3 9.6 Average Sales Price Gas, including hedging (per MCF) $ 2.27 $ 2.83 $ 2.57 Gas, (gain) loss on hedging (0.08) -- -- Gas, excluding hedging 2.19 2.83 2.57 Oil (per Bbl) $24.30 $23.42 $27.73 WORLDWIDE Production Gas (MMCF per day) 1,916 1,724 1,724 NGLs (MBbls per day) 60.1 47.1 47.2 Oil (MBbls per day) 49.1 63.2 73.7 Average Sales Price Gas, including hedging (per MCF) $ 3.19 $ 4.03 $ 3.42 Gas, (gain) loss on hedging (0.16) 0.48 0.45 Gas, excluding hedging (per MCF) 3.03 4.51 3.87 NGLs (per Bbl) 14.46 16.79 19.51 Oil, including hedging (per Bbl) 24.11 23.45 25.44 Oil, (gain) loss on hedging (per Bbl) (0.18) 1.10 2.62 Oil, excluding hedging (per Bbl) $23.93 $24.55 $28.06 - ----------------------------------------------------------------------------------------
9 PRODUCTION UNIT COSTS The Company's production unit costs follow. Production costs consist of production taxes and well operating costs.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------- (per MCFE) - ------------------------------------------------------------------------------------- NORTH AMERICA U.S. Average Production Costs $0.62 $0.69 $0.57 Average Production Taxes 0.20 0.26 0.22 DD&A Rates 0.66 0.75 0.74 Canada Average Production Costs 0.38 0.65 0.69 Average Production Taxes 0.02 0.02 0.03 DD&A Rates 0.97 0.77 0.67 OTHER INTERNATIONAL Average Production Costs 0.32 0.21 0.31 Average Production Taxes 0.02 0.01 -- DD&A Rates 1.02 1.05 0.83 WORLDWIDE Average Production Costs 0.50 0.64 0.57 Average Production Taxes 0.12 0.18 0.16 DD&A Rates $0.81 $0.78 $0.73 - -------------------------------------------------------------------------------------
RESERVES The following table sets forth estimates by the Company's petroleum engineers of proved oil, NGLs and gas reserves at December 31, 2002. These reserves have been prepared in accordance with the Securities and Exchange Commission's regulations. These reserves have been reduced for royalty interests owned by others.
PROVED PROVED TOTAL PROVED DECEMBER 31, 2002 DEVELOPED UNDEVELOPED RESERVES - --------------------------------------------------------------------------------------------------- NORTH AMERICA U.S. Gas (BCF) 3,617 1,136 4,753 NGLs (MMBbls) 179.2 61.2 240.4 Oil (MMBbls) 155.2 32.0 187.2 Total U.S. (BCFE) 5,623 1,696 7,319 Canada Gas (BCF) 1,836 460 2,296 NGLs (MMBbls) 53.1 6.7 59.8 Oil (MMBbls) 12.9 1.5 14.4 Total Canada (BCFE) 2,232 509 2,741 OTHER INTERNATIONAL Gas (BCF) 263 578 841 Oil (MMBbls) 12.9 73.4 86.3 Total Other International (BCFE) 340 1,018 1,358 WORLDWIDE Gas (BCF) 5,716 2,174 7,890 NGLs (MMBbls) 232.3 67.9 300.2 Oil (MMBbls) 181.0 106.9 287.9 Total Worldwide (BCFE) 8,196 3,222 11,418 - ---------------------------------------------------------------------------------------------------
Miller and Lents, Ltd. and Sproule Associates Limited, independent oil and gas consultants, have reviewed the estimates of proved reserves of natural gas, oil and NGLs that BR attributed to its net interests in oil and gas properties as of December 31, 2002. Miller and Lents, Ltd. reviewed the reserve estimates for the Company's U.S. and international interests (excluding Canada and Argentina) and Sproule Associates Limited reviewed the Company's interests in Canada and Argentina. Based on their review of more than 80 percent of the Company's reserve estimates, it is their judgment that the estimates are reasonable in the aggregate. For further information on reserves, including information on future net cash flows and the standardized measure of discounted future net cash flows, see "Supplementary Financial Information--Supplemental Oil and Gas Disclosures." OTHER MATTERS Competition--The Company actively competes for reserve acquisitions, exploration leases and sales of oil and gas, frequently against companies with substantially larger financial and other resources. In its marketing activities, the 10 Company competes with numerous companies for the sale of oil, gas and NGLs. Competitive factors in the Company's business include price, contract terms, quality of service, pipeline access, transportation discounts and distribution efficiencies. Regulation of Oil and Gas Production, Sales and Transportation--The oil and gas industry is subject to regulation by numerous national, state and local governmental agencies and departments throughout the world. Compliance with these regulations is often difficult and costly and noncompliance could result in substantial penalties and risks. Most jurisdictions in which the Company operates also have statutes, rules, regulations or guidelines governing the conservation of natural resources, including the unitization or pooling of oil and gas properties and the establishment of maximum rates of production from oil and gas wells. Some jurisdictions also require the filing of drilling and operating permits, bonds and reports. The failure to comply with these statutes, rules and regulations could result in the imposition of fines and penalties and the suspension or cessation of operations in affected areas. The Company operates various gathering systems. The United States Department of Transportation and certain governmental agencies regulate the safety and operating aspects of the transportation and storage activities of these facilities by prescribing standards. However, based on current standards concerning transportation and storage activities and any proposed or contemplated standards, the Company believes that the impact of such standards is not material to the Company's operations, capital expenditures or financial position. Compliance with such standards has been incorporated by the Company in its operations over many years and no material capital expenditures are allocated to such compliance. All of the Company's sales of its domestic gas are currently deregulated, although governmental agencies may elect in the future to regulate certain sales. Environmental Regulation--Various federal, state and local laws and regulations relating to the protection of the environment, including the discharge of materials into the environment, may affect the Company's domestic exploration, development and production operations and the costs of those operations. In addition, the Company's international operations are subject to environmental regulations administered by foreign governments, including political subdivisions thereof, or by international organizations. These domestic and international laws and regulations, among other things, govern the amounts and types of substances that may be released into the environment, the issuance of permits to conduct exploration, drilling and production operations, the discharge and disposition of generated waste materials, the reclamation and abandonment of wells, sites and facilities and the remediation of contaminated sites. These laws and regulations may impose substantial liabilities for noncompliance and for any contamination resulting from the Company's operations and may require the suspension or cessation of operations in affected areas. The environmental laws and regulations applicable to the Company and its operations include, among others, the following United States federal laws and regulations: - - Clean Air Act, and its amendments, which governs air emissions; - - Clean Water Act, which governs discharges to waters of the United States; - - Comprehensive Environmental Response, Compensation and Liability Act, which imposes liability where hazardous releases have occurred or are threatened to occur; - - Resource Conservation and Recovery Act, which governs the management of solid waste; - - Oil Pollution Act of 1990, which imposes liabilities resulting from discharges of oil into navigable waters of the United States; - - Emergency Planning and Community Right-to-Know Act, which requires reporting of toxic chemical inventories; - - Safe Drinking Water Act, which governs the underground injection and disposal of wastewater; and - - U.S. Department of Interior regulations, which impose liability for pollution cleanup and damages. In addition, many states and foreign countries where the Company operates have similar environmental laws and regulations covering the same types of matters. The Company routinely obtains permits for its facilities and operations in accordance with these applicable laws and regulations on an ongoing basis. There are no known issues that have a significant adverse effect on the permitting process or permit compliance status of any of the Company's facilities or operations. The ultimate financial impact of these environmental laws and regulations is neither clearly known nor easily determined as new standards continue to evolve. Environmental laws and regulations are expected to have an increasing impact on the Company's operations in the United States and in most countries in which it operates. Potential permitting costs are variable and directly associated with the type of facility and its geographic location. Costs, for example, may be incurred for air emission permits, spill contingency requirements, and discharge or injection permits. These costs are considered a normal, recurring cost of the Company's ongoing operations and not an extraordinary cost of compliance with government regulations. The Company is committed to the protection of the environment throughout its operations and believes that it is in substantial compliance with applicable environmental laws and regulations. The Company believes that environmental 11 stewardship is an important part of its daily business and will continue to make expenditures on a regular basis relating to environmental compliance. The Company maintains insurance coverage for spills, pollution and certain other environmental risks, although it is not fully insured against all such risks. The insurance coverage maintained by the Company provides for the reimbursement to the Company of costs incurred for the containment and clean-up of materials that may be suddenly and accidentally released in the course of the Company's operations. The Company does not anticipate that it will be required under current environmental laws and regulations to expend amounts that will have a material adverse effect on the consolidated financial position or results of operations of the Company. However, because regulatory requirements frequently change and may become more stringent and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent in the Company's operations, there can be no assurance that material costs and liabilities will not be incurred in the future. Filings of Reserve Estimates With Other Agencies--During 2002, the Company filed estimates of its oil and gas reserves for the year 2001 with the Department of Energy. These estimates differ by 5 percent or less from the reserve data presented. For information concerning proved oil, NGLs and gas reserves, see page 58. EMPLOYEES The Company had 2,003 and 2,167 employees at December 31, 2002 and 2001, respectively. At December 31, 2002, the Company had no union employees. WEB SITE ACCESS TO REPORTS The Company's Web site address is www.br-inc.com. The Company makes available free of charge on or through its Web site, its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the United States Securities and Exchange Commission. Such reports, which include the Company's annual and quarterly financial statements, are also filed in Canada on the System for Electronic Document Analysis and Retrieval (SEDAR) and are also available to the Company's stockholders, including those residing in Ontario, Canada, from the Company upon request at no charge. In addition, the Company has adopted a Code of Business Conduct and Ethics that applies to directors, officers and employees, including the principal executive officer, principal financial officer and principal accounting officer or controller and has posted such code on its Web site. ITEM THREE LEGAL PROCEEDINGS The Company and numerous other oil and gas companies have been named as defendants in various lawsuits alleging violations of the civil False Claims Act. These lawsuits were consolidated during 1999 and 2000 for pre-trial proceedings by the United States Judicial Panel on Multidistrict Litigation in the matter of In re Natural Gas Royalties Qui Tam Litigation, MDL-1293, United States District Court for the District of Wyoming (MDL-1293). The plaintiffs contend that defendants underpaid royalties on natural gas and NGLs produced on federal and Indian lands through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies during the period of 1985 to the present. Plaintiffs allege that the royalties paid by defendants were lower than the royalties required to be paid under federal regulations and that the forms filed by defendants with the Minerals Management Service (MMS) reporting these royalty payments were false, thereby violating the civil False Claims Act. The United States has intervened in certain of the MDL-1293 cases as to some of the defendants, including the Company. The plaintiffs and the intervenor have not specified in their pleadings the amount of damages they seek from the Company. Various administrative proceedings are also pending before the MMS of the United States Department of the Interior with respect to the valuation of natural gas produced by the Company on federal and Indian lands. In general, these proceedings stem from regular MMS audits of the Company's royalty payments over various periods of time and involve the interpretation of the relevant federal regulations. Most of these proceedings involve production volumes and royalty disputes that are the subject of Natural Gas Royalties Qui Tam Litigation. Based on the Company's present understanding of the various governmental and civil False Claims Act proceedings described above, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. The Company is also exploring the possibility of a settlement of these claims. Although there has been no formal demand for damages, the Company currently estimates, based on its communications with the intervenor, that the amount of underpaid royalties on onshore production claimed by the intervenor in these proceedings is approximately $68 million. In the event that the Company is found to have violated the civil False Claims Act, the Company could also be subject to double damages, civil monetary penalties and other sanctions, including a temporary suspension from bidding on and entering into future federal mineral leases and other federal contracts for a defined period of time. The Company has established a reserve that management believes to be adequate to provide for this potential liability based upon its evaluation of this matter. While the ultimate outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a 12 material adverse effect on the consolidated financial position or results of operations of the Company, although cash flow could be significantly impacted in the reporting periods in which such matters are resolved. The Company has also been named as a defendant in the lawsuit styled UNOCAL Netherlands B.V., et al v. Continental Netherlands Oil Company B.V., et al, No. 98-854, filed in 1995 in the District Court in The Hague and currently pending in the Court of Appeal in The Hague, the Netherlands. Plaintiffs, who are working interest owners in the Q-1 Block in the North Sea, have alleged that the Company and other former working interest owners in the adjacent Logger Field in the L16a Block unlawfully trespassed or were otherwise unjustly enriched by producing part of the oil from the adjoining Q-1 Block. The plaintiffs claim that the defendants infringed upon plaintiffs' right to produce the minerals present in its license area and acted in violation of generally accepted standards by failing to inform plaintiffs of the overlap of the Logger Field into the Q-1 Block. Plaintiffs seek damages of $97.5 million as of January 1, 1997, plus interest. For all relevant periods, the Company owned a 37.5 percent working interest in the Logger Field. Following a trial, the District Court in The Hague rendered a Judgment in favor of the defendants, including the Company, dismissing all claims. Plaintiffs thereafter appealed. On October 19, 2000, the Court of Appeal in The Hague issued an interim Judgment in favor of the plaintiffs and ordered that additional evidence be presented to the court relating to issues of both liability and damages. The Company and the other defendants are continuing to present evidence to the Court and vigorously assert defenses against these claims. The Company has also asserted claims of indemnity against two of the defendants from whom it had acquired a portion of its working interest share. If the Company is successful in enforcing the indemnities, its working interest share of any adverse judgment could be reduced to 15 percent for some of the periods covered by plaintiffs' lawsuit. The Company is unable at this time to reasonably predict the outcome, or, in the event of an unfavorable outcome, to reasonably estimate the possible loss or range of loss, if any, in this lawsuit. Accordingly, there has been no reserve established for this matter. In addition to the foregoing, the Company and its subsidiaries are named defendants in numerous other lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business, including: claims for personal injury and property damage, claims challenging oil and gas royalty and severance tax payments, claims related to joint interest billings under oil and gas operating agreements, claims alleging mismeasurement of volumes and wrongful analysis of heating content of natural gas and other claims in the nature of contract, regulatory or employment disputes. None of the governmental proceedings involve foreign governments. While the ultimate outcome of these other lawsuits and proceedings cannot be predicted with certainty, management believes that the resolution of these other matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. The Company has established reserves for legal proceedings which are included in Other Liabilities and Deferred Credits on the Consolidated Balance Sheet. The establishment of a reserve involves a complex estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional loss of up to approximately $25 million to $30 million in excess of the amounts currently accrued. Future changes in the facts and circumstances could result in actual liability exceeding the estimated ranges of loss and the amounts accrued. ITEM FOUR SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of Burlington Resources Inc.'s security holders during the fourth quarter of 2002. EXECUTIVE OFFICERS OF THE REGISTRANT Bobby S. Shackouls, 52--Chairman of the Board, President and Chief Executive Officer, Burlington Resources Inc., July 1997 to present. President and Chief Executive Officer, Burlington Resources Oil & Gas Company, October 1994 to June 1998. Randy L. Limbacher, 44--Executive Vice President and Chief Operating Officer, Burlington Resources Inc., December 2002 to present. Senior Vice President, Production, Burlington Resources Inc., April 2001 to December 2002. President and Chief Executive Officer, BROG GP Inc., general partner of Burlington Resources Oil & Gas Company LP, December 2000 to July 2001. President and Chief Executive Officer, Burlington Resources Oil & Gas Company, July 1998 to December 2000. Vice President, Gulf Coast Division, Burlington Resources Oil & Gas Company, February 1997 to June 1998. Steven J. Shapiro, 50--Executive Vice President and Chief Financial Officer, Burlington Resources Inc., December 2002 to present. Senior Vice President and Chief Financial Officer, Burlington Resources Inc., October 2000 to December 2002. Senior Vice President, Chief Financial Officer and Director, Vastar Resources, Inc., 1993 to September 2000. L. David Hanower, 43--Senior Vice President, Law and Administration, Burlington Resources Inc., July 1998 to present. Senior Vice President, Law, Burlington Resources Inc., April 1996 to June 1998. John A. Williams, 58--Senior Vice President, Exploration, Burlington Resources Inc., April 2001 to present. Senior Vice President, Exploration, BROG GP Inc., general partner of Burlington Resources Oil & Gas Company LP, December 2000 13 to present. Senior Vice President, Exploration, Burlington Resources Oil & Gas Company, July 1998 to December 2000. Senior Vice President, Exploration, Burlington Resources Inc., October 1997 to June 1998. PART II ITEM FIVE MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, par value $.01 per share (Common Stock) is traded on the New York Stock Exchange under the symbol "BR" and on the Toronto Stock Exchange under the symbol "B." At December 31, 2002, the number of holders of Common Stock was 16,273. Information on Common Stock prices and quarterly dividends is shown on page 60 under the subheading "Quarterly Financial Data -- Unaudited." See also "Equity Compensation Plan Information" under Part III, Item 12 of this report. ITEM SIX SELECTED FINANCIAL DATA The selected financial data for the Company set forth below for the five years ended December 31, 2002 should be read in conjunction with the consolidated financial statements and accompanying notes thereto.
2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) - ------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA Revenues $ 2,964 $ 3,419 $3,218 $2,359 $2,225 Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle 569 907 967 (13) (624) Net Income (Loss) 454 561 675 (10) (338) Basic Earnings (Loss) per Common Share 2.26 2.71 3.13 (0.05) (1.60) Diluted Earnings (Loss) per Common Share 2.25 2.70 3.12 (0.05) (1.60) Cash Dividends Declared per Common Share $ 0.55 $ 0.55 $ 0.55 $ 0.46 $ 0.46 BALANCE SHEET DATA Total Assets $10,645 $10,582 $7,506 $7,165 $7,060 Long-term Debt 3,853 4,337 2,301 2,769 2,684 Stockholders' Equity $ 3,832 $ 3,525 $3,750 $3,229 $3,312 Common Shares Outstanding 201 201 216 216 216 - -------------------------------------------------------------------------------------------------------
ITEMS SEVEN AND SEVEN A MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK BR is one of the largest independent exploration and production companies in North America. The Company explores for, develops and produces natural gas, NGLs and crude oil, primarily from its properties located in the Rocky Mountain natural gas fairway of North America, complemented by several key international projects. The Company's North American activities are concentrated in areas with known hydrocarbon resources, which are conducive to large, multi-well, repeatable drilling programs and the Company's technical skills. Internationally, the Company is focused on the start-up and delivery of several key projects. The Company has adopted a very disciplined capital allocation process, with the objective of achieving modest volumetric growth (in the range of three to eight percent as a long-term annual average) coupled with strong financial returns. In managing its business, BR must deal with numerous risks and uncertainties. These risks and uncertainties can be broadly categorized as: "subsurface", which includes the presence, size and recoverability of hydrocarbons; "regulatory", which includes access and permitting necessary to conduct its operations; "operational", which includes logistical, timing and infrastructure issues, especially internationally, which is often beyond the Company's control, and "commercial", which includes commodity price volatility, local price differentials in its various areas of operations and attention to operating margins. Each of these factors is complex, challenging and highly variable. To address subsurface risks, BR utilizes most of the latest technological tools available to assess and mitigate these risks. These tools include, but are not limited to, modern geophysical data and interpretation software, petrophysical information, physical core data, production histories, paleontology data and satellite imagery. In spite of these technologies, the multitude of unknown variables that exist below the surface of the earth make it difficult to consistently 14 and accurately predict drilling results. The Company has put considerable emphasis in recent years on creating an asset portfolio that improves the reliability of those predictions; however, these types of operations tend to exploit or develop smaller quantities of hydrocarbon reserves and, as a result, the Company must develop more of these opportunities in order to maintain production. Similarly, the Company has reduced its focus on areas where there is far less analytical data available and drilling outcomes are less predictable, such as wildcat exploration operations in sparsely explored areas. BR is constantly assessing its drilling opportunities to achieve balance in its drilling program for risk and financial returns. In order to make this possible, the Company attempts to maintain a large inventory of drillable projects from which its technical and management teams can select a drilling program in any given period. On regulatory and operational matters, the Company actively manages its exploration and production activities. BR values sound stewardship and strong relationships with all stakeholders in conducting its business. The Company attempts to stay abreast of emerging issues to effectively anticipate and manage potential impacts to the Company's operations. At BR, managing the commercial risks is an ongoing priority. Considerable analysis of historical price trends, supply statistics, demand projections and infrastructure constraints form the basis of the Company's outlook for the commodity prices it may receive for its future production. Because much of this data is very dynamic, the Company's view and the market's view of future commodity pricing can change rapidly. Based on the Company's ongoing assessment of the underlying data and the markets, BR will from time to time use various financial tools to hedge the price it will receive for a particular commodity in the future. The primary purpose of these activities is to provide for adequate financial returns on the significant investments that the Company makes annually to replenish its productive base and grow its reserves while leaving as much commodity price upside as possible for the Company's stockholders. Margin enhancement is another important element in BR's business, including attention to cash operating and administrative costs and marketing activities, such as securing transportation to alternative market hubs to protect against weak producing-area prices. The Company may also enter into transportation agreements that allow the Company to sell a portion of its production in alternative markets when local prices are weak. All of the uncertainties described above create opportunities in the exploration and production business to the extent they drive the relative valuations of three distinct asset classes in the business. The first asset class is the commodity itself -- natural gas, NGLs and crude oil. The prices for this asset class are generally established by the purchasers of these commodities, but closely track the prices that are set through the public trading of futures contracts for those same commodities. The second asset class consists of the physical oil and gas properties that may contain proved, probable and possible reserves as well as exploratory potential. The value of physical assets are usually established in a private market created by a willing seller and a willing buyer of a given property or group of properties. The third asset class consists of the equities of the publicly traded exploration and production companies which are valued in the public market place daily. Because these three asset classes are not always valued consistently with each other, opportunities may exist from time to time to take advantage of these various valuation differences. These valuation differences are key to BR's capital allocation philosophy. At BR, there are three types of investment alternatives that constantly compete for available capital. These include drilling opportunities, acquisition opportunities and financial opportunities such as share repurchases and debt repayment. Depending on circumstances and the relative valuations of the asset classes described above, BR allocates capital among its investment alternatives which is an allocation approach that is rate-of-return based. Its goal is to ensure that capital is being invested in the highest return opportunities available at any given time. Much of what has been described above is conducted and handled routinely. The ability of BR's management and staff to take into account all relevant factors, which fluctuate constantly, will be a key determinant in the Company's future performance. OUTLOOK The Company expects full year production volumes in 2003 to average between 2,573 and 2,708 MMCFE per day. In 2003, the Company is expected to experience some gas equivalent production decreases as a result of property sales in 2002 and natural declines. However, the Company expects to offset these production declines with new projects such as the Lost Cabin Gas Plant expansion in Madden Field in Wyoming, which was completed during the third quarter of 2002, the Ourhoud Field in Algeria and other projects that are anticipated to start-up during 2003 such as crude oil development projects in the MLN Field in Algeria and the Bootes and Ursa offshore Fields in China. Commodity prices are impacted by many factors that are outside of the Company's control. Historically, commodity prices have been volatile and the Company expects them to remain volatile. Commodity prices are affected by changes in market demands, overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. As a result, the Company cannot accurately predict future natural gas, NGLs and crude oil prices, and therefore, it cannot determine what effect increases or decreases in production volumes will have on future revenues. 15 In addition to production volumes and commodity prices, finding and developing sufficient amounts of crude oil and natural gas reserves at economical costs are critical to the Company's long-term success. In 2002, the Company spent approximately $1.2 billion on development, exploration and plants and pipeline capital and an additional $604 million on acquisitions. In 2002, the Company's reserve replacement costs were $1.03 per MCFE excluding acquisitions or $1.06 per MCFE including acquisitions. The Company replaced 161 percent of its worldwide production from all sources and 103 percent of its worldwide production excluding acquisitions during 2002. On June 30, 2002, the Company sold the Val Verde gathering and processing plant (Val Verde Plant), which contributed $19 million in third party revenues in 2002. As a result of the sale, in addition to the future revenue loss, the Company expects its transportation expenses to increase approximately $40 million annually offset partially by lower operating expenses of approximately $11 million and lower DD&A of approximately $9 million. The Company has certain wells that qualify for Section 29 Tax Credits. In 2002, the Company generated $16 million of Section 29 Tax Credits. Production from qualified wells ceased to generate Section 29 Tax Credits at the end of 2002. FINANCIAL CONDITION AND LIQUIDITY The Company's total debt to total capital (total capital is defined as total debt and stockholders' equity) ratio at December 31, 2002 and December 31, 2001 was 51 percent and 55 percent, respectively. The reduction in total debt to total capital was accomplished by the use of proceeds from the disposal of assets and the generation of cash flows from operations. Based on the current price environment, the Company believes that it will generate sufficient cash from operations to fund the 2003 capital expenditures, excluding potential acquisitions. At December 31, 2002, the Company had $443 million of cash and cash equivalents on hand. In February 2002, Burlington Resources Finance Company (BRFC) issued $350 million of 5.7% Notes due March 1, 2007 (February Notes), which were fully and unconditionally guaranteed by BR. The proceeds from the February Notes were used to retire commercial paper that was issued to finance the acquisition of certain assets from ATCO Gas and Pipeline Ltd. (ATCO). The February Notes reduced the Company's amount available under its shelf registration statement on file with the Securities and Exchange Commission (SEC) to $397 million. In May 2002, the Company restored its shelf registration statement to $1,500 million. In June 2002, the Company retired a $100 million 8 1/4% Note. To retire the 8 1/4% Note, the Company issued a $104 million promissory note at a per annum rate equal to the sum of Eurodollar rates plus 0.70 percent. The $104 million promissory note was retired on September 16, 2002. During 2002, the Company also retired $675 million of net commercial paper and had no commercial paper outstanding at December 31, 2002. In June 2002, the Company commenced an offer to exchange outstanding 5.6% Notes due 2006, 6.5% Notes due 2011 and 7.4% Notes due 2031, which were issued by BRFC and fully and unconditionally guaranteed by BR, in a private offering in November 2001 (Private Notes), for a like principal amount of 5.6% Notes due 2006, 6.5% Notes due 2011 and 7.4% Notes due 2031 to be issued by BRFC, fully and unconditionally guaranteed by BR and registered under the Securities Act of 1933, as amended (Registered Notes). In July 2002, following the expiration of the exchange offer, the Company issued the Registered Notes. All of the Private Notes were exchanged for Registered Notes and the Private Notes were cancelled. Burlington Resources Capital Trust I, Burlington Resources Capital Trust II (collectively, the Trusts), BR and BRFC have a shelf registration statement on file with the SEC as mentioned above. Pursuant to such registration statement, BR may issue debt securities, shares of common stock or preferred stock. In addition, BRFC may issue debt securities and the Trusts may issue trust preferred securities. Net proceeds, terms and pricing of offerings of securities issued under the shelf registration statement will be determined at the time of the offerings. BRFC and the Trusts are wholly owned finance subsidiaries of BR and have no independent assets or operations other than transferring funds to BR's subsidiaries. Any debt issued by BRFC is fully and unconditionally guaranteed by BR. Any trust preferred securities issued by the Trusts are also fully and unconditionally guaranteed by BR. The Company had credit commitments in the form of revolving credit facilities (Revolvers) as of December 31, 2002. The Revolvers are comprised of agreements for $600 million, $400 million and Canadian $468 million (U.S. $296 million). The $600 million Revolver expires in December 2006 and the $400 million and Canadian $468 million Revolvers expire in December 2003 unless renewed by mutual consent. The Company has the option to convert any remaining balances on the $400 million and Canadian $468 million Revolvers to one-year and five-year plus one day term notes, respectively. Under the covenants of the Revolvers, Company debt cannot exceed 60 percent of capitalization (as defined in the agreements). The Revolvers are available to cover debt due within one year, therefore, commercial paper, credit facility notes and fixed-rate debt due within one year are generally classified as long-term debt. At December 31, 2002, there are no amounts outstanding under the Revolvers and no outstanding commercial paper. Net cash provided by operating activities in 2002 was $1,549 million compared to $2,106 million and $1,598 million in 2001 and 2000, respectively. The decrease in 2002 compared to 2001 was primarily due to lower net income, excluding non-cash items. Net income was lower principally as a result of lower natural gas and NGLs prices and lower oil sales 16 volumes partially offset by higher natural gas and NGLs sales volumes. The increase in 2001 compared to 2000 was primarily due to higher net income, excluding non-cash items, resulting primarily from higher natural gas prices and lower working capital needs. The Company has various commitments primarily related to leases for office space, other property and equipment and demand charges on firm transportation agreements for its production of natural gas. The Company expects to fund these commitments with cash generated from operations. The following table summarizes the Company's contractual obligations at December 31, 2002.
PAYMENTS DUE BY PERIOD - ----------------------------------------------------------------------------------------------------- LESS THAN AFTER CONTRACTUAL OBLIGATION TOTAL 1 YEAR 1-2 YEARS 3-4 YEARS 4 YEARS - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Total debt(1) $3,957 $ 63 $ -- $ 944 $2,950 Non-cancellable operating leases(2) 249 44 53 40 112 Drilling rig commitments(2) 104 72 32 -- -- Transportation demand charges(2) 863 140 202 166 355 - ----------------------------------------------------------------------------------------------------- Total Contractual Obligations $5,173 $319 $287 $1,150 $3,417 - -----------------------------------------------------------------------------------------------------
(1) See discussion of long-term debt above and Note 7 of Notes to Consolidated Financial Statements. (2) See Note 11 of Notes to Consolidated Financial Statements for discussion of these commitments. Certain of the Company's contracts require the posting of collateral upon request in the event that the Company's long-term debt is rated below investment grade or ceases to be rated. Those contracts primarily consist of hedging agreements, two Canadian transportation agreements and a natural gas purchase agreement. A few of the hedging agreements also require posting of collateral if the market value of the transactions thereunder exceed a specified dollar threshold that varies with the Company's credit rating. While the mark-to-market positions under the hedging agreements and the natural gas purchase agreement will fluctuate with commodity prices, as a producer, the Company's liquidity exposure due to its outstanding derivative instruments tends to increase when commodity prices increase. Consequently, the Company is most likely to have its largest unfavorable mark-to-market position in a high commodity price environment when it is least likely that a credit support requirement due to an adverse rating action would occur. At December 31, 2002, the aggregate unfavorable mark-to-market position under the aforementioned hedging agreements was approximately $13 million. A rating change would have had no impact on the Company related to the natural gas purchase agreement since the mark-to-market position under such agreement was favorable to the Company. In the case of the Canadian transportation agreements, the collateral required would be an amount equal to 12 months of estimated demand charges. That amount totaled approximately $27 million as of December 31, 2002. In the normal course of business, the Company has performance obligations which are supported by surety bonds or letters of credit. These obligations are primarily site restoration and dismantlement, royalty payments and exploration programs where governmental organizations require such support. Changes in credit rating also impact the cost of borrowing under the Company's Revolvers, but have no impact on availability of credit under the agreements. The Revolvers are filed as exhibits 10.18, 10.19 and 10.31 to this Form 10-K. The Company has investments in three entities that it accounts for under the equity method. The book values of the Company's interests in Lost Creek Gathering Company, L.L.C. (Lost Creek), Evangeline Gas Pipeline Company (Evangeline) and CLAM Petroleum B.V. (CLAM) are $13 million, $2 million and $31 million, respectively. As of December 31, 2002, CLAM had no outstanding debt, Lost Creek had outstanding debt totalling $52 million and Evangeline had outstanding debt totalling $43 million. Lost Creek and Evangeline's debts are non-recourse to the Company, and as a result, the Company has no legal responsibility or obligation for these debts. Management believes that Lost Creek and Evangeline are financially stable and therefore will be in a position to repay their outstanding debts. At December 31, 2002, the Company also owns a 1.5 percent interest in a foreign entity that is accounted for at cost. The Company is the guarantor of approximately $14 million of the entity's total outstanding debt. In December 2000, the Company's Board of Directors authorized the repurchase of up to $1 billion of the Company's Common Stock. During 2002, the Company repurchased none of its Common Stock. Through December 31, 2002, the Company has repurchased approximately 16.3 million shares or $693 million of its Common Stock under this $1 billion authorization. The Company has certain other commitments and uncertainties related to its normal operations. Management believes that there are no other commitments or uncertainties that will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. 17 CAPITAL EXPENDITURES AND RESOURCES Capital expenditures in 2002 totaled $1,837 million compared to $3,454 million and $1,012 million in 2001 and 2000, respectively. The Company invested $997 million on internal development and exploration of oil and gas properties during 2002 compared to $1,085 million and $858 million in 2001 and 2000, respectively. The Company invested $604 million on property acquisitions in 2002 compared to $1,997 million and $49 million in 2001 and 2000, respectively. Property acquisitions in 2002 included the purchase of certain assets, located in the Viking-Kinsella area, in January 2002 from ATCO, a Canadian regulated gas utility, for approximately $344 million and $141 million for the purchase of certain oil and gas properties located in Wise and Denton Counties, Texas in August 2002. The Company also invested $193 million on plants and pipelines in 2002 compared to $346 million and $76 million in 2001 and 2000, respectively. Property acquisitions and plants and pipelines in 2001 primarily included assets from the Canadian Hunter Exploration Ltd. (Hunter) acquisition. See Note 2 of Notes to Consolidated Financial Statements for additional information regarding the Hunter acquisition. Capital expenditures in 2003, excluding proved property acquisitions, are expected to be approximately $1.4 billion. Capital expenditures in 2003 are expected to be primarily for internal development and exploration of oil and gas properties and plant and pipeline expenditures. Capital expenditures are expected to be funded from internal cash flows. During the fourth quarter of 2001, the Company announced its intent to sell certain non-core, non-strategic properties in order to improve the overall quality of its portfolio, primarily in the U.S. Due to their high cost structure, high production volume decline rates and limited growth opportunities, substantially all of the Gulf of Mexico Shelf and south and east Texas assets were included in the non-core, non-strategic properties. During 2002, the Company completed the sale of certain non-core, non-strategic properties, including the Val Verde Plant. Based on the purchase and sale agreements, the divestiture program sales price totaled $1.3 billion. Due to differences between purchase and sale agreement dates and closing dates, the Company generated proceeds, before post closing adjustments, of approximately $1.2 billion and recognized a net pretax gain of $68 million. The producing properties that were sold during the year generated $202 million, $401 million and $416 million of revenues and incurred $140 million, $478 million and $336 million of direct operating expenses during the years 2002, 2001 and 2000, respectively. The Company used a portion of the proceeds generated from property sales to retire commercial paper, to repay the $104 million promissory note and for general corporate purposes, including funding a portion of the Company's capital program. The Company also expects to use the remaining proceeds for general corporate purposes, including funding a portion of the Company's future capital program. In connection with the divestiture program, the Company also recorded a restructuring liability of $10 million in the fourth quarter of 2001. As of December 31, 2002, all of the restructuring liability had been paid. MARKETING North America (U.S. and Canada) The Company's marketing strategy is to maximize the value of its production by developing marketing flexibility from the wellhead to its ultimate sale. The Company's natural gas production is gathered, processed, exchanged and transported utilizing various firm and interruptible contracts and routes to access higher value market hubs. The Company's customers include local distribution companies, electric utilities, industrial users and marketers. The Company maintains the capacity to ensure its production can be marketed either at the wellhead or downstream at market sensitive prices. All of the Company's crude oil production is sold to third parties at the wellhead or transported to market hubs where it is sold or exchanged. NGLs are typically sold at field plants or transported to market hubs and sold to third parties. Downgrades or the inability of the Company's customers to maintain their credit rating or credit worthiness could result in an increase in the allowance for unrecoverable receivables from natural gas, NGLs or crude oil revenues or it could result in a change in the Company's assumption process of evaluating collectibility based on situations regarding specific customers and applicable economic conditions. OTHER INTERNATIONAL The Company's Other International production is marketed to third parties either directly by the Company or by the operators of the properties. Production is sold at the platforms or local sales points based on spot or contract prices. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Commodity Risk Substantially all of the Company's crude oil, NGLs and natural gas production is sold on the spot market or under short-term contracts at market sensitive prices. Spot market prices for domestic crude oil and natural gas are subject to volatile trading patterns in the commodity futures market, including among others, the New York Mercantile Exchange (NYMEX). Quality differentials, worldwide political developments and the actions of the Organization of Petroleum Exporting Countries also affect crude oil prices. 18 There is also a difference between the NYMEX futures contract price for a particular month and the actual cash price received for that month in a North America producing basin or at a North America market hub, which is referred to as the "basis differential." Basis differentials can vary widely depending on various factors, including but not limited to, local supply and demand. On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires enterprises to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The requisite accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company utilizes over-the-counter price and basis swaps as well as options to hedge its production in order to decrease its price risk exposure. The gains and losses realized as a result of these price and basis derivative transactions are substantially offset when the hedged commodity is delivered. In order to accommodate the needs of its customers, the Company also uses price swaps to convert natural gas sold under fixed-price contracts to market sensitive prices. The Company uses a sensitivity analysis technique to evaluate the hypothetical effect that changes in the market value of crude oil and natural gas may have on the fair value of the Company's derivative instruments. For example, at December 31, 2002, the potential decrease in fair value of derivative instruments assuming a 10 percent adverse movement (an increase in the underlying commodities prices) would result in a $97 million decrease in the net unrealized gain. The derivative instruments in place at December 31, 2002 hedged approximately 30 percent of the Company's expected natural gas production volumes through 2003. For purposes of calculating the hypothetical change in fair value, the relevant variables include the type of commodity, the commodity futures prices, the volatility of commodity prices and the basis and quality differentials. The hypothetical change in fair value is calculated by multiplying the difference between the hypothetical price (adjusted for any basis or quality differentials) and the contractual price by the contractual volumes. As more fully described in Note 1 of Notes to Consolidated Financial Statements, the Company periodically assesses the effectiveness of its derivative instruments in achieving offsetting cash flows attributable to the risks being hedged. Changes in basis differentials or notional amounts of the hedged transactions could cause the derivative instruments to fail the effectiveness test and result in the mark-to- market accounting for the affected derivative transactions which would be reflected in the Company's current period earnings. Credit and Market Risks The Company manages and controls market and counterparty credit risk through established formal internal control procedures which are reviewed on an ongoing basis. The Company attempts to minimize credit risk exposure to counterparties through formal credit policies and monitoring procedures. In the normal course of business, collateral is not required for financial instruments with credit risk. Foreign Currency Risk The Company's reported cash flows related to its Canadian operating subsidiaries are based on cash flows measured in Canadian dollars and converted to the U.S. dollar equivalent based on the average of the Canadian and U.S. dollar exchange rates for the period reported. The Company's Canadian operating subsidiaries have no financial obligations that are denominated in U.S. dollars. DIVIDENDS On January 22, 2003, the Board of Directors declared a common stock quarterly cash dividend of $0.1375 per share, payable April 1, 2003 to shareholders of record on March 7, 2003. Dividend levels are determined by the Board of Directors based on profitability, capital expenditures, financing and other factors. The Company declared cash dividends on Common Stock totaling approximately $111 million and paid dividends totaling approximately $139 million during 2002. During the year, the Company paid five quarterly dividends, including fourth quarter 2002, which normally would have been paid in January 2003. APPLICATION OF CRITICAL ACCOUNTING POLICIES Oil and Gas Reserves The process of estimating quantities of natural gas, NGLs and crude oil reserves is very complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although 19 every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures. As described in Note 1 of Notes to Consolidated Financial Statements, the Company uses the unit-of-production method to amortize its oil and gas properties. Changes in reserve quantities as described above will cause corresponding changes in depletion expense in periods subsequent to the quantity revision or, in some cases, an impairment charge in the period of the revision. See the Supplementary Financial Information for reserve data. Successful Efforts Method of Accounting The Company accounts for its oil and gas properties using the successful efforts method of accounting for its exploration and development activities. Acquisition and development costs are capitalized and amortized using the unit-of-production method based on proved and proved developed reserves estimated by the Company's reserve engineers. Changes in reserve quantities as described below will cause corresponding changes in depletion expense in periods subsequent to the quantity revision. Unsuccessful exploration or dry hole wells are expensed in the period in which the wells are determined to be dry and could have a significant effect on results of operations. Carrying Value of Long-Lived Assets As more fully described in Note 1 of Notes to Consolidated Financial Statements, the Company performs an impairment analysis whenever events or changes in circumstances indicate an asset's carrying amount may not be recoverable. Cash flows used in the impairment analysis are determined based upon management's estimates of proved crude oil, NGLs and natural gas reserves, future crude oil, NGLs and natural gas prices and costs to extract these reserves. Downward revisions in estimated reserve quantities, increases in future cost estimates or depressed crude oil, NGLs and natural gas prices could cause the Company to reduce the carrying amounts of its properties. See Note 13 of Notes to Consolidated Financial Statements for impairment of oil and gas properties. Costs attributable to the Company's unproved properties are not subject to the impairment analysis described above, however, a portion of the costs associated with such properties is subject to amortization on a composite basis based on past experience and average property lives. As these properties are developed and reserves are proven, the remaining capitalized costs are subject to depreciation and depletion. If the development of these properties is deemed unsuccessful, the capitalized costs related to the unsuccessful activity is expensed in the year the determination is made. The rate at which the unproved properties are written off depends on the timing and success of the Company's future exploration program. Goodwill As described in Note 3 of Notes to Consolidated Financial Statements, the Company accounts for goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment assessment in lieu of periodic amortization. The impairment assessment requires management to make estimates regarding the fair value of the reporting unit to which goodwill has been assigned. These estimates are based on future net cash flows and are based upon management's estimates of proved reserves as well as the success of future exploration for and development of unproved reserves. Downward revisions of estimated reserve quantities, increases in future cost estimates or depressed crude oil, NGLs and natural gas prices could lead to an impairment of all or a portion of goodwill in future periods. Revenue Recognition Natural gas, NGLs and crude oil revenues are recorded on the entitlement method. Under the entitlement method, revenue is recorded when title passes based on the Company's net interest. The Company records its entitled share of revenues based on estimated production volumes. Subsequently, these estimated volumes are adjusted to reflect actual volumes that are supported by third party pipeline statements or cash receipts. Since there is a ready market for crude oil, natural gas and NGLs, the Company sells the majority of its products soon after production at various locations at which time title and risk of loss pass to the buyer. Legal, Environmental and Other Contingencies A provision for legal, environmental and other contingencies is charged to expense when the loss is probable and the cost can be reasonably estimated. Determining when expenses should be recorded for these contingencies and the appropriate amounts for accrual is a complex estimation process that includes the subjective judgment of management. In many cases, management's judgment is based on interpretation of laws and regulations, which can be interpreted differently by regulators and/or courts of law. The Company's management closely monitors known and potential legal, environmental and other contingencies and periodically determines when the Company should record losses for these items based on information available to the Company. 20 RESULTS OF OPERATIONS Year Ended December 31, 2002 Compared With Year Ended December 31, 2001 The Company reported net income of $454 million or $2.25 diluted earnings per common share in 2002 compared to net income of $561 million or $2.70 diluted earnings per common share in 2001. Net income in 2002 included a net after tax gain of $46 million or $0.23 per diluted share related to the disposal of assets and the reversal of a tax valuation reserve of $27 million or $0.13 per diluted share related to the sale of assets in the United Kingdom (U.K.) sector of the North Sea. Net income in 2002 included an after tax loss of $14 million or $0.07 per diluted share compared to an after tax gain of $6 million or $0.03 per diluted share in 2001 consisting of ineffectiveness related to cash-flow and fair-value hedges. Net income in 2002 also included an after tax loss of $6 million or $0.03 per diluted share compared to an after tax gain of $6 million or $0.03 per diluted share in 2001 related to changes in the fair value of derivative instruments that do not qualify for hedge accounting. Revenues Revenues decreased $455 million to $2,964 million in 2002 from $3,419 million in 2001. The $455 million decrease in revenues primarily consists of $627 million related to lower natural gas and NGLs prices and higher crude oil prices, $31 million due to lower revenues related to ineffectiveness on cash-flow and fair-value hedges, $20 million due to lower revenues related to changes in the fair value of derivative instruments that do not qualify for hedge accounting and $22 million due to the sale of the Val Verde Plant in the second quarter of 2002. These decreases in revenues were partially offset by increased revenues of $241 million related to higher gas and NGLs sales volumes and lower oil sales volumes. Details of commodity prices and sales volumes variances are described below. Price Variances Average natural gas prices, including a $0.16 realized gain per MCF related to hedging activities, decreased $0.84 per MCF in 2002 to $3.19 per MCF from $4.03 per MCF, including a $0.48 loss per MCF related to hedging activities, in 2001. Lower average natural gas prices resulted in decreased revenues of $588 million during 2002. Imbedded in the average natural gas prices during 2002 was also the impact of location basis differentials that varied widely compared to the same period in 2001 primarily in the western U.S. and western Canada. Average NGLs prices decreased $2.33 per barrel in 2002 to $14.46 per barrel from $16.79 per barrel in 2001, resulting in reduced revenues of $51 million during 2002. Average crude oil prices, including an $0.18 realized gain per barrel related to hedging activities, increased $0.66 per barrel in 2002 to $24.11 per barrel from $23.45 per barrel, including a $1.10 loss per barrel related to hedging activities, in 2001. Higher average crude oil prices resulted in increased revenues of $12 million during 2002. Volume Variances Average natural gas sales volumes increased 192 MMCF per day in 2002 to 1,916 MMCF per day from 1,724 MMCF per day in 2001, resulting in increased revenues of $282 million during 2002. Average NGLs sales volumes increased 13.0 MBbls per day in 2002 to 60.1 MBbls per day from 47.1 MBbls per day in 2001, resulting in higher revenues of $80 million during 2002. Average crude oil sales volumes decreased 14.1 MBbls per day in 2002 to 49.1 MBbls per day from 63.2 MBbls per day in 2001, reducing revenues $121 million during 2002. Average natural gas sales volumes in Canada increased 369 MMCF per day primarily due to the acquisitions of Hunter in late 2001 and ATCO in early 2002 and an aggressive drilling program. The increase of 369 MMCF per day in Canada was partially offset by reductions of 172 MMCF per day resulting from natural declines in production and asset sales in the Onshore Gulf Coast, the Gulf of Mexico Shelf, the San Juan Basin and the Permian Basin. Average NGLs sales volumes in Canada also increased 14.9 MBbls per day primarily due to the acquisition of Hunter. Average crude oil sales volumes decreased 12.4 MBbls per day primarily due to natural declines in production and asset sales in the Gulf of Mexico Shelf, Canada and the Permian Basin. Total Costs and Other Income--Net Total costs and other income--net were $2,395 million in 2002 compared to $2,512 million in 2001. Total costs and other income--net in 2001 included $184 million related to the impairment of oil and gas properties held for sale and a restructuring charge of $10 million related to severance and other exit costs. Excluding the $194 million charges in 2001, total costs and other income--net in 2002 increased $77 million. The $77 million increase was primarily due to a $98 million increase in DD&A, an $84 million increase in interest expense, a $28 million increase in exploration costs, a $13 million increase in transportation expenses and a $12 million increase in administrative expenses partially offset by a $60 million increase in gain on disposal of assets, a $43 million decrease in taxes other than income taxes, a $28 million decrease in production and processing expenses, excluding the $10 million restructuring charge in 2001, and a $27 million increase in other income--net. DD&A increased primarily due to a higher unit-of-production rate related to changes in production resulting from the Canadian acquisitions, which had higher rates than the average unit-of-production rates for the Company. DD&A also 21 increased due to higher natural gas production volumes in Canada. Interest expense increased primarily due to higher debt balances during 2002 resulting from the Hunter acquisition in late 2001 and other property acquisitions consummated in early 2002. Exploration costs increased primarily due to higher amortization of undeveloped lease costs of $54 million, higher drilling rig costs of $17 million and higher geological and geophysical (G&G) and other expenses of $20 million partially offset by lower exploratory dry hole costs of $63 million. The higher drilling rig expenses, which were approximately $40 million during 2002, were attributable to the subletting of a deepwater drilling rig currently under lease to the Company. This $40 million charge covers the anticipated loss for the remaining term of the lease. Transportation expenses increased primarily due to higher contract rates. Administrative expenses increased primarily due to higher payroll and benefits. Gain on disposal of assets was higher due to the divestiture of non-core, non-strategic properties. Taxes other than income taxes decreased primarily due to lower crude oil and natural gas revenues. Production and processing expenses decreased primarily due to lower well operating costs. Other income--net increased primarily due to higher interest income, lower foreign currency transaction losses and lower miscellaneous expenses incurred in 2002 compared to 2001. Income Tax Expense Income tax expense was $115 million in the 2002 compared to $349 million in 2001. The decrease in tax expense was primarily due to lower pretax income. The Company also recorded benefits of $86 million in 2002 compared to $20 million in 2001 related to interest deductions allowed in both the U.S. and Canada on transactions associated with cross-border financing entered into in the second half of 2001 and the first quarter of 2002. Year 2002 also included the reversal of a tax valuation reserve of $27 million in September 2002 related to the sale of assets in the U.K. sector of the North Sea. The Company also recorded a benefit of $26 million and $3 million in 2002 and 2001, respectively, due to a reduction in the Alberta provincial corporate tax rate in Canada. The benefit in 2002 was partially offset by an increase in expense of $12 million related to an increase in the U.K.'s income tax rate. Net Section 29 Tax Credits were $1 million in 2002 compared to $24 million in 2001. Year Ended December 31, 2001 Compared With Year Ended December 31, 2000 The Company reported net income of $561 million or $2.70 diluted earnings per common share in 2001 compared to net income of $675 million or $3.12 diluted earnings per common share in 2000. Net income in 2001 included a non-cash after tax charge of $116 million or $0.56 per diluted share primarily related to the impairment of oil and gas properties held for sale. The Company evaluates the impairment of its oil and gas properties on a field-by-field basis whenever events or changes in circumstances indicate an asset's carrying amount may not be recoverable. In December 2001, primarily as a result of the Company's decision to exit the Gulf of Mexico Shelf and divest of certain other properties, the Company recognized a pretax charge of $184 million ($116 million after tax) related to those properties. The Company also recognized a $6 million after tax restructuring charge or $0.03 per share related to severance and other exit costs. Net income in 2001 also included an after tax gain of $6 million or $0.03 per diluted share related to ineffectiveness on cash-flow and fair-value hedges and an after tax gain of $6 million or $0.03 per diluted share related to changes in the fair value of derivative instruments which do not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. For more discussion of SFAS No. 133, see Note 1 of Notes to Consolidated Financial Statements. The results of operations for 2001 included one month of activities related to the Hunter acquisition. Revenues Revenues increased $201 million to $3,419 million in 2001 from $3,218 million in 2000. The $201 million increase in revenues primarily consists of $291 million related to higher natural gas prices and lower crude oil and NGLs prices, $10 million due to higher revenues related to changes in the fair value of derivative instruments that do not qualify for hedge accounting and $9 million related to ineffectiveness on cash-flow and fair-value hedges. These increases in revenues were partially offset by decreased revenues of $107 million related to lower commodity sales volumes. Price variances Average natural gas prices, including a $0.48 realized loss per MCF related to hedging activities, increased $0.61 per MCF in 2001 to $4.03 per MCF from $3.42 per MCF, including a $0.45 loss per MCF related to hedging activities, in 2000. Higher average natural gas prices resulted in increased revenues of $384 million during 2001. Average NGLs prices decreased $2.72 per barrel in 2001 to $16.79 per barrel from $19.51 per barrel in 2000, resulting in reduced revenues of $46 million during 2001. Average crude oil prices, including a $1.10 realized gain per barrel related to hedging activities, decreased $1.99 per barrel in 2001 to $23.45 per barrel from $25.44 per barrel, including a $2.62 per barrel related to hedging activities, in 2000. Lower average crude oil prices resulted in reduced revenues of $46 million during 2001. 22 Volume variances Average crude oil sales volumes decreased 10.5 MBbls per day in 2001 to 63.2 MBbls per day from 73.7 MBbls per day in 2000, reducing revenues $99 million during 2001. Average natural gas sales volumes were the same as the prior year at 1,724 MMCF per day, however, due to one less day in 2001 compared to 2000, natural gas revenues were down $6 million. Average NGLs sales volumes decreased slightly to 47.1 MBbls per day in 2001 from 47.2 MBbls per day in 2000, resulting in lower revenues of $2 million. Average crude oil sales volumes decreased 8.1 MBbls per day primarily due to natural declines in production and reduced capital spending in the Deepwater Gulf of Mexico, the Gulf of Mexico Shelf and south Louisiana areas and natural declines in production and property sales in 2000 in Other International. Although total natural gas sales volumes were the same as the prior year, average natural gas sales volumes were higher in Canada and the East Irish Sea. Average natural gas sales volumes in Canada increased 92 MMCF per day primarily due to a successful drilling program and the Hunter acquisition in late 2001. Average natural gas sales volumes in the East Irish Sea increased 36 MMCF per day primarily due to an additional interest acquired in the area. These increases were offset primarily due to lower natural gas sales volumes of 128 MMCF per day as a result of lower capital spending in the Gulf of Mexico Shelf and natural declines in production in the San Juan Basin, south Louisiana and Other International. Total Costs and Other Income--Net Total costs and other income--net were $2,512 million in 2001 compared to $2,251 million in 2000. The $261 million increase was primarily due to a $184 million increase in impairment of oil and gas properties held for sale, a $35 million increase in production and processing expenses, including $10 million related to severance and other exit costs, a $32 million increase in transportation expenses, a $25 million increase in DD&A, a $21 million increase in exploration costs, a $7 million increase in taxes other than income taxes and a $3 million increase in administrative expenses partially offset by a $33 million increase in other income--net, a $7 million decrease in interest expense and a $6 million increase in gain on disposal of assets. Production and processing expenses increased primarily due to higher workover expense, higher service, electrical and lease fuel costs. DD&A increased primarily due to a higher unit-of-production rate related to changes in production primarily resulting from the Canadian acquisitions which had higher rates than average unit-of-production rates for the Company and higher finding costs. Exploration costs increased primarily due to higher drilling rig expenses of $29 million and higher exploratory dry hole costs of $28 million partially offset by lower G&G and other expenses of $21 million and lower amortization of undeveloped lease costs of $16 million. Transportation expenses increased primarily due to higher tariffs and taxes other than income taxes increased primarily due to higher crude oil and natural gas revenues. Interest Expense decreased primarily due to higher capitalized interest during 2001. Other income--net increased primarily due to higher interest income in 2001 as a result of excess cash on hand during the year, higher gain on disposal of assets and lower interest expense related to tax matters. Administrative expenses in 2001 compared to 2000 increased $3 million. However, year 2000 administrative expenses included a legal accrual of $32 million related to certain litigation. This $32 million was partially offset by the reversal of a $26 million valuation allowance related to a receivable due from a former affiliate. The Company reversed the $26 million valuation allowance after reevaluating the issues and concluding that it was probable that the receivable would be collected. Income Taxes Income tax expense was $349 million in 2001 compared to $292 million in 2000. The increase in tax expense was primarily due to lower tax benefits related to Section 29 Tax Credits and tax-accrual adjustments partially offset by lower tax on 2001 pretax income. Section 29 Tax Credits were $24 million in 2001 compared to $52 million in 2000. Favorable tax-accrual adjustments were $21 million in 2001 compared to $56 million in 2000 primarily related to prior period activity. ACQUISITION--2001 On December 5, 2001, the Company consummated a transaction with Hunter valued at approximately U.S. $2.1 billion, resulting in an excess purchase price of approximately $793 million which was reflected as goodwill. This acquisition was funded with cash on hand and proceeds from the issuances of $1.5 billion of fixed-rate notes and $400 million of commercial paper. The transaction was accounted for under the purchase method in accordance with SFAS No. 141. See Note 2 of Notes to Consolidated Financial Statements for more information related to this transaction. LEGAL PROCEEDINGS The Company and numerous other oil and gas companies have been named as defendants in various lawsuits alleging violations of the civil False Claims Act. These lawsuits were consolidated during 1999 and 2000 for pre-trial proceedings by the United States Judicial Panel on Multidistrict Litigation in the matter of In re Natural Gas Royalties Qui Tam Litigation, MDL-1293, United States District Court for the District of Wyoming (MDL-1293). The plaintiffs contend that defendants underpaid royalties on natural gas and NGLs produced on federal and Indian lands through the use of below-market 23 prices, improper deductions, improper measurement techniques and transactions with affiliated companies. Plaintiffs allege that the royalties paid by defendants were lower than the royalties required to be paid under federal regulations and that the forms filed by defendants with the Minerals Management Service (MMS) reporting these royalty payments were false, thereby violating the civil False Claims Act. The United States has intervened in certain of the MDL-1293 cases as to some of the defendants, including the Company. The plaintiffs and the intervenor have not specified in their pleadings the amount of damages they seek from the Company. Various administrative proceedings are also pending before the MMS of the United States Department of the Interior with respect to the valuation of natural gas produced by the Company on federal and Indian lands. In general, these proceedings stem from regular MMS audits of the Company's royalty payments over various periods of time and involve the interpretation of the relevant federal regulations. Most of these proceedings involve production volumes and royalty disputes that are the subject of Natural Gas Royalties Qui Tam Litigation. Based on the Company's present understanding of the various governmental and civil False Claims Act proceedings described above, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. The Company is also exploring the possibility of a settlement of these claims. Although there has been no formal demand for damages, the Company currently estimates, based on its communications with the intervenor, that the amount of underpaid royalties on onshore production claimed by the intervenor in these proceedings is approximately $68 million. In the event that the Company is found to have violated the civil False Claims Act, the Company could also be subject to double damages, civil monetary penalties and other sanctions, including a temporary suspension from bidding on and entering into future federal mineral leases and other federal contracts for a defined period of time. The Company has established a reserve that management believes to be adequate to provide for this potential liability based upon its evaluation of this matter. While the ultimate outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on the consolidated financial position or results of operations of the Company, although cash flow could be significantly impacted in the reporting periods in which such matters are resolved. The Company has also been named as a defendant in the lawsuit styled UNOCAL Netherlands B.V., et al v. Continental Netherlands Oil Company B.V., et al, No. 98-854, filed in 1995 in the District Court in The Hague and currently pending in the Court of Appeal in The Hague, the Netherlands. Plaintiffs, who are working interest owners in the Q-1 Block in the North Sea, have alleged that the Company and other former working interest owners in the adjacent Logger Field in the L16a Block unlawfully trespassed or were otherwise unjustly enriched by producing part of the oil from the adjoining Q-1 Block. The plaintiffs claim that the defendants infringed upon plaintiffs' right to produce the minerals present in its license area and acted in violation of generally accepted standards by failing to inform plaintiffs of the overlap of the Logger Field into the Q-1 Block. Plaintiffs seek damages of $97.5 million as of January 1, 1997, plus interest. For all relevant periods, the Company owned a 37.5 percent working interest in the Logger Field. Following a trial, the District Court in The Hague rendered a Judgment in favor of the defendants, including the Company, dismissing all claims. Plaintiffs thereafter appealed. On October 19, 2000, the Court of Appeal in The Hague issued an interim Judgment in favor of the plaintiffs and ordered that additional evidence be presented to the court relating to issues of both liability and damages. The Company and the other defendants are continuing to present evidence to the Court and vigorously assert defenses against these claims. The Company has also asserted claims of indemnity against two of the defendants from whom it had acquired a portion of its working interest share. If the Company is successful in enforcing the indemnities, its working interest share of any adverse judgment could be reduced to 15 percent for some of the periods covered by plaintiffs' lawsuit. The Company is unable at this time to reasonably predict the outcome, or, in the event of an unfavorable outcome, to reasonably estimate the possible loss or range of loss, if any, in this lawsuit. Accordingly, there has been no reserve established for this matter. In addition to the foregoing, the Company and its subsidiaries are named defendants in numerous other lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business, including: claims for personal injury and property damage, claims challenging oil and gas royalty and severance tax payments, claims related to joint interest billings under oil and gas operating agreements, claims alleging mismeasurement of volumes and wrongful analysis of heating content of natural gas and other claims in the nature of contract, regulatory or employment disputes. None of the governmental proceedings involve foreign governments. While the ultimate outcome of these other lawsuits and proceedings cannot be predicted with certainty, management believes that the resolution of these other matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. The Company has established reserves for legal proceedings which are included in Other Liabilities and Deferred Credits on the Consolidated Balance Sheet. The establishment of a reserve involves a complex estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional loss of up to approximately $25 million to $30 million in excess of the amounts currently accrued. Future changes in the facts and circumstances could result in actual liability exceeding the estimated ranges of loss and the amounts accrued. 24 OTHER MATTERS Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN No. 46), which addresses consolidation by business enterprises of variable interest entities. FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not expect to identify any variable interest entities that must be consolidated. In the event a variable interest entity is identified, the Company does not expect the requirements of FIN No. 46 to have a material impact on its consolidated financial condition or results of operations. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). FIN No. 45 requires certain guarantees to be recorded at fair value, which is different from current practice to record a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, Accounting for Contingencies. FIN No. 45 also requires the Company to make significant new disclosures about guarantees. The disclosure requirements of FIN No. 45 are effective for the Company in the first quarter of fiscal year 2003. FIN No. 45's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company's previous accounting for guarantees issued prior to the date of the initial application of FIN No. 45 will not be revised or restated to reflect the provisions of FIN No. 45. The Company does not expect the adoption of FIN No. 45 to have a material impact on its consolidated financial position, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted SFAS No. 146 on January 1, 2003, but at this time this statement has no effect on the Company's consolidated financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. SFAS No. 145, which is effective for fiscal years beginning after May 15, 2002, provides guidance for income statement classification of gains and losses on extinguishment of debt and accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company adopted SFAS No. 145 on January 1, 2003, but at this time this statement has no effect on the Company's consolidated financial position or results of operations. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost should be allocated to expense using a systematic and rational method. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Based on current estimates, the Company expects to record a net-of-tax cumulative effect of change in accounting principle loss, in the first quarter of 2003, of approximately $59 million in accordance with the provisions of SFAS No. 143. There will be no impact on the Company's cash flows as a result of adopting SFAS No. 143. SAFE HARBOR CAUTIONARY DISCLOSURE ON FORWARD-LOOKING STATEMENTS The Company, in discussions of its future plans, expectations, objectives and anticipated performance in periodic reports filed by the Company with the SEC (or documents incorporated by reference therein) may include projections or other forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by the words "expects", "anticipates", "intends", "plans", "believes", "should" and similar expressions. Projections and forward-looking statements are based on assumptions which the Company believes are reasonable, but are by their nature inherently uncertain. In all cases, there can be no assurance that such assumptions will prove correct or that projected events will occur, and actual results could differ materially from those projected. Some of the important factors that could cause actual results to differ from any such projections or other forward-looking statements follow. 25 Commodity Prices--Changes in crude oil, NGLs and natural gas prices (including basis differentials) from those assumed in preparing projections and forward-looking statements could cause the Company's actual financial results to differ materially from projected financial results and can also impact the Company's determination of proved reserves and the standardized measure of discounted future net cash flows relative to crude oil, NGLs and natural gas reserves. In addition, periods of sharply lower commodity prices could affect the Company's production levels and/or cause it to curtail capital spending projects and delay or defer exploration, exploitation or development projects. Projections relating to the price received by the Company for natural gas and NGLs also rely on assumptions regarding the availability and pricing of transportation to the Company's key markets. In particular, the Company has contractual arrangements for the transportation of natural gas from the San Juan Basin eastward to Eastern and Midwestern markets or to market hubs in Texas, Oklahoma and Louisiana. The natural gas price received by the Company could be adversely affected by any constraints in pipeline capacity to serve these markets. These and other commodity price risks that could cause actual results to differ from projections and forward-looking statements are further described in Part II, "Commodity Risk." Exploration and Production Risk--The Company's business is subject to all of the risks and uncertainties normally associated with the exploration for and development and production of crude oil, NGLs and natural gas, including uncertainties as the presence, size and recoverability of hydrocarbons. The exploration for crude oil and natural gas is a high-risk business in which significant numbers of dry holes and high associated costs can be incurred in the process of seeking commercial discoveries. The process of estimating quantities of proved reserves is inherently uncertain and involves subjective engineering, geological, geophysical and economic determinations. In this regard, changes in the economic conditions (including commodity prices) or operating conditions (including, without limitation, exploration, development and production costs and expenses and drilling results from exploration and development activity) could cause the Company's estimated proved reserves or production to differ from those included in any such forward-looking statements or projections. Reserves which require the use of improved recovery techniques for production are included in proved reserves if supported by a successful pilot project or the operation of an installed program. Projecting future crude oil, NGLs and natural gas production is imprecise. Producing oil and gas reservoirs eventually have declining production rates. Projections of production rates rely on certain assumptions regarding historical production patterns in the area or formation tests for a particular producing horizon. Actual production rates could differ materially from such projections. Production rates depend on a number of additional factors, including commodity prices, market demand and the political, economic and regulatory climate. Another major factor affecting the Company's production is its ability to replace depleting reservoirs with new reserves through acquisition, exploration or development programs. Exploration success is extremely difficult to predict with certainty, particularly over the short term where the timing and extent of successful results vary widely. Over the long term, the ability to replace reserves depends not only on the Company's ability to locate crude oil, NGLs and natural gas reserves, but on the cost of finding and developing such reserves. Moreover, development of any particular exploration or development project may not be justified because of the commodity price environment at the time or because of the Company's finding and development costs for such project. No assurances can be given as to the level or timing of success that the Company will be able to achieve in acquiring or finding and developing additional reserves. Projections relating to the Company's production and financial results rely on certain assumptions about the Company's continued success in its acquisition and asset rationalization programs and in its cost management efforts. The Company's drilling operations are subject to various hazards common to the oil and gas industry, including weather conditions, explosions, fires, and blowouts, which could result in damage to or destruction of oil and gas wells or formations, production facilities and other property and injury to people. They are also subject to the additional hazards of marine operations, such as capsizing, collision and damage or loss from severe weather conditions. Development Risk--A significant portion of the Company's development plans involve large projects in Canada, Algeria, the East Irish Sea, China, Wyoming, North Dakota and other areas. A variety of factors affect the timing and outcome of such projects including, without limitation, approval by the other parties owning working interests in the project, receipt of necessary permits and approvals by applicable governmental agencies, access to surface locations and facilities, the availability, costs and performance of the necessary drilling equipment and infrastructure, drilling risks, operating hazards, unexpected cost increases and technical difficulties in constructing, modifying and operating equipment, plants and facilities, delivery schedules for critical equipment and arrangements for the gathering and transportation of the produced hydrocarbons. Foreign Operations Risk--The Company's operations outside of the U.S. are subject to risks inherent in foreign operations, including, without limitation, the loss of revenue, property and equipment from hazards such as expropriation, nationalization, war, insurrection, acts of terrorism and other political risks, increases in taxes and governmental royalties, renegotiation or abrogation of contracts with governmental entities, changes in laws and policies governing operations of foreign-based companies, currency restrictions and exchange rate fluctuations, world economic cycles, restrictions or 26 quotas on production and commodity sales and other uncertainties arising out of foreign government sovereignty over the Company's international operations. Laws and policies of the U.S. affecting foreign trade and taxation may also adversely affect the Company's international operations. The Company's ability to market crude oil, NGLs and natural gas discovered or produced in its foreign operations, and the price the Company could obtain for such production, depends on many factors beyond the Company's control, including ready markets for crude oil, NGLs and natural gas, the proximity and capacity of pipelines and other transportation facilities, fluctuating demand for crude oil and natural gas, the availability and cost of competing fuels, and the effects of foreign governmental regulation of oil and gas production and sales. Pipeline and processing facilities do not exist in certain areas of exploration and, therefore, any actual sales of the Company's production could be delayed for extended periods of time until such facilities are constructed. Competition--The Company actively competes for property acquisitions, exploration leases and sales of crude oil, NGLs and natural gas, frequently against companies with substantially larger financial and other resources. In its marketing activities, the Company competes with numerous companies for gas purchasing and processing contracts and for natural gas and NGLs at several stages in the distribution chain. Competitive factors in the Company's business include price, contract terms, quality of service, pipeline access, transportation discounts and distribution efficiencies. Legal and Regulatory Risk--The Company's operations are affected by foreign, national, state and local laws and regulations. Restrictions on production, price or gathering rate controls, changes in taxes, royalties and other amounts payable to governments or governmental agencies and other changes in or litigation arising under laws and regulations, or interpretations thereof, could have a significant effect on the Company's operations or financial results. Other legal and regulatory risks that could cause actual results to differ from projections and other forward-looking statements are described in Part I, "Other Matters." Political and Security Risk--Domestic and international political and security risks, including changes in government, seizure of property, civil unrest, armed hostilities and acts of terrorism, could have a significant effect on the Company's operations or financial results. Environmental Regulations and Liabilities--The Company's operations are subject to various foreign, national, state and local laws and regulations covering the discharge of material into, and protection of, the environment. Such regulations and liability for remedial actions under environmental regulations affect the costs of planning, designing, operating and abandoning facilities. The Company expends considerable resources, both financial and managerial, to comply with environmental regulations and permitting requirements. Although the Company believes that its operations and facilities are in substantial compliance with applicable environmental laws and regulations, risks of substantial costs and liabilities are inherent in crude oil and natural gas operations. Moreover, it is possible that other developments, such as increasingly strict environmental laws, regulations and enforcement, and claims for damage to property or persons resulting from the Company's current or discontinued operations, could result in substantial costs and liabilities in the future. 27 ITEM EIGHT FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) - ------------------------------------------------------------------------------------------- REVENUES $ 2,964 $ 3,419 $ 3,218 - ------------------------------------------------------------------------------------------- COSTS AND OTHER INCOME--NET Taxes Other than Income Taxes 123 166 159 Transportation Expense 350 337 305 Production and Processing 467 505 470 Depreciation, Depletion and Amortization 833 735 710 Exploration Costs 286 258 237 Impairment of Oil and Gas Properties -- 184 -- Administrative 161 149 146 Interest Expense 274 190 197 (Gain)/Loss on Disposal of Assets (68) (8) (2) Other Expense (Income)--Net (31) (4) 29 - ------------------------------------------------------------------------------------------- TOTAL COSTS AND OTHER INCOME--NET 2,395 2,512 2,251 - ------------------------------------------------------------------------------------------- Income Before Income Taxes and Cumulative Effect of Change in Accounting Principle 569 907 967 Income Tax Expense 115 349 292 - ------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Principle 454 558 675 Cumulative Effect of Change in Accounting Principle--Net -- 3 -- - ------------------------------------------------------------------------------------------- NET INCOME $ 454 $ 561 $ 675 - ------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE Basic Before Cumulative Effect of Change in Accounting Principle $ 2.26 $ 2.70 $ 3.13 Cumulative Effect of Change in Accounting Principle--Net -- 0.01 -- - ------------------------------------------------------------------------------------------- NET INCOME $ 2.26 $ 2.71 $ 3.13 - ------------------------------------------------------------------------------------------- Diluted Before Cumulative Effect of Change in Accounting Principle $ 2.25 $ 2.69 $ 3.12 Cumulative Effect of Change in Accounting Principle--Net -- 0.01 -- - ------------------------------------------------------------------------------------------- NET INCOME $ 2.25 $ 2.70 $ 3.12 - -------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 28 BURLINGTON RESOURCES INC. CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002 2001 - ------------------------------------------------------------------------------------ (In Millions, Except Share Data) - ------------------------------------------------------------------------------------ ASSETS Current Assets Cash and Cash Equivalents $ 443 $ 116 Accounts Receivable 515 398 Commodity Hedging Contracts and Other Derivatives 4 118 Inventories 48 50 Other Current Assets 51 33 - ------------------------------------------------------------------------------------ 1,061 715 - ------------------------------------------------------------------------------------ Oil and Gas Properties (Successful Efforts Method) 12,716 16,038 Other Properties 1,140 1,416 - ------------------------------------------------------------------------------------ 13,856 17,454 Accumulated Depreciation, Depletion and Amortization 5,353 8,623 - ------------------------------------------------------------------------------------ Properties--Net 8,503 8,831 - ------------------------------------------------------------------------------------ Goodwill 803 782 - ------------------------------------------------------------------------------------ Other Assets 278 254 - ------------------------------------------------------------------------------------ TOTAL ASSETS $ 10,645 $ 10,582 - ------------------------------------------------------------------------------------ LIABILITIES Current Liabilities Accounts Payable $ 809 $ 599 Taxes Payable 44 6 Accrued Interest 61 61 Dividends Payable -- 28 Other Current Liabilities 45 17 Current Maturities of Long-term Debt 63 -- - ------------------------------------------------------------------------------------ 1,022 711 - ------------------------------------------------------------------------------------ Long-term Debt 3,853 4,337 - ------------------------------------------------------------------------------------ Deferred Income Taxes 1,436 1,403 - ------------------------------------------------------------------------------------ Commodity Hedging Contracts and Other Derivatives 33 15 - ------------------------------------------------------------------------------------ Other Liabilities and Deferred Credits 469 591 - ------------------------------------------------------------------------------------ Commitments and Contingent Liabilities (Note 11) STOCKHOLDERS' EQUITY Preferred Stock, Par Value $.01 per Share (Authorized 75,000,000 Shares; One Share Issued) -- -- Common Stock, Par Value $.01 per Share (Authorized 325,000,000 Shares; Issued 241,188,688 Shares for both 2002 and 2001) 2 2 Paid-in Capital 3,941 3,944 Retained Earnings 1,675 1,332 Deferred Compensation--Restricted Stock (9) (9) Accumulated Other Comprehensive Loss (164) (106) Cost of Treasury Stock (39,749,431 and 40,395,695 Shares for 2002 and 2001, respectively) (1,613) (1,638) - ------------------------------------------------------------------------------------ Stockholders' Equity 3,832 3,525 - ------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,645 $ 10,582 - ------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 29 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002 2001 2000 - -------------------------------------------------------------------------------------------- (In Millions) - -------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 454 $ 561 $ 675 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities Depreciation, Depletion and Amortization 833 735 710 Deferred Income Taxes 39 219 219 Exploration Costs 286 258 237 Impairment of Oil and Gas Properties -- 184 -- Gain on Disposal of Assets (68) (8) (2) Changes in Derivative Fair Values 32 (25) -- Working Capital Changes, Net of Acquisition Accounts Receivable (117) 467 (341) Inventories 2 6 8 Other Current Assets (17) (3) 1 Accounts Payable 138 (187) 109 Taxes Payable 43 (46) (33) Accrued Interest 4 23 (3) Other Current Liabilities (8) (2) 4 Changes in Other Assets and Liabilities (72) (76) 14 - -------------------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 1,549 2,106 1,598 - -------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Properties (1,851) (1,293) (941) Acquisition of Hunter, net of cash acquired -- (2,087) -- Proceeds from Sales and Other 1,180 1 19 - -------------------------------------------------------------------------------------------- Net Cash Used In Investing Activities (671) (3,379) (922) - -------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Long-term Debt 454 2,247 70 Reduction in Long-term Debt (879) (211) (564) Dividends Paid (139) (116) (89) Common Stock Purchases -- (684) (121) Common Stock Issuances 13 41 92 Debt Issuance Costs and Other 2 (20) (21) - -------------------------------------------------------------------------------------------- Net Cash Provided By (Used In) Financing Activities (549) 1,257 (633) - -------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2) -- -- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 327 (16) 43 CASH AND CASH EQUIVALENTS Beginning of Year 116 132 89 - -------------------------------------------------------------------------------------------- END OF YEAR $ 443 $ 116 $ 132 - --------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 30 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
DEFERRED ACCUMULATED COMPENSATION-- OTHER COST OF COMMON PAID-IN RETAINED RESTRICTED COMPREHENSIVE TREASURY STOCKHOLDERS' STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) STOCK EQUITY - ------------------------------------------------------------------------------------------------------------------------- (In Millions, Except Share Data) - ------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $2 $3,966 $ 328 $(3) $ (54) $(1,010) $3,229 - ------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) Net Income 675 675 Foreign Currency Translation (16) (16) - ------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) 675 (16) 659 - ------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared ($0.55 per Share) (119) (119) Common Stock Purchases (3,505,000 Shares) (125) (125) Stock Option Activity and Other (22) (2) 130 106 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 2 3,944 884 (5) (70) (1,005) 3,750 - ------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) Net Income 561 561 Foreign Currency Translation (90) (90) Cumulative Effect of Change in Accounting Principle--Hedging (366) (366) Hedging Activities 420 420 - ------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) 561 (36) 525 - ------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared ($0.55 per Share) (113) (113) Common Stock Purchases (16,092,000 Shares) (684) (684) Stock Option Activity 41 41 Issuance of Restricted Stock (10) 10 -- Amortization of Restricted Stock 6 6 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 2 3,944 1,332 (9) (106) (1,638) 3,525 - ------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) Net Income 454 454 Foreign Currency Translation 34 34 Hedging Activities (86) (86) Minimum Pension Liability (6) (6) - ------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) 454 (58) 396 - ------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared ($0.55 per Share) (111) (111) Stock Option Activity (3) 16 13 Issuance of Restricted Stock (9) 9 -- Amortization of Restricted Stock 9 9 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2002 $2 $3,941 $1,675 $(9) $(164) $(1,613) $3,832 - -------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 31 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES Principles of Consolidation and Reporting The consolidated financial statements include the accounts of Burlington Resources Inc. (BR) and its majority-owned subsidiaries (collectively, the Company). All significant intercompany transactions have been eliminated in consolidation. Investments in entities in which the Company has a significant ownership interest, generally 20 to 50 percent, or otherwise does not exercise control, are accounted for using the equity method. Under the equity method, the investments are stated at cost plus the Company's equity in undistributed earnings and losses. The consolidated financial statements for previous periods include certain reclassifications that were made to conform to current presentation. Such reclassifications have no impact on previously reported net income or stockholders' equity. Cash and Cash Equivalents All short-term investments purchased with a maturity of three months or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value. Inventories Inventories of materials, supplies and products are valued at the lower of average cost or market. Properties Oil and gas properties are accounted for using the successful efforts method. Under this method, all development costs and acquisition costs of proved properties are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves, respectively. Costs of drilling exploratory wells are initially capitalized, but charged to expense if and when a well is determined to be unsuccessful. Costs of unproved properties are capitalized and amortized on a composite basis, based on past success experience and average property lives. The Company evaluates the impairment of its oil and gas properties on a field-by-field basis whenever events or changes in circumstances indicate an asset's carrying amount may not be recoverable. Unamortized capital costs are reduced to fair value if the sum of the expected undiscounted future cash flows is less than the asset's net book value. Cash flows are determined based upon proved reserves using prices and costs consistent with those used for internal decision making. The underlying commodity prices embedded in the Company's estimated cash flows are the product of a process that begins with the NYMEX pricing and adjusted for estimated location and quality differentials, as well as other factors that management believes will impact realizable prices. Although prices used are likely to approximate market, they do not necessarily represent current market prices. Given that spot hydrocarbon market prices are subject to volatile changes, it is the Company's opinion that a long-term look at market prices will lead to a more appropriate valuation of long-term assets. Costs of retired, sold or abandoned properties that constitute a part of an amortization base are charged or credited, net of proceeds, to accumulated depreciation, depletion and amortization. Gains or losses from the disposal of other properties are recognized currently. Expenditures for maintenance, repairs and minor renewals necessary to maintain properties in operating condition are expensed as incurred. Major replacements and renewals are capitalized. Estimated dismantlement and abandonment costs for oil and gas properties are capitalized, net of salvage, at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves. The Company's abandonment liability, included in Other Liabilities and Deferred Credits on the Consolidated Balance Sheet, was $106 million and $201 million at December 31, 2002 and 2001, respectively. Other properties include gas plants, pipelines, buildings, data processing and telecommunications equipment, office furniture and equipment and other fixed assets. These items are recorded at cost and are depreciated on the straight-line method based on expected lives of the individual assets or group of assets. Revenue Recognition Natural gas, NGLs and crude oil revenues are recorded on the entitlement method. Under the entitlement method, revenue is recorded when title passes based on the Company's net interest. The Company records its entitled share of revenues based on estimated production volumes. Subsequently, these estimated volumes are adjusted to reflect actual volumes that are supported by third party pipeline statements or cash receipts. Since there is a ready market for crude oil, natural gas and NGLs, the Company sells the majority of its products soon after production at various locations at which time title and risk of loss pass to the buyer. As a result, the Company maintains a minimum amount of product inventory in storage. At December 31, 2002 and 2001, product inventory was $5 million and $3 million, respectively. Gas imbalances 32 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) occur when the Company sells more or less than its entitled ownership percentage of total gas production. Any amount received in excess of the Company's share is treated as a liability. If the Company receives less than it is entitled, the underproduction is recorded as a receivable. At December 31, 2002 and 2001, the Company had net gas imbalance receivables of $19 million and $39 million, respectively. Royalty Payable It is the Company's policy to calculate and pay royalties on gas, oil, and NGLs in accordance with the particular contractual provisions of lease, license or concession agreements and the laws and regulations applicable to those agreements. Royalty liabilities are recorded in the period in which the gas, oil, or NGLs are produced. Functional Currency The assets, liabilities and operations of BR's Canadian operating subsidiaries are measured using the Canadian dollar as the functional currency. These assets and liabilities are translated into United States (U.S.) dollars at end-of-period exchange rates. Gains and losses related to translating these assets and liabilities are recorded in other comprehensive income. Revenue and expenses are translated into U.S. dollars at the average exchange rates in effect during the period. The assets, liabilities and results of operations of foreign entities other than BR's Canadian operating subsidiaries are measured using the U.S. dollar as the functional currency. For subsidiaries where the U.S. dollar is the functional currency, all foreign currency denominated assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates. Inventories, prepaid expenses and properties are exceptions to this policy and are remeasured at historical rates. Foreign currency revenues and expenses are remeasured at average exchange rates in effect during the year. Exceptions to this policy include all expenses related to balance sheet amounts that are remeasured at historical exchange rates. Exchange gains and losses arising from remeasured foreign currency denominated monetary assets and liabilities are included in Other Expense (Income)--Net in the Consolidated Statement of Income. Included in net income for the years ended December 31, 2002, 2001 and 2000 are losses of $1 million, $7 million and $4 million, respectively. Commodity Hedging Contracts and Other Derivatives The Company enters into derivative contracts, primarily options and swaps, to hedge future crude oil and natural gas production in order to mitigate the risk of market price fluctuations. The Company also enters into derivative contracts to mitigate the risk of foreign currency exchange rate fluctuations. On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Effective with the adoption of SFAS No. 133, all derivatives were recognized on the balance sheet and measured at fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, the gain or loss on the derivative is recognized currently in earnings. If the derivative qualifies for hedge accounting, the gain or loss on the derivative is either recognized in income along with an offsetting adjustment to the basis of the item being hedged for fair-value hedges or deferred in other comprehensive income to the extent the hedge is effective for cash-flow hedges. To qualify for hedge accounting, the derivative must qualify as either a fair-value, cash-flow or foreign-currency hedge. The hedging relationship between the hedging instruments and hedged items must be highly effective in achieving the offset of changes in fair values or cash flows attributable to the hedged risk both at the inception of the hedge and on an ongoing basis. The Company measures hedge effectiveness on a quarterly basis. Hedge accounting is discontinued prospectively when a hedging instrument becomes ineffective. The Company assesses hedge effectiveness based on total changes in the fair value of options used in cash-flow hedges rather than changes of intrinsic value only. As a result, changes in the entire fair value of option contracts are deferred in accumulated other comprehensive income until the hedged transaction affects earnings to the extent such contracts are effective. Gains and losses deferred in accumulated other comprehensive income related to cash-flow hedge derivatives that become ineffective remain unchanged until the related production is delivered. Adjustment to the carrying amounts of hedged production is discontinued in instances where the related fair-value hedging instrument becomes ineffective. The balance in the fair-value hedge adjustment account is recorded in income when the related production is delivered. If the Company determines that it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are recognized in earnings immediately. 33 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Gains and losses on hedging instruments and adjustments of the carrying amounts of hedged production are included in revenues and are included in realized prices in the period that the related production is delivered. Gains and losses on hedging instruments which represent hedge ineffectiveness and gains and losses on derivative instruments which do not qualify for hedge accounting are also included in revenues in the period in which they occur. The resulting cash flows are reported as cash flows from operating activities. Credit and Market Risks The Company manages and controls market and counterparty credit risk through established formal internal control procedures which are reviewed on an ongoing basis. The Company attempts to minimize credit risk exposure to counterparties through formal credit policies and monitoring procedures. Generally, collateral is not required for financial instruments with credit risk. Income Taxes Income taxes are provided based on earnings reported for tax return purposes in addition to a provision for deferred income taxes. Deferred income taxes are provided to reflect the tax consequences in future years of differences between the financial statement and tax basis of assets and liabilities. Tax credits are accounted for under the flow-through method, which reduces the provision for income taxes in the year the tax credits are earned. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. Stock-based Compensation At December 31, 2002, the Company has three stock-based employee compensation plans, which are described more fully in Note 9. The Company uses the intrinsic value based method of accounting for stock-based compensation, as prescribed by Accounting Principles Board Opinion No. 25 and related interpretations. Under this method, the Company records no compensation expense for stock options granted when the exercise price for options granted is equal to the fair market value of the Company's Common Stock on the date of the grant. The weighted average fair values of options granted during the years 2002, 2001 and 2000 were $10.83, $13.35 and $10.33, respectively. The fair values of employee stock options were calculated using a variation of the Black-Scholes stock option valuation model with the following weighted average assumptions for grants in 2002, 2001 and 2000: stock price volatility of 31 percent, 35 percent and 35 percent, respectively; risk free rate of return ranging from 3 percent to 5 percent; dividend yield of 1.43 percent, 1.32 percent and 1.46 percent, respectively; and an expected term of 3 to 5 years. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. The fair value of stock options included in the pro forma amounts is not necessarily indicative of future effects on net income and earnings per common share (EPS).
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ---------------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) - ---------------------------------------------------------------------------------------- Net income--as reported $ 454 $ 561 $ 675 Pro forma stock based employee compensation cost, after tax (unaudited) 11 12 12 ------ ------ ------ Net income--pro forma (unaudited) $ 443 $ 549 $ 663 ====== ====== ====== Basic EPS--as reported $ 2.26 $ 2.71 $ 3.13 Basic EPS--pro forma (unaudited) 2.21 2.65 3.08 Diluted EPS--as reported 2.25 2.70 3.12 Diluted EPS--pro forma (unaudited) $ 2.20 $ 2.64 $ 3.06 - ----------------------------------------------------------------------------------------
Environmental Costs Environmental expenditures are expensed or capitalized, as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit, 34 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) are expensed. Liabilities related to future costs are recorded on an undiscounted basis when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated. Earnings Per Common Share Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 201 million, 207 million and 216 million for the years ended December 31, 2002, 2001 and 2000, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 202 million, 208 million and 216 million for the years ended December 31, 2002, 2001 and 2000, respectively. For the years ended December 31, 2002, 2001 and 2000, approximately 4 million shares attributable to the exercise of outstanding options were excluded from the calculation of diluted EPS because the effect was antidilutive. The Company has no preferred stock or other convertible securities affecting EPS, and therefore, no adjustments related to preferred stock or other convertible securities were made to reported net income in the computation of EPS. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved oil, NGLs and gas reserve volumes and the future development, dismantlement and abandonment costs as well as estimates relating to certain gas, NGLs and oil revenues and expenses. Actual results could differ from those estimates. 2. BUSINESS COMBINATION AND OTHER PROPERTY ACQUISITIONS AND DIVESTITURES Other Property Acquisitions--2002 In August 2002, the Company purchased certain oil and gas properties located in Wise and Denton Counties, Texas for $141 million. On January 3, 2002, the Company consummated a property acquisition, for properties located in the Viking-Kinsella area, from ATCO Gas and Pipelines Ltd. (ATCO), a Canadian regulated gas utility, for approximately $344 million. Acquisition of Canadian Hunter Exploration Ltd. (Hunter)--2001 On December 5, 2001, BR acquired all of the outstanding shares of Hunter valued at approximately U.S. $2.1 billion, resulting in an excess purchase price of approximately $793 million which was reflected as goodwill. This acquisition was funded with cash on hand and proceeds from the issuances of $1.5 billion of fixed-rate notes and $400 million of commercial paper. The transaction was accounted for under the purchase method in accordance with SFAS No. 141. The results of operations of Hunter were included in the Company's financial statements effective December 5, 2001. The purchase price was calculated as follows.
(In Millions) - --------------------------------------------------------------------------- Calculation of purchase price for assets acquired Cash paid for stock purchased $2,014 Cash settlement of employee stock options 66 Other purchase price costs (e.g. fees, etc.) 17 Cash acquired (10) - --------------------------------------------------------------------------- Total purchase price for common equity 2,087 - --------------------------------------------------------------------------- Plus fair market value of liabilities assumed Current and other liabilities 308 Deferred tax 902 - --------------------------------------------------------------------------- Total liabilities 1,210 - --------------------------------------------------------------------------- Total purchase price for assets acquired $3,297 - ---------------------------------------------------------------------------
Other purchase price costs relate primarily to professional fees of approximately $16 million and other direct transaction costs of approximately $1 million. 35 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is the allocation of the purchase price to specific assets and liabilities based on estimates of fair values and costs. All of the goodwill was assigned to the Company's Canadian reporting unit.
(In Millions) - --------------------------------------------------------------------------- Current assets $ 74 Other assets 45 Properties, plant and equipment 2,385 Goodwill 793 - --------------------------------------------------------------------------- 3,297 Current liabilities (105) Other liabilities (194) Long-term debt (9) Deferred tax (902) - --------------------------------------------------------------------------- $2,087 - ---------------------------------------------------------------------------
The following table presents the unaudited pro forma results of the Company as though the acquisition had occurred on January 1, 2000. Pro forma results are not necessarily indicative of actual results.
2001 2000 - -------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) - -------------------------------------------------------------------------------- Revenues $3,902 $3,648 Net income 696 757 Basic earnings per common share 3.36 3.51 Diluted earnings per common share $ 3.34 $ 3.50 - --------------------------------------------------------------------------------
Divestitures During the fourth quarter of 2001, the Company announced its intent to sell certain non-core, non-strategic properties in order to improve the overall quality of its portfolio, primarily in the U.S. Due to their high cost structure, high production volume decline rates and limited growth opportunities, substantially all of the Gulf of Mexico Shelf and south and east Texas assets were included in the non-core, non-strategic properties. During 2002, the Company completed the sale of certain non-core, non-strategic properties, including the Val Verde Plant. Based on the purchase and sale agreements, the divestiture program sales price totaled $1.3 billion. Due to differences between purchase and sale agreement dates and closing dates, the Company generated proceeds, before post closing adjustments, of approximately $1.2 billion and recognized a net pretax gain of $68 million. The producing properties that were sold during the year generated $202 million, $401 million and $416 million of revenues and incurred $140 million, $478 million and $336 million of direct operating expenses during the years 2002, 2001 and 2000, respectively. The Company used a portion of the proceeds generated from property sales to retire commercial paper, to repay the $104 million promissory note and for general corporate purposes, including funding a portion of the Company's capital program. The Company also expects to use the remaining proceeds for general corporate purposes, including funding a portion of the Company's future capital program. In connection with the divestiture program, the Company also recorded a restructuring liability of $10 million in the fourth quarter of 2001. As of December 31, 2002, all of the restructuring liability had been paid. 3. GOODWILL Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires the Company to test goodwill for impairment rather than amortize. Under the transition provisions of SFAS No. 142, goodwill acquired in a business combination for which the acquisition date is after June 30, 2001 is not to be amortized and is to be reviewed for impairment under existing standards until adoption of SFAS No. 142 on January 1, 2002. The entire goodwill balance of $803 million at December 31, 2002, which is not deductible for tax purposes, is related to the acquisition of Hunter on December 5, 2001. Accordingly, the Company recorded no goodwill amortization during 2001. With the acquisition of Hunter, the Company gained Hunter's significant interest in Canada's Deep Basin, North America's third-largest natural gas field, increased its critical mass and enhanced its position as a leading North American natural gas producer. The Company also obtained the exploration expertise of Hunter's workforce, gained additional cost optimization, increased purchasing power and gained greater marketing flexibility in optimizing sales and accessing key market information. 36 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) All of the goodwill was assigned to the Company's Canadian reporting unit which consists of all of the Company's Canadian subsidiaries. The initial adoption of SFAS No. 142 required the Company to perform a two-step fair value based goodwill impairment test as of January 1, 2002. The first step of the test compares the book value of the Company's reporting unit to its estimated fair value. The second step of the goodwill impairment test is only required if the net book value of the reporting unit exceeds the fair value. The second step of the goodwill impairment test compares the implied fair value of goodwill in accordance with the methodology prescribed by SFAS No. 142 to its book value to determine if an impairment is required. During the second quarter of 2002, the Company completed the first step of its impairment analysis related to its goodwill and determined that the Company's fair value of its Canadian reporting unit exceeded its net book value at January 1, 2002, thereby eliminating the need for the second step. In addition to the initial impairment test, SFAS No. 142 requires companies to test goodwill for impairment annually. The Company performed step one of its annual goodwill impairment test in the fourth quarter of 2002 and determined that the fair value of the Company's Canadian reporting unit exceeded its net book value as of September 30, 2002. Therefore, step two was not required. The following table reflects the changes in the carrying amount, including the final purchase accounting adjustment, of goodwill during the year as it relates to the Canadian reporting unit.
(In Millions) - --------------------------------------------------------------------------- Balance--January 1, 2002 $782 Changes in foreign exchange rates during the period 7 Purchase accounting adjustments related to foreign income taxes and other 14 - --------------------------------------------------------------------------- Balance--December 31, 2002 $803 - ---------------------------------------------------------------------------
4. OIL AND GAS AND OTHER PROPERTIES Oil and gas properties consisted of the following.
DECEMBER 31, 2002 2001 - -------------------------------------------------------------------------------- (In Millions) - -------------------------------------------------------------------------------- Proved properties $11,441 $14,556 Unproved properties 1,275 1,482 - -------------------------------------------------------------------------------- 12,716 16,038 Accumulated depreciation, depletion and amortization 5,077 8,060 - -------------------------------------------------------------------------------- Oil and gas properties--net $ 7,639 $ 7,978 - --------------------------------------------------------------------------------
Other properties consisted of the following.
DEPRECIABLE DECEMBER 31, LIFE-YEARS 2002 2001 - --------------------------------------------------------------------------------------------- (In Millions) - --------------------------------------------------------------------------------------------- Plants and pipeline systems 10-20 $ 804 $ 979 Land, building, improvements and furniture and fixtures 0-40 111 145 Data processing & telecommunications equipment 3-7 152 229 Other 3-15 73 63 - --------------------------------------------------------------------------------------------- 1,140 1,416 Accumulated Depreciation 276 563 - --------------------------------------------------------------------------------------------- Other properties--net $ 864 $ 853 - ---------------------------------------------------------------------------------------------
37 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INCOME TAXES The jurisdictional components of income before income taxes and cumulative effect of change in accounting principle follow.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------- (In Millions) - ------------------------------------------------------------------------------------- Domestic $548 $470 $ 673 Foreign 21 437 294 - ------------------------------------------------------------------------------------- Total $569 $907 $ 967 - -------------------------------------------------------------------------------------
The provision for income taxes follows.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------- (In Millions) - ------------------------------------------------------------------------------------- Current Federal $ 37 $ 25 $ 37 State 11 19 10 Foreign 28 86 26 - ------------------------------------------------------------------------------------- 76 130 73 - ------------------------------------------------------------------------------------- Deferred Federal 63 76 84 State 4 14 15 Foreign (28) 129 120 - ------------------------------------------------------------------------------------- 39 219 219 - ------------------------------------------------------------------------------------- Total $115 $349 $ 292 - -------------------------------------------------------------------------------------
Reconciliation of the federal statutory income tax rate to the effective income tax rate follows.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State income taxes 1.7 2.3 2.3 Taxes on foreign income in excess of U.S. statutory rate 9.4 8.5 4.5 Effect of change in foreign income tax rate (2.3) (0.3) -- Section 29 tax credits(1) (0.2) (2.6) (5.4) Cross-border financing benefit (15.1) (2.2) -- Other(2) (8.4) (2.3) (6.2) - ------------------------------------------------------------------------------------- Effective rate 20.1% 38.4% 30.2% - -------------------------------------------------------------------------------------
(1) In 2002, the tax benefit associated with section 29 tax credits was reduced by $16 million (2.9%) as a result of the 1996-1998 federal income tax audit. Adjustments related to section 29 tax credits certification issues of $7 million (-0.7%) and $34 million (-3.5%) were made in 2001 and 2000, respectively. (2) In 2002, other primarily consisted of the reversal of a $27 million (-4.8%) tax valuation reserve related to the sale of assets in the U.K. Sector of the North Sea. In 2000, other primarily consisted of a $28 million (-2.9%) reserve related to tax sharing agreements between former affiliated companies. 38 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax liabilities (assets) follow.
DECEMBER 31, 2002 2001 - ------------------------------------------------------------------------------ (In Millions) - ------------------------------------------------------------------------------ Deferred income tax liabilities Property, plant and equipment $1,868 $1,875 Commodity hedging contracts and other derivatives -- 33 - ------------------------------------------------------------------------------ 1,868 1,908 - ------------------------------------------------------------------------------ Deferred income tax assets AMT credit carryforward (307) (347) Deferred foreign tax credits -- (55) Foreign net operating loss carryforwards (17) (2) Commodity hedging contracts and other derivatives (21) -- Financial accruals and other (121) (178) - ------------------------------------------------------------------------------ (466) (582) - ------------------------------------------------------------------------------ Less valuation allowance 34 77 - ------------------------------------------------------------------------------ $1,436 $1,403 - ------------------------------------------------------------------------------
The net deferred income tax liabilities at December 31, 2002 and 2001 include deferred state income tax liabilities of approximately $53 million and $49 million, respectively. The net deferred income tax liabilities also include foreign tax liabilities of approximately $1,119 million and $1,102 million at December 31, 2002 and 2001, respectively. No deferred U.S. income tax liability has been recognized on undistributed earnings of certain foreign subsidiaries as they have been deemed permanently invested outside the U.S. It is not practicable to estimate the deferred tax liability related to such undistributed earnings. The Alternative Minimum Tax (AMT) credit carryforward, related primarily to nonconventional fuel tax credits, is available to offset future federal income tax liabilities. The AMT credit carryforward has no expiration date. Of the $17 million tax benefit for operating loss carryforwards, which relate to foreign jurisdictions, $2 million has no expiration date, $14 million will expire after 2007 and $1 million will expire between 2003 and 2007. 6. COMMODITY HEDGING CONTRACTS AND OTHER DERIVATIVES The Company uses derivative instruments to manage risks associated with natural gas, crude oil and electricity price volatility as well as foreign currency exchange rate fluctuations. Derivative instruments that meet the hedge criteria in SFAS No. 133 are designated as cash-flow hedges, fair-value hedges, or foreign-currency hedges. Derivative instruments that do not meet the hedge criteria in SFAS No. 133 are not designated as hedges. Derivative instruments designated as cash-flow hedges are used by the Company to mitigate the risk of variability in cash flows from crude oil and natural gas sales due to changes in market prices. Fair-value hedges are used by the Company to hedge or offset the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment. In addition to hedges of commodity prices, the Company also uses foreign-currency swaps to hedge its exposure to exchange rate fluctuations related to its Canadian subsidiaries. Cash-Flow Hedges At December 31, 2002, the Company's cash-flow hedges consisted of fixed-price swaps, producer collars (purchased put options and written call options), producer three-ways (purchased put spreads and written call options), purchased call options combined with either the costless collars or producer three-ways and consumer collars (purchased call options and written put options). The fixed-price swap agreements are used to fix the prices of anticipated future natural gas production. The costless collars are used to establish floor and ceiling prices on anticipated future natural gas and crude oil production. The producer three-ways are collars combined with put options that effectively replace the floor of the collars with a fixed premium over the index price in low price environments. In addition, the Company has combined purchased call options with producer collars and producer three-ways to allow the Company to participate in price increases above a specified price. The consumer collars are used to establish floor and ceiling prices on anticipated purchases of electricity. There were no net premiums received when the Company entered into these option agreements. 39 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fair-Value Hedges At December 31, 2002, the Company's fair-value hedges consisted of price swaps that are used to hedge against changes in the fair value of unrecognized firm commitments representing physical contracts that require the delivery of a specified quantity of crude oil or natural gas at a fixed price over a specified period of time. The swap agreements allow the Company to receive market prices for the committed specified quantities included in the physical contracts. Foreign-Currency Hedges At December 31, 2002, the Company's foreign-currency hedges consisted of foreign currency swaps used to fix the amount of Canadian dollars a Canadian subsidiary receives on anticipated sales denominated in U.S. dollars. Derivatives Not Designated as Hedges The Company also has foreign currency swaps that, prior to September 1, 2002, were collectively designated as a hedge of Hunter's net investment in a U.S. dollar denominated foreign subsidiary. During September 2002, the foreign entity that was the subject of the hedge was transferred to a U.S. subsidiary of the Company and the swaps were de-designated as a hedge. A summary of the Company's derivative instruments as of December 31, 2002 follows.
NOTIONAL AMOUNT ----------------------------------------------------- AVERAGE SETTLEMENT DERIVATIVE HEDGE GAS OIL ELECTRICITY US $ UNDERLYING PERIOD INSTRUMENT STRATEGY (MMBTU) (BARRELS) (MEGAWATTS) (IN MILLIONS) PRICE - ------------------------------------------------------------------------------------------------------------------------- 2003 Swap Cash flow 18,315,630 $ 2.81 Purchased put Cash flow 184,325,000 3.16 Written call Cash flow 184,325,000 4.94 Written put Cash flow 178,850,000 2.36 Purchased put Cash flow 450,000 25.00 Written put Cash Flow 450,000 20.00 Written call Cash flow 450,000 30.36 Swap Foreign currency $ 17 1.42 Swap Fair value 2,699,500 3.06 N/A Fair value (obligation) 2,699,500 3.13 Purchased call Cash flow 175,200 40.30 Written put Cash flow 175,200 26.45 2004 Swap Cash flow 15,613,289 2.95 Swap Foreign currency 7 1.43 Swap Fair value 2,166,800 2.83 N/A Fair value (obligation) 2,166,800 2.85 2005 Swap Cash flow 10,513,930 2.89 Swap Fair value 1,459,200 2.65 N/A Fair value (obligation) 1,459,200 2.65 Swap Not designated $116 1.50 2006 to 2007 Swap Cash flow 1,672,500 $ 3.06 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- FAIR VALUE SETTLEMENT ASSET PERIOD (LIABILITY) - ---------- ----------- 2003 $ (17) 21 (32) (3) -- -- (1) (2) 3 (3) 1 (1) 2004 (13) (1) 3 (3) 2005 (6) 1 (1) (8) 2006 to 2007 (1) - ---------- ----------- $ (63) - ---------- -----------
The derivative assets and liabilities represent the difference between hedged values and market values on hedged volumes of the commodities as of December 31, 2002. During 2002, hedging activities related to cash settlements increased revenues by $114 million. In addition, during 2002, losses of $22 million were recorded in revenues associated with ineffectiveness of cash-flow and fair-value hedges and losses of $10 million were recorded in revenues related to changes in fair value derivative instruments which do not qualify for hedge accounting. 40 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with the transition provisions of SFAS No. 133, on January 1, 2001, the Company recorded a net-of-tax cumulative-effect-type loss adjustment of $366 million in accumulated other comprehensive income to recognize at fair value all derivatives that were designated as cash-flow hedging instruments. The Company recorded cash-flow hedge derivatives liabilities of $582 million ($361 million after tax), fair value hedge derivative assets of $16 million ($10 million after tax), related liability adjustments to book value of fair-value hedged items of $16 million ($10 million after tax) and an after tax non-cash gain of $3 million was recorded in current earnings as a cumulative effect of accounting change. Changes in other comprehensive income for the year ended December 31, 2002 follow.
(In Millions) - --------------------------------------------------------------------------- Accumulated other comprehensive income hedging activities--December 31, 2001 $ 54 Reclassification adjustments for settled contracts (68) Current period changes in fair value of settled contracts 20 Changes in fair value of outstanding hedging positions (38) - --------------------------------------------------------------------------- Accumulated other comprehensive loss on hedging activities--December 31, 2002 $ (32) - ---------------------------------------------------------------------------
Based on commodity prices and foreign exchange rates as of December 31, 2002, the Company expects to reclassify losses of $34 million ($21 million after tax) to earnings from the balance in accumulated other comprehensive loss during the next twelve months. At December 31, 2002, the Company had derivative assets of $8 million and derivative liabilities of $71 million of which $4 million and $38 million is included in Other Assets and Other Current Liabilities, respectively, on the Consolidated Balance Sheet. 7. LONG-TERM DEBT Long-term debt follows.
DECEMBER 31, 2002 2001 - ------------------------------------------------------------------------------ (In Millions) - ------------------------------------------------------------------------------ Commercial Paper $ -- $ 675 Notes, 8 1/4%, due 2002 -- 100 Notes, 6.40%, due 2003 63 63 Notes, 5.60%, due 2006 500 500 Notes, 6.60%, due 2007 94 94 Notes, 5.70%, due 2007 350 -- Debentures, 9 7/8%, due 2010 150 150 Notes, 6.50%, due 2011 500 500 Notes, 6.68%, due 2011 400 400 Notes, 6.40%, due 2011 178 178 Debentures, 7 5/8%, due 2013 100 100 Debentures, 9 1/8%, due 2021 150 150 Debentures, 7.65%, due 2023 88 88 Debentures, 8.20%, due 2025 150 150 Debentures, 6 7/8%, due 2026 67 67 Debentures, 7 3/8%, due 2029 92 92 Notes, 7.20%, due 2031 575 575 Notes, 7.40%, due 2031 500 500 Discounts and Other (41) (45) - ------------------------------------------------------------------------------ Total debt 3,916 4,337 Less current maturities 63 -- - ------------------------------------------------------------------------------ Total long-term debt $3,853 $4,337 - ------------------------------------------------------------------------------
The Company has debt maturities of $63 million due in 2003, $0 million due in 2004 and 2005, $500 million due in 2006, $444 million due in 2007 and $2,950 million due in 2008 and thereafter. The Company had no outstanding commercial paper at December 31, 2002. The Company's commercial paper borrowings at December 31, 2001 had weighted average interest rates of approximately 3 percent. The fair value of debt outstanding, excluding commercial paper, as of December 31, 2002 and 2001 was $4,443 million and $3,727 million, respectively. 41 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Burlington Resources Capital Trust I, Burlington Resources Capital Trust II (collectively, the Trusts), BR and Burlington Resources Finance Company (BRFC) have a shelf registration on file with the Securities and Exchange Commission (SEC). Pursuant to such registration statement, BR may issue debt securities, shares of common stock or preferred stock. In addition, BRFC may issue debt securities and the Trusts may issue trust preferred securities. Net proceeds, terms and pricing of offerings of securities issued under the shelf registration statement will be determined at the time of the offerings. BRFC and the Trusts are wholly owned finance subsidiaries of BR and have no independent assets or operations other than transferring funds to BR's subsidiaries. Any debt issued by BRFC is fully and unconditionally guaranteed by BR. Any trust preferred securities issued by the Trusts are also fully and unconditionally guaranteed by BR. In February 2002, BRFC issued $350 million of 5.7% Notes due March 1, 2007 (February Notes), which were fully and unconditionally guaranteed by BR. The proceeds from the February Notes were used to retire commercial paper that was issued to finance the acquisition of certain assets from ATCO. The February Notes reduced the Company's amount available under its shelf registration statement on file with the SEC to $397 million. In May 2002, the Company restored its shelf registration statement to $1,500 million. In June 2002, the Company retired a $100 million 8 1/4% Note. To retire the 8 1/4% Note, The Louisiana Land and Exploration Company, a subsidiary of BR, issued a $104 million promissory note at a per annum rate equal to the sum of Eurodollar rates plus 0.70 percent. The $104 million promissory note was retired on September 16, 2002. During 2002, the Company also retired $675 million of net commercial paper and had no commercial paper outstanding at December 31, 2002. In June 2002, the Company commenced an offer to exchange outstanding 5.6% Notes due 2006, 6.5% Notes due 2011 and 7.4% Notes due 2031, which were issued by BRFC and fully and unconditionally guaranteed by BR, in a private offering in November 2001 (Private Notes), for a like principal amount of 5.6% Notes due 2006, 6.5% Notes due 2011 and 7.4% Notes due 2031 to be issued by BRFC, fully and unconditionally guaranteed by BR and registered under the Securities Act of 1933, as amended (Registered Notes). In July 2002, following the expiration of the exchange offer, the Company issued the Registered Notes. All of the Private Notes were exchanged for Registered Notes and the Private Notes were cancelled. The Company had credit commitments in the form of revolving credit facilities (Revolvers) as of December 31, 2002. The Revolvers are comprised of agreements for $600 million, $400 million and Canadian $468 million (U.S. $296 million). The $600 million Revolver expires in December 2006 and the $400 million and Canadian $468 million Revolvers expire in December 2004 unless renewed by mutual consent. The Company has the option to convert any remaining balances on the $400 million and Canadian $468 million Revolvers to one year and five-year plus one day term notes, respectively. The Revolvers are available to cover debt due within one year, therefore, commercial paper, credit facility notes and fixed- rate debt due within one year are generally classified as long-term debt. At December 31, 2002, there are no amounts outstanding under the Revolvers and no outstanding commercial paper. At the Company's option, interest on borrowings under the $600 million and $400 million Revolvers is based on the prime rate or Eurodollar rates. The other Revolver bears interest at rates based on prime or Eurodollar rates also at the Company's option, however, the lenders have the option to provide bankers' acceptances in lieu of Eurodollar rate loans. Under the covenants of the Revolvers, Company debt cannot exceed 60 percent of capitalization (as defined in the agreements). Outstanding borrowings of $138 million and $127 million as of December 31, 2002 and 2001, respectively, on Company-owned life insurance policies were reported as a reduction to the cash surrender value and are included as a component of Other Assets on the Company's Consolidated Balance Sheet. 8. SIGNIFICANT CONCENTRATIONS In 2002, 2001 and 2000, approximately 43 percent, 42 percent and 44 percent, respectively, of the Company's gas production was transported to direct sale customers through pipeline systems owned by two companies. The Company expects to continue to transport a substantial portion of its future gas production through these pipeline systems. See Note 11 for demand charges paid under firm and interruptible transportation capacity rights on interstate and intrastate pipeline systems. 42 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. COMMON STOCK The Company's Common Stock activity follows.
NUMBER OF SHARES ISSUED TREASURY OUTSTANDING - ------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1999 241,188,770 25,219,025 215,969,745 Adjustment of unexchanged Poco shares (72) (72) Treasury shares purchased 3,505,000 (3,505,000) Shares issued under compensation plans, net of forfeitures (190,547) 190,547 Option exercises (2,913,585) 2,913,585 - ------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2000 241,188,698 25,619,893 215,568,805 Adjustment of unexchanged Poco shares (10) (10) Treasury shares purchased 16,092,000 (16,092,000) Shares issued under compensation plans, net of forfeitures (264,011) 264,011 Option exercises (1,052,187) 1,052,187 - ------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2001 241,188,688 40,395,695 200,792,993 - ------------------------------------------------------------------------------------------------ Shares issued under compensation plans, net of forfeitures (242,216) 242,216 Option exercises (404,048) 404,048 - ------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2002 241,188,688 39,749,431 201,439,257 - ------------------------------------------------------------------------------------------------
Stock Compensation Plans The Company's 2002 Stock Incentive Plan (the 2002 Plan) succeeds its 1993 Stock Incentive Plan (the 1993 Plan) which expired by its terms in April 2002 but remains in effect for options granted prior to April 2002. The 2002 Plan provides for the grant of stock options, restricted stock and stock appreciation rights (collectively, 2002 Awards). Under the 2002 Plan, options may be granted to officers and key employees at fair market value on the date of grant, are exercisable in whole or part by the optionee after completion of at least one year of continuous employment from the grant date and have a term of ten years. The total number of shares of the Company's Common Stock for which 2002 Awards under the 2002 Plan may be granted is 7,500,000. At December 31, 2002, 7,465,425 shares were available for grant under the 2002 Plan. In 1997, the Company adopted the 1997 Employee Stock Incentive Plan (the 1997 Plan) from which stock options and restricted stock (collectively, 1997 Awards) may be granted to employees who are not eligible to participate in the 2002 Plan. The options are granted at fair market value on the grant date, generally vest ratably over a period of three years from the date of the grant and have a term of ten years. The 1997 Plan was amended during 2002 to limit the maximum number of shares of the Company's Common Stock for which 1997 Awards under the 1997 Plan may be granted after April 2002 to 5,000,000 shares. At December 31, 2002, 4,998,500 shares were available for grant under the 1997 Plan, of which up to 150,000 shares annually may be restricted stock. The Company issued 257,025, 256,700 and 211,350 shares of restricted stock in 2002, 2001 and 2000, respectively, from the 1993, 2002 and 1997 Plans. The restrictions on this stock generally lapse on the third anniversary of the date of grant. The weighted average grant-date fair value of restricted stock granted in the years ended December 31, 2002, 2001, and 2000 was approximately $35.73, $50.30 and $34.62, respectively. Related compensation expense of approximately $9 million, $7 million and $4 million was recognized for the years ended December 31, 2002, 2001 and 2000, respectively. The Company's 2000 Stock Option Plan (the 2000 Plan) for Non-Employee Directors provides for the annual grant of a nonqualified option for 2,000 shares of the Company's Common Stock immediately following the Annual Meeting of Stockholders to each Director who is not a salaried officer of the Company. In addition, an option for 5,000 shares is granted upon a Director's initial election or appointment to the Board of Directors. The options vest immediately and have a term of 10 years. The exercise price per share with respect to each option is the fair market value, as defined in the 2000 Plan, of the Company's Common Stock on the date the option is granted. The total number of shares of the Company's Common Stock for which options may be granted under the 2000 Plan is 250,000. At December 31, 2002, 185,000 shares were available for grant under the 2000 Plan. 43 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's stock option activity follows.
WEIGHTED AVERAGE OPTIONS EXERCISE PRICE - -------------------------------------------------------------------------------------------- Balance, December 31, 1999 8,898,798 $ 37.80 Granted 1,432,925 34.55 Exercised (2,913,585) 31.73 Cancelled (837,044) 35.38 - -------------------------------------------------------------------------------------------- Balance, December 31, 2000 6,581,094 40.08 Granted 1,638,675 50.53 Exercised (1,052,187) 35.81 Cancelled (303,324) 47.00 - -------------------------------------------------------------------------------------------- Balance, December 31, 2001 6,864,258 42.93 Granted 1,008,850 35.64 Exercised (404,048) 31.80 Cancelled (304,846) 45.11 - -------------------------------------------------------------------------------------------- Balance, December 31, 2002 7,164,214 $ 42.44 - --------------------------------------------------------------------------------------------
The following table summarizes information related to stock options outstanding and exercisable at December 31, 2002.
WEIGHTED AVERAGE RANGE OF WEIGHTED REMAINING WEIGHTED OPTIONS EXERCISE AVERAGE CONTRACTUAL OPTIONS AVERAGE OUTSTANDING PRICES EXERCISE PRICE LIFE EXERCISABLE EXERCISE PRICE - ---------------------------------------------------------------------------------------------------- 1,573,569 $ 23.32-$34.89 $ 31.85 4.5 1,364,971 $ 31.48 2,518,305 35.38- 44.00 39.05 6.1 1,570,255 41.20 3,072,340 45.25- 52.03 50.64 5.3 2,594,923 50.62 - ---------------------------------------------------------------------------------------------------- 7,164,214 $ 23.32-$52.03 $ 42.44 5.4 5,530,149 $ 43.22 - ----------------------------------------------------------------------------------------------------
Exercisable stock options and weighted average exercise prices at December 31, 2001 and 2000 follow.
OPTIONS WEIGHTED AVERAGE EXERCISABLE EXERCISE PRICE - --------------------------------------------------------------------------------------------- December 31, 2001 4,838,074 $ 41.41 December 31, 2000 5,348,994 $ 41.36 - ---------------------------------------------------------------------------------------------
Preferred Stock and Preferred Stock Purchase Rights The Company is authorized to issue 75,000,000 shares of preferred stock, par value $.01 per share. On December 9, 1998, the Company's Board of Directors designated 3,250,000 of the authorized preferred shares as Series A Junior Participating Preferred Stock. Upon issuance, each one-hundredth of a share of Series A Junior Participating Preferred Stock will have dividend and voting rights approximately equal to those of one share of Common Stock of the Company. In addition, on December 9, 1998, the Board of Directors declared a dividend distribution of one Right for each outstanding share of Common Stock of the Company to shareholders of record on December 16, 1998. The Rights become exercisable if, without the Company's prior consent, a person or group acquires securities having 15 percent or more of the voting power of all of the Company's voting securities (an Acquiring Person) or ten days following the announcement of a tender offer which would result in such ownership. Each Right, when exercisable, entitles the registered holder to purchase from the Company one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $200 per one hundredth of a share, subject to adjustment. If, after the Rights become exercisable, the Company were to be involved in a merger or other business combination in which its Common Stock was exchanged or changed or 50 percent or more of the Company's assets or earning power were sold, each Right would permit the holder to purchase, for the exercise price, stock of the acquiring company having a value of twice the exercise price. In addition, except for certain permitted offers, if any person or group becomes an Acquiring Person, each Right would permit the purchase, for the exercise price, of Common Stock of the Company having a value of twice the exercise price. Rights 44 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) owned by an Acquiring Person are void. The Rights may be redeemed by the Company under certain circumstances until their expiration date for $.01 per Right. On November 8, 1999 (effective November 18, 1999), the Company's Board of Directors designated one of the authorized preferred shares as Special Voting Stock. The Special Voting Stock was entitled to a number of votes equal to the number of outstanding Exchangeable Shares of Burlington Resources Canada Inc. (other than Exchangeable Shares held by the Company), on all matters presented to the stockholders of the Company. The one share of Special Voting Stock was issued to CIBC Mellon Trust Company, as trustee pursuant to the Voting and Exchange Trust Agreement among the Company, Burlington Resources Canada Inc. and CIBC Mellon Trust Company, for the benefit of the holders of the Exchangeable Shares of Burlington Resources Canada Inc. On September 14, 2001, all of the remaining outstanding Exchangeable Shares issued by the Company's subsidiary, Burlington Resources Canada Inc., in connection with the November 1999 acquisition of Poco Petroleums Ltd., were exchanged for the Company's Common Stock. The trustee returned the share of Special Voting Stock to the Company and by its terms it was deemed retired and cancelled and has been eliminated from the Company's capital. 10. RETIREMENT BENEFITS The Company's U.S. pension plans are non-contributory defined benefit plans covering all eligible U.S. employees. The benefits are based on years of credited service and final average compensation. Contributions to the tax qualified plans are limited to amounts that are currently deductible for tax purposes. Contributions are intended to provide not only for benefits attributed to service-to-date but also for those expected to be earned in the future. Hunter also provides a pension plan and postretirement benefits to a closed group of employees and retirees. The Company provides postretirement medical, dental and life insurance benefits for a closed group of retirees and their dependents. The Company also provides limited retiree life insurance benefits to employees who retire under the pension plan. The postretirement benefit plans are unfunded, therefore, the Company funds claims on a cash basis. The Company provides a charitable award benefit to Directors who have served on the Board of Directors for at least two years. Upon the death of a Director, the Company will donate $1 million to one or more educational institutions or private foundations nominated by the Director. At December 31, 2002, a $7 million liability had been accrued for these benefits and is included in Other Liabilities and Deferred Credits on the Company's Consolidated Balance Sheet. In January 2003, the Board of Directors amended the program to provide that persons first elected to serve on the Board of Directors after January 2003 will not be eligible to participate in the program. Directors at the time of the amendment remain eligible for the program. The Company has a discretionary defined contribution plan (401(k) Plan). Under the 401(k) Plan, an employee may elect to contribute from 1 to 13 percent of his/her eligible compensation subject to an Internal Revenue Service limit of $11,000 in 2002. The Company matches, with cash, up to 6 or 8 percent of the employee's eligible contributions based upon years of service. The Company contributed approximately $9 million, $8 million and $8 million to the 401(k) Plan for the years ended December 31, 2002, 2001 and 2000, respectively, to match eligible contributions by employees. 45 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables set forth the amounts recognized in the Consolidated Balance Sheet and Statement of Income.
PENSION POSTRETIREMENT BENEFITS BENEFITS - ------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------ (In Millions) - ------------------------------------------------------------------------------------------------ Change in benefit obligation Benefit obligation at beginning of year $181 $160 $ 41 $ 32 Service cost 9 9 -- -- Interest cost 12 11 3 3 Amendments -- -- -- -- Actuarial loss 2 1 1 9 Participant contributions -- -- 2 2 Acquisition -- 12 -- -- Benefits paid (17) (12) (5) (5) - ------------------------------------------------------------------------------------------------ Benefit obligation at end of year 187 181 42 41 - ------------------------------------------------------------------------------------------------ Change in plan assets Fair value of plan assets at beginning of year 155 156 -- -- Actual return on plan assets (12) (4) -- -- Employer contribution 12 -- 3 3 Participant contributions -- -- 2 2 Acquisition -- 15 -- -- Benefits paid (17) (12) (5) (5) - ------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 138 155 -- -- - ------------------------------------------------------------------------------------------------ Funded status (49) (26) (42) (41) Unrecognized net actuarial loss 48 21 17 16 Unrecognized prior service cost 1 1 (6) (6) - ------------------------------------------------------------------------------------------------ Net accrued benefit cost -- (4) (31) (31) Minimum pension liability (13) -- -- -- Intangible asset 3 -- -- -- Accumulated other comprehensive loss 10 -- -- -- - ------------------------------------------------------------------------------------------------ Net accrued benefit cost $ -- $ (4) $(31) $ (31) - ------------------------------------------------------------------------------------------------
The market value of the Company's pension plan assets has declined as a result of market conditions and paid benefits, and at December 31, 2002, plan assets were lower than the accumulated benefit obligation. When the actuarial present value of the accumulated benefit obligation exceeds plan assets, a minimum pension liability adjustment is required. At December 31, 2002, the minimum pension liability adjustment was $13 million. For those plans where the accumulated benefit obligation and the projected benefit obligation exceeded the related fair value of the plans assets, the aggregate accumulated benefit obligation, projected benefit obligation and related assets for those plans were $137 million, $176 million and $124 million, respectively.
PENSION POSTRETIREMENT BENEFITS BENEFITS - ----------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 2001 2000 2002 2001 2000 - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Benefit cost for the plans includes the following components Service cost $ 9 $ 9 $ 9 $-- $-- $-- Interest cost 12 11 11 3 3 3 Expected return on plan assets (14) (14) (13) -- -- -- Recognized net actuarial loss 1 -- -- -- -- -- - ----------------------------------------------------------------------------------------------------- Net benefit cost $ 8 $ 6 $ 7 $ 3 $ 3 $ 3 - -----------------------------------------------------------------------------------------------------
46 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION BENEFITS POSTRETIREMENT BENEFITS - ---------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 2001 2000 2002 2001 2000 - ---------------------------------------------------------------------------------------------------- Weighted average assumptions Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 8.50% 9.00% 9.00% -- -- -- Rate of compensation increase 4.50% 5.00% 5.00% -- -- -- - ----------------------------------------------------------------------------------------------------
A 10 percent annual rate of increase in the per capita cost of pre-age 65 covered health care benefits was assumed for 2003. The rate is assumed to decrease gradually to 5 percent for 2008 and remain at that level thereafter. A 12 percent annual rate of increase in the per capita cost of post-age 65 covered health care benefits was assumed to decrease gradually to 5 percent for 2010 and remain at that level thereafter. Assumed health care cost trends have a significant effect on the amounts reported for the postretirement medical and dental care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects.
1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE - ---------------------------------------------------------------------------------------------- (In Thousands) - ---------------------------------------------------------------------------------------------- Effect on total service and interest cost $ 236 $ (203) Effect on postretirement benefit obligation $3,984 $(3,417)
11. COMMITMENTS AND CONTINGENT LIABILITIES Demand Charges The Company has entered into contracts which provide firm transportation capacity rights on interstate and intrastate pipeline systems. The remaining terms on these contracts range from 1 to 21 years and require the Company to pay transportation demand charges regardless of the amount of pipeline capacity utilized by the Company. The Company paid $156 million, $128 million and $123 million of demand charges for the years ended December 31, 2002, 2001 and 2000, respectively. All transportation costs including demand charges are included in transportation expense in the Consolidated Statement of Income. Future transportation demand charge commitments at December 31, 2002 follow.
(In Millions) - ------------------------------------------------------------------------------------- 2003 $140 2004 109 2005 93 2006 91 2007 75 Thereafter 355 - ------------------------------------------------------------------------------------- Total $863 - -------------------------------------------------------------------------------------
Lease Obligations The Company has operating leases for office space and other property and equipment. The Company incurred lease rental expense of $29 million, $23 million and $24 million for the years ended December 31, 2002, 2001 and 2000, respectively. 47 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum annual rental commitments under non-cancelable leases at December 31, 2002 follow.
(In Millions) - ------------------------------------------------------------------------------------- 2003 $ 44 2004 28 2005 25 2006 21 2007 19 Thereafter 112 - ------------------------------------------------------------------------------------- Total $249 - -------------------------------------------------------------------------------------
Drilling Rig Commitments During 1998, the Company entered into agreements to lease two deep water drilling rigs through 2004 with remaining commitments of $92 million. These commitments will be utilized by drilling exploration wells, partner participation or subletting to the extent possible. In addition, the Company has other drilling rig commitments of $6 million, $5 million and $1 million for 2003, 2004 and 2005, respectively. Legal Proceedings The Company and numerous other oil and gas companies have been named as defendants in various lawsuits alleging violations of the civil False Claims Act. These lawsuits were consolidated during 1999 and 2000 for pre-trial proceedings by the United States Judicial Panel on Multidistrict Litigation in the matter of In re Natural Gas Royalties Qui Tam Litigation, MDL-1293, United States District Court for the District of Wyoming (MDL-1293). The plaintiffs contend that defendants underpaid royalties on natural gas and NGLs produced on federal and Indian lands through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies during the period of 1985 to the present. Plaintiffs allege that the royalties paid by defendants were lower than the royalties required to be paid under federal regulations and that the forms filed by defendants with the Minerals Management Service (MMS) reporting these royalty payments were false, thereby violating the civil False Claims Act. The United States has intervened in certain of the MDL-1293 cases as to some of the defendants, including the Company. The plaintiffs and the intervenor have not specified in their pleadings the amount of damages they seek from the Company. Various administrative proceedings are also pending before the MMS of the United States Department of the Interior with respect to the valuation of natural gas produced by the Company on federal and Indian lands. In general, these proceedings stem from regular MMS audits of the Company's royalty payments over various periods of time and involve the interpretation of the relevant federal regulations. Most of these proceedings involve production volumes and royalties that are the subject of Natural Gas Royalties Qui Tam Litigation. Based on the Company's present understanding of the various governmental and civil False Claims Act proceedings described above, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. The Company is also exploring the possibility of a settlement of these claims. Although there has been no formal demand for damages, the Company currently estimates, based on its communications with the intervenor, that the amount of underpaid royalties on onshore production claimed by the intervenor in these proceedings is approximately $68 million. In the event that the Company is found to have violated the civil False Claims Act, the Company could also be subject to double damages, civil monetary penalties and other sanctions, including a temporary suspension from bidding on and entering into future federal mineral leases and other federal contracts for a defined period of time. The Company has established a reserve that management believes to be adequate to provide for this potential liability based upon its evaluation of this matter. While the ultimate outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on the consolidated financial position or results of operations of the Company, although cash flow could be significantly impacted in the reporting periods in which such matters are resolved. The Company has also been named as a defendant in the lawsuit styled UNOCAL Netherlands B.V., et al v. Continental Netherlands Oil Company B.V., et al, No. 98-854, filed in 1995 in the District Court in The Hague and currently pending in the Court of Appeal in The Hague, the Netherlands. Plaintiffs, who are working interest owners in the Q-1 Block in the North Sea, have alleged that the Company and other former working interest owners in the adjacent Logger Field in the L16a Block unlawfully trespassed or were otherwise unjustly enriched by producing part of the oil from the adjoining Q-1 Block. The plaintiffs claim that the defendants infringed upon plaintiffs' right to produce the minerals present in its license area and acted in violation of generally accepted standards by failing to inform plaintiffs of the overlap of the 48 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Logger Field into the Q-1 Block. Plaintiffs seek damages of $97.5 million as of January 1, 1997, plus interest. For all relevant periods, the Company owned a 37.5 percent working interest in the Logger Field. Following a trial, the District Court in The Hague rendered a Judgment in favor of the defendants, including the Company, dismissing all claims. Plaintiffs thereafter appealed. On October 19, 2000, the Court of Appeal in The Hague issued an interim Judgment in favor of the plaintiffs and ordered that additional evidence be presented to the court relating to issues of both liability and damages. The Company and the other defendants are continuing to present evidence to the Court and vigorously assert defenses against these claims. The Company has also asserted claims of indemnity against two of the defendants from whom it had acquired a portion of its working interest share. If the Company is successful in enforcing the indemnities, its working interest share of any adverse judgment could be reduced to 15 percent for some of the periods covered by plaintiffs' lawsuit. The Company is unable at this time to reasonably predict the outcome, or, in the event of an unfavorable outcome, to reasonably estimate the possible loss or range of loss, if any, in this lawsuit. Accordingly, there has been no reserve established for this matter. In addition to the foregoing, the Company and its subsidiaries are named defendants in numerous other lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business, including: claims for personal injury and property damage, claims challenging oil and gas royalty and severance tax payments, claims related to joint interest billings under oil and gas operating agreements, claims alleging mismeasurement of volumes and wrongful analysis of heating content of natural gas and other claims in the nature of contract, regulatory or employment disputes. None of the governmental proceedings involve foreign governments. While the ultimate outcome of these other lawsuits and proceedings cannot be predicted with certainty, management believes that the resolution of these other matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. The Company has established reserves for legal proceedings which are included in Other Liabilities and Deferred Credits on the Consolidated Balance Sheet. The establishment of a reserve involves a complex estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional loss of up to approximately $25 million to $30 million in excess of the amounts currently accrued. Future changes in the facts and circumstances could result in actual liability exceeding the estimated ranges of loss and the amounts accrued. Guarantee At December 31, 2002, the Company owns a 1.5 percent interest in a foreign entity that is accounted for at cost. The Company is the guarantor of approximately $14 million of the entity's total outstanding debt. 12. SUPPLEMENTAL CASH FLOW INFORMATION The following is additional information concerning supplemental disclosures of cash payments.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ----------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------- Interest paid--net of capitalized interest(1) $260 $155 $ 195 Income taxes paid--net $ 40 $136 $ 88 - -----------------------------------------------------------------------------------------
(1) Capitalized interest was $22 million, $9 million and $0 million for the years ended December 31, 2002, 2001 and 2000, respectively. In December 2001, the Company purchased all of the outstanding shares of Hunter for $2,087 million, net of cash acquired. In conjunction with the acquisition, liabilities were assumed as follows.
(In Millions) ------------- Fair value of assets acquired $3,297 Cash paid for the capital stock, net of cash acquired 2,087 - --------------------------------------------------------------------------- Liabilities assumed $1,210 - ---------------------------------------------------------------------------
At December 31, 2002, 2001 and 2000, capital expenditures included in Accounts Payable balance on the Consolidated Balance Sheet were $326 million, $298 million and $232 million, respectively. 49 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. IMPAIRMENT OF OIL AND GAS PROPERTIES In December 2001, primarily as a result of the Company's decision to exit the Gulf of Mexico Shelf and divest of certain other properties, the Company recognized a pretax impairment charge of $184 million primarily related to the impairment of oil and gas properties held for sale. The net book value of these properties at December 31, 2001 totaled approximately $338 million. These properties were sold during 2002. 14. SEGMENT AND GEOGRAPHIC INFORMATION The Company's reportable segments are U.S., Canada and Other International. These segments are engaged principally in the exploration, development, production and marketing of oil, gas and NGLs. The accounting policies for the segments are the same as those described in Note 1. Intersegment sales were $17 million, $157 million and $85 million in 2002, 2001, 2000, respectively. The following tables present information about reported segment operations.
NORTH AMERICA ----------------- OTHER YEAR ENDED DECEMBER 31, 2002 U.S. CANADA INTERNATIONAL TOTAL - ------------------------------------------------------------------------------------------------------- (In Millions) - ------------------------------------------------------------------------------------------------------- Revenues $1,642 $1,161 $161 $2,964 Depreciation, depletion and amortization 350 382 78 810 Income (loss) before income taxes and cumulative effect of change in accounting principle 817 278 (99) 996 Capital expenditures $ 491 $ 868 $435 $1,794 - -------------------------------------------------------------------------------------------------------
NORTH AMERICA ----------------- OTHER YEAR ENDED DECEMBER 31, 2001 U.S. CANADA INTERNATIONAL TOTAL - ------------------------------------------------------------------------------------------------------- (In Millions) - ------------------------------------------------------------------------------------------------------- Revenues $2,260 $ 947 $212 $3,419 Depreciation, depletion and amortization 459 170 86 715 Impairment of oil and gas properties 184 -- -- 184 Income before income taxes and cumulative effect of change in accounting principle 772 458 25 1,255 Capital expenditures $ 653 $2,558 $217 $3,428 - -------------------------------------------------------------------------------------------------------
NORTH AMERICA ---------------- OTHER YEAR ENDED DECEMBER 31, 2000 U.S. CANADA INTERNATIONAL TOTAL - ------------------------------------------------------------------------------------------------------ (In Millions) - ------------------------------------------------------------------------------------------------------ Revenues $2,280 $752 $186 $3,218 Depreciation, depletion and amortization 510 123 58 691 Income before income taxes and cumulative effect of change in accounting principle 1,026 313 36 1,375 Capital expenditures $ 468 $336 $179 $ 983 - ------------------------------------------------------------------------------------------------------
50 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation of segment income before income taxes and cumulative effect of change in accounting principle to consolidated income before income taxes and cumulative effect of change in accounting principle. For segment reporting purposes, total interest expense and other expense (income)--net have been excluded from segment operations.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - -------------------------------------------------------------------------------------- (In Millions) - -------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle for reportable segments $996 $1,255 $1,375 Corporate expenses 184 170 184 Interest expense 274 190 197 Other expense (income)--net (31) (12) 27 - -------------------------------------------------------------------------------------- Consolidated income before income taxes and cumulative effect of change in accounting principle $569 $ 907 $ 967 - --------------------------------------------------------------------------------------
The following is a reconciliation of segment additions to properties to consolidated amounts.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ---------------------------------------------------------------------------------------- (In Millions) - ---------------------------------------------------------------------------------------- Total capital expenditures for reportable segments $1,794 $3,428 $ 983 Administrative capital expenditures 43 26 29 - ---------------------------------------------------------------------------------------- Consolidated capital expenditures $1,837 $3,454 $1,012 - ----------------------------------------------------------------------------------------
15. TAXES OTHER THAN INCOME TAXES Taxes other than income taxes are as follow.
YEAR ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------- (In Millions) - ------------------------------------------------------------------------------------- Severance taxes $ 85 $ 137 $ 130 Ad valorem taxes 25 17 17 Payroll taxes and other 13 12 12 - ------------------------------------------------------------------------------------- Total taxes other than income taxes $ 123 $ 166 $ 159 - -------------------------------------------------------------------------------------
16. OTHER MATTERS Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN No. 46), which addresses consolidation by business enterprises of variable interest entities. FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not expect to identify any variable interest entities that must be consolidated. In the event a variable interest entity is identified, the Company does not expect the requirements of FIN No. 46 to have a material impact on its financial condition or results of operations. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). FIN No. 45 requires certain guarantees to be recorded at fair value, which is different from current practice to record a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, Accounting for Contingencies. FIN No. 45 also requires the Company to make significant new disclosures about guarantees. The disclosure requirements of FIN No. 45 are effective for the Company in the first quarter of fiscal year 2003. FIN No. 45's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company's previous accounting for guarantees issued prior to the date of the initial application of FIN No. 45 51 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) will not be revised or restated to reflect the provisions of FIN No. 45. The Company does not expect the adoption of FIN No. 45 to have a material impact on its consolidated financial position, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted SFAS No. 146 on January 1, 2003, but at this time this statement has no effect on the Company's consolidated financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. SFAS No. 145, which is effective for fiscal years beginning after May 15, 2002, provides guidance for income statement classification of gains and losses on extinguishment of debt and accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company adopted SFAS No. 145 on January 1, 2003, but at this time this statement has no effect on the Company's consolidated financial position or results of operations. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost should be allocated to expense using a systematic and rational method. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Based on current estimates, the Company expects to record a net-of-tax cumulative effect of change in accounting principle loss, in the first quarter of 2003, of approximately $59 million in accordance with the provisions of SFAS No. 143. There will be no impact on the Company's cash flows as a result of adopting SFAS No. 143. 52 REPORT OF MANAGEMENT The management of the Company is responsible for the preparation and integrity of all information contained in this Annual Report. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The financial statements include amounts that are management's best estimates and judgments. BR maintains a system of internal controls and a program of internal auditing that provides management with reasonable assurance that the Company's assets are protected and that its published financial statements are reliable and free of material misstatement. Management is responsible for the effectiveness of internal controls. This is accomplished through established codes of conduct, accounting and other control systems, policies and procedures, employee selection and training, appropriate delegation of authority and segregation of responsibilities. The Audit Committee of the Board of Directors, composed solely of directors who are not officers or employees, meets regularly with BR's independent accountants, financial management, counsel and internal audit. To ensure complete independence, the independent accountants and internal audit personnel have full and free access to the Audit Committee to discuss the results of their audits, the adequacy of internal controls and the quality of financial reporting. Our independent accountants provide an objective independent review by their audit of the Company's financial statements. Their audit is conducted in accordance with auditing standards generally accepted in the United States of America and includes a review of internal accounting controls to the extent deemed necessary for the purposes of their audit. /s/ STEVEN J. SHAPIRO /s/ JOSEPH P. McCOY Steven J. Shapiro Joseph P. McCoy Executive Vice President and Vice President, Controller and Chief Financial Officer Chief Accounting Officer 53 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Burlington Resources Inc.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, cash flows and stockholders' equity, present fairly, in all material respects, the financial position of Burlington Resources Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 6 to the consolidated financial statements, on January 1, 2001, the Company changed its method of accounting for its derivative instruments and hedging activities in connection with its adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. /s/ PricewaterhouseCoopers LLP February 19, 2003 Houston, Texas 54 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION SUPPLEMENTAL OIL AND GAS DISCLOSURES--UNAUDITED The supplemental data presented herein reflects information for all of the Company's oil and gas producing activities. Costs incurred for oil and gas property acquisition, exploration and development activities follow.
NORTH AMERICA -------------- OTHER YEAR ENDED DECEMBER 31, 2002 U.S. CANADA INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Property acquisition Unproved $ 4 $ 13 $ -- $ 17 Proved 178 352 74 604 Exploration 35 126 40 201 Development Proved developed 165 279 32 476 Proved undeveloped 81 69 153 303 - ----------------------------------------------------------------------------------------------------- Total costs incurred $463 $839 $299 $1,601 - -----------------------------------------------------------------------------------------------------
NORTH AMERICA ----------------- OTHER YEAR ENDED DECEMBER 31, 2001 U.S. CANADA(1) INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Property acquisition Unproved $ 14 $ 876 $ 4 $ 894 Proved 67 1,042 30 1,139 Exploration 99 76 48 223 Development Proved developed 292 251 10 553 Proved undeveloped 111 37 125 273 - ----------------------------------------------------------------------------------------------------- Total costs incurred $583 $2,282 $217 $3,082 - -----------------------------------------------------------------------------------------------------
(1) The amounts exclude deferred taxes of $902 million related to the Hunter acquisition.
NORTH AMERICA -------------- OTHER YEAR ENDED DECEMBER 31, 2000 U.S. CANADA INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Property acquisition Unproved $ 12 $ 21 $ 9 $ 42 Proved 6 14 29 49 Exploration 106 129 61 296 Development Proved developed 219 122 19 360 Proved undeveloped 69 30 61 160 - ----------------------------------------------------------------------------------------------------- Total costs incurred $412 $316 $179 $907 - -----------------------------------------------------------------------------------------------------
The Company estimates that it will spend capital of approximately $589 million, $371 million and $241 million in 2003, 2004 and 2005, respectively, for the development of its proved undeveloped reserves. 55 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION Results of operations for oil, NGLs and gas producing activities, which exclude pipeline and processing activities, corporate general and administrative expenses, fixed-rate depreciation expense, and payroll and miscellaneous taxes, were as follow. Intersegment sales were $17 million, $157 million and $85 million in 2002, 2001 and 2000, respectively.
NORTH AMERICA ----------------- OTHER YEAR ENDED DECEMBER 31, 2002 U.S. CANADA INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Revenues $1,631 $1,162 $161 $2,954 - ----------------------------------------------------------------------------------------------------- Production costs 307 141 23 471 Exploration costs 116 121 49 286 Operating expenses 233 187 43 463 Depreciation, depletion and amortization 330 358 75 763 Income tax provision 224 151 10 385 - ----------------------------------------------------------------------------------------------------- Results of operations for oil and gas producing activities $ 421 $ 204 $(39) $ 586 - -----------------------------------------------------------------------------------------------------
NORTH AMERICA ---------------- OTHER YEAR ENDED DECEMBER 31, 2001 U.S. CANADA INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Revenues $2,181 $946 $212 $3,339 - ----------------------------------------------------------------------------------------------------- Production costs 401 137 17 555 Exploration costs 167 52 39 258 Operating expenses 260 123 45 428 Depreciation, depletion and amortization 438 162 82 682 Impairment of oil and gas properties 184 -- -- 184 Income tax provision (benefit) 265 234 (1) 498 - ----------------------------------------------------------------------------------------------------- Results of operations for oil and gas producing activities $ 466 $238 $ 30 $ 734 - -----------------------------------------------------------------------------------------------------
NORTH AMERICA ---------------- OTHER YEAR ENDED DECEMBER 31, 2000 U.S. CANADA INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------- Revenues $2,226 $748 $186 $3,160 - ----------------------------------------------------------------------------------------------------- Production costs 372 122 20 514 Exploration costs 103 92 42 237 Operating expenses 276 89 30 395 Depreciation, depletion and amortization 487 118 54 659 Income tax provision 256 157 23 436 - ----------------------------------------------------------------------------------------------------- Results of operations for oil and gas producing activities $ 732 $170 $ 17 $ 919 - -----------------------------------------------------------------------------------------------------
56 (This page intentionally left blank) 57 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION The following table reflects estimated quantities of proved oil, NGLs and gas reserves. These reserves have been estimated by the Company's petroleum engineers in accordance with the Securities and Exchange Commission's regulations. The Company considers such estimates to be reasonable, however, due to inherent uncertainties, estimates of underground reserves are imprecise and subject to change over time as additional information becomes available. Miller and Lents, Ltd. and Sproule Associates Limited, independent oil and gas consultants, have reviewed the estimates of proved reserves of natural gas, oil and NGLs that BR attributed to its net interests in oil and gas properties as of December 31, 2002. Miller and Lents, Ltd. reviewed the reserve estimates for the Company's U.S. and international interests (excluding Canada and Argentina) and Sproule Associates Limited reviewed the Company's interests in Canada and Argentina. Based on their review of more than 80 percent of the Company's reserve estimates, it is their judgment that the estimates are reasonable in the aggregate.
OIL (MMBBLS) - ----------------------------------------------------------------------------------------------------- NORTH AMERICA --------------- OTHER U.S. CANADA INTERNATIONAL WORLDWIDE - ----------------------------------------------------------------------------------------------------- PROVED DEVELOPED AND UNDEVELOPED RESERVES December 31, 1999 216.2 51.9 44.1 312.2 Revisions of previous estimates 0.2 8.3 0.9 9.4 Extensions, discoveries and other additions 7.5 1.9 15.3 24.7 Production (18.8) (4.6) (3.5) (26.9) Purchases of reserves in place 0.6 -- 14.7 15.3 Sales of reserves in place (1.5) -- (1.5) (3.0) - ----------------------------------------------------------------------------------------------------- December 31, 2000 204.2 57.5 70.0 331.7 Revisions of previous estimates (10.7) (0.6) 0.4 (10.9) Extensions, discoveries and other additions 66.7 2.9 2.5 72.1 Production (16.1) (4.3) (2.7) (23.1) Purchases of reserves in place 0.4 1.2 0.8 2.4 Sales of reserves in place (0.2) (0.1) -- (0.3) - ----------------------------------------------------------------------------------------------------- December 31, 2001 244.3 56.6 71.0 371.9 Revisions of previous estimates (2.0) (1.4) (1.6) (5.0) Extensions, discoveries and other additions 2.8 5.3 6.3 14.4 Production (13.0) (2.8) (2.1) (17.9) Purchase of reserves in place 1.2 -- 19.9 21.1 Sales of reserves in place (46.1) (43.3) (7.2) (96.6) - ----------------------------------------------------------------------------------------------------- December 31, 2002 187.2 14.4 86.3 287.9 - ----------------------------------------------------------------------------------------------------- PROVED DEVELOPED RESERVES December 31, 1999 168.3 43.2 13.5 225.0 December 31, 2000 169.7 43.0 10.4 223.1 December 31, 2001 163.7 38.4 9.3 211.4 December 31, 2002 155.2 12.9 12.9 181.0 - -----------------------------------------------------------------------------------------------------
57 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION
NGLS (MMBBLS) GAS (BCF) - ----------------------------------------------------------------------------------------------- NORTH AMERICA NORTH AMERICA TOTAL --------------- --------------- OTHER EQUIVALENT U.S. CANADA WORLDWIDE U.S. CANADA INTERNATIONAL WORLDWIDE (BCFE) - ----------------------------------------------------------------------------------------------- 212.6 51.2 263.8 4,935 1,211 803 6,949 10,404 (1.5) (8.8) (10.3) (71) (103) (9) (183) (188) 24.1 5.7 29.8 489 192 8 689 1,016 (13.2) (4.1) (17.3) (463) (125) (43) (631) (896) 0.2 0.1 0.3 5 18 -- 23 117 -- (0.1) (0.1) (11) (4) (30) (45) (64) - ----------------------------------------------------------------------------------------------- 222.2 44.0 266.2 4,884 1,189 729 6,802 10,389 5.8 (12.9) (7.1) 107 (66) (35) 6 (102) 9.6 4.8 14.4 253 165 58 476 995 (12.6) (4.6) (17.2) (409) (158) (62) (629) (871) 2.7 16.4 19.1 59 1,007 207 1,273 1,402 -- -- -- (2) (1) -- (3) (5) - ----------------------------------------------------------------------------------------------- 227.7 47.7 275.4 4,892 2,136 897 7,925 11,808 9.8 14.7 24.5 (14) (140) (11) (165) (48) 15.7 9.2 24.9 350 341 85 776 1,012 (11.9) (10.0) (21.9) (346) (293) (60) (699) (938) -- 0.2 0.2 153 268 -- 421 549 (0.9) (2.0) (2.9) (282) (16) (70) (368) (965) - ----------------------------------------------------------------------------------------------- 240.4 59.8 300.2 4,753 2,296 841 7,890 11,418 - ----------------------------------------------------------------------------------------------- 168.3 41.6 209.9 3,907 983 289 5,179 7,788 177.6 35.5 213.1 3,903 960 251 5,114 7,731 175.5 39.3 214.8 3,771 1,758 384 5,913 8,470 179.2 53.1 232.3 3,617 1,836 263 5,716 8,196 - -----------------------------------------------------------------------------------------------
58 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION A summary of the standardized measure of discounted future net cash flows relating to proved oil, NGLs and gas reserves is shown below. Future net cash flows are computed using year end commodity prices, costs and statutory tax rates (adjusted for tax credits and other items) that relate to the Company's existing proved oil, NGLs and gas reserves.
NORTH AMERICA --------------------- OTHER 2002 U.S. CANADA INTERNATIONAL TOTAL - ------------------------------------------------------------------------------------------------------------ (In Millions) - ------------------------------------------------------------------------------------------------------------ Future cash inflows $ 24,879 $ 10,563 $ 3,861 $ 39,303 Less related future Production costs 5,543 1,634 1,072 8,249 Development costs 750 327 614 1,691 Income taxes 6,018 2,940 475 9,433 - ------------------------------------------------------------------------------------------------------------ Future net cash flows 12,568 5,662 1,700 19,930 10% annual discount for estimated timing of cash flows 6,976 1,894 646 9,516 - ------------------------------------------------------------------------------------------------------------ Standardized measure of discounted future net cash flows $ 5,592 $ 3,768 $ 1,054 $ 10,414 - ------------------------------------------------------------------------------------------------------------
NORTH AMERICA -------------------- OTHER 2001 U.S. CANADA INTERNATIONAL TOTAL - ----------------------------------------------------------------------------------------------------------- (In Millions) - ----------------------------------------------------------------------------------------------------------- Future cash inflows $ 15,544 $6,206 $ 3,948 $ 25,698 Less related future Production costs 4,612 1,606 1,042 7,260 Development costs 752 654 741 2,147 Income taxes 2,701 1,433 621 4,755 - ----------------------------------------------------------------------------------------------------------- Future net cash flows 7,479 2,513 1,544 11,536 10% annual discount for estimated timing of cash flows 3,971 920 645 5,536 - ----------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows $ 3,508 $1,593 $ 899 $ 6,000 - -----------------------------------------------------------------------------------------------------------
NORTH AMERICA --------------------- OTHER 2000 U.S. CANADA INTERNATIONAL TOTAL - ------------------------------------------------------------------------------------------------------------ (In Millions) - ------------------------------------------------------------------------------------------------------------ Future cash inflows $ 52,400 $13,722 $ 3,895 $ 70,017 Less related future Production costs 7,732 1,394 926 10,052 Development costs 670 656 632 1,958 Income taxes 14,959 4,655 773 20,387 - ------------------------------------------------------------------------------------------------------------ Future net cash flows 29,039 7,017 1,564 37,620 10% annual discount for estimated timing of cash flows 15,173 2,879 764 18,816 - ------------------------------------------------------------------------------------------------------------ Standardized measure of discounted future net cash flows $ 13,866 $ 4,138 $ 800 $ 18,804 - ------------------------------------------------------------------------------------------------------------
60 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved oil, NGLs and gas reserves follows.
2002 2001 2000 - ---------------------------------------------------------------------------------------------- (In Millions) - ---------------------------------------------------------------------------------------------- January 1 $ 6,000 $ 18,804 $ 6,293 - ---------------------------------------------------------------------------------------------- Revisions of previous estimates Changes in prices and costs 6,744 (22,602) 18,827 Changes in quantities (26) 60 (157) Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs 1,235 483 2,613 Purchases of reserves in place 656 1,147 191 Sales of reserves in place (1,215) (15) (46) Accretion of discount 815 2,879 825 Sales of oil and gas, net of production costs (2,483) (2,784) (2,646) Net change in income taxes (2,158) 7,836 (8,023) Changes in rate of production and other 846 192 927 - ---------------------------------------------------------------------------------------------- Net change 4,414 (12,804) 12,511 - ---------------------------------------------------------------------------------------------- December 31 $ 10,414 $ 6,000 $18,804 - ----------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA--UNAUDITED
2002 2001 - ------------------------------------------------------------------------------------------------------- 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST - ------------------------------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) - ------------------------------------------------------------------------------------------------------- Revenues(a) $ 833 $ 651 $ 786 $ 694 $ 643 $ 679 $ 942 $1,155 Income Before Income Taxes and Cumulative Effect of change in Accounting Principle(b) 234 67 207 61 (137) 106 380 557 Income Before Cumulative Effect of Change in Accounting Principle 157 79 170 48 (79) 73 231 333 Net Income (Loss)(b) 157 79 170 48 (79) 73 231 336 Basic Earnings (Loss) per Common Share 0.78 0.39 0.84 0.24 (0.39) 0.36 1.10 1.57 Diluted Earnings (Loss) per Common Share 0.78 0.39 0.84 0.24 (0.39) 0.36 1.10 1.56 Cash Dividends Declared per Common Share 0.14 0.13 0.14 0.14 0.14 0.13 0.14 0.14 Common Stock Price Range High 43.67 39.65 45.34 41.60 39.75 44.19 51.95 53.63 Low $34.76 $32.00 $36.90 $32.30 $32.75 $31.69 $37.55 $40.98 - -------------------------------------------------------------------------------------------------------
(a)Revenues for previously reported quarters reflect reclassifications made between revenues and costs and expenses during the fourth quarter of 2002. Revenues as reported in the Company's previously filed quarterly reports on Form 10-Q were as follow.
2002 2001 - ------------------------------------------------------------------------------------------------------- 3RD 2ND 1ST 3RD 2ND 1ST - ------------------------------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) - ------------------------------------------------------------------------------------------------------- Revenues, as reported $ 630 $ 769 $ 683 $ 666 $ 928 $1,152 - -------------------------------------------------------------------------------------------------------
(b)During the fourth quarter of 2001, the Company recognized a non-cash, pretax charge of $184 million primarily related to the impairment of oil and gas properties held for sale. 61 ITEM NINE CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS TEN AND ELEVEN DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND EXECUTIVE COMPENSATION A definitive proxy statement for the 2003 Annual Meeting of Stockholders (the Proxy Statement) of the Company will be filed no later than 120 days after the end of the fiscal year with the Securities and Exchange Commission. The information set forth therein under "Election of Directors" and "Executive Compensation" is incorporated herein by reference. Certain information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of this report. ITEM TWELVE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The information required is set forth under the caption "Stock Ownership of Management and Certain Other Holders" in the Proxy Statement and is incorporated herein by reference. EQUITY COMPENSATION PLAN INFORMATION AT DECEMBER 31, 2002
NUMBER OF SECURITIES NUMBER OF SECURITIES REMAINING AVAILABLE FOR TO BE ISSUED WEIGHTED AVERAGE FUTURE ISSUANCE UNDER UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN(A)) PLAN CATEGORY (a) (b) (c) - ----------------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 5,656,724 42.10 7,650,425 Equity compensation plan not approved by security holders(1) 1,507,490 43.69 4,998,500 - ----------------------------------------------------------------------------------------------------------- Total 7,164,214 42.44 12,648,925 - -----------------------------------------------------------------------------------------------------------
(1) See Note 9 of Notes to Consolidated Financial Statements for a description of the Company's 1997 Employee Stock Incentive Plan, which is the only compensation plan in effect that was adopted without the approval of the Company's stockholders. ITEM THIRTEEN CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required is set forth under the caption "Certain Relationships and Related Transactions" in the Proxy Statement and is incorporated herein by reference. 61 ITEM FOURTEEN CONTROLS AND PROCEDURES Within 90 days prior to the filing date of this report, under the supervision and with the participation of certain members of the Company's management, including the Chief Executive Officer and Chief Financial Officer, the Company completed an evaluation of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) to the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer believe that the disclosure controls and procedures are effective with respect to timely communication to them and other members of management responsible for preparing periodic reports all material information required to be disclosed in this report as it relates to the Company and its consolidated subsidiaries. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recently completed evaluation, including any corrective actions with regards to significant deficiencies and material weaknesses. PART IV ITEM FIFTEEN EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE - ------------------------------------------------------------------ FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION Consolidated Statement of Income 28 Consolidated Balance Sheet 29 Consolidated Statement of Cash Flows 30 Consolidated Statement of Stockholders' Equity 31 Notes to Consolidated Financial Statements 32 Report of Independent Accountants 54 Supplemental Oil and Gas Disclosures -- Unaudited 55 Quarterly Financial Data -- Unaudited 61 AMENDED EXHIBIT INDEX A-1 - ------------------------------------------------------------------
REPORTS ON FORM 8-K The Company filed no reports on Form 8-K during the last quarter of the fiscal year ended December 31, 2002. 62 SIGNATURES REQUIRED FOR FORM 10-K Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Burlington Resources Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BURLINGTON RESOURCES INC. By /s/ BOBBY S. SHACKOULS ------------------------------------ Bobby S. Shackouls Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Burlington Resources Inc. and in the capacities and on the dates indicated. By /s/ BOBBY S. SHACKOULS Chairman of the Board, President and March 12, 2003 --------------------------------------------- Chief Executive Officer Bobby S. Shackouls /s/ STEVEN J. SHAPIRO Executive Vice President and Chief March 12, 2003 - ------------------------------------------------ Financial Officer Steven J. Shapiro /s/ JOSEPH P. MCCOY Vice President, Controller and Chief March 12, 2003 - ------------------------------------------------ Accounting Officer Joseph P. McCoy /s/ REUBEN V. ANDERSON Director March 12, 2003 - ------------------------------------------------ Reuben V. Anderson /s/ LAIRD I. GRANT Director March 12, 2003 - ------------------------------------------------ Laird I. Grant /s/ JOHN T. LAMACCHIA Director March 12, 2003 - ------------------------------------------------ John T. LaMacchia /s/ JAMES F. MCDONALD Director March 12, 2003 - ------------------------------------------------ James F. McDonald /s/ KENNETH W. ORCE Director March 12, 2003 - ------------------------------------------------ Kenneth W. Orce /s/ DONALD M. ROBERTS Director March 12, 2003 - ------------------------------------------------ Donald M. Roberts /s/ JOHN F. SCHWARZ Director March 12, 2003 - ------------------------------------------------ John F. Schwarz /s/ WALTER SCOTT, JR. Director March 12, 2003 - ------------------------------------------------ Walter Scott, Jr. /s/ WILLIAM E. WADE, JR. Director March 12, 2003 - ------------------------------------------------ William E. Wade, Jr. /s/ ROBERT J. HARDING Director March 12, 2003 - ------------------------------------------------ Robert J. Harding
CERTIFICATIONS I, Bobby S. Shackouls, certify that: 1. I have reviewed this annual report on Form 10-K of Burlington Resources Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 12, 2003 /s/ BOBBY S. SHACKOULS Bobby S. Shackouls Chairman of the Board, President and Chief Executive Officer CERTIFICATIONS I, Steven J. Shapiro, certify that: 1. I have reviewed this annual report on Form 10-K of Burlington Resources Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 12, 2003 /s/ STEVEN J. SHAPIRO Steven J. Shapiro Executive Vice President and Chief Financial Officer CERTIFICATION ACCOMPANYING ANNUAL REPORT PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SEC.1350) The undersigned, Bobby S. Shackouls, Chairman of the Board, President and Chief Executive Officer of Burlington Resources Inc. (Company), hereby certifies that the Annual Report of the Company on Form 10-K for the year ended December 31, 2002 (the Report) (1) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 12, 2003 /s/ BOBBY S. SHACKOULS Bobby S. Shackouls Chairman of the Board, President and Chief Executive Officer CERTIFICATION ACCOMPANYING ANNUAL REPORT PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SEC.1350) The undersigned, Steven J. Shapiro, Executive Vice President and Chief Financial Officer of Burlington Resources Inc. (Company), hereby certifies that the Annual Report of the Company on Form 10-K for the year ended December 31, 2002 (the Report) (1) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 12, 2003 /s/ STEVEN J. SHAPIRO Steven J. Shapiro Executive Vice President and Chief Financial Officer BURLINGTON RESOURCES INC. AMENDED EXHIBIT INDEX The following exhibits are filed as part of this report.
EXHIBIT NUMBER DESCRIPTION - ------------------------------------------------------------------------------- 3.1 Certificate of Incorporation of Burlington Resources Inc. as amended November 18, 1999 * Certificate of Elimination of Burlington Resources Inc. filed December 12, 2002 relating to the elimination of the Special Voting Stock 3.2 By-Laws of Burlington Resources Inc. amended as of March 1, 2003 4.1 Form of Shareholder Rights Agreement dated as of December 16, 1998, between Burlington Resources Inc. and EquiServe Trust Company, N.A. (the current Rights Agent) which includes, as Exhibit A thereto, the form of Certificate of Designation specifying terms of the Series A Junior Participating Preferred Stock and, as Exhibit B thereto, the form of Rights Certificate (Exhibit 1 to Form 8-A, filed December 1998) * 4.2 Indenture, dated as of June 15, 1990, between Burlington Resources Inc. and Citibank, N.A. (as Trustee), including Form of Debt Securities (Exhibit 4.2 to Form 8, filed February 1992) * 4.3 Indenture, dated as of October 1, 1991, between Burlington Resources Inc. and Citibank, N.A. (as Trustee), including Form of Debt Securities (Exhibit 4.3 to Form 8, filed February 1992) * 4.4 Indenture, dated as of April 1, 1992, between Burlington Resources Inc. and Citibank, N.A. (as Trustee), including Form of Debt Securities (Exhibit 4.4 to Form 8, filed March 1993) * 4.5 Indenture, dated as of June 15, 1992, between The Louisiana Land and Exploration Company ("LL&E") and Texas Commerce Bank National Association (as Trustee) (Exhibit 4.1 to LL&E's Form S-3, as amended, filed November 1993) * 4.6 Indenture, dated as of February 12, 2001, between Burlington Resources Finance Company and Citibank, N.A. (as Trustee), including form of Debt Securities (Exhibit 4.2 to Form S-4, filed April 2002) * 4.7 Guarantee Agreement, dated as of February 12, 2001, of Burlington Resources Inc. with Respect to Senior Debt Securities of Burlington Resources Finance Company (Exhibit 4.5 to Form S-4, filed April 2002) * +10.1 The 1988 Burlington Resources Inc. Stock Option Incentive Plan as amended (Exhibit 10.4 to Form 8, filed March 1993) * +10.2 Burlington Resources Inc. Incentive Compensation Plan as amended and restated (Exhibit 10.29 to Form 10-Q, filed November 2000) * Amendment to Burlington Resources Inc. Incentive Compensation Plan dated December 2000 (Exhibit 10.2 to Form 10-K, filed February 2001) * Amendment No. 1, dated January 9, 2002, to Burlington Resources Inc. Incentive Compensation Plan (Exhibit 10.1 to Form 10-Q, filed April 2002) * +10.3 Burlington Resources Inc. Senior Executive Survivor Benefit Plan dated as of January 1, 1989 (Exhibit 10.11 to Form 8, filed February 1989) * +10.4 Burlington Resources Inc. Deferred Compensation Plan as amended and restated (Exhibit 10.4 to Form 10-K, filed February 1997) * +10.5 Burlington Resources Inc. Supplemental Benefits Plan as amended and restated (Exhibit 10.5 to Form 10-K, filed February 1997) * +10.6 Amended and Restated Employment Contract between the Company and Bobby S. Shackouls (Exhibit 10.29 to Form 10-Q, filed August 1999) * +10.7 Burlington Resources Inc. Compensation Plan for Non-Employee Directors as amended and restated (Exhibit 10.8 to Form 10-K, filed February 1997) * +10.8 Amended and Restated Burlington Resources Inc. Executive Change in Control Severance Plan (Exhibit 10.8 to Form 10-K, filed February 2001) * +10.9 Burlington Resources Inc. Retirement Income Plan for Directors (Exhibit 10.21 to Form 8, filed February 1991) *
A-1
EXHIBIT NUMBER DESCRIPTION - ------------------------------------------------------------------------------- +10.10 Burlington Resources Inc. 1991 Director Charitable Award Plan, dated as of January 16, 1991 (Exhibit 10.21 to Form 8, filed February 1991) * Amendment No. 1 dated April 9, 1997 to Burlington Resources Inc. 1991 Director Charitable Award Plan Amendment No. 2 dated January 22, 2003 to Burlington Resources Inc. 1991 Director Charitable Award Plan 10.11 Master Separation Agreement and documents related thereto dated January 15, 1992 by and among Burlington Resources Inc., El Paso Natural Gas Company and Meridian Oil Holding Inc., including exhibits (Exhibit 10.24 to Form 8, filed February 1992) * +10.12 Burlington Resources Inc. 1992 Stock Option Plan for Non-employee Directors (Exhibit 28.1 of Form S-8, No. 33-46518, filed March 1992) * +10.13 Burlington Resources Inc. Key Executive Retention Plan and Amendments No. 1 and 2 (Exhibit 10.20 to Form 8, filed March 1993) * Amendments No. 3 and 4 to the Burlington Resources Inc. Key Executive Retention Plan (Exhibit 10.17 to Form 10-K, filed February 1994) * +10.14 Burlington Resources Inc. 1992 Performance Share Unit Plan as amended and restated (Exhibit 10.17 to Form 10-K, filed February 1997) * +10.15 Burlington Resources Inc. 1993 Stock Incentive Plan (Exhibit 10.22 to Form 10-K, filed February 1994) * Amendment to Burlington Resources Inc. 1993 Stock Incentive Plan dated April 2000 (Exhibit 10.15 to Form 10-K, filed February 2001) * Amendment to Burlington Resources 1993 Stock Incentive Plan dated December 2000 (Exhibit 10.2 to Form 10-K, filed February 2001) * +10.16 Burlington Resources Inc. 1994 Restricted Stock Exchange Plan (Exhibit 10.23 to Form 10-K, filed February 1995) * Amendment to Burlington Resources Inc. 1994 Restricted Stock Exchange Plan dated December 2000 (Exhibit 10.2 to Form 10-K, filed February 2001) * +10.17 Burlington Resources Inc. 1997 Performance Share Unit Plan (Exhibit 10.21 to Form 10-K, filed February 1997) * 10.18 $400 million Short-term Revolving Credit Agreement, dated as of February 25, 1998, as Amended and Restated December 5, 2002, between Burlington Resources Inc. and JPMorgan Chase Bank, as agent 10.19 $600 million Long-term Revolving Credit Agreement, dated as of February 25, 1998, as Amended and Restated December 7, 2001, between Burlington Resources Inc. and JPMorgan Chase Bank, as agent (Exhibit 10.19 to Form 10-K, filed February 2002) * Amendment No. 1 dated April 25, 2002 to $600 million Long-term Revolving Credit Agreement (Exhibit 10.19 to Amendment No. 1 to Form S-4, filed June 2002) * Amendment No. 2 dated December 5, 2002 to $600 million Long-term Revolving Credit Agreement +10.20 Form of The Louisiana Land and Exploration Company Deferred Compensation Arrangement for Selected Key Employees (Exhibit 10(g) to LL&E's Form 10-K, filed March 1991) * Amendment to the LL&E Deferred Compensation Arrangement for Selected Key Employees dated December 21, 1998 (Exhibit 10.26 to Form 10-K, filed February 1999) * +10.21 The LL&E Supplemental Excess Plan (Exhibit 10(j) to LL&E's Form 10-K, filed March 1993) * +10.22 Form of agreement on pension related benefits with certain former Seattle holding company office employees, including L. David Hanower (Exhibit 10.26 to Form 10-K, filed March 17, 2000) * +10.23 Poco Petroleums Ltd. Incentive Stock Option Plan (Form S-8 No. 333-91247, filed November 18, 1999) * +10.24 Employee Savings Plan for Eligible Employees of Poco Petroleums Ltd. (Exhibit 4.4 to Form S-8 No. 333-95071, filed January 20, 2000) *
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EXHIBIT NUMBER DESCRIPTION - ------------------------------------------------------------------------------- +10.25 Burlington Resources Inc. Phantom Stock Plan for Non-Employee Directors (Exhibit 10.12 to Form 10-K, filed February 1996) * First Amendment to the Burlington Resources Inc. Phantom Stock Plan for Non-Employee Directors (Exhibit 10.29 to Form 10-Q, filed May 2000) * +10.26 Burlington Resources Inc. 2000 Stock Option Plan for Non-Employee Directors (Exhibit 10.30 to Form 10-Q, filed August 2000) * +10.27 Letter agreement regarding Steven J. Shapiro dated October 18, 2000 related to supplemental pension benefits in connection with employment (Exhibit 10.29 to Form 10-K, filed February 2001) * +10.28 Burlington Resources Inc. 2001 Performance Share Unit Plan (Exhibit 10.30 to Form 10-K, filed February 2001) * Amendment No. 1, dated January 9, 2002, to Burlington Resources Inc. 2001 Performance Share Unit Plan (Exhibit 10.2 to Form 10-Q, filed April 2002) * 10.29 Pre-Acquisition Agreement between Burlington Resources Inc. and Canadian Hunter Exploration Ltd. dated October 8, 2001 (Exhibit 99.2 to Form 8-K, filed October 2001) * 10.30 Canadian Credit Agreement, dated as of March 31, 2000, as Amended and Restated December 5, 2002, among Burlington Resources Canada Ltd., Canadian Hunter Exploration Ltd., Burlington Resources Inc. and J.P. Morgan Chase Bank, Toronto Branch 10.31 $350 million Bridge Revolving Credit Agreement, dated as of January 2, 2002, between Burlington Resources Inc. and JPMorgan Chase Bank, as agent * 10.32 Burlington Resources Inc. 2002 Stock Incentive Plan (Exhibit A to Schedule 14A, filed March 15, 2002) * 10.33 Burlington Resources Inc. 1997 Employee Stock Incentive Plan 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants -- PricewaterhouseCoopers LLP 23.2 Consent of Independent Oil and Gas Consultant -- Miller and Lents, Ltd. 23.3 Consent of Independent Oil and Gas Consultant -- Sproule Associates Limited - -------------------------------------------------------------------------------
*Exhibit incorporated herein by reference as indicated. +Exhibit constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. A-3 EX-3.1 3 h02234exv3w1.txt CERTIFICATE OF INCORPORATION, AS AMENDED EXHIBIT 3.1 CERTIFICATE OF ELIMINATION OF BURLINGTON RESOURCES INC. Burlington Resources Inc., a Delaware corporation (the "Company"), hereby certifies that: FIRST: At a meeting of the Board of Directors of the Company, duly called when a quorum was present, a resolution was duly adopted concerning the elimination of the Company's Special Voting Stock ("Special Voting Stock"). The resolution is as follows: WHEREAS, all outstanding Exchangeable Shares of Burlington Resources Canada Inc. ("Exchangeable Shares") have been converted into common stock of the Company; and WHEREAS, pursuant to the terms of the Voting and Exchange Trust Agreement dated as of November 18, 1999 ("Trust Agreement") among the Company, Burlington Resources Canada Inc. and CIBC Mellon Trust, As Trustee ("Trustee") (i) the Trust created by the Trust Agreement has terminated since there are no outstanding Exchangeable Shares, and, (ii) the Trustee has returned to the Company the one issued and outstanding share of Special Voting Stock; and WHEREAS, pursuant to the terms of the Certificate of Designation, Preferences and Rights of Preferred Stock of the Special Voting Stock filed as of November 9, 1999 with the Delaware Secretary of State ("Special Voting Stock Certificate of Designation") as contained in the Company's Articles of Incorporation, as amended (i) the Special Voting Stock is deemed retired and cancelled upon acquisition by the Company, and (ii) no further shares of Special Voting Stock may be issued; NOW, THEREFORE, IT IS RESOLVED, that the proper officers of the Company be, and hereby are, authorized to file a Certificate of Elimination with the Secretary of State of Delaware to eliminate from the Company's Certificate of Incorporation, as amended, all matters set forth in the Special Voting Stock Certificate of Designation. SECOND: Pursuant to the provisions of Section 151(g) of the Delaware General Corporation Law, upon the effective date of the filing of this certificate, the elimination of all matters set forth in the Special Voting Stock Certificate of Designation from the Company's Articles of Incorporation as amended, shall be effected; IN WITNESS WHEREOF, the Company has caused this certificate to be signed this 12th day of December, 2002 BURLINGTON RESOURCES INC. By: /S/ Frederick J. Plaeger II ------------------------------------- Name: Frederick J. Plaeger II Title: Vice President, General Counsel & Assistant Secretary EX-3.2 4 h02234exv3w2.txt BY-LAWS, AS AMENDED EXHIBIT 3.2 BY-LAWS OF BURLINGTON RESOURCES INC. AS AMENDED THROUGH MARCH 1, 2003 TABLE OF CONTENTS
PAGE ARTICLE I OFFICES Section 1. Registered Office and Agent.............................................................1 Section 2. Other Offices...........................................................................1 ARTICLE II STOCKHOLDERS Section 1. Annual Meetings.........................................................................1 Section 2. Special Meetings........................................................................1 Section 3. Place of Meetings.......................................................................2 Section 4. Notice of Meetings......................................................................2 Section 5. Fixing of Record Date for Determining Stockholders......................................2 Section 6. Quorum..................................................................................3 Section 7. Organization............................................................................3 Section 8. Voting..................................................................................4 Section 9. Inspectors..............................................................................5 Section 10. List of Stockholders....................................................................5 Section 11. Notice of Nominations and Business......................................................5 ARTICLE III BOARD OF DIRECTORS Section 1. Number, Qualification and Term of Office................................................8 Section 2. Vacancies...............................................................................8 Section 3. Resignations............................................................................8 Section 4. Removals................................................................................8 Section 5. Place of Meetings; Books and Records....................................................9 Section 6. Annual Meeting of the Board.............................................................9 Section 7. Regular Meetings........................................................................9 Section 8. Special Meetings........................................................................9 Section 9. Quorum and Manner of Acting............................................................10 Section 10. Organization...........................................................................10 Section 11. Consent of Directors in Lieu of Meeting................................................10 Section 12. Telephonic Meetings....................................................................10 Section 13. Compensation...........................................................................11
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PAGE ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS Section 1. Executive Committee....................................................................11 Section 2. Finance Committee......................................................................11 Section 3. Audit Committee........................................................................12 Section 4. Compensation Committee.................................................................12 Section 5. Governance and Nominating Committee....................................................13 Section 6. Committee Chairman, Books and Records..................................................13 Section 7. Alternates.............................................................................13 Section 8. Other Committees.......................................................................14 Section 9. Quorum and Manner of Acting............................................................14 ARTICLE V OFFICERS Section 1. Number.................................................................................14 Section 2. Election, Term of Office and Qualifications............................................14 Section 3. Resignations...........................................................................14 Section 4. Removals...............................................................................15 Section 5. Vacancies..............................................................................15 Section 6. Compensation of Officers...............................................................15 Section 7. Chairman of the Board..................................................................15 Section 8. Vice Chairman of the Board.............................................................15 Section 9. President..............................................................................16 Section 10. Chief Executive Officer................................................................16 Section 11. Chief Financial Officer................................................................17 Section 12. Secretary..............................................................................18 Section 13. Treasurer..............................................................................18 Section 14. Absence or Disability of Officers......................................................18 ARTICLE VI STOCK CERTIFICATES AND TRANSFER THEREOF Section 1. Stock Certificates.....................................................................19 Section 2. Transfer of Stock......................................................................19 Section 3. Transfer Agent and Registrar...........................................................19 Section 4. Additional Regulations.................................................................20 Section 5. Lost, Destroyed or Mutilated Certificates..............................................20
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PAGE ARTICLE VII DIVIDENDS, SURPLUS, ETC. ARTICLE VIII SEAL ARTICLE IX FISCAL YEAR ARTICLE X INDEMNIFICATION Section 1. Right to Indemnification...............................................................21 Section 2. Right of Indemnitee to Bring Suit......................................................22 Section 3. Nonexclusivity of Rights...............................................................22 Section 4. Insurance, Contracts and Funding.......................................................22 Section 5. Definition of Director and Officer.....................................................22 Section 6. Indemnification of Employees and Agents of the Corporation.............................23 Section 7. Amendment or Appeal....................................................................23 ARTICLE XI CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 1. Checks, Drafts, Etc.; Loans............................................................23 Section 2. Deposits...............................................................................23 ARTICLE XII AMENDMENTS
-iii- BY-LAWS OF BURLINGTON RESOURCES INC. ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE AND AGENT. The registered office of the corporation is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of its registered agent at such address is The Corporation Trust Company. SECTION 2. OTHER OFFICES. The corporation may have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. A meeting of the stockholders for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting shall be held annually at ten (10) o'clock A.M. on the third Thursday of April, or at such other time on such other day as shall be fixed by resolution of the Board of Directors. If the day fixed for the annual meeting shall be a legal holiday such meeting shall be held on the next succeeding business day. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes may be called only by a majority of the Board of Directors, the Chairman of the Board, or the President. -2- SECTION 3. PLACE OF MEETINGS. The annual meeting of the stockholders of the corporation shall be held at the general offices of the corporation in the City of Houston, State of Texas, or at such other place in the United States as may be stated in the notice of the meeting. All other meetings of the stockholders shall be held at such places within or without the State of Delaware as shall be stated in the notice of the meeting. SECTION 4. NOTICE OF MEETINGS. 4.1 Giving of Notice. Except as otherwise provided by statute, written notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be given when deposited in the United States mails, postage prepaid, directed to such stockholder at his or her address as it appears in the stock ledger of the corporation. Each such notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 4.2 Notice of Adjourned Meetings. When a meeting is adjourned to another time and place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is given. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 4.3 Waiver of Notice. 4.3.1 Whenever any notice is required to be given to any stockholder under the provisions of these By-Laws, the Certificate of Incorporation or the General Corporation Law of Delaware, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 4.3.2 The attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when a stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 5. FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS. 5.1 Meetings. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the -3- record date is adopted by the Board, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at the meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. 5.2 Dividends, Distributions and Other Rights. For the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. SECTION 6. QUORUM. A majority of the outstanding shares of stock of the corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of the stockholders; provided that where a separate vote by a class or classes or by a series of a class is required, a majority of the outstanding shares of such class or classes or of such series of a class, present in person or represented by proxy at the meeting, shall constitute a quorum entitled to take action with respect to the vote on that matter. If less than a majority of the outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. If a quorum is present or represented at a reconvened meeting following such an adjournment, any business may be transacted that might have been transacted at the meeting as originally called. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 7. ORGANIZATION. At each meeting of the stockholders, the Chairman of the Board, or in his or her absence such person as shall have been designated by the Board of Directors, or in the absence of such designation a person elected by the holders of a majority in number of shares of stock present in person or represented by proxy and entitled to vote, shall act as Chairman of the meeting. -4- The Secretary, or in his or her absence or in the event he or she shall be presiding over the meeting in accordance with the provisions of this Section, an Assistant Secretary or, in the absence of the Secretary and all of the Assistant Secretaries, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting. SECTION 8. VOTING. 8.1 Generally. Unless otherwise provided in the Certificate of Incorporation or a resolution of the Board of Directors creating a series of stock, at each meeting of the stockholders, each holder of shares of any series or class of stock entitled to vote at such meeting shall be entitled to one vote for each share of stock having voting power in respect of each matter upon which a vote is to be taken, standing in his or her name on the stock ledger of the corporation on the record date fixed as provided in these By-Laws for determining the stockholders entitled to vote at such meeting. In all matters other than the election of Directors, if a quorum is present, the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number is required by these By-Laws, the Certificate of Incorporation or the General Corporation Law of Delaware. Where a separate vote by a class or classes or by a series of a class is required, if a quorum is present, the affirmative vote of the majority of shares of such class or classes or series of a class present in person or represented by proxy at the meeting shall be the act of such class or classes or series of a class. 8.2 Voting for Directors. At each election of Directors the voting shall be by ballot. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors. 8.3 Shares Held or Controlled by the Corporation. Shares of its own capital stock belonging to the corporation, or to another corporation if a majority of the shares entitled to vote in the election of Directors of such other corporation is held by the corporation, shall neither be entitled to vote nor counted for quorum purposes. 8.4 Proxies. A stockholder may vote by proxy executed in writing by the stockholder or by his or her attorney-in-fact. Alternatively, a stockholder may vote by proxy by means of electronic transmission, including, but not limited to, electronic mail, telephonic transmission or telegram, provided that any such means of electronic transmission must set forth information from which it can be determined that such electronic transmission was authorized by the stockholder. Such written or electronically transmitted proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. A proxy shall become invalid three years after the date of its execution, unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote at any reconvened meeting following adjournment of such meeting but shall not be valid after the final adjournment thereof. -5- SECTION 9. INSPECTORS. Prior to each meeting of stockholders, the Board of Directors shall appoint one or more Inspectors who are not Directors, candidates for Directors or officers of the corporation, who shall receive and determine the validity of proxies and the qualifications of voters, and receive, inspect, count and report to the meeting in writing the votes cast on all matters submitted to a vote at such meeting. In case of failure of the Board of Directors to make such appointments or in case of failure of any Inspector so appointed to act, the Chairman of the Board shall make such appointment or fill such vacancies. Each Inspector, immediately before entering upon his or her duties, shall subscribe to an oath or affirmation faithfully to execute the duties of Inspector at such meeting with strict impartiality and according to the best of his or her ability. SECTION 10. LIST OF STOCKHOLDERS. The Secretary or other officer or agent having charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares of each class and series registered in the name of each such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section, or the books of the corporation, or to vote in person or by proxy at any such meeting. SECTION 11. NOTICE OF NOMINATIONS AND BUSINESS. 11.1 Generally. Nominations of persons for election to the Board of Directors and the proposal of business to be transacted by the stockholders may be made at an annual meeting of the stockholders (a) pursuant to the corporation's notice with respect to such meeting, (b) by or at the direction of the Board or (c) by any stockholder of record of the corporation who was a stockholder of record at the time of the giving of the notice provided for in Section 11.2, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 11. A stockholder proceeding under this Section 11 shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder with respect to matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. -6- 11.2 Procedures. 11.2.1 For nominations or other business to be properly brought before an annual meeting of the stockholders by a stockholder pursuant to Section 11.1 (c), (1) the stockholder must have given timely notice thereof in writing to the Secretary, (2) such business must be a proper matter for stockholder action under the General Corporation Law of Delaware, (3) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice, as that term is defined in subclause (c)(iii) of this Section 11.2.1, such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (4) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 11, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 11. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation in the City of Houston, State of Texas, not less than 60 days prior to the first anniversary (the "Anniversary") of the date on which the corporation first mailed its proxy materials for the preceding year's annual meeting of the stockholders. However, if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the Anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a Director all information relating to such person as would be required to be disclosed in solicitations of proxies for the election of such nominees as Directors pursuant to Regulation 14A of the Exchange Act, and such person's written consent to serve as a Director if elected; (b) as to any other business that the stockholder proposes to bring before the annual meeting of the stockholders, a brief description of such business, the reasons for conducting such business at the annual meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation that are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the corporation's voting shares -7- required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice"). 11.2.2 If the number of Directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for Director or specifying the size of the increased Board made by the corporation at least 70 days prior to the Anniversary, this Section 11.2.2 shall govern. In this case a stockholder's notice required by these By-Laws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation in the City of Houston, State of Texas, not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. 11.2.3 Only such business shall be conducted at a special meeting of the stockholders as shall have been brought before the special meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of the stockholders at which Directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board or (b) by any stockholder of record at the time of giving of notice provided for in this paragraph who shall be entitled to vote at the special meeting and who complies with the notice procedures set forth in this Section 11. Nominations by stockholders of persons for election to the Board may be made at such a special meeting of the stockholders if the stockholder's notice required by the second paragraph of this Section 11 shall be delivered no later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such special meeting. 11.2.4 Only persons nominated in accordance with the procedures set forth in this Section 11 shall be eligible to serve as Directors and only such business shall be conducted at an annual meeting of the stockholders as shall have been brought before the annual meeting in accordance with the procedures set forth in this Section. The Chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the annual meeting has been made in accordance with the procedures set forth in these By-Laws and, if any proposed nomination or business is not in compliance with these By-Laws, to declare that such defective proposed business or nomination shall not be presented for stockholder action at the annual meeting and shall be disregarded. 11.3 For purposes of this Section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. -8- ARTICLE III BOARD OF DIRECTORS SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE. The business, property and affairs of the corporation shall be managed by a Board consisting of not less than three Directors. The Board shall satisfy the requirements of applicable laws, rules and regulations regarding its composition and the qualifications of its members. The Board of Directors shall from time to time by a vote of a majority of the Directors then in office fix the specific number of Directors to constitute the Board. At each annual meeting of stockholders a Board of Directors shall be elected by the stockholders for a term of one year. Each Director shall serve until his or her successor is elected and shall qualify. SECTION 2. VACANCIES. Vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, at any regular or special meeting of the Board of Directors. SECTION 3. RESIGNATIONS. Any Director may resign at any time upon written notice to the Secretary of the corporation. Such resignation shall take effect on the date of receipt of such notice or at any later date specified therein; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective. SECTION 4. REMOVALS. Any Director may be removed, with cause, at any special meeting of the stockholders called for that purpose, by the affirmative vote of the holders of a majority in number of shares of the corporation entitled to vote for the election of such Director, and the vacancy in the Board caused by any such removal may be filled by the stockholders at such a meeting. -9- SECTION 5. PLACE OF MEETINGS; BOOKS AND RECORDS. The Board of Directors may hold its meetings, and have an office or offices, at such place or places within or without the State of Delaware as the Board from time to time may determine. The Board of Directors, subject to the provisions of applicable statutes, may authorize the books and records of the corporation, and offices or agencies for the issue, transfer and registration of the capital stock of the corporation, to be kept at such place or places outside of the State of Delaware as, from time to time, may be designated by the Board of Directors. SECTION 6. ANNUAL MEETING OF THE BOARD. The first meeting of each newly elected Board of Directors, to be known as the Annual Meeting of the Board, for the purpose of electing officers, designating Committees and the transaction of such other business as may come before the Board, shall be held as soon as practicable after the adjournment of the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held due to the absence of a quorum, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the newly elected Directors. SECTION 7. REGULAR MEETINGS. The Board of Directors shall, by resolution, provide for regular meetings of the Board at such times and at such places as it deems desirable. Notice of regular meetings need not be given. SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Secretary on the written request of five Directors on such notice as the person or persons calling the meeting shall deem appropriate in the circumstances. Notice of each such special meeting shall be mailed to each Director or delivered to him or her by telephone, telegraph or any other means of electronic communication, in each case addressed to his or her residence or usual place of business, or delivered to him or her in person or given to him or her orally. The notice of meeting shall state the time and place of the meeting but need not state the purpose thereof. Whenever any notice is required to be given to any Director under the provisions of these By-Laws, the Certificate of Incorporation or the General Corporation Law of Delaware, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed -10- equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board or any Committee appointed by the Board need be specified in the waiver of notice of such meeting. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting except when a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. SECTION 9. QUORUM AND MANNER OF ACTING. Except as otherwise provided by statute, the Certificate of Incorporation, or these By-Laws, the presence of a majority of the total number of Directors shall constitute a quorum for the transaction of business at any regular or special meeting of the Board of Directors, and the act of a majority of the Directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum is present. Notice of any such adjourned meeting need not be given. SECTION 10. ORGANIZATION. At every meeting of the Board of Directors, the Chairman of the Board or in his or her absence the President or, if both of the said officers are absent, a Chairman chosen by a majority of the Directors present shall act as Chairman of the meeting. The Secretary, or in his or her absence, an Assistant Secretary, or in the absence of the Secretary and all the Assistant Secretaries, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting. SECTION 11. CONSENT OF DIRECTORS IN LIEU OF MEETING. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or any Committee designated by the Board, may be taken without a meeting if all members of the Board or Committee consent thereto in writing, and such written consent is filed with the minutes of the proceedings of the Board or Committee. SECTION 12. TELEPHONIC MEETINGS. Members of the Board of Directors, or any Committee designated by the Board of Directors, may participate in a meeting of the Board or Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. -11- SECTION 13. COMPENSATION. Each Director who is not a full-time salaried officer of the corporation or any of its wholly owned subsidiaries, when authorized by resolution of the Board of Directors, may receive as a Director a stated salary or an annual retainer and in addition may be allowed a fixed fee and his or her reasonable expenses for attendance at each regular or special meeting of the Board or any Committee thereof. ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors may, in its discretion designate annually an Executive Committee consisting of not less than five Directors as it may, from time to time determine, subject to applicable laws, rules and regulations. The Committee shall have and may exercise such powers and authority of the Board of Directors in the management of the business and affairs of the corporation as the Board of Directors may from time to time prescribe, subject to applicable laws, rules and regulations, and may authorize the seal of the corporation to be affixed to all papers which may require it, but the Committee shall have no power or authority to amend the Certificate of Incorporation (except that the Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, amend the By-Laws of the corporation, elect officers or fill vacancies on the Board of Directors or any Committee of the Board, declare a dividend or authorize the issuance of stock. SECTION 2. FINANCE COMMITTEE. The Board of Directors may, in its discretion designate annually a Finance Committee, consisting of such number of Directors as the Board of Directors may from time to time determine, subject to applicable laws, rules and regulations. The Committee shall monitor, review, appraise and recommend to the Board of Directors appropriate action with respect to the corporation's capital structure, its source of funds and its financial position; review and recommend appropriate delegations of authority to management on expenditures and other financial commitments; review terms and conditions of financing plans; develop and recommend -12- dividend policies and recommend to the Board specific dividend payments; and perform such other duties and functions and exercise such and powers as the Board may from time to time prescribe, in accordance with applicable laws, rules and regulations. SECTION 3. AUDIT COMMITTEE. The Board of Directors shall designate annually an Audit Committee comprised of three or more Directors. Such Committee shall satisfy the requirements of applicable laws, rules and regulations regarding its composition and the qualifications of its members. The Audit Committee shall conduct its activities and govern itself in accordance with the requirements of an Audit Committee Charter adopted and from time to time amended by the Board of Directors. SECTION 4. COMPENSATION COMMITTEE. The Board of Directors shall designate annually a Compensation Committee comprised of three or more Directors. Such Committee shall satisfy the requirements of applicable laws, rules and regulations regarding its composition and the qualifications of its members. The Compensation Committee shall conduct its activities and govern itself in accordance with the requirements of a Compensation Committee Charter adopted and from time to time amended by the Board of Directors. -13- SECTION 5. GOVERNANCE AND NOMINATING COMMITTEE. The Board of Directors shall designate annually a Governance and Nominating Committee comprised of three or more Directors. Such Committee shall satisfy the requirements of applicable laws, rules and regulations regarding its composition and the qualifications of its members. The Governance and Nominating Committee shall conduct its activities and govern itself in accordance with the requirements of a Governance and Nominating Committee Charter adopted and from time to time amended by the Board of Directors. SECTION 6. COMMITTEE CHAIRMAN, BOOKS AND RECORDS. A Chairman of each Committee shall be selected by the Board of Directors to serve for such term as the Board of Directors may determine. Subject to any requirements of the applicable Committee Charter and applicable laws, rules and regulations, each Committee shall fix its own rules of procedure and shall meet at such times and places and upon such call or notice as shall be provided by such rules. Each Committee shall keep a record of its acts and proceedings, and all action of the Committee shall be reported to the Board of Directors at the next meeting of the Board. SECTION 7. ALTERNATES. Subject to the requirements of such Committee's Charter and applicable laws, rules and regulations, alternate members of a Committee prescribed by this Article IV may be designated by the Board of Directors from among the Directors to serve as occasion may require. Subject to the requirements of such Committee's Charter and applicable laws, rules and regulations, whenever a quorum cannot be secured for any meeting of any such Committee from among the regular members thereof and designated alternates, the member or members of such Committee present at such meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of such absent or disqualified member. -14- Alternative members of such Committees shall receive a reimbursement for expenses and compensation at the same rate as regular members of such Committees. SECTION 8. OTHER COMMITTEES. The Board of Directors may designate such other Committees, each to consist of two or more Directors, as it may from time to time determine, and each such Committee shall serve for such term and shall have and may exercise, during intervals between meetings of the Board of Directors, such duties, functions and powers as the Board of Directors may from time to time prescribe, in accordance with applicable laws, rules and regulations. SECTION 9. QUORUM AND MANNER OF ACTING. At each meeting of any Committee the presence of a majority of the members of such Committee, whether regular or alternate, shall be necessary to constitute a quorum for the transaction of business, and if a quorum is present the concurrence of a majority of those present shall be necessary for the taking of any action; provided, however, that no action may be taken by the Executive Committee or the Finance Committee when two or more officers of the corporation are present as members at a meeting of either such Committee unless such action shall be concurred in by the vote of two or more members of such Committee who are not officers of the corporation. ARTICLE V OFFICERS SECTION 1. NUMBER. The officers of the corporation shall be a Chairman of the Board, a President, a Chief Executive Officer, a Chief Financial Officer, a Secretary, a Treasurer, and such other officers as may be elected or appointed by the Board of Directors, including a Vice Chairman of the Board. Any number of offices may be held by the same person. SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers of the corporation shall be elected annually by the Board of Directors. Each officer elected by the Board of Directors shall hold office until his or her successor shall have been duly elected and qualified, or until he or she shall have died, resigned or been removed in the manner hereinafter provided. SECTION 3. RESIGNATIONS. Any officer may resign at any time upon written notice to the Secretary of the corporation. Such resignation shall take effect at the date of its receipt, or at any later date -15- specified therein; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. SECTION 4. REMOVALS. Any officer elected or appointed by the Board of Directors may be removed, with or without cause, by the Board of Directors at a regular meeting or special meeting of the Board. SECTION 5. VACANCIES. Any vacancy occurring in any office of the corporation shall be filled for the unexpired portion of the term in the same manner as prescribed in these By-Laws for regular election or appointment to such office. SECTION 6. COMPENSATION OF OFFICERS. The compensation of all senior officers elected by the Board of Directors shall be approved or authorized by the Compensation Committee. SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, when present, preside at all meetings of the stockholders and of the Board of Directors; have authority to call special meetings of the stockholders and of the Board of Directors; have authority to sign and acknowledge in the name and on behalf of the corporation all stock certificates, contracts or other documents and instruments except when the signing thereof shall be expressly delegated to some other officer or agent by the Board of Directors or required by law to be otherwise signed or executed and, unless otherwise provided by law or by the Board of Directors, may authorize any officer, employee or agent of the corporation to sign, execute and acknowledge in his or her place and stead all such documents and instruments. He or she shall consult with the President regarding the strategic direction and business and affairs of the corporation and shall have such other powers and perform such other duties as from time to time may be assigned to him or her by the Board of Directors or the Executive Committee. SECTION 8. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if elected by the Board of Directors, shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board. He or she shall have such other powers and perform such other duties as from time to -16- time may be assigned to him or her by the Board of Directors, the Chairman of the Board, or the President. SECTION 9. PRESIDENT. The President shall, in the absence of the Chairman of the Board and the Chief Executive Officer, preside at all meetings of the stockholders and of the Board and have authority to call special meetings of the stockholders and of the Board. The President shall have authority to sign and acknowledge in the name and on behalf of the corporation all stock certificates, contracts or other documents and instruments, except when the signing thereof shall be expressly delegated to some other officer or agent by the Board, the Chairman of the Board or the Chief Executive Officer, or required by law to be otherwise signed or executed and, unless otherwise provided by law or by the Board, may authorize any officer, employee or agent of the corporation to sign, execute and acknowledge in his place and stead all such documents and instruments. He shall have such other powers and perform such other duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee, the Chairman of the Board or the Chief Executive Officer. The President shall have such power and authority as is usual, customary and desirable to perform the duties of the office. SECTION 10. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have general authority over the property, business and affairs of the corporation, and over all other officers, agents and employees of the corporation, subject to the control and direction of the Board of Directors and the Executive Committee, including the power to sign and acknowledge in the name and on behalf of the corporation all stock certificates, contracts or other documents and instruments except when the signing thereof shall be expressly delegated to some other officer or agent by the Board of Directors or required by law to be otherwise signed or executed and, unless otherwise provided by law or by the Board of Directors, may authorize any officer, employee or agent of the corporation to sign, execute and acknowledge in his or her place and stead all such documents and instruments; he or she shall fix the compensation of officers of the corporation other than his or her own compensation and that of the senior officers of the corporation and its principal operating subsidiaries reporting directly to him or her; and he or she shall approve proposed employee compensation and benefit plans of subsidiary companies not involving the issuance or purchase of capital stock of the corporation. The Chief Executive Officer is hereby authorized, without further approval of the Finance Committee or the Board of Directors, to approve, without limitation (other than as limited by applicable law): (a) Any capital expenditure by the corporation of up to $100 million in connection with the corporation's oil and gas operations and related activities, including -17- oil and gas wells, equipment, plants, marketing and similar projects and activities, and to approve any capital expenditures by the corporation of up to $25 million for any other projects or activities; provided, however, that the corporation's aggregate capital expenditures (excluding expenditures pursuant to subsections (b), (d) and (e) below) do not exceed the amount of the annual capital budget approved by the Board of Directors for such fiscal year; provided, further, the Chief Executive Officer may approve increases to the amount of the annual capital budget for such fiscal year so long as in the aggregate such increases do not exceed 10% of the amount of the annual capital budget approved by the Board of Directors for such fiscal year; (b) Individual acquisitions involving the acquisition of assets or the securities of other companies (and related commitments) for consideration of up to $75 million per transaction; (c) Individual transactions involving the disposition of assets and interests in securities of subsidiaries or related commitments, provided that the aggregate consideration for each such transaction does not exceed $50 million; (d) Cost overruns for individual projects approved by the Board of Directors not to exceed 20% of the amount approved by the Board; (e) In emergency situations commitments in excess of the above-described limits provided they are in the interests of the corporation. The above delegation of authority does not authorize the corporation or its subsidiaries to make a significant change in its business or to issue the corporation's capital stock without the specific approval of the Board of Directors. Notwithstanding these limitations, the Chief Executive Officer shall have such power and authority as is usual, customary and desirable to perform all the duties of the office and to carry out the daily operations of the corporation, including without limitation the authority to approve the payment of any and a general and administrative expenses, lease or well operating expenses, interest payments and taxes. SECTION 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have responsibility for development and administration of the corporation's financial plans and all financial arrangements, its insurance programs, its cash deposits and short term investments, its accounting policies, and its federal and state tax returns. Such officer shall also be responsible for the corporation's internal control procedures and for its relationship with the financial community. -18- SECTION 12. SECRETARY. The Secretary shall record the proceedings of the meetings of the stockholders and Directors, in one or more books kept for that purpose; see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; have charge of the corporate records and of the seal of the corporation; affix the seal of the corporation or a facsimile thereof, or cause it to be affixed, to all certificates for shares prior to the issue thereof and to all documents the execution of which on behalf of the corporation under its seal is duly authorized by the Board of Directors or otherwise in accordance with the provisions of the By-Laws; keep a register of the post office address of each stockholder, Director or member, sign with the Chairman of the Board or the President, certificates for shares of stock of the corporation, the issuance of which shall have been duly authorized by resolution of the Board of Directors; have general charge of the stock transfer books of the corporation; and in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Board of Directors, the Executive Committee, the Chairman of the Board, the President, or the corporation's legal counsel. SECTION 13. TREASURER. The Treasurer shall have the responsibility for the custody and safekeeping of all funds of the corporation and shall have charge of their collection, receipt and disbursement; shall receive and have authority to sign receipts for all monies paid to the corporation and shall deposit the same in the name and to the credit of the corporation in such banks or depositories as the Board of Directors shall approve; shall endorse for collection on behalf of the corporation all checks, drafts, notes and other obligations payable to the corporation; shall sign or countersign all notes, endorsements, guaranties and acceptances made on behalf of the corporation when and as directed by the Board of Directors; shall give bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors may require; shall have the responsibility for the custody and safekeeping of all securities of the corporation; and in general shall have such other powers and perform such other duties as are incident to the office of Treasurer and as from time to time may be prescribed by the Board of Directors or be delegated to him or her by the Chairman of the Board, the President or the Chief Financial Officer. SECTION 14. ABSENCE OR DISABILITY OF OFFICERS. In the absence or disability of the Chairman of the Board, any Vice Chairman of the Board or the President, the Board of Directors may designate, by resolution, individuals to perform the duties of those absent or disabled. The Board of Directors may also delegate this power to a Committee or to a senior corporate officer. -19- ARTICLE VI STOCK CERTIFICATES AND TRANSFER THEREOF SECTION 1. STOCK CERTIFICATES. Except as otherwise permitted by statute, the Certificate of Incorporation or resolution or resolutions of the Board of Directors, every holder of stock in the corporation shall be entitled to have a certificate, signed by or in the name of, the corporation by the Chairman of the Board, the President, or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares, and the class and series thereof, owned by him or her in the corporation. Any and all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. SECTION 2. TRANSFER OF STOCK. Transfer of shares of the capital stock of the corporation shall be made only on the books of the corporation by the holder thereof, or by his or her attorney duly authorized, and on surrender of the certificate or certificates for such shares. A person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof as regards the corporation, and the corporation shall not, except as expressly required by statute, be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any other person whether or not it shall have express or other notice thereof. SECTION 3. TRANSFER AGENT AND REGISTRAR. The corporation shall at all times maintain a transfer office or agency in the Borough of Manhattan, The City of New York, in charge of a transfer agent designated by the Board of Directors (who shall have custody, subject to the direction of the Secretary, of the original stock ledger and stock records of the corporation), where the shares of the capital stock of the corporation of each class shall be transferable and also a registry office in the Borough of Manhattan, The City of New York, other than its transfer office or agency in said city, in charge of a registrar designated by the Board of Directors, where its stock of each class shall be registered. The corporation may, in addition to the said offices, if and whenever the Board of Directors shall so determine, maintain in such place or places as the Board shall determine, one or more additional transfer offices or agencies, each in charge of a transfer agent designated by the Board, where the shares of capital stock of the corporation of any class or classes shall be transferable, and also one or more additional registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock of any class or classes shall be -20- registered. Except as otherwise provided by resolution of the Board of Directors in respect of temporary certificates, no certificates for shares of capital stock of the corporation shall be valid unless countersigned by a transfer agent and registered by a registrant authorized as aforesaid. SECTION 4. ADDITIONAL REGULATIONS. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The Board of Directors may provide for the issuance of new certificates of stock to replace certificates of stock lost, stolen, mutilated or destroyed, or alleged to be lost, stolen, mutilated or destroyed, upon such terms and in accordance with such procedures as the Board of Directors shall deem proper and prescribe. ARTICLE VII DIVIDENDS, SURPLUS, ETC. Except as otherwise provided by statute or the Certificate of Incorporation, the Board of Directors may declare dividends upon the shares of its capital stock either (1) out of its surplus, or (2) in case there shall be no surplus, out of its net profits for the fiscal year, whenever, and in such amounts as, in its opinion, the condition of the affairs of the corporation shall render it advisable. Dividends may be paid in cash, in property, or in shares of the capital stock of the corporation. ARTICLE VIII SEAL The Board of Directors shall adopt a suitable corporate seal which shall be in the form imprinted hereon. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX FISCAL YEAR The fiscal year of the corporation shall begin on the first day of January of each year. -21- ARTICLE X INDEMNIFICATION SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a Director or officer of the corporation or is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a Director, officer, employee or agent or in any other capacity while serving as such a Director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the full extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators, provided, however, that except as provided in Section 2 of this Article with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a Director or officer (and not in any other capacity in which service was or is rendered by such indemnitee while a Director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined that such indemnitee is not entitled to be indemnified under this Section 1, or otherwise. -22- SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 of this Article is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the indemnitee shall be entitled to be paid also the expense of prosecuting such suit. The indemnitee shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim, for an advancement of expenses, where the required undertaking, if any is required, has been tendered to the corporation), and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is not so entitled. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the indemnitee is not entitled to indemnification shall be a defense to the suit or create a presumption that the indemnitee is not so entitled. SECTION 3. NONEXCLUSIVITY OF RIGHTS. The rights to indemnification and to the advancement of expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested Directors or otherwise. SECTION 4. INSURANCE, CONTRACTS AND FUNDING. The corporation may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The corporation may enter into contracts with any indemnitee in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. SECTION 5. DEFINITION OF DIRECTOR AND OFFICER. Any person who is or was serving as a Director or officer of a wholly owned subsidiary of the corporation shall be deemed, for purposes of this Article only, to be a Director or officer of the corporation entitled to indemnification under this Article. -23- SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The corporation may, by action of the Board of Directors from time to time, grant rights to indemnification and advancement of expenses to employees and agents of the corporation with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of Directors and officers of the corporation. SECTION 7. AMENDMENT OR APPEAL. Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. CHECKS, DRAFTS, ETC.; LOANS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall, from time to time, be determined by resolution of the Board of Directors. No loans shall be contracted on behalf of the corporation unless authorized by the Board of Directors. Such authority may be general or confined to specific circumstances. SECTION 2. DEPOSITS. All funds of the corporation shall be deposited, from time to time, to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select, or as may be selected by any officer or officers, agent or agents of the corporation to whom such power may, from time to time, be delegated by the Board of Directors; and for the purpose of such deposit, the Chairman of the Board, the President, any Vice President, the Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary, or any other officer or agent to whom such power may be delegated by the Board of Directors, may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the corporation. -24- ARTICLE XII AMENDMENTS Subject to Section 7 of Article X hereof, these By-Laws may be altered or repealed and new By-Laws may be made by the affirmative vote, at any meeting of the Board, of a majority of the Board of Directors, subject to the rights of the stockholders of the corporation to amend or repeal By-Laws made or amended by the Board of Directors by the affirmative vote of the holders of record of a majority in number of shares of the outstanding stock of the corporation present or represented at any meeting of the stockholders and entitled to vote thereon, provided that notice of the proposed action be included in the notice of such meeting. EX-10.10 5 h02234exv10w10.txt 1991 DIRECTOR CHARITABLE AWARD PLAN EXHIBIT 10.10 AMENDMENT NO. 1 TO BURLINGTON RESOURCES INC. DIRECTOR CHARITABLE AWARD PLAN The Burlington Resources Inc. 1991 Director Charitable Award Plan (the "Plan") is hereby amended, by revising Section 6 thereof in its entirety to read as follows: "Except as set forth in Section 5.5, the Board of Directors or the Committee may from time to time amend, suspend or terminate the Plan, in whole or in part; provided, however, any such amendment, suspension, or termination may not substantially increases the administrative cost of the Plan or the obligations of the Company; provided, further, that any such amendment, suspension, or termination of the Plan may not impair the eligibility of any member of the Board of Directors who is serving on the effective date of such amendment, suspension or termination, or the right of his or her designated Qualified Donee(s) to receive the benefit accrued or to be accrued hereunder." The date of adoption of such amendment by the Board of Directors is April 9, 1997. Except as amendment hereby, the Plan shall continue without interruption or change. AMENDMENT NO. 2 TO BURLINGTON RESOURCES INC. 1991 DIRECTOR CHARITABLE AWARD PLAN The Burlington Resources Inc. 1991 Director Charitable Award Plan (the "Plan") is hereby amended in the following respects, effective as of January 22, 2003: 1. Subsection (1) of Article 2 of the Plan is amended by adding the following sentence at the end thereof: "In no event shall any person who is first elected to serve on the Board of Directors after January 22, 2003 be a Participant in this Plan." 2. Section 4.1 of the Plan is amended by adding the following sentence at the end thereof: "Notwithstanding the foregoing, a person who is first elected to serve on the Board of Directors after January 22, 2003 shall not be eligible to participate in this Plan." 3. Section 6 of the Plan is amended to read in its entirety as follows: "Except as set forth in Section 5.5, the Board of Directors or the Committee may from time to time amend, suspend or terminate the Plan, in whole or in part; provided, however, that any such amendment, suspension, or termination may not substantially increase the administrative cost of the Plan or the obligations of the Company; and provided, further, that any such amendment, suspension, or termination may not impair (i) the eligibility of any member of the Board of Directors who is serving on January 22, 2003 or who ceased serving as a Director before that date but after becoming a Participant (a 'Protected Director') or (ii) the right of a Protected Director after becoming a Participant to designate a Qualified Donee or Qualified Donees to receive an aggregate of $1,000,000 following the death of such Protected Director." EX-10.18 6 h02234exv10w18.txt SHORT-TERM REVOLVING CREDIT AGREEMENT EXECUTION COPY EXHIBIT 10.18 - -------------------------------------------------------------------------------- BURLINGTON RESOURCES INC. --------------------------------- $400,000,000 SHORT-TERM REVOLVING CREDIT AGREEMENT Dated as of February 25, 1998, as Amended and Restated as of December 7, 2001, as Amended on April 25, 2002, and as further Amended and Restated as of December 5, 2002 --------------------------------- JPMORGAN CHASE BANK, as Administrative Agent and Auction Administrative Agent CITIBANK, N.A. FLEET NATIONAL BANK, as Co-Syndication Agents BANK OF AMERICA, N.A. THE BANK OF NOVA SCOTIA, as Co-Documentation Agents - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms........................................................ 1 SECTION 1.02. Computation of Time Periods.................................................. 19 SECTION 1.03. Accounting and Other Terms................................................... 19 SECTION 1.04. References................................................................... 19 ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. Revolving A Advances......................................................... 20 SECTION 2.02. Making the A Advances........................................................ 21 SECTION 2.03. Fees......................................................................... 23 SECTION 2.04. Reduction of the Commitments................................................. 24 SECTION 2.05. Repayment of A Advances...................................................... 24 SECTION 2.06. Interest on A Advances....................................................... 24 SECTION 2.07. Additional Interest on Eurodollar Rate Advances.............................. 26 SECTION 2.08. Interest Rate Determination.................................................. 27 SECTION 2.09. Voluntary Conversion of A Advances........................................... 29 SECTION 2.10. Prepayments.................................................................. 29 SECTION 2.11. Increased Costs.............................................................. 30 SECTION 2.12. Increased Capital............................................................ 31 SECTION 2.13. Illegality................................................................... 32 SECTION 2.14. Payments and Computations.................................................... 33 SECTION 2.15. Taxes........................................................................ 35 SECTION 2.16. Sharing of Payments, Etc..................................................... 38 SECTION 2.17. Evidence of Debt............................................................. 39 SECTION 2.18. Use of Proceeds.............................................................. 40 SECTION 2.19. The B Advances............................................................... 40 SECTION 2.20. Increase of Commitments...................................................... 44 SECTION 2.21. Extension of Stated Termination Date......................................... 47 SECTION 2.22. Replacement of Lenders....................................................... 49 ARTICLE 3 CONDITIONS OF EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of the Amendment and Restatement of this Agreement...................................................... 50 SECTION 3.02. Conditions Precedent to Each A Borrowing..................................... 51 SECTION 3.03. Conditions Precedent to Each B Borrowing..................................... 52
ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower............................... 53 ARTICLE 5 COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants........................................................ 56 SECTION 5.02. Negative Covenants........................................................... 58 SECTION 5.03. Reporting Requirements....................................................... 63 ARTICLE 6 EVENTS OF DEFAULT SECTION 6.01. Events of Default............................................................ 67 ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action..................................................... 71 SECTION 7.02. Administrative Agent's Reliance, Etc......................................... 71 SECTION 7.03. JPMorgan and Affiliates...................................................... 72 SECTION 7.04. Lender Credit Decision....................................................... 72 SECTION 7.05. Indemnification.............................................................. 72 SECTION 7.06. Successor Administrative Agent............................................... 73 SECTION 7.07. Auction Administrative Agent................................................. 74 ARTICLE 8 MISCELLANEOUS SECTION 8.01. Amendments, Etc.............................................................. 74 SECTION 8.02. Notices, Etc................................................................. 75 SECTION 8.03. No Waiver; Remedies.......................................................... 76 SECTION 8.04. Costs and Expenses; Indemnity................................................ 76 SECTION 8.05. Right of Set-off............................................................. 78 SECTION 8.06. Binding Effect............................................................... 78 SECTION 8.07. Assignments and Participations............................................... 78 SECTION 8.08. Confidentiality.............................................................. 84 SECTION 8.09. Consent to Jurisdiction...................................................... 85 SECTION 8.10. Governing Law................................................................ 86
ii SECTION 8.11. Execution in Counterparts.................................................... 86 SECTION 8.12. WAIVER OF JURY TRIAL......................................................... 86 SECTION 8.13. Entire Agreement, Etc........................................................ 86 Schedule I -- Material Subsidiaries Schedule II -- Pricing Grid Schedule III -- Initial Commitments Exhibit A Form of Note Exhibit B Form of Notice of A Borrowing Exhibit C Form of Notice of B Borrowing Exhibit D Form of Assignment and Acceptance Exhibit E Form of New Lender Agreement Exhibit F Form of Commitment Increase Agreement Exhibit G Form of Extension Request Exhibit H Form of Opinion of Vice President and General Counsel for Borrower Exhibit I Form of Opinion of Jones, Day, Reavis & Pogue, New York Counsel for Borrower Exhibit J Form of Designation Agreement
iii SHORT-TERM REVOLVING CREDIT AGREEMENT Dated as of February 25, 1998, as amended and restated as of December 7, 2001, as amended by Amendment No. 1 dated as of April 25, 2002, and as further amended and restated as of December 5, 2002 BURLINGTON RESOURCES INC., a Delaware corporation (the "Borrower"), the financial institutions (the "Initial Lenders") listed on the signature pages hereof, JPMORGAN CHASE BANK, as administrative agent and auction administrative agent for the Lenders hereunder (in such capacities, the "Administrative Agent" and "Auction Administrative Agent", respectively), CITIBANK, N.A. and FLEET NATIONAL BANK, as co-syndication agents, and BANK OF AMERICA, N.A. and THE BANK OF NOVA SCOTIA, as co-documentation agents, agree as follows: ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A ADVANCE" means an advance by a Lender to the Borrower as part of an A Borrowing, and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "TYPE" of A Advance). "A BORROWING" means a borrowing consisting of A Advances of the same Type made on the same day by the Lenders pursuant to Section 2.01 and, in the case of Eurodollar Rate Advances, having Interest Periods of the same duration, it being understood that there may be more than one A Borrowing on a particular day. "ADMINISTRATIVE AGENT" has the meaning specified in the introduction hereto. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Lender. "ADVANCE" means an A Advance or a B Advance. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. The term "CONTROL" (including the terms "CONTROLS", "CONTROLLED BY" or "UNDER COMMON CONTROL WITH") means, with respect to any Person, the possession, direct or indirect, of the power to vote 10% or more (or in the case of an "AFFILIATE" of any Lender, 5% or more) of the securities having ordinary voting power for the election of directors of such Person or to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or by contract or otherwise. Neither a director nor an officer of the Borrower, in such capacity, shall be deemed, for purposes of this Agreement, an Affiliate. "AGREEMENT" means this Amended and Restated Short-Term Revolving Credit Agreement, together with all exhibits and schedules hereto, as amended or otherwise modified from time to time pursuant to the terms hereof. "APPLICABLE LENDING OFFICE" means, with respect to each Lender, (i) in the case of an A Advance, such Lender's Domestic Lending Office in respect of Base Rate Advances and such Lender's Eurodollar Lending Office in respect of Eurodollar Rate Advances and (ii) in the case of a B Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such B Advance. "ARRANGER" means J.P. Morgan Securities Inc. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender (other than a Designated Bidder) and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit D hereto. 2 "AUCTION ADMINISTRATIVE AGENT" has the meaning specified in the introduction hereto. "AVERAGE AGGREGATE FACILITY ADVANCES" means, for any Utilization Fee Period, the average daily outstanding amount of (i) all Advances hereunder and (ii) all "Advances" under, and as defined in, the Long-Term Revolving Credit Agreement and the Canadian Credit Agreement. "AVERAGE AGGREGATE FACILITY COMMITMENTS" means, for any Utilization Fee Period, the average daily amount of (i) all Commitments hereunder and (ii) all "Commitments" under, and as defined in, the Long-Term Revolving Credit Agreement and the Canadian Credit Agreement. "B ADVANCE" means an advance by a Lender to the Borrower as part of a B Borrowing resulting from the auction bidding procedure described in Section 2.19. "B BORROWING" means a borrowing consisting of simultaneous B Advances to the Borrower from each of the Lenders whose offer to make one or more B Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.19, it being understood that there may be more than one B Borrowing on a particular day. "B REDUCTION" has the meaning specified in Section 2.01(a). "BASE RATE" means, for each day in any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times for such day be equal to the higher of: (i) The rate of interest announced publicly by the Administrative Agent in the United States with respect to loans made in the United States, from time to time, as the Administrative Agent's base or prime rate as in effect for such day; and (ii) 0.50% per annum above the Effective Federal Funds Rate for such day. "BASE RATE ADVANCE" means an A Advance which bears interest as provided in Section 2.06(a)(i). 3 "BORROWER" has the meaning specified in the introduction hereto. "BORROWING" means an A Borrowing or a B Borrowing. "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in New York, New York and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "BUSINESS ENTITY" means a partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity. "CANADIAN CREDIT AGREEMENT" means the Canadian Credit Agreement dated as of March 31, 2000, as amended and restated as of December 7, 2001, as amended by the First Amendment dated April 25, 2002, and as further amended and restated as of December 5, 2002, among Burlington Resources Canada Ltd. and Canadian Hunter Exploration Ltd., as the borrowers, Burlington Resources Inc., as parent, the financial institutions party thereto, JPMorgan Chase Bank, Toronto Branch, as administrative agent for such financial institutions, Citibank, N.A., Canadian branch, and Fleet National Bank, as co-syndication agents, and Bank of America, N.A., Canada Branch and The Bank of Nova Scotia as co-documentation agents. "CAPITALIZATION" means the sum (without duplication) of (i) consolidated Debt of the Borrower and its consolidated Subsidiaries, plus (ii) the aggregate amount of Guaranties by the Borrower or its consolidated Subsidiaries, plus (iii) the sum of the preferred stock and common stockholders' equity of the Borrower, plus (iv) the cumulative amount by which Consolidated Tangible Net Worth shall have been reduced by reason of non-cash write-downs of long-term assets subsequent to December 31, 1997 (but excluding any such amount with respect to assets of Project Finance Subsidiaries), minus (v) to the extent otherwise included in determining the amounts computed under clause (iii) above, the aggregate investment (net of any Project Financing) of the Borrower and its 4 consolidated Subsidiaries in Project Finance Subsidiaries. "CLAM" means CLAM Petroleum B.V., a Netherlands company, and CLAM's successors. "CLAM CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated as of July 25, 1985, among MaraLou Netherlands Partnership, CLAM, the banks parties thereto and Morgan, as agent for such banks, as amended and restated as of August 15, 1997, or any successor credit agreement entered into for the purpose of refinancing such Amended and Restated Credit Agreement, in each case, as amended, restated, extended or otherwise modified from time to time. "COMMITMENT" has the meaning specified in Section 2.01(a). "COMMITMENT EXPIRATION DATE" has the meaning specified in Section 2.21(a). "COMMITMENT INCREASE NOTICE" has the meaning specified in Section 2.20(a). "COMMITMENT INCREASE AGREEMENT" has the meaning specified in Section 2.20(c). "COMMITMENT PERCENTAGE" means as to any Lender at any time, the percentage that such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage that the aggregate principal amount of such Lender's Advances then outstanding constitutes of the aggregate principal amount of the Advances then outstanding). "CONSOLIDATED TANGIBLE NET WORTH" means, on a consolidated basis, the excess of (i) the sum of (x) the preferred stock and common stockholders' equity of the Borrower and (y) the cumulative amount by which Consolidated Tangible Net Worth shall have been reduced by reason of non-cash write-downs of long-term assets subsequent to December 31, 1997, over (ii) the intangible assets of the Borrower and its consolidated Subsidiaries. 5 "CONTINGENT GUARANTY" has the meaning specified in the definition of the term "Guaranty" contained in this Section 1.01. "CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of A Advances of one Type into A Advances of another Type pursuant to Section 2.08, 2.09 or 2.13. "DEBT" of any Person means, without duplication (i) indebtedness of such Person for borrowed money or in respect of bankers' acceptances, (ii) obligations of such Person (other than any portion of any trade payable obligation of such Person which shall not have remained unpaid for 91 days or more from the later of (A) the original due date of such portion and (B) the customary payment date in the industry and relevant market for such portion) to pay the deferred purchase price of property or services, (iii) obligations of such Person as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, and (iv) Overdue Reimbursement Obligations; provided, however, that where any such indebtedness or obligation of such Person is made jointly, or jointly and severally, with any third party or parties, which are not the Borrower or any of its consolidated Subsidiaries, the amount thereof for the purposes of this definition only shall be the pro rata portion thereof payable by such Person, so long as such third party or parties have not defaulted on its or their joint and several portions thereof, and provided, further, that the following shall not at any time constitute Debt: (1) obligations of such Person to reimburse a bank or other Person in respect of amounts paid under a letter of credit or similar instrument that are not Overdue Reimbursement Obligations, (2) Project Financing, (3) the Morgan Gold Loans unless, at such time, for any reason whatsoever, (A) no royalty income shall have accrued under the Royalty Agreement dated as of December 5, 1984 between Copper Range Company, a Michigan corporation, and LL&E during the three consecutive fiscal quarters of LL&E most recently ended prior to such time or (B) any payment required to have been made to LL&E under such agreement prior to such time shall not have been paid on, or within 30 days after, the date such payment is due and (4) amounts borrowed by the Borrower and its Subsidiaries under life insurance 6 policies issued to one or more of the foregoing and covering employees or former employees of one or more of the foregoing not in excess of the cash surrender value of such policies. "DESIGNATED BIDDER" means (i) an Affiliate of a Lender or (ii) a special purpose corporation that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and that issues (or the parent of which issues) commercial paper rated at least "Prime-1" by Moody's or "A-1" by S&P or a comparable rating from the successor of either of them, that, in the case of either clause (i) or (ii) above, (1) is organized under the laws of the United States or any state thereof, (2) shall have become a party hereto pursuant to subsections (e), (f) and (g) of Section 8.07, and (3) is not otherwise a Lender. Notwithstanding the foregoing, each Designated Bidder shall be subject to the written consent of the Borrower and the Administrative Agent, such consent not to be unreasonably withheld. "DESIGNATION AGREEMENT" means a designation agreement entered into by the Borrower, a Lender (other than a Designated Bidder) and a Designated Bidder, and accepted by the Administrative Agent, in substantially the form of Exhibit J hereto. "DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" in its Administrative Questionnaire, or in the Assignment and Acceptance or New Lender Agreement pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EFFECTIVE DATE" means the date on which the conditions precedent set forth in Section 3.01 have been satisfied (or compliance therewith shall have been waived by the Lenders), which date the Administrative Agent will promptly confirm to the Borrower and the Lenders in writing, and which date shall be no earlier than December 5, 2002. "EFFECTIVE FEDERAL FUNDS RATE" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day 7 is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "ELIGIBLE ASSIGNEE" means, with respect to any particular assignment under Section 8.07, any bank or other entity approved in writing by the Borrower expressly with respect to such assignment and, except as to such an assignment by JPMorgan so long as JPMorgan is the Administrative Agent hereunder, the Administrative Agent shall be an Eligible Assignee for purposes of this Agreement, provided that neither the Administrative Agent's nor the Borrower's approval shall be unreasonably withheld, and provided further that no such approval shall be necessary if (i) the assignee is a Lender Affiliate, (ii) the assignee was a Lender immediately prior to such assignment, or (iii) if an Event of Default shall then be continuing. "EQUITY INTERESTS" means any capital stock, partnership, joint venture, member or limited liability or unlimited liability company interest, beneficial interest in a trust or similar entity or other equity interest or investment of whatever nature. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued from time to time thereunder. "ERISA AFFILIATE" means any Person who is a member of the Borrower's controlled group within the meaning of Section 4001(a)(14)(A) of ERISA. "EUROCURRENCY LIABILITIES" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EURODOLLAR LENDING OFFICE" means, with respect to each Lender, the office of such Lender specified as its "Eurodollar Lending Office" in its Administrative Questionnaire or in the Assignment and Acceptance or Commitment Increase Agreement 8 pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EURODOLLAR RATE" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same A Borrowing, the interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England, to prime banks in the London interbank market at 11:00 A.M. (London, England time) two Business Days before the first day of such Interest Period in an amount comparable to the amount of such A Borrowing and for a period equal to such Interest Period. The Eurodollar Rate for the Interest Period for each Eurodollar Rate Advance comprising part of the same A Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "EURODOLLAR RATE ADVANCE" means an A Advance which bears interest determined by reference to the Eurodollar Rate, as provided in Section 2.06(a)(ii). "EURODOLLAR RATE MARGIN" means for any date the percentage per annum applicable on such date as set forth in the row labeled "LIBOR Applicable Margin" on Schedule II hereto, which is based on the ratings (or lack thereof) by Moody's or S&P or both of the public long-term senior unsecured debt securities of the Borrower. "EURODOLLAR RESERVE PERCENTAGE" of any Lender for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum reserve 9 requirement (including any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. "EXTENSION REQUEST" means each request by the Borrower made pursuant to Section 2.21 for the Lenders to extend the Stated Termination Date, which shall contain the information in respect of such extension specified in Exhibit G and shall be delivered to the Administrative Agent in writing. "FACILITY FEE PERCENTAGE" means for any date the percentage per annum applicable on such date as set forth in the row labeled "Facility Fee Percentage" on Schedule II hereto, which is based on the ratings (or lack thereof) by Moody's or S&P or both of the public long-term senior unsecured debt securities of the Borrower. "FINAL MATURITY DATE" means the first anniversary of the Stated Termination Date or, if such day is not a Business Day, the next preceding Business Day. "GUARANTY", "GUARANTEED" and "GUARANTEEING" each means any act by which a Person assumes, guarantees, endorses or otherwise incurs direct or contingent liability in connection with, or agrees to purchase or otherwise acquire or otherwise assures a creditor against loss in respect of, any Debt or Project Financing of any Person other than the Borrower or any of its consolidated Subsidiaries (excluding (i) any liability by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) any liability in connection with obligations of the Borrower or any of its consolidated Subsidiaries, including obligations under any conditional sales agreement, equipment trust financing or equipment lease, (iii) any liability or other act of the Borrower or any of its Subsidiaries under arrangements entered into in connection with the CLAM Credit Agreement, and (iv) any such act in connection with a Project Financing that either (A) guarantees to the provider of such Project Financing or any other Person performance of the acquisition, 10 improvement, installation, design, engineering, construction, development, completion, maintenance or operation of, or otherwise affects any such act in respect of, all or any portion of the project that is financed by such Project Financing or performance by a Project Financing Subsidiary of certain obligations to Persons other than the provider of such Project Financing, except during any period, and then only to the extent, that such guaranty is a direct guaranty of payment of such Project Financing (other than a guaranty of payment of the type referred to in subclause (B) below) or (B) is contingent upon, or the obligation to pay or perform under which is contingent upon, the occurrence or existence of any event or condition other than or in addition to (1) the passage of time, (2) any Project Financing becoming due, (3) the commencement of bankruptcy, insolvency or similar proceedings by the obligor on any Project Financing or (4) the failure of the obligor on any Project Financing to satisfy a financial ratio, covenant or other similar financial measurement test, but only during such period as such act is not by its terms presently enforceable, or if so enforceable, there is not a reasonable probability that the guarantor will be called upon to perform thereunder (or to make capital contributions in lieu of performance thereunder) (any such act referred to in this clause (iv) being a "CONTINGENT GUARANTY")); provided, however, that for the purposes of this definition the liability of the Borrower or any of its Subsidiaries with respect to any obligation as to which a third party or parties are jointly, or jointly and severally, liable as a guarantor or otherwise as contemplated hereby and have not defaulted on its or their portions thereof, shall be only its pro rata portion of such obligation. "INDEMNIFIED PARTY" means any or all of the Lenders, the Arranger and the Administrative Agent. "INITIAL LENDERS" has the meaning specified in the introduction hereto. "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "INTEREST PERIOD" means, for each Eurodollar Rate Advance comprising part of the same 11 A Borrowing, the period beginning on the date of such Advance or the date of the Conversion of any Advance into such Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period for a Eurodollar Rate Advance shall be (i) one, two, three or six months upon notice received by the Administrative Agent not later than 12:00 noon (New York City time) on the third Business Day prior to the first day of such Interest Period, or (ii) subject to availability to each Lender, nine or twelve months upon notice received by the Administrative Agent not later than 12:00 noon (New York City time) on the fourth Business Day prior to the first day of such Interest Period, in each case as the Borrower may select; provided, however, that: (A) the duration of any Interest Period which commences before the Termination Date and would otherwise end after the Termination Date shall end on the Termination Date and the duration of any Interest Period which would otherwise end after the Final Maturity Date shall end on the Final Maturity Date; (B) if the last day of such Interest Period would otherwise occur on a day which is not a Business Day, such last day shall be extended to the next succeeding Business Day, except if such extension would cause such last day to occur in a new calendar month, then such last day shall occur on the next preceding Business Day; (C) Interest Periods commencing on the same date for A Advances comprising the same A Borrowing shall be of the same duration; and (D) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (A) above, end on the last Business Day of a calendar month. 12 "JPMORGAN" means JPMorgan Chase Bank, and its successors. "LENDER AFFILIATE" means, with respect to any Lender, (a) an Affiliate of such Lender or (b) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender (with such Lender or Affiliate having the sole right and responsibility with respect to the approval of amendments and waivers to this Agreement, the Notes and all related agreements and instruments entered into from time to time). "LENDERS" means the Initial Lenders, each bank or other financial institution that shall become a party hereto pursuant to Section 2.20, each Eligible Assignee that shall become a party hereto pursuant to Section 8.07(a), (b) and (d) and, except when used in reference to an A Advance, an A Borrowing, a Commitment or a term related to any of the foregoing, each Designated Bidder. "LIEN" means any lien, security interest or other charge or encumbrance, or any assignment of the right to receive income, or any other type of preferential arrangement, in each case to secure any Debt or any Guaranty of any Person; provided that (i) the creation of interests in property of the character commonly referred to as a "royalty interest" or "overriding royalty interest", farmouts, joint operating or unitization agreements, or other similar transactions in the ordinary course of business and (ii) borrowings under life insurance policies as described in clause (4) of the proviso to the definition of "Debt" shall not be deemed to create a Lien. "LL&E" means The Louisiana Land and Exploration Company, a Maryland corporation and a wholly-owned Subsidiary of the Borrower. "LONG-TERM REVOLVING CREDIT AGREEMENT" means the Long-Term Revolving Credit Agreement dated as of February 25, 1998, as amended and restated as of December 7, 2001, as amended by Amendment No. 1 as of April 25, 2002, and as amended by Amendment No. 2 as of December 5, 2002, among the Borrower, the 13 financial institutions party thereto, JPMorgan, as administrative agent and auction administrative agent for such financial institutions, Citibank, N.A. and Fleet National Bank, as co-syndication agents, and Bank of America, N.A. and Toronto Dominion (Texas), Inc., as co-documentation agents. "MAJORITY LENDERS" means i) when used in Article 6 hereof, Lenders holding at least 51% of the then aggregate unpaid principal amount of the Advances held by Lenders, or ii) for all other purposes of this Agreement, Lenders having at least 51% of the Commitments. "MARGIN STOCK" means "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the financial condition or operations of the Borrower and its consolidated Subsidiaries on a consolidated basis. "MATERIAL PLAN" means any Plan the assets of which exceed $50,000,000 or the liabilities of which for unfunded vested benefits determined on a plan termination basis (in accordance with Title IV of ERISA) exceed $10,000,000. "MATERIAL SUBSIDIARY" means, from time to time, any Subsidiary of the Borrower (other than a Project Financing Subsidiary) then owning assets (determined on a consolidated basis) that equal or exceed 10% of the book value of the consolidated assets of the Borrower and its consolidated Subsidiaries at such time. "MOODY'S" means Moody's Investors Service. "MORGAN" means Morgan Guaranty Trust Company of New York, and its successors. "MORGAN GOLD LOANS" means the obligations of LL&E under the respective Credit Agreements dated as of December 23, 1994 and March 31, 1995 between LL&E and Morgan, or under any additional credit agreements on substantially similar terms, in each case, as amended, restated, extended or otherwise modified from time to time, provided that the 14 aggregate outstanding amount borrowed thereunder shall at no time exceed 35,000 ounces of gold. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NEW LENDER" has the meaning specified in Section 2.20(b). "NEW LENDER AGREEMENT" has the meaning specified in Section 2.20(b). "NOTE" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender. "NOTICE OF A BORROWING" has the meaning specified in Section 2.02(a). "NOTICE OF B BORROWING" has the meaning specified in Section 2.19(a). "OBJECTING LENDERS" has the meaning specified in Section 2.21(a). "OFFERED INCREASE AMOUNT" has the meaning specified in Section 2.20(a). "ORIGINAL EFFECTIVE DATE" means February 25, 1998. 15 "OVERDUE REIMBURSEMENT OBLIGATIONS" means with respect to any Person non-contingent obligations of such Person to reimburse a bank or other Person in respect of amounts paid under a letter of credit or similar instrument that are not paid on or prior to the fifth Business Day after the due date therefor. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "PERMITTED ASSETS" means (i) hydrocarbon or other reserves (including proved, probable, possible or speculative reserves), (ii) properties, assets, rights or business related to reserves (including real property, gathering systems, plants, pipelines, equipment and processing and treatment facilities), (iii) other fixed or operating assets and (iv) Equity Interests in any and all Business Entities that are or become Subsidiaries of the Borrower owning assets referred to in any of the foregoing clauses. "PERMITTED LIENS" means (i) inchoate Liens and charges imposed by law and incidental to construction, maintenance, development or operation of properties, or the operation of business, in the ordinary course of business if payment of the obligation secured thereby is not yet overdue or if the validity or amount of which is being contested in good faith by the Borrower or any Subsidiary of the Borrower; (ii) Liens for taxes, assessments, obligations under workers' compensation or other social security legislation or other governmental requirements, charges or levies, in each case not yet overdue; (iii) Liens reserved in any oil, gas or other mineral lease entered into in the ordinary course of business for rent, royalty or delay rental under such lease and for compliance with the terms of such lease; (iv) easements, servitudes, rights-of-way and other rights, exceptions, reservations, conditions, limitations, covenants and other restrictions which do not materially interfere with the operation, value or use of the properties affected thereby; 16 (v) conventional provisions contained in any contracts or agreements affecting properties under which the Borrower or a Subsidiary of the Borrower is required immediately before the expiration, termination or abandonment of a particular property to reassign to the Borrower's or a Subsidiary's predecessor in title all or a portion of the Borrower's or such Subsidiary's rights, titles and interests in and to all or a portion of such property; (vi) any Lien reserved in a grant or conveyance in the nature of a farm-out or conditional assignment to the Borrower or any of its Subsidiaries entered into in the ordinary course of business on reasonable terms to secure undertakings of the Borrower or such Subsidiary in such grant or conveyance; (vii) any Lien consisting of (A) statutory landlord's liens under leases to which the Borrower or any Subsidiary of the Borrower is a party or other Liens on leased property reserved in leases thereof for rent or for compliance with the terms of such leases, (B) rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any property of the Borrower or any of its Subsidiaries or to use such property in any manner which does not materially impair the use of such property for the purposes for which it is held by the Borrower or any such Subsidiary, (C) obligations or duties to any municipality or public authority with respect to any franchise, grant, license, lease or permit and the rights reserved or vested in any governmental authority or public utility to terminate any such franchise, grant, license, lease or permit or to condemn or expropriate any property, and (D) zoning laws and ordinances and municipal regulations; (viii) Liens on Equity Interests in, or Debt or other obligations of, CLAM owned by the Borrower or any of its Subsidiaries, which Liens secure Debt of CLAM; and (ix) any Lien on any assets (including Equity Interests and other obligations) securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring, improving, installing, designing, engineering, developing (including drilling), or constructing such assets, provided that such Lien attaches to such assets 17 concurrently with or within 360 days after the acquisition or completion of development, construction or installation thereof or improvement thereto. "PERSON" means an individual, a Business Entity, or a country or any political subdivision thereof or any agency or instrumentality of such country or subdivision. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "PROJECT FINANCING" means any Debt incurred to finance or refinance the acquisition, improvement, installation, design, engineering, construction, development, completion, maintenance or operation of, or otherwise in respect of, all or any portion of any project, or any asset related thereto, and any Guaranty with respect thereto, other than any portion of such Debt or Guaranty permitting or providing for recourse against the Borrower or any of its Subsidiaries other than (i) recourse to the Equity Interests in, Debt or other obligations of, or assets of, one or more Project Financing Subsidiaries, and (ii) such recourse as exists under any Contingent Guaranty. "PROJECT FINANCING SUBSIDIARY" means any Subsidiary of the Borrower whose principal purpose is to incur Project Financing, or to become a direct or indirect partner, member or other equity participant or owner in a Business Entity so created, and substantially all the assets of which Subsidiary or Business Entity are limited to those assets being financed (or to be financed), or the operation of which is being financed (or to be financed), in whole or in part by a Project Financing or to Equity Interests in, or Debt or other obligations of, one or more other such Subsidiaries or Business Entities. "RE-ALLOCATION DATE" has the meaning specified in Section 2.20(e). "REFERENCE BANKS" means JPMorgan Chase Bank, Citibank, N.A. and Bank of America, N.A. "REGISTER" has the meaning specified in Section 8.07(c). 18 "REQUIRED LENDERS" means Lenders (i) that are not Objecting Lenders with respect to any previous Extension Request and (ii) that have Commitment Percentages aggregating at least 51% of the aggregate Commitment Percentages of such non-Objecting Lenders. "REVOLVING A ADVANCE" means an A Advance made or to be made by a Lender pursuant to Section 2.01(a). "S&P" means Standard and Poor's, a division of The McGraw-Hill Companies, Inc. "SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Borrower or an ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "STATED TERMINATION DATE" means December 4, 2003, or such later date as shall be determined pursuant to the provisions of Section 2.21 with respect to non-Objecting Lenders, provided that if such date is not a Business Day, the Stated Termination Date shall be the next preceding Business Day. "SUBSIDIARY" means, as to any Person, any Business Entity of which shares of stock or other Equity Interests having ordinary voting power (other than stock or such other Equity Interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such Business Entity are at the time owned, directly or indirectly through one or more Subsidiaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "TERMINATION DATE" means the earlier of (i) the Stated Termination Date and (ii) the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01. 19 "TERMINATION EVENT" means (i) a "reportable event," as such term is described in Section 4043 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), or an event described in Section 4062(e) of ERISA, or (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer," as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) the conditions set forth in Section 302(f)(1)(A) and (B) of ERISA to the creation of a lien upon property or rights to property of the Borrower or any ERISA Affiliate for failure to make a required payment to a Plan are satisfied, or (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (vii) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "TERM A ADVANCE" means an A Advance made or to be made by a Lender pursuant to Section 2.01(b). "TYPE" has the meaning specified in the definition of "A Advance". "UTILIZATION FEE PERIOD" means any period during the term of this Agreement commencing on the Effective Date or on a subsequent January 1, April 1, July 1 or October 1 and ending in each case on the earliest to occur of the next succeeding March 31, June 30, September 30 or December 31 and the Termination Date. "WITHDRAWAL LIABILITY" shall have the meaning given such term under Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified 20 date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." SECTION 1.03. Accounting and Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles either (i) consistent with those principles applied in the preparation of the annual financial statements referred to in Section 4.01(e), or (ii) not so materially inconsistent with such principles that a covenant contained in Section 5.01 or 5.02 would be calculated or construed in a materially different manner or with materially different results than if such covenant were calculated or construed in accordance with clause (i) of this Section 1.03. "INCLUDE", "INCLUDES" and "INCLUDING" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. SECTION 1.04. References. The words "HEREOF", "HEREIN" and "HEREUNDER" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. (a) Revolving A Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the Effective Date to and including the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on Schedule III hereto, or, if such Lender has entered into any Assignment and Acceptance or Commitment Increase Agreement or a New Lender Agreement, set forth for such Lender in the Register maintained by 21 the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's "COMMITMENT"), provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding and such deemed use of the aggregate amount of such Commitments shall be applied to all the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a "B REDUCTION"). Each A Borrowing consisting of Revolving A Advances shall be in an aggregate amount of $10,000,000 in the case of an A Borrowing comprised of Base Rate Advances and $25,000,000 in the case of an A Borrowing comprised of Eurodollar Rate Advances, or, in either case an integral multiple of $1,000,000 in excess thereof (or, in the case of an A Borrowing of Base Rate Advances, the aggregate unused Commitments, if less) and shall consist of A Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the Borrower may make more than one Borrowing on any Business Day and may borrow, prepay pursuant to Section 2.10, and reborrow under this Section 2.01(a). (b) Term A Advances. Each Lender severally agrees, at the option of the Borrower and on the terms and conditions set forth in this Agreement, to make an A Advance to the Borrower on the Stated Termination Date in an aggregate amount up to but not exceeding the amount of its Commitment. Each A Borrowing consisting of Term A Advances shall be in an aggregate amount of $10,000,000 in the case of an A Borrowing comprised of Base Rate Advances and $25,000,000 in the case of an A Borrowing comprised of Eurodollar Rate Advances, or, in either case an integral multiple of $1,000,000 in excess thereof and shall consist of A Advances of the same Type made on the Stated Termination Date by the Lenders ratably according to their respective Commitments. SECTION 2.02. Making the A Advances. (a) Each A Borrowing shall be made on notice by the Borrower to the Administrative Agent (a "NOTICE OF A BORROWING") received by the Administrative Agent, (i) in the case of a proposed A Borrowing comprised of Base Rate Advances, not later than 22 10:00 A.M. (New York City time) on the Business Day of such proposed A Borrowing, and (ii) in the case of a proposed A Borrowing comprised of Eurodollar Rate Advances, not later than 12:00 noon (New York City time) on the third Business Day prior to the date of such proposed A Borrowing. Each Notice of A Borrowing shall be by telecopy, telefax or other teletransmission or by telephone (and if by telephone, confirmed promptly by telecopier, telefax or other teletransmission), in substantially the form of Exhibit B hereto, specifying therein the requested (w) date of such A Borrowing, (x) Type of A Advances comprising such A Borrowing and, additionally, whether such A Borrowing consists of Revolving A Advances or Term A Advances, (y) aggregate amount of such A Borrowing, and (z) in the case of an A Borrowing comprised of Eurodollar Rate Advances, the initial Interest Period for each such A Advance. Each Lender shall, before 1:00 p.m. (New York City time) on the date of such A Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent in care of JPMorgan Chase Bank, Agency Services, One Chase Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Muniram Appanna, Reference: Burlington Resources Inc., or at such other location designated by notice from the Administrative Agent to the Lenders pursuant to Section 8.02, in same day funds, such Lender's ratable portion of such A Borrowing. Immediately after the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 3, the Administrative Agent will make such funds available to the Borrower at JPMorgan Chase Bank, One Chase Manhattan Plaza, 8th Floor, New York, NY 10081, or at any account of the Borrower maintained by the Administrative Agent (or any successor Administrative Agent) designated by the Borrower and agreed to by the Administrative Agent (or such successor Administrative Agent), in same day funds. (b) Each Notice of A Borrowing shall be irrevocable and binding on the Borrower. In the case of any A Borrowing which the related Notice of A Borrowing specified is to be comprised of Eurodollar Rate Advances, if such A Advances are not made as a result of any failure to fulfill on or before the date specified for such A Borrowing the applicable conditions set forth in Article 3, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a 23 result of such failure, including any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the A Advance to be made by such Lender as part of such A Borrowing. (c) If any Lender makes a Term A Advance to the Borrower hereunder on a day on which the Borrower is to repay all or any part of an outstanding Revolving A Advance from such Lender, such Lender shall apply the proceeds of its Term A Advance to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Lender to the Administrative Agent as provided in subsection 2.02(a), or remitted by the Borrower to the Administrative Agent as provided in Section 2.14, as the case may be. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any A Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such A Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such A Borrowing in accordance with subsections (a) and (c) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at the Effective Federal Funds Rate for such day. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's A Advance to the Borrower as part of such A Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the A Advance to be made by it as part of any A Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its A Advance on the date of such A Borrowing, but no Lender shall be responsible for the failure of any 24 other Lender to make the A Advance to be made by such other Lender on the date of any A Borrowing. SECTION 2.03. Fees. (a) FACILITY FEE. The Borrower agrees to pay to the Administrative Agent for the account of each Lender (other than a Designated Bidder) a facility fee on the average daily amount of such Lender's Commitment, whether or not used or deemed used, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance or Commitment Increase Agreement pursuant to which it became a Lender in the case of each other Lender, in each case until the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender's Commitment and on the Termination Date, at a rate per annum equal to the Facility Fee Percentage in effect from time to time. (b) UTILIZATION FEE. The Borrower agrees to pay to the Administrative Agent for the account of each Lender (i) for any Utilization Fee Period, if during such Utilization Fee Period the Average Aggregate Facility Advances were greater than 25% and less than or equal to 50% of the Average Aggregate Facility Commitments, a utilization fee of 0.125% per annum on the average daily amount of such Lender's Advances during such Utilization Fee Period; and (ii) for any Utilization Fee Period, if during such Utilization Fee Period the Average Aggregate Facility Advances were greater than 50% of the Average Aggregate Facility Commitments, a utilization fee of 0.25% per annum on the average daily amount of such Lender's Advances during such Utilization Fee Period. If a utilization fee is owing in respect of any Utilization Fee Period, such fee shall be payable on the last day of such Utilization Fee Period. (c) TERM A ADVANCE PREMIUM FEE. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a premium fee of 0.25% per annum on the average daily amount of the outstanding principal amount of such Lender's Term A Advances hereunder, payable quarterly in arrears on the last day of each March, June, September and December and on the date on which the last of such Lender's Term A Advances shall be repaid. 25 (d) AGENCY FEE. The Borrower agrees to pay to the Administrative Agent, for its own account, such agency fees as may be separately agreed to in writing by the Borrower and the Administrative Agent, such fees to be in the amounts and payable on the dates as may be so agreed to. (e) ARRANGEMENT FEE. The Borrower agrees to pay to the Administrative Agent, for its own account, an arrangement fee in the amount and payable on the date separately agreed to in writing by the Administrative Agent and the Borrower. SECTION 2.04. Reduction of the Commitments. The Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the Commitments of the Lenders (being the amount by which such Commitments exceed the aggregate outstanding principal amount of all Advances), provided that each partial reduction shall be in the aggregate amount of $20,000,000 or any whole multiple of $1,000,000 in excess thereof. SECTION 2.05. Repayment of A Advances. (a) The Borrower shall repay to each Lender on the Termination Date the aggregate principal amount of the Revolving A Advances, together with accrued interest thereon, then owing to such Lender. (b) The Borrower shall repay to each Lender on the Final Maturity Date the aggregate principal amount of the Term A Advances, together with accrued interest thereon, then owing to such Lender. SECTION 2.06. Interest on A Advances. (a) ORDINARY INTEREST. The Borrower shall pay interest on the unpaid principal amount of each A Advance owing to each Lender from the date of such A Advance until such principal amount is due (whether at stated maturity, by acceleration or otherwise), at the following rates: (i) BASE RATE ADVANCES. During such periods as such A Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time plus, in the case of any Term A Advance, as additional interest in lieu of the facility fee, the Facility Fee Percentage in effect from time to 26 time, payable quarterly in arrears on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or due (whether at stated maturity, by acceleration or otherwise). (ii) EURODOLLAR RATE ADVANCES. During such periods as such A Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such A Advance to the sum of the Eurodollar Rate for such Interest Period plus the Eurodollar Rate Margin in effect from time to time plus, in the case of any Term A Advance, as additional interest in lieu of the facility fee, the Facility Fee Percentage in effect from time to time, payable on the last day of each such Interest Period and, if any such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period and, if such A Advance is Converted into a Base Rate Advance on any date other than the last day of any Interest Period for such A Advance, on the date of such Conversion or, if later, the Business Day on which the Borrower shall have received at least one Business Day's prior notice from the Administrative Agent or the applicable Lender of the amount of unpaid interest accrued on such A Advance to the date of such Conversion. (iii) ADDITIONAL INTEREST ON TERM A ADVANCES. In addition to amounts payable under clause (i) or (ii) above and under Section 2.03(c) in respect of any Term A Advance, the Borrower shall pay to each Lender hereunder as additional interest an amount in lieu of the utilization fee equal to 0.25% per annum on the average daily amount of such Lender's Term A Advances during any period (each such period, an "Additional Interest Period") commencing on the Termination Date or on a subsequent January 1, April 1, July 1 or October 1 and ending in each case on the earliest to occur of the next succeeding March 31, June 30, September 30 or December 31 and the Final Maturity Date (or, if any Term A Advances remain outstanding after the Final Maturity Date, such later date on which all such Advances are repaid in full). 27 Additional interest owing in respect of any Additional Interest Period shall be payable on the last day of such Additional Interest Period; provided that additional interest owing after the Final Maturity Date shall be payable on demand. (b) DEFAULT INTEREST. The Borrower shall pay interest on the unpaid principal amount of each Advance that is not paid when due (whether at stated maturity, by acceleration or otherwise) from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times (i) from such due date to the last day of the then existing Interest Period therefor, in the case of each Eurodollar Rate Advance, to 1% per annum above the interest rate per annum required to be paid on such A Advance immediately prior to the date on which such amount became due and (ii) from and after the last day of the then existing Interest Period therefor, in the case of each Eurodollar Rate Advance, and at all times in the case of each Base Rate Advance or B Advance, to 1% per annum above the Base Rate in effect from time to time, plus, in the case of a Term A Advance, any additional interest payable pursuant to Section 2.06(a)(iii). SECTION 2.07. Additional Interest on Eurodollar Rate Advances. If any Lender shall determine in good faith that reserves under regulations of the Board of Governors of the Federal Reserve System are required to be maintained by it in respect of, or a portion of its costs of maintaining reserves under such regulations is properly attributable to, one or more of its Eurodollar Rate Advances, the Borrower shall pay to such Lender additional interest on the unpaid principal amount of each such Eurodollar Rate Advance payable on the same day or days on which interest is payable on such A Advance, at an interest rate per annum up to but not exceeding at all times during each Interest Period for such A Advance the excess of (i) the rate obtained by dividing the Eurodollar Rate for such Interest Period by a percentage equal to 100% minus the Eurodollar Reserve Percentage, if any, for such Lender for such Interest Period over (ii) the Eurodollar Rate for such Interest Period. Any Lender wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional 28 interest on the Eurodollar Rate Advances of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period commencing at least five Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Business Days prior to each date on which interest is payable on the Eurodollar Rate Advances an officer's certificate setting forth the amount to which such Lender is then entitled under this Section, which certificate shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.06(a)(i) or (ii), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.06(a)(ii) or (iii). (c) If fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any applicable A Advances, (i) the Administrative Agent shall give the Borrower and each Lender prompt notice by telephone (confirmed in writing) that the interest rate cannot be determined for such applicable A Advances, (ii) each such A Advance that is a Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such A Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and 29 (iii) the obligations of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances, as the case may be, shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders determine and give notice to the Administrative Agent that as a result of conditions in or generally affecting the relevant market, the rates of interest determined on the basis of the Eurodollar Rate for any Interest Period for such A Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon: (i) each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Eurodollar Rate Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Eurodollar Rate Advances with an Interest Period of one month. (f) On the date on which the aggregate unpaid principal amount of A Advances comprising any A Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such A Advances shall, if they are Eurodollar Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such A Advances into 30 Eurodollar Rate Advances shall terminate; provided, however, that if and so long as each such A Advance shall be, or be elected to be Converted to, Eurodollar Rate Advances having the same Interest Period as Eurodollar Rate Advances comprising another A Borrowing or other A Borrowings, and the aggregate unpaid principal amount of all such Eurodollar Rate Advances shall, or upon such Conversion will, equal or exceed $20,000,000, the Borrower shall have the right to continue all such Eurodollar Rate Advances as, or to Convert all such A Advances into, Eurodollar Rate Advances having such Interest Period. SECTION 2.09 Voluntary Conversion of A Advances . The Borrower may on any Business Day, upon notice given to the Administrative Agent, not later than 12:00 noon (New York City time) on the third Business Day prior to the date of the proposed Conversion, and subject to the provisions of Section 2.08, 2.11 and 2.13, Convert all A Advances of one Type comprising the same A Borrowing into A Advances of the other Type; provided, however, that any Conversion of any Eurodollar Rate Advances into Base Rate Advances made on any day other than the last day of an Interest Period for such Eurodollar Rate Advances shall be subject to the provisions of Section 8.04(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the A Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such Eurodollar Rate Advance. SECTION 2.10. Prepayments. The Borrower may, upon (i) in the case of Eurodollar Rate Advances, at least three Business Days notice or (ii) in the case of Base Rate Advances, telephonic notice not later than 12:00 noon (New York City time) on the date of prepayment, to the Administrative Agent which specifies the proposed date and aggregate principal amount of the prepayment and the Type of A Advances to be prepaid, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the A Advances comprising the same A Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than $10,000,000 or an 31 integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of Eurodollar Rate Advances on any day other than the last day of an Interest Period for such Eurodollar Rate Advances, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to, and to the extent required by, Section 8.04(b); provided, further, however, that the Borrower will use its best efforts to give notice to the Administrative Agent of the proposed prepayment of Base Rate Advances on the Business Day prior to the date of such proposed prepayment. SECTION 2.11. Increased Costs. (a) If, due to either (i) the introduction after the Effective Date of or any change after the Effective Date (including any change by way of imposition or increase of reserve requirements or assessments other than those referred to in the definition of "Eurodollar Reserve Percentage" contained in Section 1.01) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request issued or made after the Effective Date from or by any central bank or other governmental authority (whether or not having the force of law), in each case above other than those referred to in Section 2.12, there shall be any increase in the cost to any Lender of agreeing to make, fund or maintain, or of making, funding or maintaining, Eurodollar Rate Advances funded in the interbank Eurodollar market, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to reimburse such Lender for all such increased costs (except those incurred more than 60 days prior to the date of such demand; for the purposes hereof any cost or expense allocable to a period prior to the publication or effective date of such an introduction, change, guideline or request shall be deemed to be incurred on the later of such publication or effective date). Each Lender agrees to use its best reasonable efforts promptly to notify the Borrower of any event referred to in clause (i) or (ii) above, provided that the failure to give such notice shall not affect the rights of any Lender under this Section 2.11(a) (except as otherwise expressly provided above in this Section 2.11(a)). A certificate as to the amount of 32 such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. After one or more Lenders have notified the Borrower of any increased costs pursuant to this Section 2.11, the Borrower may specify by notice to the Administrative Agent and the affected Lenders that, after the date of such notice whenever the election of a Eurodollar Rate Advance by the Borrower for an Interest Period or portion thereof would give rise to such increased costs, such election shall not apply to the A Advances of such Lender or Lenders during such Interest Period or portion thereof, and, in lieu thereof, such A Advances shall during such Interest Period or portion thereof be Base Rate Advances. Each Lender agrees to use its best reasonable efforts (including a reasonable effort to change its Applicable Lending Office or to transfer its affected A Advances to an Affiliate of such Lender) to avoid, or minimize the amount of, any demand for payment from the Borrower under this Section 2.11, provided that such avoidance would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (b) In the event that any Lender shall change its Eurodollar Lending Office and such change results (at the time of such change) in increased costs to such Lender, the Borrower shall not be liable to such Lender for such increased costs incurred by such Lender to the extent, but only to the extent, that such increased costs shall exceed the increased costs which such Lender would have incurred if the Eurodollar Lending Office of such Lender had not been so changed, but, subject to subsection (a) of this Section 2.11 and to Section 2.13, nothing herein shall require any Lender to change its Eurodollar Lending Office for any reason. SECTION 2.12. Increased Capital. If either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance by any Lender with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender (including any determination after the Effective Date by any such central bank, governmental 33 authority or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less) and such Lender determines that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, within ten days after demand, and delivery to the Borrower of the certificate referred to in the last sentence of this Section 2.12 by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder (except any such increase in capital incurred more than, or compensation attributable to the period before, 90 days prior to the date of such demand; for the purposes hereof any increase in capital allocable to, or compensation attributable to, a period prior to the publication or effective date of such an introduction, change, guideline or request shall be deemed to be incurred on the later of such publication or effective date). Each Lender agrees to use its best reasonable efforts promptly to notify the Borrower of any event referred to in clause (i) or (ii) above, provided that the failure to give such notice shall not affect the rights of any Lender under this Section 2.12 (except as otherwise expressly provided above in this Section 2.12). A certificate in reasonable detail as to the basis for, and the amount of, such compensation submitted to the Borrower and the Administrative Agent by such Lender shall, in the absence of manifest error, be conclusive and binding for all purposes. SECTION 2.13. Illegality. Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Applicable Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain such Advances hereunder, such Lender may, 34 by notice to the Borrower and the Administrative Agent, suspend the right of the Borrower to elect Eurodollar Rate Advances from such Lender and, if necessary in the reasonable opinion of such Lender to comply with such law or regulation, Convert all such Eurodollar Rate Advances of such Lender to Base Rate Advances at the latest time permitted by the applicable law or regulation, and such suspension and, if applicable, such Conversion shall continue until such Lender notifies the Borrower and the Administrative Agent that the circumstances making it unlawful for such Lender to perform such obligations no longer exist (which such Lender shall promptly do when such circumstances no longer exist). So long as the obligation of any Lender to make Eurodollar Rate Advances has been suspended under this Section 2.13, all Notices of A Borrowing specifying A Advances of such Type shall be deemed, as to such Lender, to be requests for Base Rate Advances. Each Lender agrees to use its best reasonable efforts (including a reasonable effort to change its Applicable Lending Office or to transfer its affected A Advances to an affiliate) to avoid any such illegality, provided that such avoidance would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. SECTION 2.14. Payments and Computations. (a) The Borrower shall make each payment hereunder (including under Section 2.03, 2.05, 2.06 or 2.19) and under the Notes, whether the amount so paid is owing to any or all of the Lenders or to the Administrative Agent, not later than 1:00 P.M. (New York City time) without setoff, counterclaim, or any other deduction whatsoever, on the day when due in U.S. dollars to the Administrative Agent in care of JPMorgan Chase Bank, Agency Services, One Chase Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Muniram Appanna, Reference: Burlington Resources Inc., or at such other location designated by notice to the Borrower from the Administrative Agent and agreed to by the Borrower, in same day funds. Each such payment made by the Borrower for the account of any Lender hereunder, when so made to the Administrative Agent, shall be deemed duly made for all purposes of this Agreement and the Notes, except that if at any time any such payment is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the bankruptcy, insolvency or reorganization of the 35 Borrower or otherwise, such payment shall be deemed not to have been so made. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.07, 2.11, 2.12, 2.13, 2.15, 2.19 or 8.04(b)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the Base Rate and of facility fees and utilization fees (or amounts in lieu thereof) shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate, or the Effective Federal Funds Rate shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.07 shall be made by each Lender with respect to its own Eurodollar Rate Advances, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.07, 2.11, 2.12, 2.13, 2.15, 2.19 or 8.04(b), by each Lender with respect to its own Advances) of an interest rate or an increased cost, loss or expense or increased capital or of illegality or taxes hereunder shall be conclusive and binding for all purposes if made reasonably and in good faith. (c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the 36 next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fees, as the case may be; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at a rate equal to the Effective Federal Funds Rate for such day. SECTION 2.15. Taxes. (a) Any and all payments by the Borrower hereunder or under the Notes shall be made in accordance with Section 2.14, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding in the case of each Indemnified Party, (i) all taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, imposed on or determined by reference to its income or profits, and all franchise taxes, and (ii) all other taxes, levies, imposts, deductions, charges, or withholdings in effect at the time that such Indemnified Party executed this Agreement or otherwise became an "Indemnified Party" hereunder, and liabilities with respect thereto, imposed on it by reason of the jurisdiction in which such Indemnified Party is organized, domiciled, resident or doing business, or 37 any political subdivision thereof, or by reason of the jurisdiction of its Applicable Lending Office or any other office from which it makes or maintains any extension of credit hereunder or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments under this Agreement or under the Notes being herein referred to as "TAXES"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Indemnified Party, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.15) such Indemnified Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower (or the Administrative Agent, as applicable) shall make such deductions at the applicable statutory rate and (iii) the Borrower (or the Administrative Agent, as applicable) shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, provided that the Borrower shall not be required to pay any additional amount (and shall be relieved of any liability with respect thereto) pursuant to this subsection (a) (or pursuant to Section 2.15(c), except to the extent Section 2.15(c) relates to Other Taxes) to any Indemnified Party that either (x) on the date such Indemnified Party executed this Agreement or otherwise became an "Indemnified Party" hereunder, both (A) was not entitled to submit a U.S. Internal Revenue Service form W-8BEN (relating to such Indemnified Party, and entitling it to a complete exemption from withholding on all amounts to be received by such Indemnified Party, including fees, pursuant to this Agreement or the Advances) or a U.S. Internal Revenue Service form W-8ECI (relating to all amounts to be received by such Indemnified Party, including fees, pursuant to this Agreement and the Advances) and (B) is not a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code), or (y) has failed to submit any form or certificate that it was required to file or provide pursuant to subsection (d) of this Section 2.15 and is entitled to file or give, as applicable, under applicable law, provided, further, that should an Indemnified Party become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower 38 shall take such administrative steps as such Indemnified Party shall reasonably request to assist such Indemnified Party to recover such Taxes, and provided further, that each Indemnified Party, with respect to itself, agrees to indemnify and hold harmless the Borrower from any taxes, penalties, interest and other expenses, costs and losses incurred or payable by the Borrower as a result of the failure of the Borrower to comply with its obligations under clauses (ii) or (iii) above in reliance on any form or certificate provided to it by such Indemnified Party pursuant to this Section 2.15. If any Indemnified Party receives a net credit or refund in respect of such Taxes or amounts so paid by the Borrower, it shall promptly notify the Borrower of such net credit or refund and shall promptly pay such net credit or refund to the Borrower, provided that the Borrower agrees to return such net credit or refund if the Indemnified Party to which such net credit or refund is applicable, is required to repay it. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "OTHER TAXES"). (c) The Borrower will indemnify each Indemnified Party for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.15) paid by such Indemnified Party and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto except as a result of the gross negligence (which shall in any event include the failure of such Indemnified Party to provide to the Borrower any form or certificate that it was required to provide pursuant to subsection (d) below) or willful misconduct of such Indemnified Party, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Indemnified Party makes written demand therefor. (d) On or prior to the date on which each Indemnified Party that is not a United States person 39 (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) executes this Agreement or otherwise becomes an "Indemnified Party" hereunder, such Indemnified Party shall provide the Borrower and the Administrative Agent with U.S. Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the U.S. Internal Revenue Service, certifying that such Indemnified Party is fully exempt from United States withholding taxes with respect to all payments to be made to such Indemnified Party hereunder, or other documents satisfactory to the Borrower indicating that all payments to be made to such Indemnified Party hereunder are fully exempt from such taxes. Thereafter and from time to time, each such Indemnified Party shall submit to the Borrower and the Administrative Agent such additional duly completed and signed copies of one or the other of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) notified by the Borrower to such Indemnified Party and (ii) required under then-current United States law or regulations to avoid United States withholding taxes on payments in respect of all amounts to be received by such Indemnified Party pursuant to this Agreement or the Notes, including fees. Upon the request of the Borrower from time to time, each Indemnified Party that is a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) shall submit to the Borrower a certificate to the effect that it is such a United States person. If any Indemnified Party determines, as a result of any change in applicable law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit to the Borrower any form or certificate that such Indemnified Party is obligated to submit pursuant to this subsection (d), or that such Indemnified Party is required to withdraw or cancel any such form or certificate previously submitted, such Indemnified Party shall promptly notify the Borrower and the Administrative Agent of such fact. (e) Any Indemnified Party claiming any additional amounts payable pursuant to this Section 2.15 shall use its best reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may 40 thereafter accrue and would not, in the reasonable judgment of such Indemnified Party, be otherwise disadvantageous to such Indemnified Party. (f) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower and each Indemnified Party contained in this Section 2.15 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.16. Sharing of Payments, Etc.. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the A Advances made by it (other than pursuant to Section 2.07, 2.11, 2.12, 2.13, 2.15 or 8.04(b)) in excess of its ratable share of payments on account of the A Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the A Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender's ratable share (according to the proportion of (i) the amount of the participation purchased from such Lender as a result of such excess payment to (ii) the total amount of such excess payment) of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (A) the amount of such Lender's required repayment to (B) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.17. Evidence of Debt. 41 (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Advance made by such Lender hereunder, including the amounts of principal and interest payable and paid to such lender from time to time hereunder. (b) The Administrative Agent shall maintain accounts and records in which it shall record (i) the amount of each Advance made hereunder, the type of Advance and, in the cases of Eurodollar Rate Advances, the relevant Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (c) The entries made in the accounts maintained pursuant to Sections 2.17(a) and (b) shall be conclusive evidence (absent manifest error) of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Advances in accordance with the terms of this Agreement. In the event of a conflict between the records maintained by the Administrative Agent and any Lender, the records maintained by the Lender shall govern. Any Lender may request that Loans made by it be evidenced by a Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and substantially in the form attached as Exhibit A hereto. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after assignment pursuant to Section 8.07) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if such Note is a registered Note, to such payee and its registered assigns). SECTION 2.18. Use of Proceeds. Proceeds of the Advances may be used for general corporate purposes of the Borrower and its Subsidiaries, including for acquisitions and for payment of commercial paper issued by the Borrower. 42 SECTION 2.19. The B Advances. (a) Each Lender severally agrees that the Borrower may make B Borrowings under this Section 2.19 from time to time on any Business Day during the period from the Effective Date until the earlier of (I) the Termination Date or (II) the date falling 30 days prior to the Stated Termination Date, in the manner set forth below; provided that (x) each B Borrowing shall be in an aggregate amount of $25,000,000 or an integral multiple of $5,000,000 in excess thereof and (y) following the making of each B Borrowing, the aggregate number of outstanding B Borrowings shall not exceed seven and the aggregate amount of all Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders (computed without regard to any B Reduction). (i) The Borrower may request a B Borrowing under this Section 2.19 by delivering to the Administrative Agent, by telecopy, telefax or other teletransmission, a notice of a B Borrowing (a "NOTICE OF B BORROWING"), in substantially the form of Exhibit C hereto, specifying the date and aggregate amount of the proposed B Borrowing, the maturity date for repayment of each B Advance to be made as part of such B Borrowing (which maturity date may not be earlier than the date occurring 30 days after the date of such B Borrowing or later than the earlier of (x) 180 days after the date of such B Borrowing or (y) the Stated Termination Date), the interest payment date or dates relating thereto, and any other terms to be applicable to such B Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed B Borrowing, if the Borrower shall specify in the Notice of B Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum and (B) at least four Business Days prior to the date of the proposed B Borrowing, if the Borrower shall instead specify in the Notice of B Borrowing the basis to be used by the Lenders in determining the rates of interest to be offered by them. The Administrative Agent shall in turn promptly notify each Lender of each request for a B Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of B Borrowing. 43 (ii) Each Lender may, if in its sole and absolute discretion it elects to do so, irrevocably offer to make one or more B Advances to the Borrower as part of such proposed B Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to the Borrower), before 10:00 A.M. (New York City time) (x) on the date of such proposed B Borrowing in the case of a Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i) above, and (y) three Business Days before the date of such proposed B Borrowing in the case of a Notice of B Borrowing delivered pursuant to clause (B) of paragraph (i) above, of the maximum amount of each B Advance which such Lender would be willing to make as part of such proposed B Borrowing (which amount may, subject to clause (y) of the proviso to the first sentence of this Section 2.19(a), exceed such Lender's Commitment), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such B Advance; provided that if the Administrative Agent or an Affiliate thereof in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 9:45 A.M. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any B Advance as part of such B Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any B Advance as part of such proposed B Borrowing. (iii) The Borrower shall, in turn, before 11:00 A.M. (New York City time) (x) on the date of such proposed B Borrowing, in the case of a Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i) above and (y) three Business Days before the date of such proposed B Borrowing in the case of a Notice of 44 B Borrowing delivered pursuant to clause (B) of paragraph (i) above, either (A) cancel such B Borrowing by giving the Administrative Agent notice to that effect, or (B) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in order of the lowest to highest rates of interest or margins (or, if two or more Lenders bid at the same rates of interest, and the amount of accepted offers is less than the aggregate amount of such offers, the amount to be borrowed from such Lenders as part of such B Borrowing shall be allocated among such Lenders pro rata on the basis of the maximum amount offered by such Lenders at such rates or margin in connection with such B Borrowing), in any aggregate amount up to the aggregate amount initially requested by the Borrower in the relevant Notice of B Borrowing, by giving notice to the Administrative Agent of the amount of each B Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Administrative Agent on behalf of such Lender for such B Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such B Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Administrative Agent notice to that effect. (iv) If the Borrower notifies the Administrative Agent that such B Borrowing is cancelled pursuant to paragraph (iii)(A) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such B Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(B) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such B Borrowing and 45 whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Borrower, (B) each Lender that is to make a B Advance as part of such B Borrowing, of the amount of each B Advance to be made by such Lender as part of such B Borrowing, and (C) each Lender that is to make a B Advance as part of such B Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article 3. Each Lender that is to make a B Advance as part of such B Borrowing shall, before 12:00 noon (New York City time) on the date of such B Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02 such Lender's portion of such B Borrowing, in same day funds. Upon fulfillment of the applicable conditions set forth in Article 3 and after receipt by the Administrative Agent of such funds, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address. Promptly after each B Borrowing the Administrative Agent will notify each Lender of the amount of the B Borrowing, the consequent B Reduction and the dates upon which such B Reduction commenced and will terminate. (b) Within the limits and on the conditions set forth in this Section 2.19, the Borrower may from time to time borrow under this Section 2.19, repay or prepay pursuant to subsection (c) below, and reborrow under this Section 2.19. (c) The Borrower shall repay to the Administrative Agent for the account of each Lender which has made a B Advance, or each other holder of a Note, on the maturity date of each B Advance (such maturity date being that specified by the Borrower for repayment in the related Notice of B Borrowing and provided in the Note, if any, evidencing such B Advance), the then unpaid principal amount of such B Advance. The Borrower shall have no right to prepay any B Advance unless, and then only on the 46 terms, specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to Section 2.19(a)(i) and set forth in the Note, if any, evidencing such B Advance or unless the holder of such B Advance otherwise consents in writing to such prepayment. (d) The Borrower shall pay interest on the unpaid principal amount of each B Advance from the date of such B Advance to the date the principal amount of such B Advance is repaid in full at the rate of interest for such B Advance specified by the Lender making such B Advance in its notice delivered pursuant to subsection (a)(ii) above on the interest date or dates specified by the Borrower for such B Advance in the related Notice of B Borrowing and set forth in the Note, if any, evidencing such B Advance, subject to Section 2.06(b). (e) Each time that the Borrower gives a Notice of B Borrowing, the Borrower shall pay to the Administrative Agent for its own account such fee as may be agreed between the Borrower and the Administrative Agent from time to time, whether or not any B Borrowing is in fact made. (f) Following the making of each B Borrowing, the Borrower agrees that it will be in compliance with the limitations set forth in clause (y) of the proviso to the first sentence of Section 2.19(a). (g) The failure of any Lender to make the B Advance to be made by it as part of any B Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its B Advance on the date of such B Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the B Advance to be made by such other Lender on the date of any B Borrowing. If any Designated Bidder fails to make the B Advance to be made by it as part of any B Borrowing, such Designated Bidder shall not thereafter have the right to offer to make any B Advance without the prior written consent of the Borrower and the Administrative Agent. SECTION 2.20. Increase of Commitments. (a) At any time after the Effective Date, provided that no Event of Default shall have occurred and be continuing, the Borrower may request an increase of the aggregate Commitments by notice to the Administrative Agent in writing of the amount (the 47 "OFFERED INCREASE AMOUNT") of such proposed increase (such notice, a "COMMITMENT INCREASE NOTICE"). Any such Commitment Increase Notice must offer each Lender the opportunity to subscribe for its pro rata share of the increased Commitments. If any portion of the increased Commitments is not subscribed for by the Lenders, the Borrower may, in its sole discretion, but with the consent of the Administrative Agent as to any Person that is not at such time a Lender (which consent shall not be unreasonably withheld), offer to any existing Lender or to one or more additional banks or financial institutions the opportunity to participate in all or a portion of such unsubscribed portion of the increased Commitments pursuant to paragraph (b) or (c) below, as applicable. (b) Any additional bank or financial institution that the Borrower selects to offer participation in the increased Commitments, and that elects to become a party to this Agreement and obtain a Commitment, shall execute a New Lender Agreement with the Borrower and the Administrative Agent, substantially in the form of Exhibit E (a "NEW LENDER AGREEMENT"), whereupon such bank or financial institution (a "NEW LENDER") shall become a Lender for all purposes and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages and Schedule III hereof shall be deemed to be amended to add the name and Commitment of such New Lender, provided that the Commitment of any such New Lender shall be in an amount not less than $10,000,000. (c) Any Lender that accepts an offer to it by the Borrower to increase its Commitment pursuant to this Section 2.20 shall, in each case, execute a Commitment Increase Agreement with the Borrower and the Administrative Agent, substantially in the form of Exhibit F (a "COMMITMENT INCREASE AGREEMENT"), whereupon such Lender shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and Schedule III hereof shall be deemed to be amended to so increase the Commitment of such Lender. (d) The effectiveness of any New Lender Agreement or Commitment Increase Agreement shall be contingent upon receipt by the Administrative Agent of such corporate resolutions of the Borrower and 48 legal opinions of counsel to the Borrower as the Administrative Agent shall reasonably request with respect thereto, in each case, in form and substance satisfactory to the Administrative Agent. (e) If any bank or financial institution becomes a New Lender pursuant to Section 2.20(b) or any Lender's Commitment is increased pursuant to Section 2.20(c), additional A Advances made on or after the effectiveness thereof (the "RE-ALLOCATION DATE") shall be made pro rata based on the Commitment Percentages in effect on and after such Re-Allocation Date (except to the extent that any such pro rata borrowings would result in any Lender making an aggregate principal amount of A Advances in excess of its Commitment, in which case such excess amount will be allocated to, and made by, such New Lender and/or Lenders with such increased Commitments to the extent of, and pro rata based on, their respective Commitments), and continuations of Eurodollar Rate Advances outstanding on such Re-Allocation Date shall be effected by repayment of such Eurodollar Rate Advances on the last day of the Interest Period applicable thereto and the making of new Eurodollar Rate Advances pro rata based on such new Commitment Percentages. In the event that on any such Re-Allocation Date there is an unpaid principal amount of Base Rate Advances, the Borrower shall make prepayments thereof and borrowings of Base Rate Advances so that, after giving effect thereto, the Base Rate Advances outstanding are held pro rata based on such new Commitment Percentages. In the event that on any such Re-Allocation Date there is an unpaid principal amount of Eurodollar Rate Advances, such Eurodollar Rate Advances shall remain outstanding with the respective holders thereof until the expiration of their respective Interest Periods (unless the applicable Borrower elects to prepay any thereof in accordance with the applicable provisions of this Agreement), and interest on and repayments of such Eurodollar Rate Advances will be paid thereon to the respective Lenders holding such Eurodollar Rate Advances pro rata based on the respective principal amounts thereof outstanding. (f) Notwithstanding anything to the contrary in this Section 2.20, (i) no increase pursuant to this Section 2.20 shall be effective without the consent of the Required Lenders, (ii) no Lender shall have any obligation to increase its Commitment unless it agrees to do so in its sole discretion and (iii) the 49 aggregate amount by which the Commitments hereunder are increased pursuant to this Section 2.20 shall not exceed $120,000,000. (g) The Borrower shall execute and deliver a Note to each new bank or other financial institution becoming a Lender that requests one. SECTION 2.21. Extension of Stated Termination Date .(a) Not earlier than 65 days prior to and not later than 45 days prior to the Stated Termination Date then in effect, provided that no Event of Default shall have occurred and be continuing, the Borrower may request an extension of such Stated Termination Date by submitting to the Administrative Agent an Extension Request containing the information in respect of such extension specified in Exhibit G, which the Administrative Agent shall promptly furnish to each Lender. Each Lender shall, by the later of (i) the date 30 days after its receipt from the Administrative Agent of the applicable Extension Request and (ii) the date 30 days prior to the Stated Termination Date, notify the Borrower and the Administrative Agent of its election to extend or not extend the Stated Termination Date as requested in such Extension Request. If the Required Lenders shall approve in writing the extension of the Stated Termination Date requested in such Extension Request, and unless the Borrower shall elect to give notice for a Term A Advance pursuant to Section 2.01(b), the Stated Termination Date shall automatically and without any further action by any Person be extended for an additional 364 days provided that the Commitment of any Lender that does not consent in writing within the period specified above (an "OBJECTING LENDER") shall, unless earlier terminated in accordance with this Agreement, expire on the Stated Termination Date in effect on the date of such Extension Request (such Stated Termination Date, if any, referred to as the "COMMITMENT EXPIRATION DATE" with respect to such Objecting Lender). If, within the period specified above, the Required Lenders shall not approve in writing the extension of the Stated Termination Date requested in an Extension Request, the Stated Termination Date shall not be extended pursuant to such Extension Request. The Administrative Agent shall promptly notify (y) the Lenders and the Borrower of any extension of the Stated Termination Date pursuant to this Section 50 2.21 and (z) the Borrower of any Lender that becomes an Objecting Lender. (b) A Advances owing to any Objecting Lender on the Commitment Expiration Date, together with accrued interest thereon, any amounts payable pursuant to Sections 2.06, 2.07, 2.11, 2.12, 2.15 and 8.04(b) and any accrued and unpaid facility fee or utilization fee or other amounts payable with respect to such Lender shall be repaid in full on or before such Commitment Expiration Date. (c) The Borrower shall have the right, so long as no Event of Default has occurred and is then continuing, upon giving notice to the Administrative Agent and the Objecting Lenders in accordance with Section 2.10, to prepay in full the A Advances of the Objecting Lenders, together with accrued interest thereon, any amounts payable pursuant to Sections 2.06, 2.07, 2.11, 2.12, 2.15 and 8.04(b) and any accrued and unpaid facility fee or utilization fee or other amounts payable to the Objecting Lenders hereunder and, upon giving not less than three Business Days' notice to the Objecting Lenders and the Administrative Agent, to cancel the whole or part of the Commitments of the Objecting Lenders. (d) Notwithstanding the foregoing, if any Lender becomes an Objecting Lender, the Borrower may, at its own expense and in the sole discretion and prior to the then Stated Termination Date, require such Lender (and each related Designated Bidder (as defined herein or in the Long-Term Revolving Credit Agreement or the Canadian Credit Agreement, as the case may be)) to transfer or assign, in whole or in part, without recourse (in accordance with Section 8.07), all or part of its interests, rights and obligations under this Agreement and, if the Borrower shall so determine in its sole discretion, the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the Borrower may determine in its sole discretion and specify by notice to such Lender, to an Eligible Assignee (provided that the Borrower, with the full cooperation of such Lender, can identify an Eligible Assignee that is ready, willing and able to be an assignee with respect thereto) which shall assume such assigned obligations (which assignee may be another Lender, if such assignee Lender accepts such assignment); provided that (A) the assignee or the Borrower, as the case may be, shall have paid to 51 such Lender in immediately available funds the principal of and interest accrued to the date of such payment on the Advances made by it hereunder and all other amounts owed to it hereunder, including any amounts owing pursuant to Section 8.04(b), and, if the Borrower shall have so determined as specified above, the "Advances" made by it under, and as defined in, the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the case may be, and all other amounts owed to it thereunder, including any amounts owing pursuant to the provision of the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the case may be, comparable to Section 8.04 hereof) and any amounts that would be owing under such Section (or comparable provision) if such Advances and "Advances" (as so defined) were prepaid on the date of such assignment, and (B) such assignment does not conflict with any law, rule or regulation or order of any governmental authority. Any assignee that becomes a Lender as a result of such an assignment made pursuant to this paragraph (d) shall be deemed to have consented to the applicable Extension Request and, therefore, shall not be an Objecting Lender. SECTION 2.22. Replacement of Lenders. If any Lender requests compensation under Sections 2.07, 2.11 or 2.12 or if the Borrower is required to pay any additional amount to any Lender or any taxing authority or other authority for the account of any Lender pursuant to Section 2.15, or if any Lender suspends the right of the Borrower to elect Eurodollar Rate Advances from such Lender pursuant to Section 2.13, or if any Lender defaults in its obligation to fund Advances hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 8.07), all its interests, rights and obligations under this Agreement (other than any outstanding B Advances held by it) and, if the Borrower shall so determine in its sole discretion, the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the Borrower may determine in its sole discretion and specify by notice to such Lender (other than "B Advances" under, and as defined in, the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the case may be) to an assignee that shall assume such obligations (which 52 assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Advances (other than B Advances) hereunder and, if the Borrower shall have so determined as specified above, its "Advances" (other than "B Advances") (each under and as defined in the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the case may be), and all accrued interest thereon, accrued fees, accrued costs in connection with compensation under Sections 2.07, 2.11 or 2.12 or payments required to be made pursuant to Section 2.15, if any, and all other amounts (other than B Advances) payable to it hereunder and, if the Borrower shall have so determined as specified above, under the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement, as the case may be, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Sections 2.07, 2.11 or 2.12 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. ARTICLE 3 CONDITIONS OF EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of the Amendment and Restatement of this Agreement. The amendment and restatement of this Agreement as of the Effective Date shall become effective when (i) it shall have been executed by the Borrower, the Administrative Agent and JPMorgan, in its capacity as Administrative Agent under this Agreement immediately prior to the effectiveness of the amendment and restatement of this Agreement, (ii) the Administrative Agent and the Borrower 53 either shall have been notified by each Initial Lender that such Initial Lender has executed it or shall have received a counterpart of this Agreement executed by such Initial Lender, and (iii) the Administrative Agent shall have received the following, each dated the date of delivery thereof unless otherwise specified below (which date shall be selected by the Borrower and be the same for all documents and all Lenders), in form and substance satisfactory to the Administrative Agent and (except for the Notes, if any) in sufficient copies for each Lender: (a) the Notes, to the order of the Lenders requesting Notes, respectively; (b) certified copies of the resolutions of the Board of Directors of the Borrower approving the borrowings contemplated hereby and authorizing the execution of this Agreement and the Notes, if any, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Notes, if any; (c) a certificate of the Secretary or an Assistant Secretary of the Borrower (i) certifying names and true signatures of officers of the Borrower authorized to sign this Agreement and the Notes, if any, and the other documents to be delivered hereunder and (ii) if the Effective Date is other than the date of this amendment and restatement, certifying that the representations and warranties contained in Section 4.01 are true and correct as of the Effective Date; (d) a favorable opinion of the Borrower's Vice President and General Counsel, in substantially the form of Exhibit H hereto; (e) a favorable opinion of Jones, Day, Reavis & Pogue, New York counsel to the Borrower, in substantially the form of Exhibit I hereto; and (f) evidence satisfactory to the Administrative Agent of payment of any loans outstanding under this Agreement immediately prior to the effectiveness of such amendment and restatement, together with all accrued interest and fees thereunder. The Borrower and the Initial Lenders agree that upon the Effective Date the "Commitments" of 54 the Initial Lenders shall be as set forth on Schedule III hereof under the caption "Commitments" and the Borrower and the Initial Lenders (for this purpose constituting the "Majority Lenders" under this Agreement immediately prior to such effectiveness) further agree that the Commitments of each Lender not continuing as an Initial Lender upon such effectiveness shall terminate automatically upon the Effective Date without further action by any party. SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of each Lender to make an A Advance (including the initial A Advance) on the occasion of any A Borrowing shall be subject to the further conditions precedent that on or before the date of such A Borrowing this Agreement shall have become effective pursuant to Section 3.01 and that on the date of such A Borrowing, before and immediately after giving effect to such A Borrowing and to the application of the proceeds therefrom, the following statements shall be true and correct, and the giving by the Borrower of the applicable Notice of A Borrowing and the acceptance by the Borrower of the proceeds of such A Borrowing shall constitute its representation and warranty that on and as of the date of such A Borrowing, before and immediately after giving effect thereto and to the application of the proceeds therefrom, the following statements are true and correct: (a) each representation and warranty contained in Section 4.01 is correct in all material respects as though made on and as of such date (or, if such representation and warranty is stated to be made as at a specific date or for a specific period, as at the original specified date or with respect to the original specified period); (b) no event has occurred and is continuing, or would result from such A Borrowing, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (c) the aggregate amount of the borrowings under this Agreement (including such A Borrowing) and under other agreements or facilities or evidenced by other instruments or documents is not in excess of the aggregate amount of such borrowings approved as of such date by the Board of Directors of the Borrower. 55 SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of each Lender which is to make a B Advance on the occasion of any B Borrowing (including the initial B Borrowing) shall be subject to the further conditions precedent that (i) at or before the time required by paragraph (iii) of Section 2.19(a), the Administrative Agent shall have received the written confirmatory notice of such B Borrowing contemplated by such paragraph, (ii) on or before the date of such B Borrowing this Agreement shall have become effective pursuant to Section 3.01, and (iii) on the date of such B Borrowing, before and immediately after giving effect to such B Borrowing and to the application of the proceeds therefrom, the following statements shall be true and correct, and the giving by the Borrower of the applicable Notice of B Borrowing and the acceptance by the Borrower of the proceeds of such B Borrowing shall constitute its representation and warranty that on and as of the date of such B Borrowing, before and immediately after giving effect thereto and to the application of the proceeds therefrom, the following statements are true and correct: (a) each representation and warranty contained in Section 4.01 is correct in all material respects as though made on and as of such date (or, if such representation and warranty is stated to be made as at a specific date or for a specific period, as at the original specified date or with respect to the original specified period); (b) no event has occurred and is continuing, or would result from such B Borrowing, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (c) the aggregate amount of the borrowings under this Agreement (including such B Borrowing) and under other agreements or facilities or evidenced by other instruments or documents is not in excess of the aggregate amount of such borrowings approved as of such date by the Board of Directors of the Borrower. 56 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower is a Business Entity duly formed, validly existing and in good standing under the laws of the State of Delaware. Each Material Subsidiary is duly organized, validly existing and in good standing in the jurisdiction of its formation. The Borrower and each Material Subsidiary possess all applicable Business Entity powers and all other authorizations and licenses necessary to engage in its business and operations as now conducted, the failure to obtain or maintain which would have a Material Adverse Effect. Each Subsidiary which is, on and as of the Effective Date, a Material Subsidiary is listed on Schedule I hereto. (b) The execution, delivery and performance by the Borrower of this Agreement and the Notes, if any, are within the Borrower's applicable Business Entity powers, have been duly authorized by all necessary applicable Business Entity action, and do not contravene (i) the Borrower's organizational documents or (ii) law or any contractual restriction binding on or affecting the Borrower. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement or the Notes, if any, which has not been duly made or obtained, except those (i) required in the ordinary course to comply with ongoing covenant obligations of the Borrower hereunder the performance of which is not yet due and (ii) that will, in the ordinary course of business in accordance with this Agreement, be duly made or obtained on or prior to the time or times the performance of such obligations shall be due. (d) This Agreement constitutes, and the Notes (if and when delivered hereunder) shall constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by 57 applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally or by general principles of equity. (e) The consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 2001 and the related consolidated statements of income and cash flow for the fiscal year then ended, reported on by PricewaterhouseCoopers LLC, independent public accountants, and the consolidated balance sheet of the Borrower and its consolidated subsidiaries as at September 30, 2002 and the related consolidated statements of income and cash flow for the nine-month period then ended, certified by the chief financial officer of the Borrower, copies of each of which have been furnished to the Administrative Agent and the Initial Lenders, fairly present the consolidated financial condition of the Borrower and such Subsidiaries as at December 31, 2001, and September 30, 2002, respectively, and the consolidated results of their operations for such fiscal periods, subject in the case of the September 30, 2002 statements to normal year-end adjustments, all in accordance with generally accepted accounting principles consistently applied. From September 30, 2002 to and including the Effective Date there has been no material adverse change in such condition or results of operations. (f) As at the Effective Date, there is no action, suit or proceeding pending, or to the knowledge of the Borrower threatened, against or involving the Borrower or any Material Subsidiary in any court, or before any arbitrator of any kind, or before or by any governmental body, which in the reasonable judgment of the Borrower (taking into account the exhaustion of all appeals) would have a material adverse effect on the consolidated financial condition of the Borrower and its consolidated Subsidiaries taken as a whole, or which purports to affect the legality, validity, binding effect or enforceability of this Agreement or the Notes, if any. (g) The Borrower and each consolidated Subsidiary have duly filed all tax returns required to be filed, and duly paid and discharged all taxes, assessments and governmental charges upon it or against its properties now due and payable, the failure to file or pay which, as applicable, would have a Material Adverse Effect, unless and to the 58 extent only that the same are being contested in good faith and by appropriate proceedings by the Borrower or the appropriate Subsidiary. (h) Except to the extent permitted pursuant to Section 5.02(e), neither the Borrower nor any Material Subsidiary is subject to any contractual restrictions which limit the amount of dividends payable by any Subsidiary. (i) No Termination Event has occurred or is reasonably expected to occur with respect to any Plan which, with the giving of notice or lapse of time, or both, would constitute an Event of Default under Section 6.01(g). (j) Neither the Borrower nor any ERISA Affiliate has incurred, or is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan that, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liability (as of the date of determination), exceeds 5% of the Consolidated Tangible Net Worth of the Borrower. (k) Neither the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA the effect of which reorganization or termination would be the occurrence of an Event of Default under Section 6.01(i). (l) The Borrower is not an "investment company" or a "company" controlled by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (m) The Borrower is not a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (n) The proceeds of the Advances will not be used in any way which would violate the provisions of Regulation U or X of the Board of Governors of the Federal Reserve System. 59 All representations and warranties made by the Borrower herein or made in any certificate delivered pursuant hereto shall survive the making of the Advances and the execution and delivery to the Lenders of this Agreement and the Notes, if any. ARTICLE 5 COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance, Note or other amount payable by the Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) PRESERVATION OF EXISTENCE, ETC. Preserve and maintain, and cause each Material Subsidiary to preserve and maintain, its existence, rights (organizational and statutory) and material franchises, except as otherwise contemplated or permitted by Section 5.02(c) or 5.02(d); provided, that any Material Subsidiary may change its form of organization to a partnership or other form of Business Entity. (b) COMPLIANCE WITH LAWS, ETC. Comply, and cause each Subsidiary to comply, in all material respects, with all applicable laws, rules, regulations and orders (including all environmental laws and laws requiring payment of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith by appropriate proceedings) the failure to comply with which would have a Material Adverse Effect. (c) VISITATION RIGHTS. At such reasonable times and intervals as the Administrative Agent or any of the Lenders (other than Designated Bidders) may desire, permit the Administrative Agent or any of the Lenders (other than Designated Bidders) to visit the Borrower and to discuss the affairs, finances, accounts and mineral reserve performance of the Borrower and any of its Subsidiaries with officers of the Borrower and independent certified public accountants of the Borrower and any of its Subsidiaries, provided that if an Event of Default, or an event which with the giving of notice or the 60 passage of time, or both, would become an Event of Default, has occurred and is continuing, the Administrative Agent or any Lender may, in addition to the other provisions of this subsection (c) and at such reasonable times and intervals as the Administrative Agent or any of the Lenders may desire, visit and inspect, under guidance of officers of the Borrower, any properties significant to the consolidated operations of the Borrower and its Subsidiaries, and to examine the books and records of account (other than with respect to any mineral reserve information that the Borrower determines to be confidential, except, during the continuation of an Event of Default, if such Lenders shall have entered into a confidentiality agreement with respect to such information satisfactory in form and substance to the Borrower) of the Borrower and any of its Subsidiaries and to discuss the affairs, finances and accounts of any of the Borrower's Subsidiaries with any of the officers of such Subsidiary. (d) BOOKS AND RECORDS. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each Subsidiary in accordance with generally accepted accounting principles either (i) consistently applied or (ii) applied in a changed manner that does not, under generally accepted accounting principles or public reporting requirements applicable to the Borrower, either require disclosure in the consolidated financial statements of the Borrower and its consolidated Subsidiaries or require the consent of the accountants which (as required by Section 5.03(b)) report on such financial statements for the fiscal year in which such change shall have occurred, or (iii) applied in a changed manner not covered by clause (ii) above provided such change shall have been disclosed to the Administrative Agent and shall have been consented to by the accountants which (as required by Section 5.03(b)) report on the consolidated financial statements of the Borrower and its consolidated Subsidiaries for the fiscal year in which such change shall have occurred, provided that if any change referred to in clause (ii) or (iii) above would not meet the standard set forth in clause (i) or (ii) of Section 1.03, the Administrative Agent, the Lenders and the Borrower agree to amend the covenants contained in Section 5.01 and 5.02 so that the 61 relative protection afforded thereby to the Lenders and the relative flexibility afforded thereby to the Borrower will in substance be retained after such amendment, provided, however, that until such amendment becomes effective hereunder, the covenants as set forth herein shall remain in full force and effect and those accounting principles applicable to the Borrower and its consolidated Subsidiaries which do meet the standards set forth in clause (i) or (ii) of Section 1.03 shall be applied to determine whether or not the Borrower is in compliance with such covenants. (e) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause each Material Subsidiary to maintain and preserve, all of its properties which are used in the conduct of its business in good working order and condition, ordinary wear and tear excepted, to the extent that any failure to do so would have a Material Adverse Effect. (f) MAINTENANCE OF INSURANCE. Maintain, and cause each Material Subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. SECTION 5.02. Negative Covenants. So long as any Advance, Note or other amount payable by the Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not, unless the Majority Lenders shall otherwise consent in writing: (a) LIENS, ETC. (i) Create, assume or suffer to exist, or permit any Material Subsidiary to create, assume or suffer to exist, any Liens upon or with respect to any of the Equity Interests in any Material Subsidiary, whether now owned or hereafter acquired, or (ii) create or assume, or permit any Material Subsidiary to create or assume, any Liens upon or with respect to any other assets material to the consolidated operations of the Borrower and its consolidated Subsidiaries taken as a whole securing the payment of Debt and Guaranties in an aggregate amount (determined without duplication of amount (so that the amount of a Guaranty will be excluded to the extent the Debt Guaranteed thereby is included 62 in computing such aggregate amount)) exceeding the greater of (x) $250,000,000 and (y) 10% of Consolidated Tangible Net Worth as at the date of such creation or assumption; provided, however, that this subsection (a) shall not apply to: (A) Liens on assets acquired by the Borrower or any of its Subsidiaries after the Original Effective Date to the extent that such Liens existed at the time of such acquisition and were not placed thereon by or with the consent of the Borrower in contemplation of such acquisition; (B) Liens on Equity Interests acquired after the Original Effective Date in a Business Entity which has become or becomes a Subsidiary of the Borrower, or on assets of any such Business Entity, to the extent that such Liens existed at the time of such acquisition and were not placed thereon by or with the consent of the Borrower in contemplation of such acquisition; (C) Liens on Margin Stock; (D) Liens on the Equity Interests in, or Debt or other obligations of, or assets of, any Project Financing Subsidiary (or any Equity Interests in, Debt or other obligations of any Business Entity which are owned by any Project Financing Subsidiary) securing the payment of a Project Financing and related obligations; (E) Permitted Liens; (F) Liens arising out of the refinancing, extension, renewal or refunding of any Debt or Guaranty secured by any Lien permitted by any of the foregoing clauses of this Section, provided that the principal amount of such Debt or Guaranty is not increased (except by the amount of costs reasonably incurred in connection with the issuance thereof) and such Debt or Guaranty is not secured by any additional assets that would not have been permitted by this Section to secure the Debt or Guaranty refinanced, extended, renewed or refunded; and 63 (G) Liens on products and proceeds (including dividend, interest and like payments on, and insurance and condemnation proceeds and rental, lease, licensing and similar proceeds) of, and property evidencing or embodying, or constituting rights or other general intangibles relating to, and accessions and improvements to, collateral subject to Liens permitted by this Section 5.02. (b) DEBT, ETC. Create, assume or suffer to exist, or permit any of its consolidated Subsidiaries to create, assume or suffer to exist, any Debt or any Guaranty unless, immediately after giving effect to such Debt or Guaranty and the receipt and application of any proceeds thereof or value received in connection therewith, (1) the sum (without duplication) of (i) consolidated Debt of the Borrower and its consolidated Subsidiaries plus (ii) the aggregate amount (determined on a consolidated basis) of Guaranties by the Borrower and its consolidated Subsidiaries is less than 60% of Capitalization, provided that Debt for borrowed money either maturing within one year and evidenced by instruments commonly known as commercial paper, or evidenced by variable demand notes or other similar short-term financing instruments issued to commercial banks and trust companies (other than Debt incurred pursuant to this Agreement or the Long-Term Revolving Credit Agreement or the Canadian Credit Agreement or any replacement therefor), shall not exceed the sum of the unused commitments under the Canadian Credit Agreement and the aggregate of the Borrower's unused bank lines of credit and unused credit available to the Borrower under financing arrangements with banks or other financial institutions; and (2) with respect to any such Debt created or assumed by a consolidated Subsidiary that is either a Subsidiary of the Borrower as of the Original Effective Date or a Subsidiary of the Borrower acquired or created after the Original Effective Date and owning a material 64 portion of the consolidated operating assets existing at the Original Effective Date of the Borrower and its Subsidiaries, the aggregate amount of Debt of the consolidated Subsidiaries of the Borrower referred to above in this paragraph (2) owing to Persons other than the Borrower and its consolidated Subsidiaries is less than the greater of (i) $500,000,000 (exclusive of public Debt of LL&E existing at the time LL&E became a Subsidiary, the principal amount of which at such time was approximately $400,000,000, and any refinancing of such Debt, in a principal amount not to exceed the principal amount refinanced) and (ii) 30% of Consolidated Tangible Net Worth as at the date of incurrence or creation of such Debt. (c) SALE, ETC. OF ASSETS. Sell, lease or otherwise transfer, or permit any Material Subsidiary to sell, lease or otherwise transfer (in either case, whether in one transaction or in a series of transactions, and except, in either case, to the Borrower or an entity which after giving effect to such transfer will be or become a Material Subsidiary in which the Borrower's direct or indirect Equity Interests will be at least as great as its direct or indirect Equity Interests in the transferor immediately prior thereto, and except as permitted by Section 5.02(d)), assets constituting all or substantially all of the consolidated assets of the Borrower and its Material Subsidiaries, provided that, notwithstanding the foregoing, the Borrower or any Material Subsidiary may sell, lease or otherwise transfer any Permitted Assets constituting all or substantially all of the consolidated assets of the Borrower and its Material Subsidiaries, so long as (A) such Permitted Assets are sold, leased or otherwise transferred in exchange for other Permitted Assets and/or (B) the proceeds from such sale, lease or other transfer, or an amount equal to the proceeds thereof, are (x) reinvested within one year from the date of receipt thereof in Permitted Assets and/or the development of Permitted Assets and/or (y) used to repay Debt the proceeds of which were or are being used for investment in, and/or the development of, Permitted Assets; provided further that, no such sale, lease or other transfer shall be permitted by 65 the foregoing proviso unless either (1) after giving effect to such sale, lease or other transfer, no Event of Default, and no event which with lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing or (2) the Borrower or the relevant Material Subsidiary, as the case may be, was contractually obligated, prior to the occurrence of such Event of Default or event, to consummate such sale, lease or other transfer. (d) MERGERS, ETC. Merge, amalgamate or consolidate with any Person, or permit any Material Subsidiary to merge, amalgamate or consolidate with any Person, except that: (i) any Subsidiary may merge, amalgamate or consolidate with (or liquidate into) any other Subsidiary or may merge, amalgamate or consolidate with (or liquidate into) the Borrower, provided that (A) if such Subsidiary merges, amalgamates or consolidates with (or liquidates into) the Borrower, either the survivor or successor is the Borrower or such successor or surviving Business Entity is organized and existing under the laws of the United States and expressly assumes the obligations of the Borrower hereunder and under the Notes, (B) if any such Subsidiary merges, amalgamates or consolidates with (or liquidates into) any other Subsidiary of the Borrower, one or more Business Entities that are Subsidiaries of the Borrower are the surviving or successor Business Entity(ies) and, if any such Subsidiary is not directly or indirectly wholly-owned by the Borrower, such merger, amalgamation or consolidation is on an arm's length basis and (C) as a result of such merger, amalgamation or consolidation, no Event of Default, and no event which with lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing, and (ii) the Borrower or any Material Subsidiary may merge, amalgamate or consolidate with any other Business Entity (that is, in addition to the Borrower or any other Subsidiary), provided that (A) if the 66 Borrower merges, amalgamates or consolidates with any such other Business Entity(ies), the survivor or successor Business Entity is the Borrower, (B) if any Material Subsidiary merges, amalgamates or consolidates with any such other Business Entity, each surviving or successor Business Entity is a directly or indirectly wholly-owned Subsidiary, and (C) if either the Borrower or any Material Subsidiary merges, amalgamates or consolidates with any such other Business Entity, after giving effect to such merger, amalgamation or consolidation no Event of Default, and no event which with lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing. (e) DIVIDEND RESTRICTIONS. Create, or consent or agree to, or permit any of its Material Subsidiaries existing on the Original Effective Date or any of its Subsidiaries thereafter created or acquired and owning a material portion of the consolidated operating assets existing at the Original Effective Date of the Borrower and its Subsidiaries, to create, or consent or agree to, any restrictions, contained in any agreement or instrument relating to or evidencing Debt, on any such Subsidiary's ability to pay dividends or to make advances to the Borrower or any Subsidiary of the Borrower; provided, however, that this subsection (e) shall not apply to any such restrictions (including any extensions of the term of any thereof (by amendment, or continuation thereof in any refinancing of the Debt to which such restriction relates, or otherwise)) applicable to the Equity Interests in any Subsidiary of the Borrower the Equity Interests in which are acquired by the Borrower after the Original Effective Date and which restrictions are existing at the time such Subsidiary first becomes a Subsidiary of the Borrower and are not placed thereon by or with the consent of the Borrower in contemplation of such acquisition by the Borrower. SECTION 5.03. Reporting Requirements. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will furnish to each Lender in such reasonable quantities as shall from time to time be requested by such Lender: 67 (a) within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income and cash flow of the Borrower and its consolidated Subsidiaries each for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified (subject to normal year-end adjustments) as to fairness and utilization of generally accepted accounting principles by the chief financial officer of the Borrower and accompanied by a certificate of such officer stating (i) that such statements of income and cash flow and such balance sheet have been prepared in accordance with generally accepted accounting principles, (ii) whether or not such officer has knowledge of the occurrence of any Event of Default which is continuing hereunder or of any event not theretofore remedied which with notice or lapse of time or both would constitute such an Event of Default and, if so, stating in reasonable detail the facts with respect thereto, (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the requirements set forth in subsection (b) of Section 5.02, and (iv) a listing of all Material Subsidiaries and consolidated Subsidiaries of the Borrower showing the extent of its direct and indirect holdings of their Equity Interests; (b) within 120 days after the end of each fiscal year of the Borrower, a copy of the annual report for such year for the Borrower and its consolidated Subsidiaries containing financial statements for such year reported on by nationally recognized independent public accountants acceptable to the Lenders, accompanied by (i) a report signed by said accountants stating that such financial statements have been prepared in accordance with generally accepted accounting principles and (ii) a letter from such accountants stating that in making the investigations necessary for such report they obtained no knowledge, except as specifically stated therein, of any Event of Default which is continuing hereunder or of any event not theretofore remedied which with notice or lapse of time or both would constitute such an Event of Default (which letter may be limited in form, scope and substance to the extent required by applicable accounting rules or guidelines in effect from time to time); 68 (c) within 120 days after the close of each of the Borrower's fiscal years, a certificate of the chief financial officer of the Borrower stating (i) whether or not such officer has knowledge of the occurrence of any Event of Default which is continuing hereunder or of any event not theretofore remedied which with notice or lapse of time or both would constitute such an Event of Default and, if so, stating in reasonable detail the facts with respect thereto, (ii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the requirements set forth in subsection (b) of Section 5.02 and (iii) a listing of all Material Subsidiaries and consolidated Subsidiaries of the Borrower showing the extent of its direct and indirect holdings of their Equity Interests; (d) promptly upon their distribution, copies of all financial statements, reports and proxy statements which the Borrower or any Material Subsidiary shall have sent to its public Equity Interest holders; (e) promptly upon their becoming publicly available, all regular and periodic financial reports and registration statements which the Borrower or any Material Subsidiary shall file with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and to registration statements of securities for selling security holders; (f) promptly in writing, notice of all litigation and of all proceedings before any governmental or regulatory agencies against or involving the Borrower or any Material Subsidiary, except any litigation or proceeding which in the reasonable judgment of the Borrower (taking into account the exhaustion of all appeals) is not likely to have a material adverse effect on the consolidated financial condition of the Borrower and its consolidated Subsidiaries taken as a whole; (g) within three Business Days after an executive officer of the Borrower obtains knowledge of the occurrence of any Event of Default which is continuing or of any event not theretofore remedied which with notice or lapse of time, or both, would constitute an Event of Default, notice of such 69 occurrence together with a detailed statement by a responsible officer of the Borrower of the steps being taken by the Borrower or the appropriate Subsidiary to cure the effect of such event; (h) as soon as practicable and in any event (i) within 30 days after the Borrower or any ERISA Affiliate knows or has reason to know that any Termination Event described in clause (i) of the definition of Termination Event with respect to any Plan has occurred and (ii) within 10 days after the Borrower or any ERISA Affiliate knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of the chief financial officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (i) promptly and in any event within two Business Days after receipt thereof by the Borrower or any ERISA Affiliate, copies of each notice received by the Borrower or any ERISA Affiliate from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan; (j) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan; (k) promptly and in any event within five Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (iii) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA, or (iv) the amount of liability incurred, or expected to be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (i), (ii) or (iii) above; and (l) as soon as practicable but in any event within 60 days of any notice of request therefor, such other information respecting the financial 70 condition and results of operations of the Borrower or any Subsidiary as any Lender through the Administrative Agent may from time to time reasonably request. Each balance sheet and other financial statement furnished pursuant to subsections (a) and (b) of this Section 5.03 shall contain comparative information which conforms to the presentation required in Form 10-Q and Form 10-K, as appropriate, under the Securities Exchange Act of 1934, as amended. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("EVENTS OF DEFAULT") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Advance within two Business Days after the same shall be due, or any interest on any Advance or any other amount payable hereunder within five Business Days after the same shall be due; or (b) Any representation or warranty made or deemed made by the Borrower herein or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or (c) The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Administrative Agent or by any Lender with a copy to the Administrative Agent; or (d) The Borrower or any Material Subsidiary shall fail to pay any Debt or Guaranty (excluding any Advances) of the Borrower or such Subsidiary (as the case may be) in an aggregate principal amount in excess of the greater of (i) $100,000,000 and (ii) 3% of Consolidated Tangible Net Worth at such time, or any installment of principal thereof or interest or premium thereon, when due (whether by scheduled 71 maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt or Guaranty; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate the maturity of such Debt; provided that, notwithstanding any provision contained in this subsection (d) to the contrary, to the extent that pursuant to the terms of any agreement or instrument relating to any Debt referred to in this subsection (d), any sale, pledge or disposal of Margin Stock, or utilization of the proceeds thereof would result in a breach of any covenant contained therein or otherwise give rise to a default or event of default thereunder and/or acceleration of the maturity of the Debt extended pursuant thereto and as a result of such terms or of such sale, pledge, disposal, utilization, breach, default, event of default or acceleration, or the provisions hereof relating thereto, this Agreement or any Advance hereunder would otherwise be subject to the margin requirements or any other restriction under Regulation U issued by the Board of Governors of the Federal Reserve System, then such breach, default, event of default or acceleration shall not constitute a default or Event of Default under this subsection (d); or (e) (i) The Borrower or any Material Subsidiary shall (A) generally not pay its debts as such debts become due; or (B) admit in writing its inability to pay its debts generally; or (C) make a general assignment for the benefit of creditors; or (ii) any proceeding shall be instituted or consented to by the Borrower or any such Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or (iii) any such proceeding shall have been instituted against the Borrower or any such Subsidiary and either such proceeding shall not be stayed or dismissed for 60 consecutive days or any of the actions referred to 72 above sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or any substantial part of its property) shall occur; or (iv) the Borrower or any such Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess the greater of (i) $100,000,000 and (ii) 3% of Consolidated Tangible Net Worth at such time shall be rendered against the Borrower or any Material Subsidiary and either (i) enforcement proceedings shall have been commenced and are continuing or have been completed by any creditor upon such judgment or order (other than any enforcement proceedings consisting of the mere obtaining and filing of a judgment lien or obtaining of a garnishment or similar order so long as no foreclosure, levy or similar process in respect of such lien, or payment over in respect of such garnishment or similar order, has commenced and is continuing or has been completed) or (ii) there shall be any period of 30 consecutive days during which a stay of execution or enforcement proceedings (other than those referred to in the parenthesis in clause (i) above) in respect of such judgment or order, by reason of a pending appeal, bonding or otherwise, shall not be in effect; or (g) Any Termination Event with respect to a Material Plan shall have occurred and, 30 days after notice thereof shall have been given to the Borrower by the Lender, (i) such Termination Event shall still exist and (ii) the sum (determined as of the date of occurrence of such Termination Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which a Termination Event shall have occurred and then exist (or in the case of a Plan with respect to which a Termination Event described in clause (ii) of the definition of Termination Event shall have occurred and then exist, the liability related thereto), in each case in respect of which the Borrower or any ERISA Affiliate has liability, is equal to or greater than $50,000,000; or (h) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount which, when 73 aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date of such notification), exceeds $50,000,000; or (i) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years which include the Original Effective Date by an amount exceeding $50,000,000; or (j) Upon completion of, and pursuant to, a transaction, or a series of transactions (which may include prior acquisitions of capital stock of the Borrower in the open market or otherwise), involving a tender offer (i) a "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) other than the Borrower, a Subsidiary of the Borrower or any employee benefit plan maintained for employees of the Borrower and/or any of its Subsidiaries or the trustee therefor, shall have acquired direct or indirect ownership of and paid for in excess of 50% of the outstanding capital stock of the Borrower entitled to vote in elections for directors of the Borrower and (ii) at any time before the later of (x) six months after the completion of such tender offer and (y) the next annual meeting of the shareholders of the Borrower following the completion of such tender offer more than half of the directors of the Borrower consists of individuals who (a) were not directors before the completion of such tender offer and (b) were not appointed, elected or nominated by the Board of Directors in office prior to the completion of such tender offer (other than any such appointment, election or nomination required or agreed to in connection with, or as a result of, the completion of such tender offer); or (k) Any "Event of Default" as defined in the Long-Term Revolving Credit Agreement or the Canadian Credit Agreement shall occur and be continuing; 74 then, and in any such event, the Administrative Agent shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, (i) declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that if an Event of Default under subsection (e) of this Section 6.01 (except under clause (i)(A) thereof) shall occur, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all interest thereon and all other amounts payable under this Agreement shall automatically become and be forthwith due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including enforcement of this Agreement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of 75 each notice given to it by the Borrower pursuant to the terms of this Agreement. Nothing in this Agreement shall impose upon any Co-Syndication Agent or Co-Documentation Agent, in its capacity as such, any duty or liability whatsoever. SECTION 7.02. Administrative Agent's Reliance, Etc.. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. JPMorgan and Affiliates. With respect to its Commitments, the Advances made by it and the Notes issued to it, JPMorgan shall have the 76 same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include JPMorgan in its individual capacity. JPMorgan and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any Subsidiary, all as if JPMorgan were not the Administrative Agent and without any duty to account therefor to the other Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. THE LENDERS (OTHER THAN THE DESIGNATED BIDDERS) AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), RATABLY ACCORDING TO THE RESPECTIVE PRINCIPAL AMOUNTS OF THE ADVANCES THEN HELD BY EACH OF THEM (OR IF NO ADVANCES ARE AT THE TIME OUTSTANDING OR IF ANY ADVANCES ARE HELD BY PERSONS WHICH ARE NOT LENDERS, RATABLY ACCORDING TO THE RESPECTIVE AMOUNTS OF THEIR COMMITMENTS OR THE RESPECTIVE AMOUNTS OF THEIR COMMITMENTS IMMEDIATELY PRIOR TO TERMINATION IF THE COMMITMENTS HAVE BEEN TERMINATED), FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT, ANY OF THE NOTES OR ANY OTHER INSTRUMENT OR DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH, OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, OR ANY OF THE NOTES OR 77 ANY OTHER INSTRUMENT OR DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT. Without limitation of the foregoing, each Lender (other than the Designated Bidders) agrees to reimburse the Administrative Agent promptly upon demand for such Lender's ratable share of any reasonable out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings, in bankruptcy or insolvency proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any of the Notes or any other instrument or document furnished pursuant hereto or in connection herewith to the extent that the Administrative Agent acts in its capacity as Administrative Agent and is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then such retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized, or authorized to conduct a banking business, under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative 78 Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 7.07. Auction Administrative Agent. The Administrative Agent shall until such time as it so notifies the Borrower and the Lenders discharge its duties under Section 2.19 through the Auction Administrative Agent and all references to the "Administrative Agent" or to JPMorgan relating to such duties or made in this Article 7 shall be deemed to also refer to the Auction Administrative Agent and any Affiliate of JPMorgan serving in such capacity. All payments to be made to or by the Auction Administrative Agent shall be made through the Administrative Agent. ARTICLE 8 MISCELLANEOUS SECTION 8.01. Amendments, Etc.. An amendment or waiver of any provision of this Agreement or the Notes, or a consent to any departure by the Borrower therefrom, shall be effective against the Lenders and all holders of the Notes if, but only if, it shall be in writing and signed by the Majority Lenders or, where so specified, the Required Lenders (except any amendment to give effect to increased Commitments and New Lenders, as contemplated by Section 2.20), and then such a waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall, unless in writing and signed by all the Lenders (other than the Designated Bidders), be effective to: (a) waive any of the conditions specified in Article 3, (b) except as contemplated by Section 2.20, increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances or any facility fees or utilization fees hereunder, (d) except as contemplated by Section 2.21, postpone any date fixed for any payment of principal of, or interest 79 on, the Advances or any facility fees or utilization fees hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, which shall be required for the Lenders or any of them to take any action under this Agreement, or (f) amend this Section 8.01; and, provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required hereinabove to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note. SECTION 8.02. Notices, Etc.. Except as otherwise provided in Section 2.02(a) or 2.10(ii), all notices and other communications provided for hereunder shall be in writing and mailed by certified mail, return receipt requested and postage prepaid, or telecopied, telefaxed or otherwise teletransmitted, or delivered, if to the Borrower, at 5051 Westheimer, Suite 1400, Houston, Texas 77056, Attention: Treasurer, Telefax: (713) 624-9627; if to any Initial Lender, at its Domestic Lending Office set forth in such Initial Lender's Administrative Questionnaire; if to any other Lender at its Domestic Lending Office specified in the Assignment and Acceptance or Commitment Increase Agreement pursuant to which it became a Lender or at the address for notices specified in the Designation Agreement pursuant to which it became a party hereto; if to the Administrative Agent, in care of JPMorgan Chase Bank, Agency Services, One Chase Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Muniram Appanna, Telefax: (212) 552-3295, with a copy to JPMorgan Chase Bank, at 600 Travis Street, 20th Floor, Houston, TX 77002, Attention: Russell Johnson, Telefax: (713) 216-8870; and if to the Auction Administrative Agent, at JPMorgan Chase Bank, Agency Services, at One Chase Manhattan Plaza, 8th Floor, New York, NY 10081, Attention: Christopher Consomer, Telefax: (212) 552-5627; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective, (a) in the case of any notice or communication given by certified mail, when receipted for, (b) in the case of any notice or communication given by telecopy, telefax or other teletransmission, when confirmed by appropriate answerback, in each case addressed as aforesaid, and (c) in the case of any notice or communication delivered by hand or courier, when so delivered, 80 except that notices and communications to the Administrative Agent pursuant to Article 2 or 7 shall not be effective until received by the Administrative Agent. A notice received by the Administrative Agent or a Lender by telephone pursuant to Section 2.02(a) or 2.10(ii) shall be effective if the Administrative Agent or Lender believes in good faith that it was given by an authorized representative of the Borrower and acts pursuant thereto, notwithstanding the absence of written confirmation or any contradictory provision thereof. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any Note preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.4. Costs and Expenses; Indemnity. (a) The Borrower agrees to pay on demand (i) all reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent in connection with the preparation, execution and delivery of this Agreement, the Notes and the other documents to be delivered hereunder and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement, (ii) all reasonable costs and expenses incurred by the Administrative Agent and its Affiliates in initially syndicating all or any portion of the Commitments hereunder, including the related reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent or its Affiliates, travel expenses, duplication and printing costs and courier and postage fees, and excluding any syndication fees paid to other parties joining the syndicate and (iii) all out-of-pocket costs and expenses, if any, of the Administrative Agent and the Lenders (including reasonable counsel fees and expenses and the allocated costs of in-house counsel), in connection with the enforcement (whether through negotiations, legal proceedings, in bankruptcy or insolvency proceedings, or otherwise) of this 81 Agreement, the Notes and the other documents to be delivered hereunder and thereunder. (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender on any day other than the last day of the Interest Period for such Advance, as a result of a prepayment pursuant to Section 2.10 or a Conversion pursuant to Section 2.08(f) or Section 2.09 or due to acceleration of the maturity of the Advances pursuant to Section 6.01 or due to any other reason attributable to the Borrower, or if the Borrower shall fail to borrow, convert, continue or prepay any Eurodollar Rate Advance on the date specified in any notice delivered pursuant hereto, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) THE BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS THE ADMINISTRATIVE AGENT, THE ARRANGER AND EACH LENDER FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) WHICH MAY BE INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT, THE ARRANGER OR SUCH LENDER IN CONNECTION WITH OR ARISING OUT OF ANY INVESTIGATION, LITIGATION, OR PROCEEDING (WHETHER OR NOT THE ADMINISTRATIVE AGENT, THE ARRANGER OR SUCH LENDER IS PARTY THERETO) RELATED TO ANY ACQUISITION OR PROPOSED ACQUISITION BY THE BORROWER, OR BY ANY SUBSIDIARY OF THE BORROWER, OF ALL OR ANY PORTION OF THE EQUITY INTERESTS IN, OR SUBSTANTIALLY ALL THE ASSETS OF, ANY PERSON OR ANY USE OR PROPOSED USE OF THE ADVANCES BY THE BORROWER (EXCLUDING ANY CLAIMS, DAMAGES, LIABILITIES OR EXPENSES INCURRED BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY TO BE INDEMNIFIED OR ITS EMPLOYEES OR ADMINISTRATIVE AGENTS, OR BY REASON OF ANY USE OR DISCLOSURE OF INFORMATION RELATING TO ANY SUCH ACQUISITION OR USE OR PROPOSED USE OF THE PROCEEDS BY THE PARTY TO BE INDEMNIFIED OR ITS EMPLOYEES OR ADMINISTRATIVE AGENTS). 82 SECTION 8.05. Right of Set-off. Upon the declaration of the Advances as due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and any Note held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 8.05 are in addition to other rights and remedies (including other rights of set-off) which such Lender may have. SECTION 8.06. Binding Effect. This Agreement shall become effective in accordance with the provisions of Section 3.01, and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, the Arranger and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of all of the Lenders. SECTION 8.07. Assignments and Participations. (a) Each Lender (other than a Designated Bidder) may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, the A Advances owing to it and the Note or Notes held by it); provided, however, that each such assignment shall be to an Eligible Assignee, and the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and, except in the case of an assignment to a Lender Affiliate, a 83 processing and recordation fee of $3,000, and shall send to the Borrower an executed counterpart of such Assignment and Acceptance, and provided further, however, that (i) the sum of (x) the amount of the Commitment of the assigning Lender being assigned to the assignee pursuant to each such assignment (determined as of the date of the Assignment) plus (y) the amount of the "Commitment" of the assigning Lender under the Long-Term Revolving Credit Agreement and/or the Canadian Credit Agreement contemporaneously assigned by such assigning Lender to such assignee as contemplated by clause (iii) of this sentence must be equal to or greater than $25,000,000, or if less, the entire amount of such assigning Lender's "Commitment" (unless the Borrower and the Administrative Agent shall otherwise consent, which consent may be withheld for any reason) and must be an integral multiple of $1,000,000, (ii) any assignment to a Lender Affiliate will not relieve the assigning Lender of its obligation to make Advances hereunder timely in accordance with the terms hereof in the event such Lender Affiliate shall fail to do so and (iii) except in the case of an assignment to a Lender Affiliate or as required by the Borrower pursuant Section 2.21(d) or 2.22, each such assignment shall be of a constant, and not a varying, percentage of all such Lender's rights and obligations under this Agreement (other than any right to make B Advances, any B Advances or any Notes) and the same constant percentage of all such Lender's rights and obligations, if any, under the Long-Term Revolving Credit Agreement and the Canadian Credit Agreement unless the Long-Term Revolving Credit Agreement or the Canadian Agreement, as the case may be, has been terminated, shall be contemporaneously assigned by such assigning Lender to the same assignee pursuant to Section 8.07(a) of the Long-Term Revolving Credit Agreement and Section 9.07(a) of the Canadian Credit Agreement. Upon the execution, delivery, acceptance and recording of each Assignment and Acceptance by the parties thereto, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) except as otherwise provided in clause (ii) above, the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it 84 pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, except in the circumstances contemplated by clause (ii) above, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto, provided, however, that such assigning Lender shall retain any claim with respect to any fee, interest, cost, expense or indemnity which accrues, or relates to an event that occurs, prior to the date of such assignment pursuant to Section 2.03, 2.06, 2.07, 2.11, 2.12, 2.15 or 8.04). (b) By executing and delivering an Assignment and Acceptance, each Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is (subject to approval in writing by the Borrower and the Administrative Agent to the extent required) an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such 85 action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance, each Designation Agreement, each New Lender Agreement and each Commitment Increase Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders other than Designated Bidders, the Commitment of, and principal amount of the A Advances owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit D hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice and its receipt of an executed counterpart of such Assignment and Acceptance, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for any surrendered Note or Notes a new Note to the order of such Eligible Assignee and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender. Any such new Note or Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto. 86 (e) Each Lender (other than a Designated Bidder) may designate one or more banks or other entities to have a right to make B Advances as a Lender pursuant to Section 2.19; provided that (i) such Lender shall have obtained the written consent of the Administrative Agent and the Borrower, such consent not to be unreasonably withheld, (ii) no such Lender shall be entitled to make more than two such designations, (iii) each such Lender making one or more of such designations shall retain the right to make B Advances as a Lender pursuant to Section 2.19, (iv) each such designation shall be to a Designated Bidder and (v) the parties to each such designation shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, a Designation Agreement. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Designation Agreement, the designee thereunder shall be a party hereto with a right to make B Advances as a Lender pursuant to Section 2.19 and the obligations related thereto. (f) By executing and delivering a Designation Agreement, the Lender making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto, (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into the Designation Agreement; (iv) such designee will, independently and without reliance upon the Administrative Agent, such designating Lender or any other Lender and based on such documents and information as it shall 87 deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such designee confirms that it is a Designated Bidder; (vi) such designee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto, and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (g) Upon its receipt of a Designation Agreement executed by a designating Lender and a designee representing that it is a Designated Bidder, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit J hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (h) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, and the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) such Lender shall continue to be able to agree to any modification or amendment of this Agreement or any waiver hereunder without the consent, approval or vote of any such participant or group of participants, other than modifications, amendments and waivers which (A) postpone any date fixed for any payment of, or reduce any payment of, principal of or interest on such Lender's Advances or any facility fees or utilization fees payable under this Agreement, or (B) increase the amount of such 88 Lender's Commitment in a manner which would have the effect of increasing the amount of a participant's participation, or (C) reduce the interest rate payable under this Agreement and such Lender's Advances, or (D) consent to the assignment or the transfer by the Borrower of any of its rights and obligations under the Agreement, and (vi) except as contemplated by the immediately preceding clause (v), no participant shall be deemed to be or to have any of the rights or obligations of a "Lender" hereunder. (i) Any Lender may, in connection with any assignment, designation or participation or proposed assignment, designation or participation pursuant to this Section 8.07, disclose to the assignee, designee or participant or proposed assignee, designee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee, designee or participant or proposed assignee, designee or participant shall agree in writing for the benefit of the Borrower to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender in a manner consistent with Section 8.08. (j) Anything in this Agreement to the contrary notwithstanding, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including the Advances owing to it) and the Notes, if any, issued to it hereunder in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System (or any successor regulation) and the applicable operating circular of such Federal Reserve Bank. SECTION 8.08. Confidentiality. Each Lender and the Administrative Agent (each, a "PARTY") agrees that it will use its best reasonable efforts not to disclose, without the prior consent of the Borrower (other than to its, or its Affiliates, employees, auditors, accountants, counsel or other representatives, whether existing at the Original Effective Date or any subsequent time), any information with respect to the Borrower which is furnished pursuant to this Agreement, provided that any party may disclose any such information (i) as has become generally available to the public, 89 (ii) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such party or to the Board of Governors of the Federal Reserve System or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (iii) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation or regulatory proceeding, (iv) in order to comply with any law, order, regulation or ruling applicable to such party, or (v) to any prospective assignee, designee or participant in connection with any contemplated assignment of any rights or obligations hereunder, any designation or any sale of any participation therein, by such party pursuant to Section 8.07, if such prospective assignee, designee or participant, as the case may be, executes an agreement with the Borrower containing provisions substantially similar to those contained in this Section 8.08; provided, however, that the Borrower acknowledges that the Administrative Agent has disclosed and may continue to disclose such information as the Administrative Agent in its sole discretion determines is appropriate to the Lenders from time to time. SECTION 8.09. Consent to Jurisdiction. (a) The Borrower hereby irrevocably submits to the jurisdiction of any New York State or Federal court sitting in New York City and any appellate court from any thereof in any action or proceeding by the Administrative Agent, the Arranger, any Lender or the holder of any Note in respect of, but only in respect of, any claims or causes of action arising out of or relating to this Agreement or the Notes (such claims and causes of action, collectively, being "PERMITTED CLAIMS"), and the Borrower hereby irrevocably agrees that all Permitted Claims may be heard and determined in such New York State court or in such Federal court. The Borrower hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding in any aforementioned court in respect of Permitted Claims. Service of the summons and complaint and any other process which may be served by the Administrative Agent, the Arranger, any Lender or the holder of any Note on the Borrower in 90 any such action or proceeding in any aforementioned court in respect of Permitted Claims may be made by delivering separate copies of such process to the Borrower by courier and by certified mail (return receipt requested), fees and postage prepaid at the Borrower's address specified pursuant to Section 8.02, to the attention of each of the Treasurer and the Executive Vice President, Law. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section 8.09 (i) shall affect the right of the Arranger, the Borrower, any Lender, the holder of any Note or the Administrative Agent to serve legal process in any other manner permitted by law or affect any right otherwise existing of the Borrower, any Lender, the Arranger, the holder of any Note or the Administrative Agent to bring any action or proceeding in the courts of other jurisdictions or (ii) shall be deemed to be a general consent to jurisdiction in any particular court or a general waiver of any defense or a consent to jurisdiction of the courts expressly referred to in subsection (a) above in any action or proceeding in respect of any claim or cause of action other than Permitted Claims. SECTION 8.10. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.11. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery to the Administrative Agent of a counterpart executed by a Lender shall constitute delivery of such counterpart to all of the Lenders. Delivery of an executed counterpart by facsimile shall be as effective as delivery of a manually executed original counterpart. SECTION 8.12. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT, AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF 91 THE NOTES OR ANY OTHER INSTRUMENT OR DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 8.13 Entire Agreement, Etc.. This Agreement, together with any other documents executed in connection herewith, express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 8.01. 92 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BURLINGTON RESOURCES INC. By: /s/ DANIEL D. HAWK --------------------------- Daniel D. Hawk Vice President and Treasurer JPMORGAN CHASE BANK, in its individual capacity and as Administrative Agent and Auction Administrative Agent, By: /s/ RUSSELL A. JOHNSON --------------------------- Name: Russell A. Johnson Title: Vice President SIGNATURE PAGE TO BURLINGTON RESOURCES INC. SHORT TERM REVOLVING CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: BARCLAYS BANK PLC By: /s/ NICHOLAS A. BELL Name: Nicholas A. Bell Title: Director, Loan Transaction Management NAME OF INSTITUTION: BNP PARIBAS By: /s/ BRIAN M. MALONE Name: Brian M. Malone Title: Managing Director By: /s/ POLLY SCHOTT Name: Polly Schott Title: Vice President NAME OF INSTITUTION: CITIBANK, NA By: /s/ AMY K. PINCU Name: Amy K. Pincu Title: Attorney-in-Fact NAME OF INSTITUTION: CREDIT SUISSE FIRST BOSTON By: /s/ JAMES P. MORGAN Name: James P. Morgan Title: Director By: /s/ IAN W. NALITT Name: Ian W. Nalitt Title: Associate NAME OF INSTITUTION: FLEET NATIONAL BANK By: /s/ ALLISON I. ROSSI Name: Allison I. Rossi Title: Director SIGNATURE PAGE TO BURLINGTON RESOURCES INC. SHORT TERM REVOLVING CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: JPMORGAN CHASE BANK By: /s/ RUSSELL A. JOHNSON Name: Russell A. Johnson Title: Vice President NAME OF INSTITUTION: MELLON BANK, N.A. By: /s/ ROGER E. HOWARD Name: Roger E. Howard Title: Vice President NAME OF INSTITUTION: MERRILL LYNCH CAPITAL CANADA By: /s/ SUSAN RIMMER Name: Susan Rimmer Title: Vice President NAME OF INSTITUTION: MORGAN STANLEY BANK By: /s/ JAAP L. TONCKENS Name: Jaap L. Tonckens Title: Vice President, Morgan Stanley Bank NAME OF INSTITUTION: ROYAL BANK OF CANADA By: /s/ LORNE GARTNER Name: Lorne Gartner Title: Vice President NAME OF INSTITUTION: THE ROYAL BANK OF SCOTLAND PLC By: /s/ PAUL MCDONAGH Name: Paul McDonagh Title: Sr. Vice President NAME OF INSTITUTION: WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ PHILIP TRINDER Name: Philip Trinder Title: Vice President SIGNATURE PAGE TO BURLINGTON RESOURCES INC. SHORT TERM REVOLVING CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: ABN AMRO BANK, N.V. By: /s/ FRANK R. RUSSO, JR. Name: Frank R. Russo, Jr. Title: Group Vice President By: /s/ JEFFERY G. WHITE Name: Jeffery G. White Title: Vice President NAME OF INSTITUTION: BANK OF AMERICA, N.A. By: /s/ RICHARD L. STEIN Name: Richard L. Stein Title: Principal NAME OF INSTITUTION: THE BANK OF NEW YORK By: /s/ PETER W. KELLER Name: Peter W. Keller Title: Vice President NAME OF INSTITUTION: THE BANK OF NOVA SCOTIA By: /s/ N. BELL Name: N. Bell Title: Senior Manager NAME OF INSTITUTION: THE BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ JOHN W. MCGHEE Name: John W. McGhee Title: Vice President and Manager NAME OF INSTITUTION: BANK ONE, N.A. (MAIN OFFICE CHICAGO) By: /s/ THOMAS OKAMOTO Name: Thomas Okamoto Title: Associate Director SIGNATURE PAGE TO BURLINGTON RESOURCES INC. SHORT TERM REVOLVING CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: WELLS FARGO BANK TEXAS, N.A. By: /s/ PAUL A. SQUIRES Name: Paul A. Squires Title: Vice President SCHEDULE I MATERIAL SUBSIDIARIES Burlington Resources Canada Ltd. Canadian Hunter Exploration Ltd. The Louisiana Land and Exploration Company Burlington Resources Oil & Gas Company LP BROG GP Inc. BROG LP Inc. Burlington Resources Canada Partnership SCHEDULE II PRICING GRID
- ---------------------------------------------------------------------------------------------------------------------------- LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI - ---------------------------------------------------------------------------------------------------------------------------- Basis for If the If the If the If the If the If Levels Pricing Borrower's Borrower's Borrower's Borrower's Borrower's I-V do not senior senior senior senior senior apply. unsecured long unsecured unsecured unsecured unsecured term debt is long term long term long term long term rated at least debt is rated debt is rated debt is rated debt is rated A by S&P or A2 at least A- at least BBB+ at least BBB at least BBB- by Moody's. by S&P or A3 by S&P or by S&P or by S&P or by Moody's. Baa1 by Baa2 by Baa3 by Moody's. Moody's. Moody's. - ---------------------------------------------------------------------------------------------------------------------------- Facility Fee Percentage .060% .080% .100% .125% .150% .200% - ---------------------------------------------------------------------------------------------------------------------------- LIBOR Applicable Margin .290% .320% .400% .475% .700% .800% - ----------------------------------------------------------------------------------------------------------------------------
The applicable pricing level shall change on the date of any relevant change in the rating by S&P or Moody's of any public long term senior unsecured debt securities of the Borrower. In the case of split ratings from S&P and Moody's, the rating to be used to determine the applicable pricing level is the higher of the two (e.g., A-/Baa1 results in Level II pricing), provided that in the event the split is more than one full category, the average (or the higher of two intermediate ratings) shall be used (e.g., A-/Baa2 results in Level III pricing, as does A-/Baa3). SCHEDULE III
Commitments The Initial Lenders - ----------- ------------------- $30,000,000.00 JP Morgan Chase Bank $30,000,000.00 Citibank, N.A. $30,000,000.00 Fleet National Bank $30,000,000.00 Bank of America, N.A. $30,000,000.00 The Bank of Nova Scotia $24,148,571.40 Bank of Tokyo-Mitsubishi, Ltd. $24,148,571.40 Barclays Bank plc $24,148,571.40 BNP Paribas $24,148,571.40 The Royal Bank of Scotland plc $24,148,571.40 Wachovia Bank, National Association $20,000,000.00 Merrill Lynch Capital Canada Inc. $20,000,000.00 Morgan Stanley Bank $14,285,714.30 ABN Amro Bank, N.V. $14,285,714.30 The Bank of New York $14,285,714.30 Bank One, NA $14,285,714.30 Royal Bank of Canada $14,285,714.30 Wells Fargo Bank $9,257,142.90 Credit Suisse First Boston $8,571,428.60 Mellon Bank, N.A. ============= $400,000,000.00
EX-10.19 7 h02234exv10w19.txt LONG-TERM REVOLVING CREDIT AGREEMENT EXHIBIT 10.19 EXECUTION COPY AMENDMENT NO. 2, dated as of December 5, 2002 (this "Amendment No. 2" or this "Amendment"), in respect of the LONG-TERM REVOLVING CREDIT AGREEMENT, dated as of February 25, 1998, as amended and restated as of December 7, 2001 (the "Credit Agreement"), among BURLINGTON RESOURCES INC., a Delaware corporation (the "Borrower"), the financial institutions (the "Lenders") listed on the signature pages thereof, JPMorgan Chase Bank, as administrative agent (the "Administrative Agent") and as auction administrative agent, Citibank, N.A. and Fleet National Bank, as co-syndication agents, and Bank of America, N.A. and Toronto Dominion (Texas), Inc., as co-documentation agents. The Borrower has advised the Administrative Agent and the Lenders that it desires to amend Sections 1.01, 4.01(a), and 4.01(b) of the Credit Agreement, and has requested in connection therewith that the Credit Agreement be amended as set forth in Section 1 below, and the parties hereto are so willing to amend the Credit Agreement. Each capitalized term used but not defined herein and defined in the Credit Agreement has the meaning assigned thereto in the Credit Agreement. In consideration of the premises and the agreements and provisions herein contained, the parties hereto hereby agree, on the terms and subject to the conditions set forth herein, as follows: SECTION 1. Amendment and Waiver. (a) Upon the effectiveness of this Amendment No. 2 as provided in Section 3 below, the Credit Agreement shall be amended as follows: (i) Section 1.01 of the Credit Agreement shall be amended to change the definition of "Majority Lenders." The defined term "Majority Lenders" shall be amended to read in its entirety as follows: "MAJORITY LENDERS" means i) for purposes of acceleration of the Advances and other amounts outstanding under Article 6 hereof, Lenders holding at least 51% of the then aggregate unpaid principal amount of the Advances held by Lenders or (ii) for all other purposes of this Agreement, Lenders having at least 51% of the Commitments. (ii) Section 4.01 (a) of the Credit Agreement shall be amended to read in its entirety as follows: The Borrower is a Business Entity duly formed, validly existing and in good standing under the laws of the State of Delaware. Each Material Subsidiary is duly organized, validly existing and in good standing in the jurisdiction of its formation. The Borrower and each Material Subsidiary possess all applicable Business Entity powers and all other authorizations and licenses necessary to engage in its business and operations as now conducted, the failure to obtain or maintain which would have a Material Adverse Effect. Each Subsidiary which is, on and as of the Effective Date, a Material Subsidiary is listed on Schedule I hereto. (iii) Section 4.01 (b) of the Credit Agreement shall be amended to read in its entirety as follows: The execution, delivery and performance by the Borrower of this Agreement and the Notes, if any, are within the Borrower's applicable Business Entity powers, have been duly authorized by all necessary applicable Business Entity action, and do not contravene the Borrower's organizational documents or law or any contractual restriction binding on or affecting the Borrower. (iv) Section 5.01 of the Credit Agreement shall be amended to delete the word "Corporate" from the title thereof. (b) The Lenders hereby waive any Default or Event of Default, if any, arising under Section 4.01(a) or Section 4.01(b) of the Credit Agreement that may exist or have existed at or prior to the date of effectiveness hereof and that would not have existed had the amendments effected hereby been effective at the time the Credit Agreement was originally executed and delivered. SECTION 2. Representations and Warranties. The Borrower represents and warrants as of the effective date of this Amendment to each of the Lenders that: (a) Immediately before and immediately after giving effect to this Amendment, the representations and warranties set forth in the Credit Agreement are true and correct in all material respects with the same effect as if made on the effective date hereof, except to the extent such representations and warranties expressly relate to an earlier date or period. (b) Immediately before and immediately after giving effect to this Amendment, no Event of Default or Default has occurred and is continuing that would not be cured by effectiveness of this Amendment No 2. SECTION 3. Conditions to Effectiveness. This Amendment No. 2 and the amendment and waiver contained herein shall become effective as of the date hereof when the Administrative Agent shall have received counterparts of this Amendment No. 2 that, when taken together, bear the signatures of the Borrower, the Administrative Agent, and the Majority Lenders. SECTION 4. Agreement. Except as specifically stated herein, the provisions of the Credit Agreement are and shall remain in full force and effect. As used therein, the terms "Credit Agreement", "herein", "hereunder", "hereinafter", "hereto", "hereof" and words of similar import shall, unless the context otherwise requires, refer to the Credit Agreement as amended hereby. 2 SECTION 5. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. SECTION 7. Expenses. The Borrower agrees to reimburse the Administrative Agent for all out-of-pocket expenses incurred by it in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first written above. BURLINGTON RESOURCES INC. By: /s/ DANIEL D. HAWK --------------------------------- Name: Daniel D. Hawk Title: Vice President & Treasurer Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 JPMORGAN CHASE BANK, individually and as Administrative Agent and Auction Administrative Agent By: /s/ RUSSELL A. JOHNSON ------------------------------- Name: Russell A. Johnson Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 FLEET NATIONAL BANK, individually and as Co-Syndication Agent By: /s/ ALLISON I. ROSSI -------------------------------- Name: Allison I. Rossi Title: Director Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 BANK OF AMERICA, N.A., individually and as Co-Documentation Agent By: /s/ RICHARD L. STEIN -------------------------------- Name: Richard L. Stein Title: Principal Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 THE BANK OF NOVA SCOTIA By: /s/ N. BELL ------------------------------- Name: N. Bell Title: Assistant Agent Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 BNP PARIBAS By: /s/ BRIAN M. MALONE -------------------------------- Name: Brian M. Malone Title: Managing Director By: /s/ POLLY SCHOTT -------------------------------- Name: Polly Schott Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 MELLON BANK, N.A. By: /s/ ROGER E. HOWARD -------------------------------- Name: Roger E. Howard Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 THE ROYAL BANK OF SCOTLAND PLC By: /s/ PAUL MCDONAGH -------------------------------- Name: Paul McDonagh Title: Sr. Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ PHILIP TRINDER -------------------------------- Name: Philip Trinder Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 ABN AMRO BANK By: /s/ FRANK R. RUSSO, JR. ------------------------------ Name: Frank R. Russo, Jr. Title: Group Vice President By: /s/ JEFFERY G. WHITE ------------------------------ Name: Jeffery G. White Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 THE BANK OF NEW YORK By: /s/ PETER W. KELLER ------------------------------- Name: Peter W. Keller Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 ROYAL BANK OF CANADA By: /s/ LORNE GARTNER -------------------------------- Name: Lorne Gartner Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 WELLS FARGO BANK TEXAS, N.A. By: /s/ PAUL A. SQUIRES ------------------------------ Name: Paul A. Squires Title: Vice President Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 BANK ONE, N.A. (MAIN OFFICE, CHICAGO) By: /s/ THOMAS E. OKAMOTO ------------------------------- Name: Thomas E. Okamoto Title: Associate Director Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 BARCLAYS BANK PLC By: /s/ NICHOLAS A. BELL ------------------------------ Name: Nicholas A. Bell Title: Director Loan Transaction Management Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 CREDIT SUISSE FIRST BOSTON By: /s/ JAMES P. MORGAN -------------------------------- Name: James P. Morgan Title: Director By: /s/ IAN W. NALITT -------------------------------- Name: Ian W. Nalitt Title: Associate Signature page to the BURLINGTON RESOURCES INC. Amendment No. 2 to Long Term Revolving Credit Agreement dated as of February 25, 1998 as amended and restated as of December 7, 2001 and as amended by Amendment No. 1 dated as of April 25, 2002 THE NORTHERN TRUST COMPANY By: /s/ ASHISH S. BHAGWAT ------------------------------- Name: Ashish S. Bhagwat Title: Vice President EX-10.30 8 h02234exv10w30.txt CANADIAN CREDIT AGREEMENT EXECUTION COPY EXHIBIT 10.30 - -------------------------------------------------------------------------------- BURLINGTON RESOURCES CANADA LTD. CANADIAN HUNTER EXPLORATION LTD. BURLINGTON RESOURCES INC. ------------------------------------- Cdn.$467,820,000 CANADIAN CREDIT AGREEMENT Dated as of March 31, 2000, as Amended and Restated as of December 7, 2001, as Amended on April 25, 2002, and as further Amended and Restated as of December 5, 2002 ------------------------------------- JPMORGAN CHASE BANK, TORONTO BRANCH, as Administrative Agent CITIBANK, N.A., CANADIAN BRANCH FLEET NATIONAL BANK, as Co-Syndication Agents BANK OF AMERICA, N.A., CANADA BRANCH THE BANK OF NOVA SCOTIA, as Co-Documentation Agents - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS
Page ---- Section 1.01 Certain Defined Terms..................................................................... 1 Section 1.02 Computation of Time Periods............................................................... 25 Section 1.03 Accounting and Other Terms................................................................ 25 Section 1.04 References 25 Section 1.05 Schedule III Banks........................................................................ 25 ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES Section 2.01 Revolving Advances........................................................................ 26 Section 2.02 Making the Advances....................................................................... 27 Section 2.03 Fees 29 Section 2.04 Reduction of the Commitments.............................................................. 30 Section 2.05 Repayment of Advances..................................................................... 31 Section 2.06 Interest on Advances...................................................................... 32 Section 2.07 [Intentionally omitted.................................................................... 35 Section 2.08 Rate Determination........................................................................ 35 Section 2.09 Voluntary Continuation of Advances........................................................ 38 Section 2.10 Prepayments............................................................................... 39 Section 2.11 Bankers' Acceptances...................................................................... 40 Section 2.12 Increased Costs........................................................................... 44 Section 2.13 Increased Capital......................................................................... 46 Section 2.14 Illegality 47 Section 2.15 Payments and Computations................................................................. 47 Section 2.16 Taxes 49 Section 2.17 Sharing of Payments, Etc.................................................................. 55 Section 2.18 Evidence of Debt.......................................................................... 56 Section 2.19 Use of Proceeds........................................................................... 57 Section 2.20 Increase of Commitments................................................................... 57 Section 2.21 Extension of Revolving Commitment Termination Date........................................ 59 Section 2.22 Replacement of Lenders.................................................................... 61 Section 2.23 Currency Indemnity........................................................................ 62 Section 2.24 Exchange Rate Calculations................................................................ 63
i ARTICLE 3 CONDITIONS OF EFFECTIVENESS AND LENDING Section 3.01 Conditions Precedent to Effectiveness of this Agreement................................... 64 Section 3.02 Conditions Precedent to Each Borrowing.................................................... 65 ARTICLE 4 REPRESENTATIONS AND WARRANTIES Section 4.01 Representations and Warranties of the Borrower............................................ 66 ARTICLE 5 COVENANTS Section 5.01 Affirmative Covenants..................................................................... 69 Section 5.02 Negative Covenants........................................................................ 72 Section 5.03 Reporting Requirements.................................................................... 76 ARTICLE 6 EVENTS OF DEFAULT Section 6.01 Events of Default......................................................................... 80 ARTICLE 7 THE ADMINISTRATIVE AGENT Section 7.01 Authorization and Action.................................................................. 84 Section 7.02 Administrative Agent's Reliance, Etc...................................................... 84 Section 7.03 Administrative Agent and Affiliates....................................................... 85 Section 7.04 Lender Credit Decision.................................................................... 86 Section 7.05 Indemnification........................................................................... 86 Section 7.06 Successor Administrative Agent............................................................ 87 ARTICLE 8 GUARANTY................................................................................................ 87
ii ARTICLE 9 MISCELLANEOUS Section 9.01 Amendments, Etc.......................................................................... 90 Section 9.02 Notices, Etc. ........................................................................... 91 Section 9.03 No Waiver; Remedies...................................................................... 92 Section 9.04 Costs and Expenses; Indemnity............................................................ 92 Section 9.05 Right of Set-off......................................................................... 94 Section 9.06 Binding Effect .......................................................................... 95 Section 9.07 Assignments and Participations........................................................... 95 Section 9.08 Confidentiality.......................................................................... 99 Section 9.09 Consent to Jurisdiction.................................................................. 100 Section 9.10 Governing Law.. ......................................................................... 101 Section 9.11 Execution in Counterparts ............................................................... 101 Section 9.12 Waiver of Jury Trial..................................................................... 101 SECTION 9.13 Entire Agreement, Etc.................................................................... 101
Schedule I -- Material Subsidiaries of Parent Schedule II -- Pricing Grid Schedule III -- Initial Commitments Exhibit A Form of Canadian Short-Term Revolving Credit Agreement Note Exhibit B Form of Notice of Borrowing/Continuation/Rollover Exhibit C Form of Notice of Repayment Exhibit D Form of Assignment and Acceptance Exhibit E Form of New Lender Agreement Exhibit F Form of Commitment Increase Agreement Exhibit G Form of Extension Request Exhibit H-1 Form of Opinion of Vice President and General Counsel for Parent Exhibit H-2 Form of Opinion of Joanne Alexander, Alberta Internal Counsel for Borrowers Exhibit I Form of Opinion of Bennett Jones LLP, Alberta Counsel for Borrowers iii CANADIAN SHORT-TERM REVOLVING CREDIT AGREEMENT Dated as of March 31, 2000, as amended and restated as of December 7, 2001, as amended by Amendment No. 1 dated as of April 25, 2002, and as further amended and restated as of December 5, 2002 BURLINGTON RESOURCES CANADA LTD., an Alberta corporation (together with its permitted successors and assigns, "BRCL" and a "Borrower"), CANADIAN HUNTER EXPLORATION LTD. (together with its permitted successors and assigns, "Canadian Hunter" and a "Borrower", and, together with BRCL, the "BORROWERS"), Burlington Resources Inc., a Delaware corporation (together with its permitted successors and assignees, the "PARENT"), the financial institutions (the "INITIAL LENDERS") listed on the signature pages hereof, JPMORGAN CHASE BANK, TORONTO BRANCH, as administrative agent for the Lenders hereunder (in such capacity, the "ADMINISTRATIVE AGENT"), CITIBANK, N.A., CANADIAN BRANCH and FLEET NATIONAL BANK, as co-syndication agents, and BANK OF AMERICA, N.A., CANADA BRANCH and THE BANK OF NOVA SCOTIA, as co-documentation agents, agree as follows: ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACCEPTANCE FEE" means a fee payable in Cdn. Dollars by the applicable Borrower to the Administrative Agent for the account of a Lender with respect to the acceptance of a B/A on the date of such acceptance, calculated on the face amount of the B/A at the rate per annum applicable on such date as set forth in the row labeled "Applicable Margin" on Schedule II hereto (which is based on the ratings (or lack thereof) by Moody's or S&P or both of them of the public long-term senior unsecured debt securities of the Parent) on the basis of the number of days in the applicable Contract Period (including the date of acceptance and excluding the date of maturity) and a year of 365 days. "ADMINISTRATIVE AGENT" has the meaning specified in the introduction to this Agreement. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrowers) duly completed by such Lender. "ADVANCE" means an advance by a Lender to either Borrower as part of a Borrowing, and refers to a Prime Rate Advance, a Base Rate Advance, a Cdn. Dollar Eurodollar Rate Advance, a U.S. Dollar Eurodollar Rate Advance or a B/A Advance (each of which shall be a "TYPE" of Advance). "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. The term "CONTROL" (including the terms "CONTROLS", "CONTROLLED BY" or "UNDER COMMON CONTROL WITH") means, with respect to any Person, the possession, direct or indirect, of the power to vote 10% or more (or in the case of an "AFFILIATE" of any Lender, 5% or more) of the securities having ordinary voting power for the election of directors of such Person or to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or by contract or otherwise. Neither a director nor an officer of a Borrower or Parent, in such capacity, shall be deemed, for purposes of this Agreement, an Affiliate. "AGREEMENT" means this Amended and Restated Canadian Short-Term Revolving Credit Agreement, together with all exhibits and schedules hereto, as amended or otherwise modified from time to time pursuant to the terms hereof. "APPLICABLE LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Applicable Lending Office" in its Administrative Questionnaire, or in the Assignment and Acceptance or New Lender Agreement pursuant to which it became a Lender, and/or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the 2 Administrative Agent with respect to any Type of Advance. "APPLICABLE MARGIN" means for any date the percentage per annum applicable on such date as set forth in the row labeled "Applicable Margin" on Schedule II hereto, which is based on the ratings (or lack thereof) by Moody's or S&P or both of the public long-term senior unsecured debt securities of Parent. "ARRANGER" means J.P. Morgan Securities Inc. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit D hereto. "AVERAGE AGGREGATE FACILITY ADVANCES" means, for any Utilization Fee Period, the average daily outstanding amount of (i) all Advances hereunder and (ii) all "Advances" under, and as defined in, the U.S. Short-Term Revolving Credit Agreement and the U.S. Long-Term Revolving Credit Agreement. "AVERAGE AGGREGATE FACILITY COMMITMENTS" means, for any Utilization Fee Period, the average daily amount of (i) all Commitments hereunder and (ii) all "Commitments" under, and as defined in, the U.S. Short-Term Revolving Credit Agreement and the U.S. Long-Term Revolving Credit Agreement. "B/A ADVANCE" means a Borrowing comprised of one or more Bankers' Acceptances or, as applicable, B/A Loans. "B/A LOAN" has the meaning specified in Section 2.11(i). "BANKERS' ACCEPTANCE" and "B/A" mean a non-interest bearing instrument denominated in Cdn. Dollars, drawn by the applicable Borrower and accepted by a Lender in accordance with this Agreement, and includes a depository note within the meaning of the Depository Bills and Notes Act (Canada) and a bill of exchange within the meaning of the Bills of Exchange Act (Canada). "BASE RATE" means, for each day in any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times 3 for such day be equal to the higher of: (i) the annual rate of interest announced publicly by the Administrative Agent and in effect as its base rate at its principal office in Toronto, Ontario on such day for determining interest rates on U.S. Dollar-denominated commercial loans made in Canada; and (ii) 0.50% per annum above the Effective Federal Funds Rate for such day. "BASE RATE ADVANCE" means an Advance denominated in U.S. Dollars that bears interest based upon the Base Rate, as provided in Section 2.06(a)(ii). "BORROWER" AND "BORROWERS" have the meanings specified in the introduction to this Agreement. "BORROWING" means a borrowing consisting of Advances of the same Type made on the same day by the Lenders pursuant to Section 2.01 and, (i) in the case of Eurodollar Rate Advances, having Interest Periods of the same duration; and, (ii) in the case of B/A Advances, having Contract Periods of the same duration; it being understood that there may be more than one Borrowing on a particular day. "BRCL" has the meaning specified in the introduction to this Agreement. "BUSINESS DAY" means any day that is not a Saturday, Sunday or other day of the year on which banks are not required or authorized to close in Calgary, Alberta, Toronto, Ontario or New York, New York, and, if the applicable Business Day relates to any Eurodollar Rate Advances, a day on which banks are not required or authorized to close in London, England. "BUSINESS ENTITY" means a partnership, limited partnership, limited liability partnership, corporation (including a business trust), limited liability company, unlimited liability company, joint stock company, trust, unincorporated association, joint venture or other entity. "CALCULATION DATE" shall mean the last Business Day of each month. 4 "CANADIAN CERTIFICATION REQUIREMENTS" has the meaning specified in Section 2.16(g) of this Agreement. "CANADIAN HUNTER" has the meaning specified in the introduction to this Agreement. "CANADIAN TAXES" has the meaning specified in Section 2.16(a) of this Agreement. "CAPITALIZATION" means the sum (without duplication) of (i) consolidated Debt of the Parent and its consolidated Subsidiaries, plus (ii) the aggregate amount of Guarantees by the Parent or its consolidated Subsidiaries, plus (iii) the sum of the preferred stock and common stockholders' equity of the Parent, plus (iv) the cumulative amount by which Consolidated Tangible Net Worth shall have been reduced by reason of non-cash write-downs of long-term assets subsequent to December 31, 1997 (but excluding any such amount with respect to assets of Project Finance Subsidiaries), minus (v) to the extent otherwise included in determining the amounts computed under clause (iii) above, the aggregate investment (net of any Project Financing) of the Parent and its consolidated Subsidiaries in Project Finance Subsidiaries. "CDN.$" and "CDN. DOLLAR" mean lawful money of Canada. "CDN.$ EQUIVALENT" means, at the date of determination, (i) with respect to any amount in Cdn. Dollars, such amount and (ii) with respect to any amount in U.S. Dollars, the equivalent in Cdn. Dollars of such amount, determined by the Administrative Agent pursuant to Section 2.24 using the Exchange Rate with respect to U.S. Dollars in effect for such amount under the provisions of such Section. "CDN. DOLLAR EURODOLLAR RATE" means, for any Interest Period for each Cdn. Dollar Eurodollar Rate Advance comprising part of the same Borrowing, the interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in Cdn. Dollars are offered by the principal office of each of the Reference Banks in London, England, to prime banks in the London interbank market at 11:00 A.M. (London, England time) two 5 Business Days before the first day of such Interest Period in an amount comparable to the amount of such Borrowing and for a period equal to such Interest Period. The Cdn. Dollar Eurodollar Rate for the Interest Period for each Cdn. Dollar Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "CDN. DOLLAR EURODOLLAR RATE ADVANCE" means an Advance denominated in Cdn. Dollars that bears interest determined by reference to the Cdn. Dollar Eurodollar Rate, as provided in Section 2.06(a)(iii) (x). "CDOR RATE" means, for each day in any period, the annual rate of interest that is the rate based on an average rate applicable to Cdn. Dollar bankers' acceptances for a term equal to the term of the relevant Contract Period (or for a term of 30 days for purposes of determining the Prime Rate) appearing on the "Reuters Screen CDOR Page" (as defined in the International Swaps and Derivatives Association, Inc. definitions, as modified and amended from time to time) at approximately 8:00 a.m. (Calgary local time), on such date, or if such date is not a Business Day, on the immediately preceding Business Day, provided that if such rate does not appear on the Reuters Screen CDOR Page on such date as contemplated, then the CDOR Rate on such date shall be the arithmetic average of the Discount Rate quoted by each Schedule I Reference Bank (determined by the Administrative Agent as of 8:00 a.m. Calgary local time on such date) which would be applicable to Cdn. Dollar Bankers' Acceptances quoted by the banks listed in Schedule I of the Bank Act (Canada) as of 8:00 a.m. (Calgary local time) on such date or, if such date is not a Business Day, on the immediately preceding Business Day. "CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any governmental authority after the date of this Agreement or (c) compliance by any Lender with any request, guideline or directive (whether or not having the force of law) of 6 any governmental authority if such request, guideline or directive is made or issued after the date of this Agreement and reflects a change after the date of this Agreement in the policies or practices to which such request, guideline or directive relates. "CLAM" means CLAM Petroleum B.V., a Netherlands company, and CLAM's successors. "CLAM CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated as of July 25, 1985, among MaraLou Netherlands Partnership, CLAM, the banks parties thereto and Morgan, as agent for such banks, as amended and restated as of August 15, 1997, or any successor credit agreement entered into for the purpose of refinancing such Amended and Restated Credit Agreement, in each case, as amended, restated, extended or otherwise modified from time to time. "COMMITMENT" has the meaning specified in Section 2.01(a). "COMMITMENT INCREASE NOTICE" has the meaning specified in Section 2.20(a). "COMMITMENT INCREASE AGREEMENT" has the meaning specified in Section 2.20(c). "COMMITMENT PERCENTAGE" means, as to any Lender at any time, the percentage that such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage that the aggregate principal amount of such Lender's Advances then outstanding constitutes of the aggregate principal amount of the Advances then outstanding). "CONSOLIDATED TANGIBLE NET WORTH" means, on a consolidated basis, the excess of (i) the sum of (x) the preferred stock and common stockholders' equity of Parent and (y) the cumulative amount by which Consolidated Tangible Net Worth shall have been reduced by reason of non-cash write-downs of long-term assets subsequent to December 31, 1997, over (ii) the intangible assets of Parent and its consolidated Subsidiaries. "CONTINGENT GUARANTY" has the meaning specified in the definition of the term "Guaranty" contained in 7 this Section 1.01. "CONTINUE", "CONTINUATION" and "CONTINUED" each refers to a continuation of Advances of one Type as Advances of another Type pursuant to Section 2.08, 2.09 or 2.14 or the continuation of Advances of the same Type for additional Interest Periods or Contract Periods, as applicable. "CONTRACT PERIOD" means (a) with respect to Bankers' Acceptances, the term of a B/A Advance selected by the applicable Borrower in accordance with Section 2.02 commencing on the date of such B/A Advance and expiring on a Business Day which shall be either 30 days, 60 days, 90 days, 180 days or, with the consent of each Lender, any other number of days from 1 to 180, provided that (i) subject to subparagraph (ii) below, each such period shall be subject to such extensions or reductions as may be determined by the Administrative Agent to ensure that each Contract Period shall expire on a Business Day, and (ii) no Contract Period shall extend beyond the Revolving Commitment Termination Date and (b) with respect to a B/A Loan, an Interest Period equal to the Contract Period of the Bankers' Acceptances for which it is a substitute. "CURRENCY DUE" has the meaning specified in Section 2.23. "DEBT" of any Person means, without duplication (i) indebtedness of such Person for borrowed money or in respect of bankers' acceptances, (ii) obligations of such Person (other than any portion of any trade payable obligation of such Person which shall not have remained unpaid for 91 days or more from the later of (A) the original due date of such portion and (B) the customary payment date in the industry and relevant market for such portion) to pay the deferred purchase price of property or services, (iii) obligations of such Person as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, and (iv) Overdue Reimbursement Obligations; provided, however, that where any such indebtedness or obligation of such Person is made jointly, or jointly and severally, with any third party or parties, which are not the Borrowers or Parent, or any of their consolidated Subsidiaries, the amount thereof for the purposes of this definition only shall be the pro rata portion thereof 8 payable by such Person, so long as such third party or parties have not defaulted on its or their joint and several portions thereof, and provided, further, that the following shall not at any time constitute Debt: (1) obligations of such Person to reimburse a bank or other Person in respect of amounts paid under a letter of credit or similar instrument that are not Overdue Reimbursement Obligations, (2) Project Financing, (3) the Morgan Gold Loans unless, at such time, for any reason whatsoever, (A) no royalty income shall have accrued under the Royalty Agreement dated as of December 5, 1984 between Copper Range Company, a Michigan corporation, and LL&E during the three consecutive fiscal quarters of LL&E most recently ended prior to such time or (B) any payment required to have been made to LL&E under such agreement prior to such time shall not have been paid on, or within 30 days after, the date such payment is due, and (4) amounts borrowed by either Borrower or Parent and their consolidated Subsidiaries under life insurance policies issued to one or more of the foregoing and covering employees or former employees of one or more of the foregoing not in excess of the cash surrender value of such policies. "DISCOUNT PROCEEDS" means, for any B/A, an amount (rounded up to the nearest whole cent, and with one-half of one cent being rounded up) calculated on the date of the Borrowing by multiplying: (i) the face amount of the B/A; by (ii) the quotient of one divided by the sum of one plus the product of (A) the Discount Rate (expressed as a decimal) applicable to such B/A, multiplied by (B) a fraction, the numerator of which is the Contract Period of the B/A and the denominator of which is 365, with such quotient being rounded up or down to the nearest fifth decimal place, and with .000005 being rounded up. "DISCOUNT RATE" means: (i) with respect to any Lender which is a Schedule I chartered bank under the Bank Act (Canada), as applicable to a B/A being purchased by 9 such Lender on any day, the CDOR Rate; and (ii) with respect to any Lender which is not a Schedule I chartered bank under the Bank Act (Canada), as applicable to a B/A being purchased by such Lender on any day, the lesser of (A) the CDOR Rate plus 10 basis points (0.10%), and (B) the average (as determined by the Administrative Agent in good faith) of the respective percentage discount rates (expressed to two decimal places and rounded upward, if not in an increment of 1/100th of 1%, to the nearest 0.01%) quoted by the Schedule II/III Reference Banks as the percentage discount rates at which the Schedule II/III Reference Banks would, in accordance with their normal market practices, at or about 10:00 a.m. (Toronto, Ontario time) on such date, be prepared to purchase bankers' acceptances accepted by the Schedule II/III Reference Banks having a face amount and term comparable to the face amount and term of such B/A. "EFFECTIVE DATE" means the date on which the conditions precedent set forth in Section 3.01 have been satisfied (or compliance therewith shall have been waived by the Lenders), which date the Administrative Agent will promptly confirm to the Borrowers and the Lenders in writing, and which date shall be no earlier than December 5, 2002. "EFFECTIVE FEDERAL FUNDS RATE" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "ELIGIBLE ASSIGNEE" means, with respect to any particular assignment under Section 9.07, any bank or other entity approved in writing by the Borrowers expressly with respect to such assignment and, except as to such an assignment by JPMorgan so long as JPMorgan is the Administrative Agent hereunder, the Administrative 10 Agent shall be an Eligible Assignee for purposes of this Agreement, provided that neither the Administrative Agent's nor the Borrowers' approval shall be unreasonably withheld, and provided further that no such approval shall be necessary if (i) the assignee is a Lender Affiliate, (ii) the assignee was a Lender immediately prior to such assignment, or (iii) if an Event of Default shall then be continuing. "EQUITY INTERESTS" means any capital stock, partnership, joint venture, member or limited liability or unlimited liability company interest, beneficial interest in a trust or similar entity or other equity interest or investment of whatever nature. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued from time to time thereunder. "ERISA AFFILIATE" means any Person who is a member of Parent's controlled group within the meaning of Section 4001(a)(14)(A) of ERISA. "EURODOLLAR RATE" means the Cdn. Dollar Eurodollar Rate or the U.S. Dollar Eurodollar Rate, as applicable. "EURODOLLAR RATE ADVANCE" means a Cdn. Dollar Eurodollar Rate Advance or a U.S. Dollar Eurodollar Rate Advance, as applicable. "EURODOLLAR RATE MARGIN" means for any date the percentage per annum applicable on such date as set forth in the row labeled "Applicable Margin" on Schedule II hereto, which is based on the ratings (or lack thereof) by Moody's or S&P or both of the public long-term senior unsecured debt securities of Parent. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. "EXCHANGE RATE" shall mean with respect to U.S. Dollars on a particular date, the rate at which U.S. Dollars may be exchanged into Cdn. Dollars as quoted by the Bank of Canada on the Reuters Bank of Canada page (or, if not so quoted, the spot rate of exchange quoted for wholesale transactions made by the Administrative 11 Agent at Calgary, Alberta) at 12:00 noon, Toronto, Ontario time, on the relevant Reuters screen currency page; provided, that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error. "EXTENSION REQUEST" means each request by each Borrower made pursuant to Section 2.21 for the Lenders to extend the Revolving Commitment Termination Date, which shall contain the information in respect of such extension specified in Exhibit G and shall be delivered to the Administrative Agent in writing. "FACILITY FEE PERCENTAGE" means for any date the percentage per annum applicable on such date as set forth in the row labeled "Facility Fee Percentage" on Schedule II hereto, which is based on the ratings (or lack thereof) by Moody's or S&P or both of the public long-term senior unsecured debt securities of Parent. "FINAL MATURITY DATE" means the date occurring five years and one day after the Revolving Commitment Termination Date or, if such day is not a Business Day, the next succeeding Business Day. "FINANCING DOCUMENTS" means this Agreement, the Notices of Borrowing and the Notes, and each other instrument or agreement entered into by Parent or either Borrower in connection with this Agreement, as such instrument or agreement may be amended, modified or supplemented from time to time in accordance herewith. "FOREIGN LENDER" means any Lender that is neither a resident of Canada for purposes of the Income Tax Act nor a Schedule III Bank which receives all amounts paid under this Agreement in respect of its "Canadian banking business", as defined in the Income Tax Act. For purposes of this definition, Canada and each province thereof shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America, as in effect from time to time. 12 "GUARANTEED PARTIES" means the Administrative Agent, the Arranger, the Lenders and each other Person to whom any of the Obligations are or shall be owed. "GUARANTOR" means each of (i) the Parent, in its capacity as guarantor of the Obligations of BRCL and Canadian Hunter, (ii) BRCL, in its capacity as guarantor of the Obligations of Canadian Hunter, and (iii) Canadian Hunter, in its capacity as guarantor of the Obligations of BRCL and "GUARANTORS" means, collectively, all of the foregoing. "GUARANTY", "GUARANTEED" and "GUARANTEEING" each means any act by which a Person assumes, guarantees, endorses or otherwise incurs direct or contingent liability in connection with, or agrees to purchase or otherwise acquire or otherwise assures a creditor against loss in respect of, any Debt or Project Financing of any Person other than the Borrowers, the Parent or any of their consolidated Subsidiaries (excluding (i) any liability by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) any liability in connection with obligations of the Borrowers, Parent or any of their consolidated Subsidiaries, including obligations under any conditional sales agreement, equipment trust financing or equipment lease, (iii) any liability or other act of the Borrowers, Parent or any of their consolidated Subsidiaries under arrangements entered into in connection with the CLAM Credit Agreement, U.S. Short-Term Revolving Credit Agreement or the U.S. Long-Term Revolving Credit Agreement, and (iv) any such act in connection with a Project Financing that either (A) guarantees to the provider of such Project Financing or any other Person performance of the acquisition, improvement, installation, design, engineering, construction, development, completion, maintenance or operation of, or otherwise affects any such act in respect of, all or any portion of the project that is financed by such Project Financing or performance by a Project Financing Subsidiary of certain obligations to Persons other than the provider of such Project Financing, except during any period, and then only to the extent, that such guaranty is a direct guaranty of payment of such Project Financing (other than a guaranty of payment of the type referred to in subclause (B) below) or (B) is contingent upon, or the obligation to pay or perform under which is contingent upon, the 13 occurrence or existence of any event or condition other than or in addition to (1) the passage of time, (2) any Project Financing becoming due, (3) the commencement of bankruptcy, insolvency or similar proceedings by the obligor on any Project Financing or (4) the failure of the obligor on any Project Financing to satisfy a financial ratio, covenant or other similar financial measurement test, but only during such period as such act is not by its terms presently enforceable, or if so enforceable, there is not a reasonable probability that the guarantor will be called upon to perform thereunder (or to make capital contributions in lieu of performance thereunder) (any such act referred to in this clause (iv) being a "Contingent Guaranty")); provided, however, that for the purposes of this definition the liability of the Borrowers, Parent or any of their Subsidiaries with respect to any obligation as to which a third party or parties are jointly, or jointly and severally, liable as a guarantor or otherwise as contemplated hereby and have not defaulted on its or their portions thereof, shall be only its pro rata portion of such obligation. "INCOME TAX ACT" means the Income Tax Act (Canada), as amended from time to time. "INDEMNIFIED PARTY" means any or all of the Lenders, the Arranger and the Administrative Agent. "INITIAL LENDERS" has the meaning specified in the introduction to this Agreement. "INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "INTEREST PERIOD" means (a) for each Eurodollar Rate Advance (other than a B/A Loan) comprising part of the same Borrowing, the period beginning on the date of such Advance or the date of the Continuation of any Advance as such Advance and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below and (b) for each B/A Loan, the period beginning on the date of such B/A Loan and ending on the last day of the Contract Period of the Bankers' 14 Acceptances for which such B/A Loan is a substitute. The duration of each such Interest Period for a Eurodollar Rate Advance (other than a B/A Loan) shall be (i) one, two, three or six months upon notice received by the Administrative Agent not later than 10:00 a.m. (Calgary local time) on the third Business Day prior to the first day of such Interest Period, or (ii) subject to availability to each Lender, nine or twelve months upon notice received by the Administrative Agent not later than 10:00 a.m. (Calgary local time) on the fourth Business Day prior to the first day of such Interest Period, in each case as the applicable Borrower may select; provided, however, that: (A) the duration of any Interest Period which commences before the Termination Date and would otherwise end after the Termination Date shall end on the Termination Date and the duration of any Interest Period which would otherwise end after the Final Maturity Date shall end on the Final Maturity Date; (B) if the last day of such Interest Period would otherwise occur on a day which is not a Business Day, such last day shall be extended to the next succeeding Business Day, except if such extension would cause such last day to occur in a new calendar month, then such last day shall occur on the next preceding Business Day; (C) Interest Periods commencing on the same date for Advances comprising the same Borrowing shall be of the same duration; and (D) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (A) above, end on the last Business Day of a calendar month. "JPMORGAN" means JPMorgan Chase Bank, Toronto Branch. "JUDGMENT CURRENCY" has the meaning specified in Section 2.23. 15 "LENDER AFFILIATE" means, with respect to any Lender, (a) an Affiliate of such Lender or (b) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender (with such Lender or Affiliate having the sole right and responsibility with respect to the approval of amendments and waivers to this Agreement, the Notes and all related agreements and instruments entered into from time to time). "LENDERS" means the Initial Lenders, each bank or other financial institution that shall become a party hereto pursuant to Section 2.20, and each Eligible Assignee that shall become a party hereto pursuant to Section 9.07(a), (b) and (d). "LIEN" means any lien, security interest or other charge or encumbrance, or any assignment of the right to receive income, or any other type of preferential arrangement, in each case to secure any Debt or any Guaranty of any Person; provided that (i) the creation of interests in property of the character commonly referred to as a "royalty interest" or "overriding royalty interest", farmouts, joint operating or unitization agreements, or other similar transactions in the ordinary course of business and (ii) borrowings under life insurance policies as described in clause (4) of the proviso to the definition of "Debt" shall not be deemed to create a Lien. "LL&E" means The Louisiana Land and Exploration Company, a Maryland corporation and a wholly-owned Subsidiary of the Parent. "MAJORITY LENDERS" means i) for purposes of acceleration of the Advances and other amounts outstanding under Article 6 hereof, Lenders holding at least 51% of the then aggregate unpaid principal amount of the Advances held by Lenders or (ii) for all other purposes of this Agreement, Lenders having at least 51% of the Commitments. "MARGIN STOCK" means "margin stock" as defined in Regulation U of the Board of Governors of the United States Federal Reserve System, as in effect from time to 16 time. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the financial condition or operations of Parent and its consolidated Subsidiaries on a consolidated basis. "MATERIAL PLAN" means any Plan the assets of which exceed U.S.$50,000,000 or the liabilities of which for unfunded vested benefits determined on a plan termination basis (in accordance with Title IV of ERISA) exceed U.S.$10,000,000. "MATERIAL SUBSIDIARY" means, from time to time, any Subsidiary of Parent (other than a Project Financing Subsidiary) then owning assets (determined on a consolidated basis) that equal or exceed 10% of the book value of the consolidated assets of Parent and its consolidated Subsidiaries at such time; provided that for purposes of this definition the term "Material Subsidiary" shall always include each of the Borrowers and their successors. "MOODY'S" means Moody's Investors Service, Inc. "MORGAN" means Morgan Guaranty Trust Company of New York, and its successors. "MORGAN GOLD LOANS" means the obligations of LL&E under the respective Credit Agreements dated as of December 23, 1994 and March 31, 1995 between LL&E and Morgan, or under any additional credit agreements on substantially similar terms, in each case, as amended, restated, extended or otherwise modified from time to time, provided that the aggregate outstanding amount borrowed thereunder shall at no time exceed 35,000 ounces of gold. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which Parent or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "MULTIPLE EMPLOYER PLAN" means a single employer 17 plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of Parent or an ERISA Affiliate and at least one Person other than the Borrowers, Parent and its ERISA Affiliates or (ii) was so maintained and in respect of which Parent or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NEW LENDER" has the meaning specified in Section 2.20(b). "NEW LENDER AGREEMENT" has the meaning specified in Section 2.20(b). "NOTE" means a promissory note of a Borrower payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the Advances made by such Lender. "NOTICE of BORROWING" has the meaning specified in Section 2.02(a). "NOTICE OF CONTINUATION" has the meaning specified in Section 2.09. "OBJECTING LENDERS" has the meaning specified in Section 2.21(a). "OBLIGATIONS" means (a) the obligations of each Borrower in respect of the due and punctual payment of (i) the principal of and interest on the Advances made to it and the Notes executed by it when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all fees, expenses, indemnities, expense reimbursement obligations and other obligations, monetary or otherwise, of either Borrower under this Agreement or any other Financing Document and (b) all other obligations, monetary or otherwise, of either Borrower under each Financing Document to which it is a party. "OFFERED INCREASE AMOUNT" has the meaning specified in Section 2.20(a). "ORIGINAL EFFECTIVE DATE" means February 25, 1998. 18 "OTHER TAXES" has the meaning specified in Section 2.16(d) of this Agreement. "OVERDUE REIMBURSEMENT OBLIGATIONS" means, with respect to any Person, non-contingent obligations of such Person to reimburse a bank or other Person in respect of amounts paid under a letter of credit or similar instrument that are not paid on or prior to the fifth Business Day after the due date therefor. "PARENT" has the meaning specified in the introduction to this Agreement. "PAYMENT OFFICE" means the Administrative Agent's office located at 200 Bay Street, Suite 1800, Royal Bank Plaza, South Tower, Toronto, Ontario M5J 2J2 (or such other office or individual as the Administrative Agent may hereafter designate in writing to the other parties hereto). "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "PERMITTED ASSETS" means (i) hydrocarbon or other reserves (including proved, probable, possible or speculative reserves), (ii) properties, assets, rights or business related to reserves (including real property, gathering systems, plants, pipelines, equipment and processing and treatment facilities), (iii) other fixed or operating assets and (iv) Equity Interests in any and all Business Entities that are or become Subsidiaries of a Borrower or Parent owning assets referred to in any of the foregoing clauses. "PERMITTED LIENS" means: (i) inchoate Liens and charges imposed by law and incidental to construction, maintenance, development or operation of properties, or the operation of business, in the ordinary course of business if payment of the obligation secured thereby is not yet overdue or if the validity or amount of which is being contested in good faith by either Borrower, Parent or any of their respective Subsidiaries; (ii) Liens for taxes, assessments, obligations under workers' compensation or other social security 19 legislation or other governmental requirements, charges or levies, in each case not yet overdue; (iii) Liens reserved in any oil, gas or other mineral lease entered into in the ordinary course of business for rent, royalty or delay rental under such lease and for compliance with the terms of such lease; (iv) easements, servitudes, rights-of-way and other rights, exceptions, reservations, conditions, limitations, covenants and other restrictions which do not materially interfere with the operation, value or use of the properties affected thereby; (v) conventional provisions contained in any contracts or agreements affecting properties under which either Borrower, Parent or any of their respective Subsidiaries is required immediately before the expiration, termination or abandonment of a particular property to reassign to such Person's predecessor in title all or a portion of such Person's rights, titles and interests in and to all or a portion of such property; (vi) any Lien reserved in a grant or conveyance in the nature of a farm-out or conditional assignment to either Borrower, Parent or any of their respective Subsidiaries entered into in the ordinary course of business on reasonable terms to secure undertakings of either Borrower, Parent or any such Subsidiary in such grant or conveyance; (vii) any Lien consisting of (A) statutory landlord's liens under leases to which either Borrower, Parent or any of their respective Subsidiaries is a party or other Liens on leased property reserved in leases thereof for rent or for compliance with the terms of such leases, (B) rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any property of either Borrower, Parent or any of their respective Subsidiaries, or to use such property in any manner which does not materially impair the use of such property for the purposes for which it is held by such Borrower, Parent or any such Subsidiary, (C) obligations or duties to any municipality or public authority with respect to any franchise, grant, license, lease or 20 permit and the rights reserved or vested in any governmental authority or public utility to terminate any such franchise, grant, license, lease or permit or to condemn or expropriate any property, and (D) zoning laws and ordinances and municipal regulations; (viii) Liens on Equity Interests in, or Debt or other obligations of, CLAM owned by the Parent, either Borrower or any of their respective Subsidiaries, which Liens secure Debt of CLAM; and (ix) any Lien on any assets (including Equity Interests and other obligations) securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring, improving, installing, designing, engineering, developing (including drilling), or constructing such assets, provided that such Lien attaches to such assets concurrently with or within 360 days after the acquisition or completion of development, construction or installation thereof or improvement thereto. "PERSON" means an individual, a Business Entity, or a country or any political subdivision thereof or any agency or instrumentality of such country or subdivision. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "PRIME RATE" means, for each day in any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times for such day be equal to the higher of: (i) the annual rate of interest announced publicly by the Administrative Agent and in effect as its prime rate at its principal office in Toronto, Ontario on such day for determining interest rates on Cdn. Dollar-denominated commercial loans made in Canada; and (ii) 0.50% per annum above the 30 day CDOR Rate in effect on such date. "PRIME RATE ADVANCE" means an Advance denominated in Cdn. Dollars that bears interest at a rate 21 based on the Prime Rate, as provided in Section 2.06(a)(i). "PRIME RATE BORROWING" means a Borrowing comprised of one or more Prime Rate Advances. "PROJECT FINANCING" means any Debt incurred to finance or refinance the acquisition, improvement, installation, design, engineering, construction, development, completion, maintenance or operation of, or otherwise in respect of, all or any portion of any project, or any asset related thereto, and any Guaranty with respect thereto, other than any portion of such Debt or Guaranty permitting or providing for recourse against Parent, either Borrower or any of their respective Subsidiaries other than (i) recourse to the Equity Interests in, Debt or other obligations of, or assets of, one or more Project Financing Subsidiaries, and (ii) such recourse as exists under any Contingent Guaranty. "PROJECT FINANCING SUBSIDIARY" means any Subsidiary of Parent or a Borrower whose principal purpose is to incur Project Financing, or to become a direct or indirect partner, member or other equity participant or owner in a Business Entity so created, and substantially all the assets of which Subsidiary or Business Entity are limited to those assets being financed (or to be financed), or the operation of which is being financed (or to be financed), in whole or in part by a Project Financing or to Equity Interests in, or Debt or other obligations of, one or more other such Subsidiaries or Business Entities. "RE-ALLOCATION DATE" has the meaning specified in Section 2.20(e). "REFERENCE BANKS" means JPMorgan, Citibank, N.A., Canadian branch and Bank of America, N.A., Canada Branch. "REGISTER" has the meaning specified in Section 9.07(c). "REQUIRED LENDERS" means Lenders (i) that are not Objecting Lenders with respect to any previous Extension Request and (ii) that have Commitment Percentages aggregating at least 51% of the aggregate Commitment Percentages of such non-Objecting Lenders. 22 "RESET DATE" has the meaning specified in Section 2.24. "REVOLVING ADVANCE" means an Advance made or to be made by a Lender pursuant to Section 2.01(a). "REVOLVING COMMITMENT TERMINATION DATE" means December 4, 2003, or, at the option of the Borrowers, such later date as shall be determined pursuant to the provisions of Section 2.21 with respect to non-Objecting Lenders, provided that if such date is not a Business Day, the Revolving Commitment Termination Date shall be the next preceding business day. "S&P" means Standard and Poor's, a division of The McGraw-Hill Companies, Inc. "SCHEDULE I BANKS" means a bank that is a Canadian chartered bank listed on Schedule I under the Bank Act (Canada). "SCHEDULE I REFERENCE BANKS" means each of Royal Bank of Canada and such other Schedule I Banks as are agreed to from time to time by the Borrowers and the Administrative Agent, each acting reasonably; provided that there shall be no more than three Schedule I Reference Banks at any one time. "SCHEDULE II LENDER" has the meaning specified in Section 1.05 of this Agreement. "SCHEDULE II/III REFERENCE BANKS" means JPMorgan Chase Bank, Toronto Branch, Citibank, N.A., Canadian branch and Bank of America, N.A., Canada Branch or such other Schedule II chartered banks under the Bank Act (Canada) or Schedule III Banks as are mutually agreed upon by the Administrative Agent and the Borrowers. "SCHEDULE III BANK" means a bank listed on Schedule III under the Bank Act (Canada). "SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of Parent or an ERISA Affiliate and no Person other than Parent and its ERISA Affiliates or (ii) was so maintained and in respect of which Parent or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has 23 been or were to be terminated. "SUBSIDIARY" means, as to any Person, any Business Entity of which shares of stock or other Equity Interests having ordinary voting power (other than stock or such other Equity Interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such Business Entity are at the time owned, directly or indirectly through one or more Subsidiaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of Parent. "TAXES" has the meaning specified in Section 2.16(b) of this Agreement. "TERMINATION DATE" means the earlier of (i) the Revolving Commitment Termination Date and (ii) the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01. "TERMINATION EVENT" means (i) a "reportable event," as such term is described in Section 4043 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), or an event described in Section 4062(e) of ERISA, or (ii) the withdrawal of Parent or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer," as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by Parent or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) the conditions set forth in Section 302(f)(1)(A) and (B) of ERISA to the creation of a lien upon property or rights to property of Parent or any ERISA Affiliate for failure to make a required payment to a Plan are satisfied, or (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (vii) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. 24 "TERM ADVANCE" means an Advance made or to be made by a Lender pursuant to Section 2.01(b). "TRANSACTIONS" means the execution, delivery and performance by the Borrowers and Parent (as applicable) of this Agreement and the other Financing Documents and the borrowing of Advances. "TYPE" has the meaning specified in the definition of "Advance". "U.S.$" and "U.S. DOLLARS" means lawful money of the United States of America. "U.S. DOLLAR EURODOLLAR RATE" means, for any Interest Period for each U.S. Dollar Eurodollar Rate Advance comprising part of the same Borrowing, the interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. Dollars are offered by the principal office of each of the Reference Banks in London, England, to prime banks in the London interbank market at 11:00 A.M. (London, England time) two Business Days before the first day of such Interest Period in an amount comparable to the amount of such Borrowing and for a period equal to such Interest Period. The U.S. Dollar Eurodollar Rate for the Interest Period for each U.S. Dollar Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "U.S. DOLLAR EURODOLLAR RATE ADVANCE" means an Advance denominated in U.S. Dollars that bears interest determined by reference to the U.S. Dollar Eurodollar Rate, as provided in Section 2.06(a)(iii)(y). "U.S. LONG-TERM REVOLVING CREDIT AGREEMENT" means the Long-Term Revolving Credit Agreement dated as of February 25, 1998, as amended and restated as of December 7, 2001, as amended by Amendment No. 1, dated as of April 25, 2002, and as amended by Amendment No. 2 as of December 5, 2002, and as may be further amended from time to time hereafter, among the Parent, the financial 25 institutions party thereto, JPMorgan Chase Bank, as administrative agent and auction administrative agent for such financial institutions, Citibank, N.A. and Fleet National Bank, as co-syndication agents, and Bank of America, N.A. and The Toronto-Dominion Bank, as co-documentation agents. "U.S. SHORT-TERM REVOLVING CREDIT AGREEMENT" means the Short-Term Revolving Credit Agreement dated as of February 25, 1998, as amended and restated as of December 7, 2001, as amended by Amendment No. 1, dated as of April 25, 2002, and as further amended and restated as of December 5, 2002, and as may be further amended from time to time hereafter, among the Parent, the financial institutions party thereto, JPMorgan Chase Bank, as administrative agent and auction administrative agent for such financial institutions, Citibank, N.A. and Fleet National Bank, as co-syndication agents, and Bank of America, N.A., and The Bank of Nova Scotia, as co-documentation agents. "UTILIZATION FEE PERIOD" means any period during the term of this Agreement commencing on the Effective Date or on a subsequent January 1, April 1, July 1 or October 1 and ending in each case on the earliest to occur of the next succeeding March 31, June 30, September 30 or December 31 and the Termination Date. "WITHDRAWAL LIABILITY" shall have the meaning given such term under Part I of Subtitle E of Title IV of ERISA. SECTION 1.02 COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." SECTION 1.03 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, either (i) consistent with those principles applied in the preparation of the annual financial statements referred to in Section 4.01(e), or (ii) not so materially inconsistent with such principles that a covenant contained in Section 5.01 or 5.02 would be calculated or construed in a materially different manner or with materially 26 different results than if such covenant were calculated or construed in accordance with clause (i) of this Section 1.03. "INCLUDE", "INCLUDES" and "INCLUDING" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. SECTION 1.04 REFERENCES. The words "HEREOF", "HEREIN" and "HEREUNDER" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. SECTION 1.05 SCHEDULE III BANKS. Upon the assignment in accordance with Section 9.07 by any Lender that is a Schedule II chartered bank under the Bank Act (Canada) (a "Schedule II Lender") of the rights and obligations of such Schedule II Lender hereunder to its Lender Affiliate that is a Schedule III Bank, all references herein to such Schedule II Lender shall be deemed to be references to such Schedule III Bank. ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01 REVOLVING ADVANCES. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Advances to the Borrowers from time to time on any Business Day during the period from the Effective Date to and including the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on Schedule III hereto, or, if such Lender has entered into any Assignment and Acceptance or Commitment Increase Agreement or a New Lender Agreement, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's "COMMITMENT"). Subject to Section 2.11(e) with respect to B/A Advances, each Borrowing consisting of Revolving Advances shall be in an aggregate amount that 27 is (a) not less than Cdn.$5,000,000 in the case of a Borrowing comprised of Prime Rate Advances, (b) not less than U.S.$5,000,000 in the case of a Borrowing comprised of Base Rate Advances, (c) not less than Cdn.$10,000,000 in the case of a Borrowing comprised of Cdn. Dollar Eurodollar Rate Advances, and (d) not less than U.S.$10,000,000 in the case of a Borrowing comprised of U.S. Dollar Eurodollar Rate Advances (or, in the case of a Borrowing of Prime Rate Advances or Base Rate Advances, the aggregate unused Commitments, if less) and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Notwithstanding the foregoing, a Foreign Lender shall not accept Bankers' Acceptances, and shall not be required to make Prime Rate Advances and no Lender (other than a Foreign Lender pursuant to Section 2.11(i)) shall be required to make Cdn. Dollar Eurodollar Rate Advances. If a Borrowing of Prime Rate Advances is requested, a Foreign Lender will participate in such Borrowing by way of Base Rate Advances. If a Borrowing by way of Bankers' Acceptances is requested, a Foreign Lender will participate in such Borrowing by way of Cdn. Dollar Eurodollar Rate Advances in accordance with Section 2.11(i). Within the limits of each Lender's Commitment, the Borrowers may make more than one Borrowing on any Business Day and may borrow, prepay pursuant to Section 2.10, and reborrow under this Section 2.01(a). (b) TERM ADVANCES. On the Revolving Commitment Termination Date (unless the Commitments shall have been terminated in full pursuant to Article 6), each outstanding Revolving Advance will Continue as a Term Advance to the applicable Borrower of like amount. Term Advances that are repaid or prepaid, and not Continued, may not be reborrowed; provided, however, that Advances may be Continued, at the election of the applicable Borrower, through the Final Maturity Date by the delivery of a Notice of Continuation. Eurodollar Rate Advances and B/A Loans for which the Interest Period shall not have terminated as of the Revolving Commitment Termination Date shall be Continued as Eurodollar Rate Advances or B/A Loans, as the case may be, for the then applicable Interest Period and Prime Rate Advances and Base Rate Advances shall be Continued as Prime Rate Advances or Base Rate Advances, as applicable, after the Revolving Commitment Termination Date, unless the applicable Borrower shall have elected otherwise by delivery of a Notice of Continuation. In accordance with 28 Section 2.08, the applicable Borrower may elect to Continue Borrowings as Borrowings of the same or a different Type or, in the case of a Eurodollar Rate Advance or B/A Advance, may elect Interest Periods or Contract Periods therefor; provided that the Borrowers shall not be entitled to elect to Continue any Borrowings if the Interest Period or Contract Period requested with respect thereto would end after the Final Maturity Date. After the Revolving Commitment Termination Date, no Lender shall have any further Commitment to make additional Advances. SECTION 2.02 MAKING THE ADVANCES. (a) Each Borrowing shall be made on notice by the applicable Borrower to the Administrative Agent (a "NOTICE OF BORROWING") received by the Administrative Agent: (i) in the case of a proposed Borrowing comprised of Prime Rate Advances or Base Rate Advances on the day of notice, provided that notice is received by the Administrative Agent not later than 9:00 A.M. (Calgary local time) on the Business Day of such proposed Borrowing; (ii) in the case of a proposed Borrowing comprised of Eurodollar Rate Advances, not later than 10:00 a.m. (Calgary local time) on the third Business Day prior to the date of such proposed Borrowing; and (iii) in the case of a proposed Borrowing comprised of B/A Advances, not later than 10:00 a.m. (Calgary local time) on the second Business Day prior to the date of such proposed Borrowing or, if such Borrowing shall include B/A Loans, on the third Business Day prior to the date of such proposed Borrowing. Each Notice of Borrowing shall be by telecopy, telefax or other teletransmission or by telephone (and if by telephone, confirmed promptly by telecopier, telefax or other teletransmission), in substantially the form of Exhibit B hereto, specifying therein the requested (w) date of such Borrowing, (x) Type of Advances comprising such Borrowing and, additionally, whether such Borrowing consists of Revolving Advances or Term 29 Advances, (y) aggregate amount of such Borrowing, and (z) in the case of a Borrowing comprised of Eurodollar Rate Advances, the initial Interest Period and currency for each such Advance, and in the case of a B/A Advance, the initial Contract Period for such B/A Advance. Promptly following receipt of the Notice of Borrowing (and in any event not later than 10:00 a.m. (Calgary local time) on the date of the proposed Borrowing), the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Advance to be made as part of the requested Borrowing. Each Lender shall, before 11:00 a.m. (Calgary local time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent in care of its Payment Office, or at such other location designated by notice from the Administrative Agent to the Lenders pursuant to Section 9.02, in same day funds, such Lender's ratable portion of such Borrowing. Immediately after the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 3, but no later than 12:00 noon (Calgary local time) on the same date the Administrative Agent will make such funds available to the applicable Borrower at the Payment Office of the Administrative Agent, or at any account of the applicable Borrower maintained by the Administrative Agent (or any successor Administrative Agent) designated by the applicable Borrower and agreed to by the Administrative Agent (or such successor Administrative Agent), in same day funds. (b) If no election as to the Type or duration of Advance is specified, then the requested Advance shall be a Prime Rate Advance (if denominated in Cdn. Dollars) or a Base Rate Advance (if denominated in U.S. Dollars). If no currency is specified, the Advance shall be denominated in Cdn. Dollars. (c) Each Notice of Borrowing shall be irrevocable and binding on the applicable Borrower. In the case of any Borrowing which the related Notice of Borrowing specified is to be comprised of Eurodollar Rate Advances, if such Advances are not made as a result of any failure to fulfill on or before the date specified for such Borrowing the applicable conditions set forth in Article 3, the applicable Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of such failure, including any loss, cost or expense incurred by reason of the liquidation or 30 reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsections (a) and (c) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If and to the extent such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the applicable Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the applicable Borrower until the date such amount is repaid to the Administrative Agent, at the Prime Rate for such day. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance to the applicable Borrower as part of such Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03 FEES. (a) FACILITY FEE. The Borrowers agree to pay to the Administrative Agent for the account of each Lender a facility fee on the average daily amount of such Lender's Commitment, whether or not used or deemed used, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance or Commitment Increase Agreement pursuant to which it became a Lender in the case of each other Lender, in each case until the Termination Date, payable quarterly in arrears on the 31 last day of each March, June, September and December during the term of such Lender's Commitment and on the Termination Date, at a rate per annum equal to the Facility Fee Percentage in effect from time to time. (b) UTILIZATION FEE. Each Borrower agrees to pay to the Administrative Agent for the account of each Lender (i) for any Utilization Fee Period, if during such Utilization Fee Period the Average Aggregate Facility Advances were greater than 25% and less than or equal to 50% of the Average Aggregate Facility Commitments, a utilization fee of 0.125% per annum on the average daily amount of such Lender's Advances to such Borrower during such Utilization Fee Period; and (ii) for any Utilization Fee Period, if during such Utilization Fee Period the Average Aggregate Facility Advances were greater than 50% of the Average Aggregate Facility Commitments, a utilization fee of 0.25% per annum on the average daily amount of such Lender's Advances to such Borrower during such Utilization Fee Period. If a utilization fee is owing in respect of any Utilization Fee Period, such fee shall be payable on the last day of such Utilization Fee Period. (c) TERM ADVANCE PREMIUM FEE. Each Borrower agrees to pay to the Administrative Agent for the account of each Lender a premium fee of 0.25% per annum on the average daily amount of the outstanding principal amount of such Lender's Term Advances to such Borrower hereunder, payable quarterly in arrears on the last day of each March, June, September and December and on the date on which the last of such Lender's Term Advances shall be repaid. (d) AGENCY FEE. Each Borrower agrees to pay to the Administrative Agent, for its own account, such agency fees as may be separately agreed to in writing by the Borrowers and the Administrative Agent, such fees to be in the amounts and payable on the dates as may be so agreed to. SECTION 2.04 REDUCTION OF THE COMMITMENTS. The Borrowers shall have the right, upon at least three Business Days' written notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the Commitments of the Lenders (being the amount by which such Commitments exceed the aggregate outstanding principal amount of all Advances), 32 provided that each partial reduction shall be in the aggregate amount of Cdn.$10,000,000 or any whole multiple of Cdn.$1,000,000 in excess thereof. SECTION 2.05 REPAYMENT OF ADVANCES. (a) Each Borrower shall repay to each Lender on the Final Maturity Date the aggregate principal amount of the Advances made to it, together with accrued interest thereon, then owing to such Lender. (b) Subject to Section 2.05(c), after the Revolving Commitment Termination Date, the applicable Borrower shall repay the principal amount of the Advances made to it in equal semi-annual installments, each in an amount equal to two and one-half percent (2.5%) of the aggregate outstanding principal amount of the Advances made to it on the Revolving Commitment Termination Date. Such installments shall be due and payable on each June 30 and December 31 of each year, the first such installment being due and payable on the first December 31 occurring after the Revolving Commitment Termination Date, with the final installment due and payable on the Final Maturity Date in an amount equal to the aggregate unpaid principal amount of such Advances made to it outstanding on the Final Maturity Date. (c) Subject to Article 6, but notwithstanding any other provision of this Agreement, neither Borrower shall be required to repay more than 25% of the principal amount (as defined in the Income Tax Act) of the Advances made to it prior to five years and one day after the Revolving Commitment Termination Date, including, but not limited to payments under Section 2.05(b) and Section 2.10(b). (d) The Borrowers shall provide written notice to the Administrative Agent substantially in the form of Exhibit C hereto of any repayments pursuant to this Section 2.05 at least 2 Business Days prior to such repayment. SECTION 2.06 INTEREST ON ADVANCES. (a) ORDINARY INTEREST. Each Borrower shall pay interest on the unpaid principal amount of each Advance 33 made to it and owing to each Lender from the date of such Advance until such principal amount is due (whether at stated maturity, by acceleration or otherwise), at the following rates: (i) PRIME RATE ADVANCES. During such periods as such Advance is a Prime Rate Advance, a rate per annum equal at all times to the Prime Rate in effect from time to time plus, following the Revolving Commitment Termination Date, as additional interest in lieu of the facility fee, the Facility Fee Percentage in effect from time to time, payable quarterly in arrears on the last day of each March, June, September and December during such periods and on the date such Prime Rate Advance shall be Continued or due (whether at stated maturity, by acceleration or otherwise). (ii) BASE RATE ADVANCES. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time plus, following the Revolving Commitment Termination Date, as additional interest in lieu of the facility fee, the Facility Fee Percentage in effect from time to time, payable quarterly in arrears on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Continued or due (whether at stated maturity, by acceleration or otherwise). (iii) EURODOLLAR RATE ADVANCES. During such periods as such Advance is (x) a Cdn. Dollar Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of the Cdn. Dollar Eurodollar Rate for such Interest Period plus the Eurodollar Rate Margin in effect from time to time plus, following the Revolving Commitment Termination Date, as additional interest in lieu of the facility fee, the Facility Fee Percentage in effect from time to time, payable on the last day of each such Interest Period and, if any such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period and, if such Advance is Continued as a Prime Rate Advance on any date other than the last day of any 34 Interest Period for such Advance, on the date of such Continuation or, if later, the Business Day on which the applicable Borrower shall have received at least one Business Day's prior notice from the Administrative Agent or the applicable Lender of the amount of unpaid interest accrued on such Advance to the date of such Continuation and (y) a U.S. Dollar Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of the U.S. Dollar Eurodollar Rate for such Interest Period plus the Eurodollar Rate Margin in effect from time to time plus, following the Revolving Commitment Termination Date, as additional interest in lieu of the facility fee, the Facility Fee Percentage in effect from time to time, payable on the last day of each such Interest Period and, if any such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period and, if such Advance is Continued as a Base Rate Advance on any date other than the last day of any Interest Period for such Advance, on the date of such Continuation or, if later, the Business Day on which the applicable Borrower shall have received at least one Business Day's prior notice from the Administrative Agent or the applicable Lender of the amount of unpaid interest accrued on such Advance to the date of such Continuation. (iv) B/A ADVANCES. Each Advance comprised of Bankers' Acceptances shall be subject to an Acceptance Fee, payable by the applicable Borrower on the date of acceptance of the relevant B/A and computed as set forth in the definition of "Acceptance Fee" in Section 1.01 plus, following the Revolving Commitment Termination Date, as an additional acceptance fee in lieu of the facility fee, the Facility Fee Percentage in effect from time to time, payable quarterly in arrears on the last day of each March, June, September and December during such periods and on the date such B/A Advance shall be Continued or due (whether at stated maturity, by acceleration or otherwise). (v) ADDITIONAL INTEREST. In addition to amounts payable under clause (i), (ii), (iii) or (iv) above and under Section 2.03(c) in respect of any Advance 35 following the Revolving Commitment Termination Date, each Borrower shall pay to each Lender hereunder as additional interest an amount in lieu of the utilization fee equal to 0.25% per annum on the average daily amount of such Lender's Term Advances made to it during any period (each such period, an "ADDITIONAL INTEREST PERIOD") during the term of this Agreement commencing on the Termination Date or on a subsequent January 1, April 1, July 1 or October 1 and ending in each case on the earliest to occur of the next succeeding March 31, June 30, September 30 or December 31 and the Final Maturity Date (or, if any Term Advances made to such Borrower remain outstanding after the Final Maturity Date, such later date on which all such Advances are repaid in full). Additional interest owing in respect of any Additional Interest Period shall be payable on the last day of such Additional Interest Period; provided that additional interest owing after the Final Maturity Date shall be payable on demand. (b) DEFAULT INTEREST. Each Borrower shall pay interest on the unpaid principal amount of each Advance made to it that is not paid when due (whether at stated maturity, by acceleration or otherwise) from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times (i) from such due date to the last day of the then existing Interest Period therefor, in the case of each Eurodollar Rate Advance, to 1% per annum above the interest rate per annum required to be paid on such Advance immediately prior to the date on which such amount became due and (ii) from and after the last day of the then existing Interest Period therefor, in the case of each Eurodollar Rate Advance, and at all times in the case of each Prime Rate Advance and each Base Rate Advance, to 1% per annum above the Prime Rate or Base Rate, as applicable, in effect from time to time, plus, in the case of a Term Advance, any additional interest payable pursuant to Section 2.06(a)(iii). (c) INTEREST ACT CANADA. For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever any interest or fee to be paid hereunder or in connection herewith is to be calculated on the basis of any period of time that is less than a calendar year, the yearly rate of interest to which the rate used in such 36 calculation is equivalent is the rate so used multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or 365, as applicable. The rates of interest under this Agreement are nominal rates, and not effective rates or yields. The principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement. (d) NO CRIMINAL RATE. If any provision of this Agreement would oblige a Borrower to make any payment of interest or other amount payable to any Lender in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by that Lender of "interest" at a "criminal rate" (as such terms are construed under the Criminal Code (Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by law or so result in a receipt by that Lender of "interest" at a "criminal rate", such adjustment to be effected, to the extent necessary (but only to the extent necessary), as follows: (i) first, by reducing the amount or rate of interest or the amount or rate of any Acceptance Fee required to be paid to the affected Lender under Section 2.06(a)(iv); and (ii) thereafter, by reducing any fees, commissions, premiums and other amounts required to be paid to the affected Lender which would constitute interest for purposes of Section 347 of the Criminal Code (Canada). SECTION 2.07 [INTENTIONALLY OMITTED] SECTION 2.08 RATE DETERMINATION. (a) All interest hereunder shall be payable for the actual number of days elapsed (including the first day but excluding the last day). Any Advance that is repaid on the same day on which it is made shall bear interest for one day unless such repayment and notice thereof are received by 12:00 noon, Toronto, Ontario time, on such day. The applicable Prime Rate, Base Rate, Eurodollar Rate or Discount Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. 37 (b) Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. Each Schedule II/III Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Discount Rate. If any one or more of the Schedule II/III Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining such Discount Rate, the Administrative Agent shall determine such Discount Rate on the basis of timely information furnished by the remaining Schedule II/III Reference Banks. (c) The Administrative Agent shall give prompt notice to the Borrowers and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.06(a)(i), (ii) or (iii), the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.06(a)(iii), and the applicable Discount Rate, if any, furnished by each Schedule II/III Reference Bank for the purpose of determining the applicable Discount Rate under Section 2.11(f). (d) If fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any applicable Advances, (i) the Administrative Agent shall give the Borrowers and each Lender prompt notice by telephone (confirmed in writing) that the interest rate cannot be determined for such applicable Advances, (ii) (x) to the extent such applicable Advances are Cdn. Dollar Eurodollar Rate Advances, each such Advance will automatically, on the last day of the then existing Interest Period therefor, Continue as a Prime Rate Advance (or if such Advance is then a Prime Rate Advance, will Continue as a Prime Rate Advance), and (y) to the extent such applicable Advances are U.S. Dollar Eurodollar Rate Advances, each such Advance will automatically, on the last 38 day of the then existing Interest Period therefor, Continue as a Base Rate Advance (or if such Advance is then a Base Rate Advance, will Continue as a Base Rate Advance), and (iii) the obligations of the Lenders to make, or to Continue Advances as, Cdn. Dollar Eurodollar Rate Advances or U.S. Dollar Eurodollar Rate Advances, as the case may be, shall be suspended until the Administrative Agent shall notify the Borrowers and the Lenders that the circumstances causing such suspension no longer exist. (e) If, with respect to any Eurodollar Rate Advances, the Majority Lenders determine and give notice to the Administrative Agent that as a result of conditions in or generally affecting the relevant market, the rates of interest determined on the basis of the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrowers and the Lenders, whereupon: (i) (x) to the extent such Advances are Cdn. Dollar Eurodollar Rate Advances, each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Continue as a Prime Rate Advance and (y) to the extent such Advances are U.S. Dollar Eurodollar Rate Advances, each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Continue as a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Continue Advances as, Cdn. Dollar Eurodollar Rate Advances or U.S. Dollar Eurodollar Rate Advances, as the case may be, shall be suspended until the Administrative Agent shall notify the Borrowers and the Lenders that the circumstances causing such suspension no longer exist. (f) If a Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "INTEREST PERIOD" in Section 1.01, the Administrative Agent will forthwith so notify such 39 Borrower and the Lenders and (i) to the extent such Advances are Cdn. Dollar Eurodollar Rate Advances, such Advances will automatically, on the last day of the then existing Interest Period therefor, Continue as Cdn. Dollar Eurodollar Rate Advances with an Interest Period of one month and (ii) to the extent such Advances are U.S. Dollar Eurodollar Rate Advances, such Advances will automatically, on the last day of the then existing Interest Period therefor, Continue as U.S. Dollar Eurodollar Rate Advances with an Interest Period of one month. If a Borrower shall fail to select the duration of any Contract Period for any B/A Advances in accordance with the provisions contained in the definition of "CONTRACT PERIOD" in Section 1.01, the Administrative Agent will forthwith so notify such Borrower and the Lenders and such B/A Advances will be automatically Continued as B/A Advances with a Contract Period of one month. (g) On the date on which the aggregate unpaid principal amount of Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than Cdn.$5,000,000, such Advances shall, (i) if they are (x) Cdn. Dollar Eurodollar Rate Advances, automatically Continue as Prime Rate Advances and (y) U.S. Dollar Eurodollar Rate Advances, automatically Continue as Base Rate Advances, and on and after such date the right of the applicable Borrower to Continue such Advances as Eurodollar Rate Advances shall terminate; provided, however, that if and so long as each such Advance shall be, or be elected to be Continued as, Cdn. Dollar Eurodollar Rate Advances or U.S. Dollar Eurodollar Rate Advances, as applicable, having the same Interest Period as Eurodollar Rate Advances of the same Type comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Eurodollar Rate Advances of the same Type shall, or upon such Continuation will, equal or exceed, with respect to Cdn. Dollar Eurodollar Rate Advances, Cdn. $10,000,000 or, with respect to U.S. Dollar Eurodollar Rate Advances, U.S.$10,000,000, the applicable Borrower shall have the right to Continue all such Advances as Eurodollar Rate Advances of the same Type having such Interest Period, and (ii) if they are B/A Advances, automatically Continue as Prime Rate Advances, and on and after such date the right of the applicable Borrower to Continue such Advances as B/A Advances shall terminate; provided, however, that if and so long as each such Advance shall 40 be, or be elected to be Continued as, B/A Advances having the same Contract Period as B/A Advances comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such B/A Advances shall, or upon Continuation will, equal or exceed Cdn.$10,000,000, the applicable Borrower shall have the right to Continue all such B/A Advances as B/A Advances having such Contract Period. SECTION 2.09 VOLUNTARY CONTINUATION OF ADVANCES. Each Borrower may on any Business Day, upon notice given to the Administrative Agent, not later than the time specified in Section 2.02 for the making of an Advance of the same Type as that of the existing Advances being Continued if such Advance were being made on the date of the proposed Continuation, and subject to the provisions of Section 2.08, 2.12 and 2.14, Continue all Advances to such Borrower of one Type comprising the same Borrowing as Advances of another Type in the same currency; provided, however, that any Continuation of any Eurodollar Rate Advances as Prime Rate Advances or Base Rate Advances, as the case may be, made on any day other than the last day of an Interest Period for such Eurodollar Rate Advances shall be subject to the provisions of Section 9.04(b), and any Continuation of any B/A Advances as Prime Rate Advances made on any day other than the last day of the Contract Period for such B/A Advance shall be subject to the provisions of Section 2.11. Each such notice of a Continuation (a "NOTICE OF CONTINUATION") shall, within the restrictions specified above, specify in substantially the form attached hereto as Exhibit B (i) the date of such Continuation, (ii) the Advances to be Continued, (iii) if such Continuation is as Eurodollar Rate Advances, the Type of Eurodollar Rate Advance and the duration of the Interest Period for each such Eurodollar Rate Advance, and (iv) if such Continuation is as B/A Advances, the duration of the Contract Period for each such B/A Advance. SECTION 2.10 PREPAYMENTS. (a) The applicable Borrower may prepay the Revolving Advances or the Term Advances made to it, provided however that a Borrower may not prepay any Bankers' Acceptances or B/A Loans; provided, however, that a Borrower may defease any B/A or B/A Loan by depositing with the Administrative Agent an amount that, together with interest accruing thereon to the end of the 41 Contract Period or Interest Period (as applicable) therefor, is sufficient to pay such maturing Bankers' Acceptances or B/A Loans when due. A Borrower may, upon (i) in the case of Eurodollar Rate Advances, at least three Business Days notice or (ii) in the case of Prime Rate Advances or Base Rate Advances, telephonic notice not later than 8:00 a.m. (Calgary local time) on the date of prepayment followed as promptly as practicable by written notice, to the Administrative Agent which specifies the proposed date and aggregate principal amount of the prepayment and the Type of Advances to be prepaid, and if such notice is given such Borrower shall, prepay the outstanding principal amounts of the Advances comprising the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than Cdn.$5,000,000 or an integral multiple of Cdn.$1,000,000 in excess thereof in the case of Prime Rate Advances and Cdn. Dollar Eurodollar Rate Advances, and U.S.$5,000,000 or an integral multiple of U.S.$1,000,000 in excess thereof in the case of Base Rate Advances and U.S. Dollar Eurodollar Rate Advances, and (y) in the event of any such prepayment of Eurodollar Rate Advances on any day other than the last day of an Interest Period for such Eurodollar Rate Advances, the applicable Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to, and to the extent required by, Section 9.04(b); provided, further, however, that such Borrower will use its best efforts to give notice to the Administrative Agent of the proposed prepayment of Base Rate Advances on the Business Day prior to the date of such proposed prepayment. (b) If on any date, after giving effect to all Advances and all repayments and prepayments to occur on such date, and based on the Exchange Rate then in effect, the Administrative Agent determines that the aggregate Cdn. Dollar Equivalent of the outstanding Advances hereunder shall have exceeded for more than three consecutive Business Days an amount equal to 105% of the total Commitments of the Lenders under the Agreement, the Administrative Agent shall notify each Borrower of such occurrence and the Borrowers shall on the next succeeding Business Day prepay Advances in an aggregate amount sufficient to eliminate such excess. 42 SECTION 2.11 BANKERS' ACCEPTANCES. (a) Subject to the terms and conditions of this Agreement, each Borrower may request a Borrowing by presenting drafts for acceptance and, if applicable, purchase, as B/As by the Lenders. (b) No Contract Period with respect to a B/A to be accepted and, if applicable, purchased, as a Revolving Advance shall extend beyond the Revolving Commitment Termination Date and no Contract Period with respect to a B/A to be accepted and, if applicable, purchased, as a Term Advance shall extend beyond the Final Maturity Date. (c) To facilitate availment of B/A Advances, each Borrower hereby appoints each Lender as its attorney to sign and endorse on its behalf (in accordance with a Notice of Borrowing or Notice of Continuation relating to a B/A Advance), in handwriting or by facsimile or mechanical signature as and when deemed necessary by such Lender, blank forms of B/As in the form requested by such Lender. In this respect, it is each Lender's responsibility to maintain an adequate supply of blank forms of B/As for acceptance under this Agreement. Each Borrower recognizes and agrees that all B/As signed and/or endorsed by a Lender on behalf of such Borrower shall bind such Borrower as fully and effectually as if signed in the handwriting of and duly issued by the proper signing officers of such Borrower. Each Lender is hereby authorized (in accordance with a Notice of Borrowing or Notice of Continuation relating to a B/A Advance) to issue such B/As endorsed in blank in such face amounts as may be determined by such Lender; provided that the aggregate amount thereof is equal to the aggregate amount of B/As required to be accepted and purchased by such Lender. No Lender shall be liable for any damage, loss or other claim arising by reason of any loss or improper use of any such instrument except the gross negligence or wilful misconduct of the Lender or its officers, employees, agents or representatives. Each Lender shall maintain a record with respect to B/As (i) received by it in blank hereunder, (ii) voided by it for any reason, (iii) accepted and purchased by it hereunder, and (iv) canceled at their respective maturities. On request by or on behalf of either Borrower, a Lender shall cancel all forms of B/As which have been pre-signed or pre-endorsed on behalf of such Borrower and that are held by such Lender and are not required to be issued in accordance with such Borrower's irrevocable notice. 43 Alternatively, each Borrower agrees that, at the request of the Administrative Agent, such Borrower shall deliver to the Administrative Agent a "depository note" which complies with the requirements of the Depository Bills and Notes Act (Canada), and consents to the deposit of any such depository note in the book-based debt clearance system maintained by the Canadian Depository for Securities. (d) Drafts of a Borrower to be accepted as B/As hereunder shall be signed as set forth in this Section 2.11. Notwithstanding that any Person whose signature appears on any B/A may no longer be an authorized signatory for any Lender or a Borrower at the date of issuance of a B/A, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in force at the time of such issuance and any such B/A so signed shall be binding on the applicable Borrower. (e) Promptly following the receipt of a Notice of Borrowing or Notice of Continuation specifying a Borrowing or Continuation of a Borrowing by way of B/As, the Administrative Agent shall so advise the Lenders and shall advise each Lender of the aggregate face amount of the B/As to be accepted by it and the applicable Contract Period (which shall be identical for all Lenders). In the case of Advances comprised of B/A Advances, the aggregate face amount of the B/As to be accepted by a Lender shall be in a minimum aggregate amount of Cdn.$100,000 and shall be a whole multiple of Cdn.$100,000, and such face amount shall be in the Lenders' pro rata portions of such Borrowing, provided that the Administrative Agent may in its sole discretion increase or reduce any Lender's portion of such B/A Advance to the nearest Cdn.$100,000 without reducing the overall Commitments. (f) Each Borrower may specify in a Notice of Borrowing or Notice of Continuation that it desires that any B/As requested by such Notice of Borrowing or Notice of Continuation be purchased by the Lenders, in which case the Lenders shall, upon acceptance of a B/A by a Lender, purchase, or arrange for the purchase of, each B/A from such Borrower at the Discount Rate for such Lender applicable to such B/A accepted by it and provide to the Administrative Agent the Discount Proceeds for the account of such Borrower. The Acceptance Fee payable by each Borrower to a Lender under Section 2.06(iv) in 44 respect of each B/A accepted by such Lender shall be set off against the Discount Proceeds payable by such Lender under this Section 2.11. (g) Where a Borrower so specifies in its Notice of Borrowing or Notice of Continuation, it shall make its own arrangements for the marketing of B/As, in which case, by subsequent notice to the Administrative Agent, it shall provide the Administrative Agent, who shall in turn notify each Lender, with information as to the discount proceeds payable by the purchasers of the B/As and the party to whom delivery of the B/As by each Lender is to be made against delivery to each Lender of the applicable discount proceeds, but if it does not do so, such Borrower shall initiate a telephone call to the Administrative Agent by 9:00 a.m. (Calgary local time) on the date of advance, and provide such information to the Administrative Agent. Any such telephonic advice shall be confirmed by a written notice by the applicable Borrower to the Administrative Agent prior to 2:00 p.m. (Calgary local time) on the same day. (h) Each Lender may at any time and from time to time hold, sell, rediscount or otherwise dispose of any or all B/As accepted and purchased by it. (i) If a Lender is not a bank listed on Schedule I, II or III of the Bank Act (Canada) or if a Lender notifies the Administrative Agent in writing that it is otherwise unable to accept bankers' acceptances, such Lender shall give notice to such effect to the Administrative Agent prior to 10:00 a.m., (Calgary local time), on the date of the requested credit extension (which notice may, if so stated therein, remain in effect with respect to subsequent requests for extension of credit by way of Bankers' Acceptance until revoked by notice to the Administrative Agent) and shall make available to the Administrative Agent, in accordance with Section 2.01 hereof prior to 11:00 a.m. (Calgary local time), on the date of such requested credit extension, a Canadian Dollar Eurodollar Rate Advance (a "BA LOAN") in the principal amount equal to such Lender's Commitment Percentage of the total amount of credit requested to be extended by way of Bankers' Acceptances. Such BA Loan shall have an Interest Period equal to the Contract Period of the Bankers' Acceptances for which it is a substitute and shall bear interest throughout the Interest Period applicable to such BA Loan at a rate per annum equal to the Canadian Dollar Eurodollar Rate plus 45 the Eurodollar Rate Margin. Subject to repayment requirements, on the last day of the relevant Interest Period for such B/A Loan, the applicable Borrower shall be entitled to Continue each such B/A Loan as another Type of Advance, or to roll over each such B/A Loan into another B/A Loan, all in accordance with the applicable provisions of this Agreement. (j) With respect to each B/A Advance, at or before 9:00 a.m. (Calgary local time) two Business Days before the last day of the Contract Period of such B/As, the applicable Borrower shall notify the Administrative Agent by irrevocable telephone notice, followed by a notice of rollover in substantially the form set forth in Exhibit B hereto on the same day, if such Borrower intends to issue B/As on such last day of the Contract Period to provide for the payment of such maturing B/As. If the applicable Borrower fails to notify the Administrative Agent of its intention to issue B/As on such last day of the Contract Period, such Borrower shall provide payment to the Administrative Agent on behalf of the Lenders of an amount equal to the aggregate face amount of such B/As on the last day of the Contract Period of such B/As. If the applicable Borrower fails to make such payment, such maturing B/As shall be deemed to have been Continued on the last day of such Contract Period as a Prime Rate Advance in an amount equal to the face amount of such B/As. (k) Each Borrower waives presentment for payment and any other defense to payment of any amounts due to a Lender in respect of a B/A accepted and purchased by it pursuant to this Agreement which might exist solely by reason of such B/A being held, at the maturity thereof, by such Lender in its own right, and each Borrower agrees not to claim any days of grace if such Lender, as holder, sues such Borrower on the B/A for payment of the amount payable by the applicable Borrower thereunder. On the last day of the Contract Period of a B/A, or such earlier date as may be required or permitted pursuant to the provisions of this Agreement, the applicable Borrower shall pay the Lender that has accepted and purchased such B/A the full face amount of such B/A and, after such payment, the applicable Borrower shall have no further liability in respect of such B/A and such Lender shall be entitled to all benefits of, and be responsible for all payments due to third parties under, such B/A. 46 (l) Except as required by any Lender upon the occurrence of an Event of Default, no B/A Advance may be repaid by a Borrower prior to the expiry date of the Contract Period applicable to such B/A Advance. SECTION 2.12 INCREASED COSTS. (a) If, due to either (i) the introduction after the Effective Date of, or any change after the Effective Date (including any change by way of imposition or increase of reserve requirements or assessments) in or in the interpretation of, any law or regulation or (ii) the compliance with any guideline or request issued or made after the Effective Date from or by any governmental authority (whether or not having the force of law), (the occurrence of any of the foregoing events being herein referred to as a "change in law") in each case above other than with respect to matters covered by Section 2.13 or 2.16, there shall be any increase in the cost to any Lender of agreeing to make, fund or maintain, or of making, funding or maintaining Eurodollar Rate Advances funded in the interbank Eurodollar market, then the applicable Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to reimburse such Lender for all such increased costs (except those incurred more than 60 days prior to the date of such demand; for the purposes hereof any cost or expense allocable to a period prior to the publication or effective date of such an introduction, change, guideline or request shall be deemed to be incurred on the later of such publication or effective date). Each Lender agrees to use its best reasonable efforts promptly to notify the Borrowers of any event referred to in clause (i) or (ii) above, provided that the failure to give such notice shall not affect the rights of any Lender under this Section 2.12(a) (except as otherwise expressly provided above in this Section 2.12(a)). A certificate as to the amount of such increased cost, submitted to the Borrowers and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. After one or more Lenders have notified the Borrowers of any increased costs pursuant to this Section 2.12, the Borrowers may specify by notice to the Administrative Agent and the affected Lenders that, after the date of such notice whenever the election of a Eurodollar Rate Advance by a Borrower for an Interest Period or portion 47 thereof would give rise to such increased costs, such election shall not apply to the Advances of such Lender or Lenders during such Interest Period or portion thereof, and such Advances shall during such Interest Period or portion thereof be (x) Prime Rate Advances in lieu of Cdn. Dollar Eurodollar Rate Advances and (y) Base Rate Advances in lieu of U.S. Dollar Eurodollar Rate Advances. Each Lender agrees to use its best reasonable efforts (including a reasonable effort to change its Applicable Lending Office or to transfer its affected Advances to an Affiliate of such Lender) to avoid, or minimize the amount of, any demand for payment from the Borrowers under this Section 2.12, provided that such avoidance would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (b) In the event that any Lender shall have determined (which determination shall be reasonably exercised and shall, absent manifest error, be final, conclusive and binding upon all parties) at any time that the making of or continuance of any Advance denominated in a currency other than Cdn. Dollars has become unlawful as a result of compliance by such Lender in good faith with any applicable law, or by any applicable guideline or order (whether or not having the force of law), or impossible as a result of the market unavailability of such currency, then, in any such event, such Lender shall give prompt notice (by telephone and confirmed in writing) to the Borrowers and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to the other Lenders). Upon the giving of the notice to the Borrowers and the Administrative Agent, each Borrower's right to request (by Continuation or otherwise), and such Lender's obligation to make, Advances denominated in a currency other than Cdn. Dollars shall be immediately suspended, and thereafter, any requested Borrowings of Advances denominated in a currency other than Cdn. Dollars shall, as to such Lender only, be deemed to be a request for a Prime Rate Advance, and if the affected Advance or Advances are still outstanding, the applicable Borrower shall immediately, or if permitted by applicable law, no later than the latest date permitted thereby, upon at least one Business Days' prior written notice to the Administrative Agent and the affected Lender, Continue each such Advance denominated in a currency other than Cdn. Dollars as a Prime Rate Advance, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to 48 this Section 2.12(b). SECTION 2.13 INCREASED CAPITAL. If either (i) the introduction of, or any change in or in the interpretation of, any law or regulation or (ii) compliance by any Lender with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender (including any determination after the Effective Date by any such central bank, governmental authority or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less) and such Lender determines that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, within ten days after demand, and delivery to the Borrowers of the certificate referred to in the last sentence of this Section 2.13 by such Lender (with a copy of such demand to the Administrative Agent), the applicable Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder (except any such increase in capital incurred more than, or compensation attributable to the period before, 90 days prior to the date of such demand; for the purposes hereof any increase in capital allocable to, or compensation attributable to, a period prior to the publication or effective date of such an introduction, change, guideline or request shall be deemed to be incurred on the later of such publication or effective date). Each Lender agrees to use its best reasonable efforts promptly to notify the Borrowers of any event referred to in clause (i) or (ii) above, provided that the failure to give such notice shall not affect the rights of any Lender under this Section 2.13 (except as otherwise expressly provided above in this Section 2.13). A certificate in reasonable detail as to the basis for, and the amount of, such compensation submitted to the Borrowers and the Administrative Agent by such Lender shall, in the absence of manifest error, be conclusive and binding for all purposes. 49 SECTION 2.14 ILLEGALITY. Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Applicable Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances of a particular Type or to continue to fund or maintain such Advances hereunder, such Lender may, by notice to the Borrowers and the Administrative Agent, suspend the right of the Borrowers to elect Eurodollar Rate Advances of such Type from such Lender and, if necessary in the reasonable opinion of such Lender to comply with such law or regulation, Continue all such Eurodollar Rate Advances of such Lender as Prime Rate Advances or Base Rate Advances, as applicable, at the latest time permitted by the applicable law or regulation, and such suspension and, if applicable, such Continuation shall continue until such Lender notifies the Borrowers and the Administrative Agent that the circumstances making it unlawful for such Lender to perform such obligations no longer exist (which such Lender shall promptly do when such circumstances no longer exist). So long as the obligation of any Lender to make Eurodollar Rate Advances of such Type has been suspended under this Section 2.14, all Notices of Borrowing specifying Advances of such Type shall be deemed, as to such Lender, to be requests for Prime Rate Advances or Base Rate Advances, as applicable. Each Lender agrees to use its best reasonable efforts (including a reasonable effort to change its Applicable Lending Office or to transfer its affected Advances to an Affiliate) to avoid any such illegality, provided that such avoidance would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. SECTION 2.15 PAYMENTS AND COMPUTATIONS. (a) Each Borrower shall make each payment hereunder (including under Section 2.03, 2.05, or 2.06) and under the Notes, whether the amount so paid is owing to any or all of the Lenders or to the Administrative Agent, not later than 2:00 p.m. (Calgary local time) without set-off, counterclaim, or any other deduction whatsoever, on the day when due in (i) Cdn. Dollars, in the case of all fees required to be paid under Section 2.03, and all amounts payable (whether principal or interest) in respect of Prime Rate Advances and Cdn. Dollar Eurodollar Rate Advances and all amounts payable 50 (including the Acceptance Fee) in respect of B/A Advances, and (ii) in U.S. Dollars, in the case of amounts payable (whether principal or interest) in respect of Base Rate Advances and U.S. Dollar Eurodollar Rate Advances, to the Administrative Agent in care of its Payment Office, or at such other location designated by notice to the Borrowers from the Administrative Agent and agreed to by the Borrowers, in same day funds. Each such payment made by a Borrower for the account of any Lender hereunder, when so made to the Administrative Agent, shall be deemed duly made for all purposes of this Agreement and the Notes, except that if at any time any such payment is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the bankruptcy, insolvency or reorganization of such Borrower or otherwise, such payment shall be deemed not to have been so made. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.12, 2.13, 2.14, 2.16, 9.04(b) or 9.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the Prime Rate and under clause (i) of the definition of "Base Rate" and all computations of Acceptance Fees (in the case of Bankers' Acceptances) and facility fees and utilization fees (or amounts in lieu thereof) shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Effective Federal Funds Rate shall be made by the Administrative Agent, on the basis of a year of 360 days, in each case for the actual number of days (including the 51 first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.12, 2.13, 2.14, 2.16, 9.04(b) or 9.04(c), by each Lender with respect to its own Advances) of an interest rate or an increased cost, loss or expense or increased capital or of illegality or taxes hereunder shall be conclusive and binding for all purposes if made reasonably and in good faith. (c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fees, as the case may be; provided, however, that except with respect to the Final Maturity Date, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due to the Lenders hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at a rate equal to the Prime Rate for such day. 52 SECTION 2.16 TAXES. (a) Any and all payments by each Borrower or the Parent hereunder or under the Notes shall be made in accordance with Section 2.15, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter "CANADIAN TAXES"), unless either Borrower is required to withhold or deduct Canadian Taxes by law or by the interpretation or administration thereof. If either Borrower is so required to withhold or deduct any amount for or on account of Canadian Taxes from any payment made under or with respect to this Agreement or the Notes, such Borrower will pay to each Indemnified Party as additional interest such additional amounts as may be necessary so that the net amount received by each Indemnified Party after such withholding or deduction (and after deducting any Canadian Taxes on such additional amounts) will not be less than the amount the Indemnified Party would have received if such Canadian Taxes had not been withheld or deducted. No additional amounts will be payable with respect to a payment made to an Indemnified Party under this Section 2.16(a) where such Indemnified Party (i) is subject to Canadian Taxes by reason of the Indemnified Party being a resident, domicile or national of, or engaging in business or maintaining a permanent establishment or other physical presence in or otherwise having some connection with Canada or any province or territory thereof otherwise than by the mere making or holding of the Notes or by the receipt of payments thereunder, or (ii) is subject to Canadian Taxes by reason of its failure to comply with Section 2.16(g), provided, that should an Indemnified Party become subject to Canadian Taxes because of its failure to deliver a form required hereunder, the applicable Borrower or the Parent shall take such administrative steps as such Indemnified Party shall reasonably request to assist such Indemnified Party to recover such Canadian Taxes, and provided further, that each Indemnified Party, with respect to itself, agrees to indemnify and hold harmless the Borrowers and the Parent from any Canadian Taxes, penalties, interest and other expenses, costs and losses incurred or payable by either Borrower or the Parent as a result of the 53 failure of the Borrowers or the Parent to comply with its obligations under this Section 2.16(a) in reliance on any form or certificate provided to it by such Indemnified Party pursuant to this Section 2.16. Each Borrower will also make such withholdings or deductions and remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. (b) Any and all payments by the Parent (or by either Borrower to the extent either Borrower causes a payment to be made from any jurisdiction other than Canada) hereunder or under the Notes shall be made in accordance with Section 2.15, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed or levied by or on behalf of any jurisdiction outside Canada, excluding in the case of each Indemnified Party all taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, imposed on or determined by reference to its income or profits, and all franchise taxes and all other taxes, levies, imposts, deductions, charges or withholdings in effect at the time that such Indemnified Party executed this Agreement or otherwise became an "Indemnified Party" hereunder, and liabilities with respect thereto, imposed on it by reason of the jurisdiction in which such Indemnified Party is organized, domiciled, resident or doing business, or any political subdivision thereof, or by reason of the jurisdiction of its Applicable Lending Office or any other office from which it makes or maintains any extension of credit hereunder or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments under this Agreement or under the Notes being herein referred to as "NON-CANADIAN TAXES" and, together with Canadian Taxes, "TAXES"). If the Parent (or either Borrower, as applicable) shall be required by law to deduct any Non-Canadian Taxes from or in respect of any sum payable by it hereunder or under any Note to any Indemnified Party, (i) the sum payable by it shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Indemnified Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Parent (in the case of payments by it) (or applicable Borrower (in the case of payments by it) or the 54 Administrative Agent, as applicable) shall make such deductions at the applicable statutory rate and (iii) the Parent (in the case of payments by it) (or the applicable Borrower (in the case of payments by it) or the Administrative Agent, as applicable) shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, provided that the Parent shall not be required to pay any additional amount (and shall be relieved of any liability with respect thereto) pursuant to this subsection (b) (or pursuant to Section 2.16(e), except to the extent Section 2.16(e) relates to Other Taxes) to any Indemnified Party that has failed to submit any form or certificate that it was required to file or provide pursuant to Section 2.16(f) and is entitled to file or give, as applicable, under applicable law, provided, further, that should an Indemnified Party become subject to Non-Canadian Taxes because of its failure to deliver a form required hereunder, the Parent shall take such administrative steps as such Indemnified Party shall reasonably request to assist such Indemnified Party to recover such Non-Canadian Taxes, and provided further, that each Indemnified Party, with respect to itself, agrees to indemnify and hold harmless the Parent from any taxes, penalties, interest and other expenses, costs and losses incurred or payable by the Parent as a result of the failure of the Parent to comply with its obligations under clauses (ii) or (iii) above in reliance on any form or certificate provided to it by such Indemnified Party pursuant to this Section 2.16. (c) If any Indemnified Party receives a net credit or refund in respect of Taxes or amounts paid pursuant to this Section 2.16 by either Borrower or the Parent, it shall promptly notify such Borrower or the Parent of such net credit or refund and shall promptly pay such net credit or refund to the applicable Borrower or the Parent, provided that the applicable Borrower or the Parent, as applicable, agree to return such net credit or refund if the Indemnified Party to which such net credit or refund is applicable is required to repay it. (d) In addition, the Parent and the applicable Borrower agree to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, 55 delivery or registration of, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "OTHER TAXES"). (e) The applicable Borrower or the Parent will indemnify each Indemnified Party for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16 but excluding Canadian Taxes to the extent that such Indemnified Party is described in either Section 2.16(a)(i) or (ii) hereof) paid by such Indemnified Party and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto except as a result of the gross negligence (which shall in any event include the failure of such Indemnified Party to provide any form or certificate that it was required to provide either to the Borrowers pursuant to subsection (g) below or to the Parent pursuant to either subsection (f) or (g) below) or willful misconduct of such Indemnified Party, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Indemnified Party makes written demand therefor. (f) On or prior to the date on which each Indemnified Party that is not a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) executes this Agreement or otherwise becomes an "Indemnified Party" hereunder, such Indemnified Party shall provide the Parent and the Administrative Agent with U.S. Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the U.S. Internal Revenue Service, certifying, if it is entitled to so certify, that such Indemnified Party is fully exempt from United States withholding taxes with respect to all payments to be made to such Indemnified Party hereunder, or other documents satisfactory to the Parent indicating that all payments to be made to such Indemnified Party hereunder are fully exempt from such taxes, if such is the case. Thereafter and from time to time, each such Indemnified Party shall submit to the Parent and the Administrative Agent such additional duly completed and signed copies of one or the other of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) notified by the Parent to such Indemnified Party and (ii) required under then-current United States law or regulations to avoid 56 United States withholding taxes on payments in respect of all amounts to be received by such Indemnified Party hereunder or under the Notes, including fees, if the particular Indemnified Party is eligible for such exemption. Upon the request of the Parent from time to time, each Indemnified Party that is a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) shall submit to the Parent a certificate to the effect that it is such a United States person. If any Indemnified Party determines that it is not fully exempt from United States withholding taxes with respect to all payments to be received hereunder and is therefore unable to submit to the Parent any form or certificate that such Indemnified Party would otherwise be obligated to submit pursuant to this subsection (f), or that such Indemnified Party is required to withdraw or cancel any such form or certificate previously submitted because it is no longer entitled to such an exemption, such Indemnified Party shall promptly notify the Parent and the Administrative Agent of such fact. (g) In the event that, as a result of a Change in Law, Canada or any political subdivision thereof introduces certification, identification, information, documentation or other reporting requirements which require compliance by an Indemnified Party as a pre-condition to an exemption from withholding on Canadian Taxes for any payment made from Canada by the Borrowers or the Parent, hereunder or under the Notes (the "CANADIAN CERTIFICATION REQUIREMENTS"), then such Indemnified Party shall provide the Parent, the Borrowers and the Administrative Agent with any applicable forms, certificates or other documentation, as appropriate and as prescribed by the appropriate Canadian governmental authority, certifying, if it is entitled to so certify, that such Indemnified Party is so exempt from Canadian withholding taxes with respect to payments to be made to such Indemnified Party, if such is the case. Thereafter and from time to time, each such Indemnified Party shall submit to the Parent, the Borrowers and the Administrative Agent such additional duly completed and signed copies of one or the other of such forms, certificates or other documentation as may be notified by the Parent or by the Borrowers to such Indemnified Party and required under then-current Canadian law or regulations (or the law or regulations of any political subdivision of Canada, if applicable) to avoid Canadian withholding taxes on payments in respect of all amounts to be received by such Indemnified Party pursuant to this 57 Agreement or the Notes, including fees, if the particular Indemnified Party is eligible for such exemption. If any Indemnified Party determines that it is not exempt from Canadian withholding taxes with respect to all payments to be received hereunder and is therefore unable to submit to the Parent, the Borrowers or the Administrative Agent any form, certificate or other documentation that such Indemnified Party would otherwise be obligated to submit pursuant to this subsection (g), or that such Indemnified Party is required to withdraw or cancel any such form, certificate or documentation previously submitted because it is no longer entitled to such an exemption, then such Indemnified Party shall promptly notify the Parent, the Borrowers and the Administrative Agent of such fact. The Borrowers and the Parent acknowledge that no such Canadian Certification Requirements currently exist under Canadian law. The obligations of each Indemnified Party under this Section 2.16(g) shall not be effective with respect to such Indemnified Party unless and until either the Parent, the Borrowers or the Administrative Agent provides written notice to such Indemnified Party of any such Canadian Certification Requirements and extends to such Indemnified Party a reasonable amount of time, not to exceed 30 days, to comply with any such requirements. (h) Any Indemnified Party claiming any additional amounts payable pursuant to this Section 2.16 shall use its best reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Indemnified Party, be otherwise disadvantageous to such Indemnified Party. (i) Without prejudice to the survival of any other agreement of the Borrowers and the Parent hereunder, the agreements and obligations of the Borrowers, the Parent and each Indemnified Party contained in this Section 2.16 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.17 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of 58 set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.12, 2.13, 2.14, 2.16, 9.04(b) or 9.04(c)) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender's ratable share (according to the proportion of (i) the amount of the participation purchased from such Lender as a result of such excess payment to (ii) the total amount of such excess payment) of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (A) the amount of such Lender's required repayment to (B) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. SECTION 2.18 EVIDENCE OF DEBT. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of each Borrower to such Lender resulting from each Advance made by such Lender hereunder, including the amounts of principal and interest payable and paid to such lender from time to time hereunder. (b) The Administrative Agent shall maintain accounts and records in which it shall record (i) the amount of each Advance made hereunder, the type of Advance and, in the cases of B/A Advances and Eurodollar Rate Advances, the relevant Contract Period or Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder, 59 and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (c) The entries made in the accounts maintained pursuant to Sections 2.18(a) and (b) shall be conclusive evidence (absent manifest error) of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the applicable Borrower to repay the Advances made to it in accordance with the terms of this Agreement. In the event of a conflict between the records maintained by the Administrative Agent and any Lender, the records maintained by the Lender shall govern. Any Lender may request that Loans (other than B/As) made by it be evidenced by a Note. In such event, each Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and substantially in the form attached as Exhibit A hereto. Thereafter, the Loans evidenced by each such Note and interest thereon shall at all times (including after assignment pursuant to Section 9.07) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if such Note is a registered Note, to such payee and its registered assigns). SECTION 2.19 USE OF PROCEEDS. Proceeds of the Advances may be used for general corporate purposes of the Borrowers and their Subsidiaries and of Parent and any of its other Subsidiaries, including for acquisitions and for payment of commercial paper issued by either Borrower or any such other Person. SECTION 2.20 INCREASE OF COMMITMENTS. (a) At any time after the Effective Date, provided that no Event of Default shall have occurred and be continuing, the Borrowers may request an increase of the aggregate Commitments by notice to the Administrative Agent in writing of the amount (the "OFFERED INCREASE AMOUNT") of such proposed increase (such notice, a "COMMITMENT INCREASE NOTICE"). Any such Commitment Increase Notice must offer each Lender the opportunity to subscribe for its pro rata share of the increased Commitments. If any portion of the increased Commitments is not subscribed for by the Lenders, the Borrowers may, in their sole 60 discretion, but with the consent of the Administrative Agent as to any Person that is not at such time a Lender (which consent shall not be unreasonably withheld), offer to any existing Lender or to one or more additional banks or financial institutions the opportunity to participate in all or a portion of such unsubscribed portion of the increased Commitments pursuant to paragraph (b) or (c) below, as applicable. (b) Any additional bank or financial institution that the Borrowers select to offer participation in the increased Commitments, and that elects to become a party to this Agreement and obtain a Commitment, shall execute a New Lender Agreement with the Borrowers and the Administrative Agent, substantially in the form of Exhibit E (a "NEW LENDER AGREEMENT"), whereupon such bank or financial institution (a "NEW LENDER") shall become a Lender for all purposes and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages and Schedule III hereof shall be deemed to be amended to add the name and Commitment of such New Lender, provided that the Commitment of any such New Lender shall be in an amount not less than Cdn.$5,000,000. (c) Any Lender that accepts an offer to it by the Borrowers to increase its Commitment pursuant to this Section 2.20 shall, in each case, execute a Commitment Increase Agreement with the Borrowers and the Administrative Agent, substantially in the form of Exhibit F (a "COMMITMENT INCREASE AGREEMENT"), whereupon such Lender shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and Schedule III hereof shall be deemed to be amended to so increase the Commitment of such Lender. (d) The effectiveness of any New Lender Agreement or Commitment Increase Agreement shall be contingent upon receipt by the Administrative Agent of such corporate resolutions of the Borrowers and legal opinions of counsel to the Borrowers as the Administrative Agent shall reasonably request with respect thereto, in each case, in form and substance satisfactory to the Administrative Agent. (e) If any bank or financial institution 61 becomes a New Lender pursuant to Section 2.20(b) or any Lender's Commitment is increased pursuant to Section 2.20(c), additional Advances made on or after the effectiveness thereof (the "RE-ALLOCATION DATE") shall be made pro rata based on the Commitment Percentages in effect on and after such Re-Allocation Date (except to the extent that any such pro rata borrowings would result in any Lender making an aggregate principal amount of Advances in excess of its Commitment, in which case such excess amount will be allocated to, and made by, such New Lender and/or Lenders with such increased Commitments to the extent of, and pro rata based on, their respective Commitments), and continuations of Eurodollar Rate Advances outstanding on such Re-Allocation Date shall be effected by repayment of such Eurodollar Rate Advances on the last day of the Interest Period applicable thereto and the making of new Eurodollar Rate Advances pro rata based on such new Commitment Percentages. In the event that on any such Re-Allocation Date there is an unpaid principal amount of Prime Rate Advances or Base Rate Advances, the existing Lenders shall be deemed to have made partial assignments thereof to the New Lenders and/or Lenders with such increased Commitments in such amounts that, after giving effect thereto, the Prime Rate Advances and Base Rate Advances outstanding are held pro rata based on such new Commitment Percentages. In the event that on any such Re-Allocation Date there is an unpaid principal amount of Eurodollar Rate Advances, such Eurodollar Rate Advances shall remain outstanding with the respective holders thereof until the expiration of their respective Interest Periods (unless the applicable Borrower elects to prepay any thereof in accordance with the applicable provisions of this Agreement), and interest on and repayments of such Eurodollar Rate Advances will be paid thereon to the respective Lenders holding such Eurodollar Rate Advances pro rata based on the respective principal amounts thereof outstanding. In the event that on any such Re-Allocation Date there is an unpaid principal amount of B/A Advances, such B/A Advances shall remain outstanding with the respective holders thereof until the expiration of their respective Contract Periods, and repayments of such B/A Advances will be paid thereon to the respective Lenders holding such B/As based on the respective face amounts thereof. (f) Notwithstanding anything to the contrary in this Section 2.20, (i) no increase pursuant to this Section 2.20 shall be effective without the consent of 62 the Required Lenders, (ii) no Lender shall have any obligation to increase its Commitment unless it agrees to do so in its sole discretion and (iii) the aggregate amount by which the Commitments hereunder are increased pursuant to this Section 2.20 shall not exceed Cdn. [$141,426,000]. (g) Each Borrower shall execute and deliver a Note to each new bank or other financial institution becoming a Lender that requests one. SECTION 2.21 EXTENSION OF REVOLVING COMMITMENT TERMINATION DATE. (a) Not earlier than 65 days prior to and not later than 45 days prior to the Revolving Commitment Termination Date then in effect, provided that no Event of Default shall have occurred and be continuing, the Borrowers may request an extension of such Revolving Commitment Termination Date by submitting to the Administrative Agent an Extension Request containing the information in respect of such extension specified in Exhibit G, which the Administrative Agent shall promptly furnish to each Lender. Each Lender shall, by the later of (i) the date 30 days after its receipt from the Administrative Agent of the applicable Extension Request and (ii) the date 30 days prior to the Revolving Commitment Termination Date, notify the Borrowers and the Administrative Agent of its consent to extend or its refusal to extend the Revolving Commitment Termination Date as requested in such Extension Request. Any such Extension Request shall be approved if the Required Lenders shall approve in writing the extension of the Revolving Commitment Termination Date requested in such Extension Request. The Borrowers may request no more than ten extensions pursuant to this Section 2.21, so that the Revolving Commitment Termination Date shall not in any event extend beyond the tenth anniversary of the initial Revolving Commitment Termination Date hereunder. The Administrative Agent shall promptly notify the Lenders and the Borrowers of any extension of the Revolving Commitment Termination Date pursuant to this Section 2.21 and shall promptly notify the Borrowers of any Lender that has notified the Administrative Agent of its consent to extend or its refusal to extend the Revolving Commitment Termination Date. (b) If any such Extension Request is approved but there are one or more Lenders that do not consent to the Extension Request in writing within the period specified in paragraph (a) above (an "Objecting Lender"), 63 the Borrowers shall be entitled to choose any of the following options prior to the Revolving Commitment Termination Date, provided that if the Borrowers do not make an election prior to such date, the Borrowers shall be deemed to have irrevocably elected to exercise the option in clause (iii)(y) below: (i) the Borrowers may elect to cause the Commitments and Advances of any Objecting Lender to be transferred or assigned pursuant to Section 2.21(c); and/or (ii) the Borrowers may elect to voluntarily prepay the Advances, if any, of Objecting Lenders together with accrued interest thereon, any amounts payable pursuant to Sections 2.06, 2.12, 2.13, 2.16 and 9.04(b) and any accrued and unpaid facility fee or utilization fee or other amounts payable with respect to such Objecting Lenders, and the Commitments of such Objecting Lenders shall be terminated; or (iii) the Borrowers may elect to revoke and cancel the Extension Request by giving notice of such revocation and cancellation to the Administrative Agent (which shall promptly notify the Lenders thereof) and concurrently therewith shall have the option to (x) voluntarily prepay the Advances, if any, of all Lenders, together with accrued interest thereon, any amounts payable pursuant to Sections 2.06, 2.12, 2.13, 2.16 and 9.04(b) and any accrued and unpaid facility fee or utilization fee or other amounts payable with respect to the Lenders, and the Commitments of all Lenders shall be terminated or (y) have the outstanding Advances continue as term loans repayable in accordance with paragraphs (a), (b), (c) and (d) of Section 2.05 of this Agreement. (c) If any Lender becomes an Objecting Lender, the Borrowers may, at their own expense and in their sole discretion and prior to the then Revolving Commitment Termination Date, require such Lender to transfer or assign, without recourse (in accordance with Section 8.07), all of its interests, rights and obligations under this Agreement and, if the Borrowers shall so determine in their sole discretion, all or part of its interest, rights and obligations under the U.S. Long-Term Revolving Credit Agreement and/or the U.S. Short-Term Revolving Credit Agreement, as the case may 64 be) to an Eligible Assignee (provided that the Borrowers, with the full cooperation of such Lender, can identify an Eligible Assignee that is ready, willing and able to be an assignee with respect thereto) which shall assume such assigned obligations (which assignee may be another Lender, if such assignee Lender accepts such assignment); provided that (A) the assignee or the applicable Borrower, as the case may be, shall have paid to such Lender in immediately available funds the principal of and interest accrued to the date of such payment on the Advances made by it hereunder and the "Advances" made by it under, and as defined in, the U.S. Long-Term Revolving Credit Agreement or the U.S. Short-Term Revolving Credit Agreement, as the case may be, and all other amounts owed to it hereunder and thereunder, including any amounts owing pursuant to Section 9.04(b) (or the comparable provision of the U.S. Long-Term Revolving Credit Agreement or the U.S. Short-Term Revolving Credit Agreement, as the case may be) and any amounts that would be owing under such Section (or comparable provision) if such Advances and "Advances" (as so defined) were prepaid on the date of such assignment, and (B) such assignment does not conflict with any law, rule or regulation or order of any governmental authority. Any assignee that becomes a Lender as a result of such an assignment made pursuant to this paragraph (b) shall be deemed to have consented to the applicable Extension Request and, therefore, shall not be an Objecting Lender. SECTION 2.22 REPLACEMENT OF LENDERS. If any Lender requests compensation under Sections 2.11 or 2.13 or if either Borrower is required to pay any additional amount to any Lender or any taxing authority or other authority for the account of any Lender pursuant to Section 2.16, or if any Lender suspends the right of the Borrowers to elect Eurodollar Rate Advances from such Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Advances hereunder, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.07), all its interests, rights and obligations under this Agreement and, if the Borrowers shall so determine in their sole discretion, the U.S. Long-Term Revolving Credit Agreement and/or the U.S. Short-Term Revolving Credit Agreement, as the Borrowers may determine in their sole discretion and specify by notice to such Lender, (other than "B Advances" under, 65 and as defined in, the U.S. Long-Term Revolving Credit Agreement and/or the U.S. Short-Term Revolving Credit Agreement, as the case may be) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Advances hereunder and, if the Borrowers shall have so determined as specified above, its "Advances" (other than "B Advances") (each under and as defined in the U.S. Long-Term Revolving Credit Agreement and/or the U.S. Short-Term Revolving Credit Agreement, as the case may be), and all accrued interest thereon, accrued fees, accrued costs in connection with compensation under Sections 2.12 or 2.13 or payments required to be made pursuant to Section 2.16, if any, and all other amounts (other than "B Advances") payable to it hereunder and, if the Borrowers shall have so determined as specified above, under the U.S. Long-Term Revolving Credit Agreement and/or the U.S. Short-Term Revolving Credit Agreement, as the case may be, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the applicable Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Sections 2.12 or 2.13 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply. SECTION 2.23 CURRENCY INDEMNITY. If, for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any other Financing Document, it becomes necessary to convert into the currency of such jurisdiction (the "JUDGMENT CURRENCY") any amount due under this Agreement or under any other Financing Document in any currency other than the Judgment Currency (the "CURRENCY DUE"), then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which the judgment is given. For this purpose, "rate of exchange" means the rate at which the Administrative 66 Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in accordance with its normal practice at its head office in Toronto, Ontario. In the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of receipt by the Administrative Agent of the amount due, the applicable Borrower will, on the date of receipt by the Administrative Agent, pay such additional amounts, if any, or be entitled to obtain reimbursement of such amount, if any, as may be necessary to ensure that the amount received by the Administrative Agent on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of receipt by the Administrative Agent is the amount then due under this Agreement or under such other Financing Document in the Currency Due. If the amount of the Currency Due which the Administrative Agent is so able to purchase is less than the amount of the Currency Due originally due to it, the applicable Borrower shall indemnify and save the Administrative Agent and the Lenders harmless from and against all loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in this Agreement and the other Financing Documents, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Administrative Agent from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due under this Agreement or any other Financing Document or under any judgment or order. SECTION 2.24 EXCHANGE RATE CALCULATIONS. (a) Not later than 12:00 noon, Calgary local time, on each Calculation Date, the Administrative Agent shall (i) determine the Exchange Rate as of such Calculation Date and (ii) give notice thereof to the Borrowers and to each Lender that shall have requested such information. The Exchange Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (each, a "RESET DATE") and shall remain effective until the next succeeding Reset Date. (b) Not later than 12:00 noon, Calgary local time, on each Reset Date, the Administrative Agent shall (i) determine the Cdn.$ Equivalent of the Advances 67 outstanding on such date, or to be outstanding after giving effect to any Borrowing to occur on such date, and (ii) notify the Borrowers and each Lender that shall have requested such information of the aggregate outstanding Advances, based on information provided by each Borrower after giving effect to all Advances and all repayments and prepayments to occur on such date. ARTICLE 3 CONDITIONS OF EFFECTIVENESS AND LENDING SECTION 3.01 CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become effective when (i) it shall have been executed by the Borrowers, Parent and the Administrative Agent, (ii) the Administrative Agent and the Borrowers either shall have been notified by each Initial Lender that such Initial Lender has executed it or shall have received a counterpart of this Agreement executed by such Initial Lender, and (iii) the Administrative Agent shall have received the following, each dated the date of delivery thereof unless otherwise specified below (which date shall be selected by the Borrowers and be the same for all documents and all Lenders), in form and substance satisfactory to the Administrative Agent and (except for the Notes, if any) in sufficient copies for each Lender: (a) the Notes, to the order of the Lenders requesting Notes, respectively; (b) certified copies of the resolutions of the directors of the Borrowers and the Board of Directors of Parent, approving (as appropriate) the Borrowings contemplated hereby and authorizing the execution of this Agreement and the other Financing Documents, including the Notes, if any, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and any other Financing Documents; (c) a certificate of the Secretary or an Assistant Secretary of the Borrowers and Parent (i) certifying names and true signatures of officers of such Person authorized to sign this Agreement, the Notes, if any, and any other Financing Documents to which it is a party and (ii) if the Effective Date is other than the date of this amendment and restatement, certifying that the 68 representations and warranties contained in Section 4.01 are true and correct as of the Effective Date; (d) Evidence of the effectiveness of the amendment and restatement of the U.S. Short-Term Revolving Credit Agreement; (e) A favorable opinion of Parent's Vice President and General Counsel in substantially the form of Exhibit H-1 hereto; (f) A favorable opinion of Joanne Alexander, counsel for BRCL and Canadian Hunter, in substantially the form of Exhibit H-2 hereto; (g) A favorable opinion of Bennett Jones LLP, Alberta counsel to the Borrowers, in substantially the form of Exhibit I hereto; and (h) The Administrative Agent, the Lenders and the Arranger shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all legal fees and other out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder. The Borrowers and the Initial Lenders agree that upon the Effective Date the "Commitments" of the Initial Lenders shall be as set forth on Schedule III hereof under the caption "Commitments". SECTION 3.02 CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of each Lender to make an Advance (including the initial Advance) on the occasion of any Borrowing shall be subject to the further conditions precedent that on or before the date of such Borrowing this Agreement shall have become effective pursuant to Section 3.01 and that on the date of such Borrowing, before and immediately after giving effect to such Borrowing and to the application of the proceeds therefrom, the following statements shall be true and correct, and the giving by the applicable Borrower of the applicable Notice of Borrowing and the acceptance by such Borrower of the proceeds of such Borrowing shall constitute its representation and warranty that on and as of the date of such Borrowing, before and immediately after giving effect thereto and to the application of the proceeds therefrom, the following statements are true and 69 correct: (a) each representation and warranty contained in Section 4.01 is correct in all material respects as though made on and as of such date (or, if such representation and warranty is stated to be made as at a specific date or for a specific period, as at the original specified date or with respect to the original specified period); (b) no event has occurred and is continuing, or would result from such Borrowing, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (c) the aggregate amount of the borrowings under this Agreement (including such Borrowing) and under other agreements or facilities or evidenced by other instruments or documents is not in excess of the aggregate amount of such borrowings approved as of such date (to the extent any such limit on aggregate borrowings exists from time to time) by the Boards of Directors of Parent and of each Borrower. ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each of the Borrowers and Parent represents and warrants as follows: (a) Each Borrower is a Business Entity duly formed, validly existing and in good standing under the laws of the Province of Alberta. The Parent is a Business Entity duly formed, validly existing and in good standing under the laws of the State of Delaware. Each Material Subsidiary is duly organized, validly existing and in good standing in the jurisdiction of its formation. Parent and each Material Subsidiary possess all applicable Business Entity powers and all other authorizations and licenses necessary to engage in its business and operations as now conducted, the failure to obtain or maintain which would have a Material Adverse Effect. Each Subsidiary of Parent that is, on and as of the Effective Date, a Material Subsidiary is listed on Schedule I hereto. 70 (b) The Transactions are within the Business Entity powers of the Borrowers and Parent (as applicable), have been duly authorized by all necessary applicable Business Entity action, and do not contravene (i) the organizational documents (as applicable) of the Borrowers or the Parent (as applicable) or (ii) law or any contractual restriction binding on or affecting the Borrowers or the Parent. This Agreement, the Notes, if any, and the other Financing Documents, if any, have been duly executed and delivered by the Borrowers and the Parent (as applicable). (c) The Transactions do not require any authorization or approval or other action by, nor any notice to or filing with, any governmental authority or regulatory body for the due execution, delivery and performance by the Borrowers and the Parent (as applicable) of this Agreement, the Notes, if any, or the other Financing Documents, if any, as applicable, that has not been duly made or obtained, except those (i) required in the ordinary course to comply with ongoing covenant obligations of the Borrowers and Parent hereunder the performance of which is not yet due and (ii) that will, in the ordinary course of business in accordance with this Agreement, be duly made or obtained on or prior to the time or times the performance of such obligations shall be due. (d) This Agreement constitutes, and the Notes (if and when delivered hereunder) and the other Financing Documents, if any, when delivered hereunder shall constitute, legal, valid and binding obligations of the Borrowers or the Parent (as applicable) enforceable against each such Person in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general principles of equity. (e) The consolidated balance sheet of the Parent and its consolidated Subsidiaries as at December 31, 2001 and the related consolidated statements of income and cash flow for the fiscal year then ended, reported on by PricewaterhouseCoopers LLC, independent public accountants, and the consolidated balance sheet of the Parent and its consolidated subsidiaries as at September 30, 2002 and the related consolidated statements of income and cash flow for the nine-month period then ended, certified by the chief financial 71 officer of the Parent, copies of each of which have been furnished to the Administrative Agent and the Initial Lenders, fairly present the consolidated financial condition of the Parent and such Subsidiaries as at December 31, 2001, and September 30, 2002, respectively, and the consolidated results of their operations for such fiscal periods, subject in the case of the September 30, 2002 statements to normal year-end adjustments, all in accordance with generally accepted accounting principles consistently applied. From September 30, 2002 to and including the Effective Date there has been no material adverse change in such condition or results of operations. (f) As at the Effective Date, there is no action, suit or proceeding pending, or to the knowledge of the Borrowers and Parent threatened, against or involving Parent or any Material Subsidiary in any court, or before any arbitrator of any kind, or before or by any governmental body, which in the reasonable judgment of the Borrowers and Parent (taking into account the exhaustion of all appeals) would have a material adverse effect on the consolidated financial condition of Parent and its consolidated Subsidiaries taken as a whole, or which purports to affect the legality, validity, binding effect or enforceability of this Agreement, the Notes, if any, or the other Financing Documents, if any. (g) Parent and each of its consolidated Subsidiaries has duly filed all tax returns required to be filed, and duly paid and discharged all taxes, assessments and governmental charges upon it or against its properties now due and payable, the failure to file or pay which, as applicable, would have a Material Adverse Effect, unless and to the extent only that the same are being contested in good faith and by appropriate proceedings by Parent or the appropriate Subsidiary. (h) Except to the extent permitted pursuant to Section 5.02(e), neither Parent nor any Material Subsidiary is subject to any contractual restrictions which limit the amount of dividends payable by any Subsidiary. (i) No Termination Event has occurred or is reasonably expected to occur with respect to any Plan which, with the giving of notice or lapse of time, or both, would constitute an Event of Default under Section 6.01(g). 72 (j) Neither Parent nor any ERISA Affiliate has incurred, or is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan that, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liability (as of the date of determination), exceeds 5% of the Consolidated Tangible Net Worth of Parent. (k) Neither Parent nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA the effect of which reorganization or termination would be the occurrence of an Event of Default under Section 6.01(i). (l) None of Parent nor either Borrower is an "investment company" or a "company" controlled by an "investment company" within the meaning of the United States Investment Company Act of 1940, as amended. (m) None of Parent nor either Borrower is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the United States Public Utility Holding Company Act of 1935, as amended. (n) The proceeds of the Advances will not be used in any way which would violate the provisions of Regulation U or X of the Board of Governors of the Federal Reserve System. All representations and warranties made by the Borrowers and/or Parent herein or made in any certificate delivered pursuant hereto shall survive the making of the Advances and the execution and delivery to the Lenders of this Agreement and the Notes. ARTICLE 5 COVENANTS SECTION 5.01 AFFIRMATIVE COVENANTS. So long as any Advance, Note or other amount payable either Borrower 73 hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, Parent will, unless the Majority Lenders shall otherwise consent in writing: (a) PRESERVATION OF EXISTENCE, ETC. Preserve and maintain, and cause each Material Subsidiary to preserve and maintain, its existence, rights (organizational and statutory) and material franchises, except as otherwise contemplated or permitted by Section 5.02(c) or 5.02(d); provided, that any Material Subsidiary may change its form of organization to a partnership or other form of Business Entity, provided further that in the case of any such change by a Borrower, its jurisdiction of organization remains in Canada, and in connection with any such change by a Borrower, such Borrower shall cause to be delivered to the Administrative Agent a legal opinion of counsel acceptable to the Administrative Agent to the effect that the successor entity to such Borrower continues to be bound by, or has assumed by instrument or by operation of law, all of such Borrower's obligations under this Agreement and the Notes. (b) COMPLIANCE WITH LAWS, ETC. Comply, and cause each Subsidiary to comply, in all material respects, with all applicable laws, rules, regulations and orders (including all environmental laws and laws requiring payment of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith by appropriate proceedings) the failure to comply with which would have a Material Adverse Effect. (c) VISITATION RIGHTS. At such reasonable times and intervals as the Administrative Agent or any of the Lenders may desire, permit the Administrative Agent or any of the Lenders to visit each Borrower and to discuss the affairs, finances, accounts and mineral reserve performance of Parent and any of its Subsidiaries with officers of the Borrowers and Parent and independent certified public accountants of Parent and any of its Subsidiaries, provided that if an Event of Default, or an event which with the giving of notice or the passage of time, or both, would become an Event of Default, has occurred and is continuing, the Administrative Agent or any Lender may, in addition to the other provisions of this subsection (c) and at such reasonable times and intervals as the Administrative Agent or any of the 74 Lenders may desire, visit and inspect, under guidance of officers of Parent (or, in the case of properties of the Borrowers or their Subsidiaries, of the Borrowers), as the case may be, any properties significant to the consolidated operations of Parent and its Subsidiaries, and to examine the books and records of account (other than with respect to any mineral reserve information that Parent determines to be confidential, except, during the continuation of an Event of Default, if such Lenders shall have entered into a confidentiality agreement with respect to such information satisfactory in form and substance to Parent) Parent and any of its Subsidiaries and to discuss the affairs, finances and accounts of any of the Subsidiaries of Parent with any of the officers of such Subsidiary. (d) BOOKS AND RECORDS. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of Parent and each Subsidiary of Parent in accordance with GAAP either (i) consistently applied or (ii) applied in a changed manner that does not, under GAAP or public reporting requirements applicable to Parent either require disclosure in the consolidated financial statements of Parent and its consolidated Subsidiaries or require the consent of the accountants which (as required by Section 5.03(b)) report on such financial statements for the fiscal year in which such change shall have occurred, or (iii) applied in a changed manner not covered by clause (ii) above provided such change shall have been disclosed to the Administrative Agent and shall have been consented to by the accountants which (as required by Section 5.03(b)) report on the consolidated financial statements of Parent and its consolidated Subsidiaries for the fiscal year in which such change shall have occurred, provided further that if any change referred to in clause (ii) or (iii) above would not meet the standard set forth in clause (i) or (ii) of Section 1.03, the Administrative Agent, the Lenders, the Borrowers and Parent agree to amend the covenants contained in Section 5.01 and 5.02 so that the relative protection afforded thereby to the Lenders and the relative flexibility afforded thereby to each Borrower will in substance be retained after such amendment, provided further, however, that until such amendment becomes effective hereunder, the covenants as set forth herein shall remain in full force and effect and those 75 accounting principles applicable to Parent and its consolidated Subsidiaries which do meet the standards set forth in clause (i) or (ii) of Section 1.03 shall be applied to determine whether or not each Borrower is in compliance with such covenants. (e) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause each Material Subsidiary to maintain and preserve, all of its properties which are used in the conduct of its business in good working order and condition, ordinary wear and tear excepted, to the extent that any failure to do so would have a Material Adverse Effect. (f) MAINTENANCE OF INSURANCE. Maintain, and cause each Material Subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which Parent or such Subsidiary operates. SECTION 5.02 NEGATIVE COVENANTS. So long as any Advance, Note or other amount payable by either Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, Parent will not, unless the Majority Lenders shall otherwise consent in writing: (a) LIENS, ETC. (i) Create, assume or suffer to exist, or permit any Material Subsidiary to create, assume or suffer to exist, any Liens upon or with respect to any of the Equity Interests in any Material Subsidiary, whether now owned or hereafter acquired, or (ii) create or assume, or permit any Material Subsidiary to create or assume, any Liens upon or with respect to any other assets material to the consolidated operations of Parent and its consolidated Subsidiaries taken as a whole securing the payment of Debt and Guaranties in an aggregate amount (determined without duplication of amount (so that the amount of a Guaranty will be excluded to the extent the Debt Guaranteed thereby is included in computing such aggregate amount)) exceeding the greater of (x) U.S.$250,000,000 and (y) 10% of Consolidated Tangible Net Worth as at the date of such creation or assumption; provided, however, that this subsection (a) shall not apply to: 76 (A) Liens on assets acquired by Parent or any of its Subsidiaries after the Original Effective Date to the extent that such Liens existed at the time of such acquisition and were not placed thereon by or with the consent of Parent in contemplation of such acquisition; (B) Liens on Equity Interests acquired after the Original Effective Date in a Business Entity which has become or becomes a Subsidiary of Parent, or on assets of any such Business Entity, to the extent that such Liens existed at the time of such acquisition and were not placed thereon by or with the consent of Parent in contemplation of such acquisition; (C) Liens on Margin Stock; (D) Liens on the Equity Interests in, or Debt or other obligations of, or assets of, any Project Financing Subsidiary (or any Equity Interests in, Debt or other obligations of any Business Entity which are owned by any Project Financing Subsidiary) securing the payment of a Project Financing and related obligations; (E) Permitted Liens; (F) Liens arising out of the refinancing, extension, renewal or refunding of any Debt or Guaranty secured by any Lien permitted by any of the foregoing clauses of this Section, provided that the principal amount of such Debt or Guaranty is not increased (except by the amount of costs reasonably incurred in connection with the issuance thereof) and such Debt or Guaranty is not secured by any additional assets that would not have been permitted by this Section to secure the Debt or Guaranty refinanced, extended, renewed or refunded; and (G) Liens on products and proceeds (including dividend, interest and like payments on, and insurance and condemnation proceeds and rental, lease, licensing and similar proceeds) of, and property evidencing or embodying, or constituting rights or other general intangibles relating to, and accessions and improvements to, collateral subject to Liens permitted by this Section 5.02. (b) DEBT, ETC. Create, assume or suffer to exist, or permit any of its consolidated Subsidiaries to create, assume or suffer to exist, any Debt or any Guaranty unless, immediately after giving effect to such Debt or 77 Guaranty and the receipt and application of any proceeds thereof or value received in connection therewith, (1) the sum (without duplication) of (i) consolidated Debt of Parent and its consolidated Subsidiaries plus (ii) the aggregate amount (determined on a consolidated basis) of Guaranties by Parent and its consolidated Subsidiaries is less than 60% of Capitalization, provided that Debt for borrowed money either maturing within one year and evidenced by instruments commonly known as commercial paper, or evidenced by variable demand notes or other similar short-term financing instruments issued to commercial banks and trust companies (other than Debt incurred pursuant to this Agreement, the U.S. Short-Term Revolving Credit Agreement or the U.S. Long-Term Revolving Credit Agreement or any replacement therefor), shall not exceed the sum of unused commitments under this Agreement, the U.S. Short-Term Revolving Credit Agreement and the U.S. Long-Term Revolving Credit Agreement and the aggregate of Parent's unused bank lines of credit and unused credit available to Parent under financing arrangements with banks or other financial institutions; and (2) with respect to any such Debt created or assumed by a consolidated Subsidiary that is either a Subsidiary of Parent as of the Original Effective Date or a Subsidiary of Parent acquired or created after the Original Effective Date and owning a material portion of the consolidated operating assets existing at the Original Effective Date of Parent and its Subsidiaries, the aggregate amount of Debt of the consolidated Subsidiaries of Parent referred to above in this paragraph (2) owing to Persons other than Parent and its consolidated Subsidiaries is less than the greater of (i) U.S.$500,000,000 (exclusive of public Debt of LL&E existing at the time LL&E became a Subsidiary, the principal amount of which at such time was approximately U.S.$400,000,000, and any refinancing of such Debt, in a principal amount not to exceed the principal amount refinanced) and (ii) 30% of Consolidated Tangible Net Worth as at the date of incurrence or creation of such Debt. (c) SALE, ETC. OF ASSETS. Sell, lease or otherwise transfer, or permit any Material Subsidiary to sell, lease or otherwise transfer (in either case, whether in one transaction or in a series of transactions, and except, in either case, to a Borrower or Parent or an 78 entity which after giving effect to such transfer will be or become a Material Subsidiary in which Parent's direct or indirect Equity Interests will be at least as great as its direct or indirect Equity Interests in the transferor immediately prior thereto, and except as permitted by Section 5.02(d)), assets constituting all or substantially all of the consolidated assets of Parent and its Material Subsidiaries, provided that, notwithstanding the foregoing, Parent or any Material Subsidiary may sell, lease or otherwise transfer any Permitted Assets constituting all or substantially all of the consolidated assets of Parent and its Material Subsidiaries, so long as (A) such Permitted Assets are sold, leased or otherwise transferred in exchange for other Permitted Assets and/or (B) the proceeds from such sale, lease or other transfer, or an amount equal to the proceeds thereof, are (x) reinvested within one year from the date of receipt thereof in Permitted Assets and/or the development of Permitted Assets and/or (y) used to repay Debt the proceeds of which were or are being used for investment in, and/or the development of, Permitted Assets; provided further that, no such sale, lease or other transfer shall be permitted by the foregoing proviso unless either (1) after giving effect to such sale, lease or other transfer, no Event of Default, and no event which with lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing or (2) Parent or the relevant Material Subsidiary, as the case may be, was contractually obligated, prior to the occurrence of such Event of Default or event, to consummate such sale, lease or other transfer. (d) MERGERS, ETC. Merge, amalgamate or consolidate with any Person, or in the case of Parent permit any Material Subsidiary to merge, amalgamate or consolidate with any Person, except that: (i) any Subsidiary may merge, amalgamate or consolidate with (or liquidate into) any other Subsidiary or may merge, amalgamate or consolidate with (or liquidate into) either Borrower or Parent, provided that (A) if such Subsidiary merges, amalgamates or consolidates with (or liquidates into) either Borrower or Parent, either (i) the survivor or successor is a Borrower or Parent, as applicable, or (ii) in the case of an amalgamation involving either Borrower under the laws of Canada or any province thereof, the continuing 79 corporation resulting from such amalgamation is organized and existing under the laws of Canada or a province thereof and continues by operation of law to be liable for all obligations of such Borrower under this Agreement and under the Notes, provided that notice thereof and a copy of the amalgamation documents are provided to the Administrative Agent, or (iii) each successor or surviving Business Entity is organized and existing under the laws of Canada or a province thereof or the United States or a state thereof, respectively, and expressly assumes the obligations of such Borrower or Parent, as applicable, hereunder and under the Notes, (B) if any such Subsidiary merges, amalgamates or consolidates with (or liquidates into) any other Subsidiary of Parent, one or more Business Entities that are Subsidiaries of Parent are the surviving or successor Business Entity(ies) and, if either such Subsidiary is not directly or indirectly wholly-owned by either Borrower or Parent, such merger, amalgamation or consolidation is on an arm's length basis and (C) as a result of such merger, amalgamation or consolidation, no Event of Default, and no event which with lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing, and (ii) each Borrower, Parent or any Material Subsidiary may merge, amalgamate or consolidate with any other Business Entity (that is, in addition to the Borrowers, Parent or any other Subsidiary of Parent), provided that (A) if either Borrower or Parent merges, amalgamates or consolidates with any such other Business Entity(ies), either the survivor or successor Business Entity is a Borrower or Parent, as applicable, (B) if any Material Subsidiary merges, amalgamates or consolidates with any such other Business Entity, each surviving or successor Business Entity is a directly or indirectly wholly-owned Subsidiary, and (C) if a Borrower, Parent or any Material Subsidiary merges, amalgamates or consolidates with any such other Business Entity, after giving effect to such merger, amalgamation or consolidation no Event of Default, and no event which with lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing. (e) DIVIDEND RESTRICTIONS. Create, or consent or agree to, or permit any of its Material Subsidiaries existing on the Original Effective Date or any of its Subsidiaries thereafter created or acquired and owning a 80 material portion of the consolidated operating assets existing at the Original Effective Date of Parent and its Subsidiaries, to create, or consent or agree to, any restrictions, contained in any agreement or instrument relating to or evidencing Debt, on any such Subsidiary's ability to pay dividends or to make advances to Parent or any Subsidiary of Parent; provided, however, that this subsection (e) shall not apply to any such restrictions (including any extensions of the term of any thereof (by amendment, or continuation thereof in any refinancing of the Debt to which such restriction relates, or otherwise)) applicable to the Equity Interests in any Subsidiary of Parent, the Equity Interests in which are acquired by Parent after the Original Effective Date and which restrictions are existing at the time such Subsidiary first becomes a Subsidiary of Parent and are not placed thereon by or with the consent of Parent in contemplation of such acquisition by Parent. SECTION 5.03 REPORTING REQUIREMENTS. So long as any Note shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrowers will furnish to each Lender in such reasonable quantities as shall from time to time be requested by such Lender: (a) within 60 days after the end of each of the first three quarters of each fiscal year of Parent, a consolidated balance sheet of Parent and its consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income and cash flow of Parent and its consolidated Subsidiaries each for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified (subject to normal year-end adjustments) as to fairness and utilization of GAAP by the chief financial officer of Parent and accompanied by a certificate of such officer stating (i) that such statements of income and cash flow and such balance sheet have been prepared in accordance with GAAP, (ii) whether or not such officer has knowledge of the occurrence of any Event of Default which is continuing hereunder or of any event not theretofore remedied which with notice or lapse of time or both would constitute such an Event of Default and, if so, stating in reasonable detail the facts with respect thereto, (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not Parent is in compliance with the requirements set forth in subsection (b) of Section 5.02, and (iv) a listing of all Material Subsidiaries and consolidated Subsidiaries 81 of Parent showing the extent of its direct and indirect holdings of their Equity Interests; (b) within 120 days after the end of each fiscal year of Parent, a copy of the annual report for such year for Parent and its consolidated Subsidiaries containing financial statements for such year reported on by nationally recognized independent public accountants acceptable to the Lenders, accompanied by (i) a report signed by said accountants stating that such financial statements have been prepared in accordance with GAAP and (ii) a letter from such accountants stating that in making the investigations necessary for such report they obtained no knowledge, except as specifically stated therein, of any Event of Default which is continuing hereunder or of any event not theretofore remedied which with notice or lapse of time or both would constitute such an Event of Default (which letter may be limited in form, scope and substance to the extent required by applicable accounting rules or guidelines in effect from time to time); (c) within 120 days after the close of Parent's fiscal years, a certificate of the chief financial officer of Parent stating (i) whether or not such officer has knowledge of the occurrence of any Event of Default which is continuing hereunder or of any event not theretofore remedied which with notice or lapse of time or both would constitute such an Event of Default and, if so, stating in reasonable detail the facts with respect thereto, (ii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not Parent is in compliance with the requirements set forth in subsection (b) of Section 5.02 and (iii) a listing of all Material Subsidiaries and consolidated Subsidiaries of Parent showing the extent of its direct and indirect holdings of their Equity Interests; (d) promptly upon their distribution, copies of all financial statements, reports and proxy statements which the Parent or any Material Subsidiary shall have sent to its public Equity Interest holders; (e) promptly upon their becoming publicly available, all regular and periodic financial reports and registration statements which either Borrower or any Material Subsidiary shall file with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee 82 benefit plans and to registration statements of securities for selling security holders; (f) promptly in writing, notice of all litigation and of all proceedings before any governmental or regulatory agencies against or involving Parent or any Material Subsidiary, except any litigation or proceeding which in the reasonable judgment of Parent (taking into account the exhaustion of all appeals) is not likely to have a material adverse effect on the consolidated financial condition of Parent and its consolidated Subsidiaries taken as a whole; (g) within three Business Days after an executive officer of either Borrower or Parent obtains knowledge of the occurrence of any Event of Default which is continuing or of any event not theretofore remedied which with notice or lapse of time, or both, would constitute an Event of Default, notice of such occurrence together with a detailed statement by a responsible officer of such Borrower or Parent of the steps being taken by such Borrower, Parent or the appropriate Subsidiary to cure the effect of such event; (h) as soon as practicable and in any event (i) within 30 days after Parent or any ERISA Affiliate knows or has reason to know that any Termination Event described in clause (i) of the definition of Termination Event with respect to any Plan has occurred and (ii) within 10 days after Parent or any ERISA Affiliate knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of the chief financial officer of Parent describing such Termination Event and the action, if any, which Parent or such ERISA Affiliate proposes to take with respect thereto; (i) promptly and in any event within two Business Days after receipt thereof by Parent or any ERISA Affiliate, copies of each notice received by Parent or any ERISA Affiliate from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan; (j) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan; 83 (k) promptly and in any event within five Business Days after receipt thereof by Parent or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by Parent or any ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (iii) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA, or (iv) the amount of liability incurred, or expected to be incurred, by Parent or any ERISA Affiliate in connection with any event described in clause (i), (ii) or (iii) above; and (l) as soon as practicable but in any event within 60 days of any notice of request therefor, such other information respecting the financial condition and results of operations of Parent or any Subsidiary as any Lender through the Administrative Agent may from time to time reasonably request. Each balance sheet and other financial statement furnished pursuant to subsections (a) and (b) of this Section 5.03 shall contain comparative information which conforms to the presentation required in Form 10-Q and Form 10-K, as appropriate, under the Securities Exchange Act of 1934, as amended. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.01 EVENTS OF DEFAULT. If any of the following events ("EVENTS OF DEFAULT") shall occur and be continuing: (a) Either Borrower shall fail to pay any principal of any Advance within two Business Days after the same shall be due, or any interest on any Advance or any other amount payable hereunder within five Business Days after the same shall be due; or (b) Any representation or warranty made or deemed made by either Borrower or Parent herein or by either Borrower or Parent (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or 84 (c) Either Borrower or Parent shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrowers or Parent by the Administrative Agent or by any Lender with a copy to the Administrative Agent; or (d) Parent or any Material Subsidiary of Parent shall fail to pay any Debt or Guaranty (excluding any Advances) of either Borrower, Parent or such Subsidiary (as the case may be) in an aggregate principal amount in excess of the greater of (i) U.S.$100,000,000 and (ii) 3% of Consolidated Tangible Net Worth at such time, or any installment of principal thereof or interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt or Guaranty; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate the maturity of such Debt; provided that, notwithstanding any provision contained in this subsection (d) to the contrary, to the extent that pursuant to the terms of any agreement or instrument relating to any Debt referred to in this subsection (d), any sale, pledge or disposal of Margin Stock, or utilization of the proceeds thereof would result in a breach of any covenant contained therein or otherwise give rise to a default or event of default thereunder and/or acceleration of the maturity of the Debt extended pursuant thereto and as a result of such terms or of such sale, pledge, disposal, utilization, breach, default, event of default or acceleration, or the provisions hereof relating thereto, this Agreement or any Advance hereunder would otherwise be subject to margin requirements or any other restriction under Regulation U issued by the Board of Governors of the United States Federal Reserve System, then such breach, default, event of default or acceleration shall not constitute a default or Event of Default under this subsection (d); or (e) (i) Parent or any Material Subsidiary shall (A) generally not pay its debts as such debts become due; or (B) admit in writing its inability to pay its debts 85 generally; or (C) make a general assignment for the benefit of creditors; or (ii) any proceeding shall be instituted or consented to by Parent or any such Material Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or (iii) any such proceeding shall have been instituted against either Borrower, Parent or any such Subsidiary and either such proceeding shall not be stayed or dismissed for 60 consecutive days or any of the actions referred to above sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or any substantial part of its property) shall occur; or (iv) either Borrower, Parent or any such Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess the greater of (i) U.S.$100,000,000 and (ii) 3% of Consolidated Tangible Net Worth at such time shall be rendered against Parent or any Material Subsidiary and either (i) enforcement proceedings shall have been commenced and are continuing or have been completed by any creditor upon such judgment or order (other than any enforcement proceedings consisting of the mere obtaining and filing of a judgment lien or obtaining of a garnishment or similar order so long as no foreclosure, levy or similar process in respect of such lien, or payment over in respect of such garnishment or similar order, has commenced and is continuing or has been completed) or (ii) there shall be any period of 30 consecutive days during which a stay of execution or enforcement proceedings (other than those referred to in the parenthesis in clause (i) above) in respect of such judgment or order, by reason of a pending appeal, bonding or otherwise, shall not be in effect; or (g) Any Termination Event with respect to a Material Plan shall have occurred and, 30 days after notice thereof shall have been given to Parent by the Lender, (i) such Termination Event shall still exist and (ii) the sum (determined as of the date of occurrence of such 86 Termination Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which a Termination Event shall have occurred and then exist (or in the case of a Plan with respect to which a Termination Event described in clause (ii) of the definition of Termination Event shall have occurred and then exist, the liability related thereto), in each case in respect of which Parent or any ERISA Affiliate has liability, is equal to or greater than U.S.$50,000,000; or (h) Parent or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date of such notification), exceeds U.S.$50,000,000; or (i) Parent or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of Parent and its ERISA Affiliates to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years which include the Original Effective Date by an amount exceeding U.S.$50,000,000; or (j) Upon completion of, and pursuant to, a transaction, or a series of transactions (which may include prior acquisitions of capital stock of Parent in the open market or otherwise), involving a tender offer (i) a "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) other than Parent, a Subsidiary of Parent or any employee benefit plan maintained for employees of Parent and/or any of its respective Subsidiaries or the trustee therefor, shall have acquired direct or indirect ownership of and paid for in excess of 50% of the outstanding capital stock of Parent entitled to vote in elections for directors of Parent and (ii) at any time before the later of (x) six months after the completion of such tender offer and (y) the next annual meeting of the shareholders of Parent following the completion of such tender offer more than 87 half of the directors of Parent consists of individuals who (a) were not directors before the completion of such tender offer and (b) were not appointed, elected or nominated by the Board of Directors in office prior to the completion of such tender offer (other than any such appointment, election or nomination required or agreed to in connection with, or as a result of, the completion of such tender offer); or (k) Either Borrower ceases to be a direct or indirect wholly-owned Subsidiary of the Parent; or (l) The Guaranty of Parent hereunder shall not be (or shall be claimed by Parent, either Borrower or any Subsidiary of Parent not to be) valid or in full force and effect; provided that if within one Business Day after the Borrowers or Parent receive notice from the Administrative Agent or otherwise becomes aware that such Guaranty is not valid or in full force and effect, Parent delivers written notice to the Administrative Agent that it intends to deliver a valid and effective Guaranty, or to reinstate such Guaranty, as soon as possible, then an Event of Default shall not exist pursuant this Section 6.01(l) unless Parent shall fail to deliver or reinstate a Guaranty having substantially the same effect as the Guaranty set forth in Article 8 within four Business Days after the delivery of such written notice of intent. (m) Any "Event of Default" as defined in the U.S. Short-Term Revolving Credit Agreement or the U.S. Long-Term Revolving Credit Agreement shall occur and be continuing; then, and in any such event, the Administrative Agent shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrowers and Parent, (i) declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers and Parent; provided, however, that if an Event of Default under subsection (e) of this Section 6.01 (except under clause (i)(A) thereof) shall occur, (A) the obligation of each Lender to make Advances shall 88 automatically be terminated and (B) the Advances, all interest thereon and all other amounts payable under this Agreement shall automatically become and be forthwith due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers and Parent. ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including enforcement of this Agreement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrowers pursuant to the terms of this Agreement. Nothing in this Agreement shall impose upon any Co-Syndication Agent or Co-Documentation Agent, in its capacity as such, any duty or liability whatsoever. SECTION 7.02 ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as 89 provided in Section 9.07; (ii) may consult with legal counsel (including counsel for the Borrowers and Parent), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrowers and Parent or to inspect the property (including the books and records) of the Borrowers or Parent; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile, electronic mail, telegram, telecopy, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03 ADMINISTRATIVE AGENT AND AFFILIATES. With respect to its Commitments, the Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Parent, the Borrowers, any of their Subsidiaries, and any Person who may do business with or own securities of Parent, the Borrowers or any of their Subsidiaries, all as if the Administrative Agent were not the Administrative Agent and without any duty to account therefor to the other Lenders. SECTION 7.04 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to 90 in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWERS OR PARENT), RATABLY ACCORDING TO THE RESPECTIVE PRINCIPAL AMOUNTS OF THE ADVANCES THEN HELD BY EACH OF THEM (OR IF NO ADVANCES ARE AT THE TIME OUTSTANDING OR IF ANY ADVANCES ARE HELD BY PERSONS WHICH ARE NOT LENDERS, RATABLY ACCORDING TO THE RESPECTIVE AMOUNTS OF THEIR COMMITMENTS OR THE RESPECTIVE AMOUNTS OF THEIR COMMITMENTS IMMEDIATELY PRIOR TO TERMINATION IF THE COMMITMENTS HAVE BEEN TERMINATED), FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT, ANY OF THE NOTES OR ANY OTHER FINANCING DOCUMENT OR OTHER INSTRUMENT OR DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH, OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, OR ANY OF THE NOTES OR ANY OTHER FINANCING DOCUMENT OR OTHER INSTRUMENT OR DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for such Lender's ratable share of any reasonable out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings, in bankruptcy or insolvency proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any of the Notes or any other 91 instrument or document furnished pursuant hereto or in connection herewith to the extent that the Administrative Agent acts in its capacity as Administrative Agent and is not reimbursed for such expenses by the Borrowers or Parent. SECTION 7.06 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders, the Borrowers and Parent and may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then such retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a bank organized, or authorized to conduct a banking business, under the federal laws of Canada and having a combined capital and surplus of at least U.S.$500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE 8 GUARANTY In order to induce the Lenders to extend credit hereunder, (i) each of Parent and BRCL hereby irrevocably and unconditionally guarantees the Obligations of Canadian Hunter, and (ii) each of Parent and Canadian Hunter hereby irrevocably and unconditionally guarantees the Obligations of BRCL. Each Guarantor agrees that the 92 Guaranteed Parties may make a claim under its guarantee immediately upon the occurrence of an Event of Default or at any time thereafter, but (other than in the case of an Event of Default in respect of either Borrower under Section 6.01(e) (except clause (i)(A) thereof)) following the making of a demand on the applicable Borrower for payment or performance, as applicable, without any obligation to first seek any other remedy or take any other action against such Borrower. Each Guarantor further agrees that the due and punctual payment of the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guaranty hereunder notwithstanding any such extension or renewal of any Obligation. Each and every default in payment of the principal of and premium, if any, or interest on any Obligation shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. Each Guarantor waives presentment to, demand of payment from and protest to the applicable Borrower of any of the Obligations of such Borrower, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Guaranteed Party to assert any claim or demand or to enforce any right or remedy against any Borrower or Parent under the provisions of this Agreement, any other Financing Document or otherwise; (b) any extension or renewal of any of the Obligations; (c) any rescission, waiver, amendment or modification of, or release from, any of the terms or provisions of this Agreement or any other Financing Document or agreement; (d) the failure or delay of any Guaranteed Party to exercise any right or remedy against any other guarantor of the Obligations; (e) the failure of any Guaranteed Party to assert any claim or demand or to enforce any remedy under any Financing Document, any guaranty or any other agreement or instrument; (f) any default, failure or delay, wilful or otherwise, in the performance of the Obligations; or (h) any other act, omission or delay to do any other act which may or might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a discharge of any Guarantor as a matter of law or equity or which would impair or eliminate any right of any Guarantor to subrogation. Each Guarantor further agrees that its agreement 93 hereunder constitutes a promise of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Guaranteed Party to any balance of any deposit account or credit on the books of any Guaranteed Party in favor of the applicable Borrower or any other Person. The obligations of the Guarantors hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Obligations, any impossibility in the performance of the Obligations or otherwise. Each Guarantor further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Guaranteed Party upon the bankruptcy or reorganization of the applicable Borrower or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Guaranteed Party may have at law or in equity against any Guarantor by virtue hereof, upon the failure of the applicable Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Parent and (a) BRCL (in the event such Obligation is due and payable by Canadian Hunter) or (b) Canadian Hunter (in the event such Obligation is due and payable by BRCL), hereby, in their respective capacity as Guarantor, promise to and will, upon receipt of written demand by the Administrative Agent, forthwith pay, or cause to be paid, to the Administrative Agent for distribution to the Guaranteed Parties in cash an amount equal to the sum of (i) the unpaid principal amount of such Obligations then due, (ii) accrued and unpaid interest and fees on such Obligations and (iii) all other monetary Obligations then due. Each Guarantor, as applicable, further agrees that if payment in respect of any Obligation shall be due in a currency other than Cdn. Dollars and/or at a place of payment other than Toronto, Ontario and if, by reason of 94 any Change in Law, disruption of currency or foreign exchange markets, war or civil disturbance or similar event, payment of such Obligation in such currency or at such place of payment shall be impossible or, in the judgment of any Guaranteed Party, not consistent with the protection of its rights or interests, then, at the election of such Guaranteed Party, each Guarantor, as applicable, shall make payment of such Obligation in Cdn. Dollars (based upon the applicable Exchange Rate in effect on the date of payment) and/or in Toronto, Ontario, and shall indemnify such Guaranteed Party against any losses or expenses that it shall sustain as a result of such alternative payment. Upon payment in full by a Guarantor of any Obligation of the applicable Borrower, each Lender shall, in a reasonable manner, assign the amount of such Obligation owed to it and so paid to such Guarantor, such assignment to be pro tanto to the extent to which the Obligation in question was discharged by such Guarantor, or make such disposition thereof as such Guarantor, as applicable, shall direct (all without recourse to any Guaranteed Party and without any representation or warranty by any Guaranteed Party). Upon payment by any Guarantor of any sums as provided above, all rights of such Guarantor against the applicable Borrower arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full of all the Obligations owed by such Borrower to the Guaranteed Parties. Nothing shall discharge or satisfy the liability of any Guarantor hereunder except the full performance and payment of the Obligations. Each reference herein to any Guaranteed Party shall be deemed to include their or its successors and assigns, in whose favor the provisions of this Guaranty shall also inure. ARTICLE 9 MISCELLANEOUS SECTION 9.01 AMENDMENTS, ETC. An amendment or waiver of any provision of this Agreement, the Notes or 95 any other Financing Document, or a consent to any departure by the Borrowers therefrom, shall be effective against the Lenders and all holders of the Notes if, but only if, it shall be in writing and signed or consented to in writing by the Majority Lenders or, where so specified, the Required Lenders (except any amendment to give effect to increased Commitments and New Lenders, as contemplated by Section 2.20), and then such a waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall, unless in writing and signed by all the Lenders, be effective to: (a) waive any of the conditions specified in Article 3, (b) except as contemplated by Section 2.20, increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances or any facility fees or utilization fees hereunder, (d) except as contemplated by Section 2.21, postpone any date fixed for any payment of principal of, or interest on, the Advances or any facility fees or utilization fees hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, which shall be required for the Lenders or any of them to take any action under this Agreement, (f) amend Article VIII or this Section 9.01, or (g) waive any Event of Default pursuant to Section 6.01(l); and, provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required herein above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note. SECTION 9.02 NOTICES, ETC. Except as otherwise provided in Section 2.02(a) or 2.10(ii), all notices and other communications provided for hereunder shall be in writing and mailed by registered mail, return receipt requested and postage prepaid, or telecopied, sent by facsimile or otherwise teletransmitted, or delivered, if to the BRCL, c/o Burlington Resources Inc. at 5051 Westheimer, Suite 1400, Houston, Texas 77056, Attention: Treasurer, Facsimile: (713) 624-9627 with a copy to Burlington Resources Canada Ltd. 3700, 250 6th Avenue S.W., Calgary, Alberta, Canada T2P3H7, Attention: Dave Belcher, Facsimile: (403) 263-2708 ; if to Canadian Hunter, c/o Burlington Resources Inc. at 5051 Westheimer, Suite 1400, Houston, Texas 77056, Attention: Treasurer, Facsimile: (713) 624-9627 with a copy to Canadian Hunter 96 Exploration Ltd. 3700, 250 6th Avenue S.W., Calgary, Alberta, Canada T2P3H7, Attention: Dave Belcher, Facsimile: (403) 263-2708; if to Parent, Burlington Resources Inc. at 5051 Westheimer, Suite 1400, Houston, Texas 77056, Attention: Treasurer, Facsimile: (713) 624-9627; if to any Initial Lender, at its Applicable Lending Office set forth in such Initial Lender's Administrative Questionnaire; if to any other Lender at its Applicable Lending Office specified in the Assignment and Acceptance or Commitment Increase Agreement pursuant to which it became a Lender; if to the Administrative Agent, in care of JPMorgan Chase Bank, Toronto Branch, 200 Bay Street, Suite 1800, Royal Bank Plaza, South Tower, Toronto, Ontario, M5J 2J2, Attention: Amanda Staff, Telefax: (416) 981-9128, with a copy to JPMorgan Chase Bank, at 600 Travis Street, 20th Floor, Houston, TX 77002, Attention: Russell Johnson, Telefax: (713) 216-8870; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective, (a) in the case of any notice or communication given by certified mail, when receipted for, (b) in the case of any notice or communication given by telecopy, facsimile or other teletransmission, when confirmed by appropriate answerback, in each case addressed as aforesaid, and (c) in the case of any notice or communication delivered by hand or courier, when so delivered, except that notices and communications to the Administrative Agent pursuant to Article 2 or 7 shall not be effective until received by the Administrative Agent. A notice received by the Administrative Agent or a Lender by telephone pursuant to Section 2.02(a) or 2.10(ii) shall be effective if the Administrative Agent or Lender believes in good faith that it was given by an authorized representative of the applicable Borrower or Parent and acts pursuant thereto, notwithstanding the absence of written confirmation or any contradictory provision thereof. SECTION 9.03 NO WAIVER; REMEDIES. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any Note preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 97 SECTION 9.04 COSTS AND EXPENSES; INDEMNITY. (a) Each Borrower agrees to pay on demand (i) all reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent and the Arranger in connection with the preparation, execution and delivery of this Agreement, the Notes and the other Financing Documents to be delivered hereunder and with respect to advising the Administrative Agent and the Arranger as to their respective rights and responsibilities under this Agreement, (ii) all reasonable costs and expenses incurred by the Administrative Agent and its Affiliates and the Arranger and their Affiliates in initially syndicating all or any portion of the Commitments hereunder, including the related reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent or its Affiliates and the Arranger and their Affiliates, travel expenses, duplication and printing costs and courier and postage fees, and excluding any syndication fees paid to other parties joining the syndicate and (iii) all out-of-pocket costs and expenses, if any, of the Administrative Agent and the Arranger and the Lenders (including reasonable counsel fees and expenses and the allocated costs of in-house counsel), in connection with the enforcement (whether through negotiations, legal proceedings, in bankruptcy or insolvency proceedings, or otherwise) of this Agreement, the Notes and the other Financing Documents to be delivered hereunder and thereunder. (b) If any payment of principal of, or Continuation of, any Eurodollar Rate Advance is made by either Borrower to or for the account of a Lender on any day other than the last day of the Interest Period for such Advance, as a result of a prepayment pursuant to Section 2.10 or a Continuation pursuant to Section 2.08(f) or Section 2.09 or due to acceleration of the maturity of the Advances pursuant to Section 6.01 or due to any other reason attributable to either Borrower, or if either Borrower shall fail to borrow, Continue or prepay any Eurodollar Rate Advance on the date specified in any notice delivered pursuant hereto, the applicable Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Continuation, including any loss (excluding loss of 98 anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) If any payment of principal of any B/A Advance is made by either Borrower to or for the account of a Lender on any day other than the last day of the Interest Period for such Advance, due to acceleration of the maturity of the Advances pursuant to Section 6.01, or if either Borrower shall fail to borrow, Continue or prepay any B/A Advance on the date specified in any notice delivered pursuant hereto, the applicable Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. It is understood that a defeasance of B/A's under Section 2.10(a) shall not constitute a prepayment. (d) EACH OF BRCL, CANADIAN HUNTER AND PARENT AGREES TO INDEMNIFY AND HOLD HARMLESS THE ADMINISTRATIVE AGENT, THE ARRANGER AND EACH LENDER FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) WHICH MAY BE INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT, THE ARRANGER OR SUCH LENDER IN CONNECTION WITH OR ARISING OUT OF ANY INVESTIGATION, LITIGATION, OR PROCEEDING (WHETHER OR NOT THE ADMINISTRATIVE AGENT, THE ARRANGER OR SUCH LENDER IS PARTY THERETO) RELATED TO ANY ACQUISITION OR PROPOSED ACQUISITION BY EITHER BORROWER, OR BY ANY SUBSIDIARY OF EITHER BORROWER, OF ALL OR ANY PORTION OF THE EQUITY INTERESTS IN, OR SUBSTANTIALLY ALL THE ASSETS OF, ANY PERSON OR ANY USE OR PROPOSED USE OF THE ADVANCES BY EITHER BORROWER (EXCLUDING ANY CLAIMS, DAMAGES, LIABILITIES OR EXPENSES INCURRED BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY TO BE INDEMNIFIED OR ITS EMPLOYEES OR ADMINISTRATIVE AGENTS, OR BY REASON OF ANY USE OR DISCLOSURE OF INFORMATION RELATING TO ANY SUCH ACQUISITION OR USE OR PROPOSED USE OF THE PROCEEDS BY THE PARTY TO BE INDEMNIFIED OR ITS EMPLOYEES OR ADMINISTRATIVE AGENTS). 99 SECTION 9.05 RIGHT OF SET-OFF. Upon the declaration of the Advances as due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of either Borrower against any and all of the obligations of such Borrower now or hereafter existing under this Agreement and any Note held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the applicable Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 9.05 are in addition to other rights and remedies (including other rights of set-off) which such Lender may have. SECTION 9.06 BINDING EFFECT. This Agreement shall become effective in accordance with the provisions of Section 3.01, and thereafter shall be binding upon and inure to the benefit of the Borrowers, Parent, the Administrative Agent, the Arranger and each Lender and their respective successors and assigns, except that none of Parent or the Borrowers shall have the right to assign their rights and obligations hereunder or any interest herein without the prior written consent of all of the Lenders; provided that notwithstanding the foregoing either Borrower shall be permitted to transfer its rights and obligations hereunder to a wholly-owned Subsidiary of Parent (i) if such Subsidiary is organized and existing under the laws of Canada or any political subdivision thereof and (ii) the Borrowers guarantee the obligations of any new Borrower on substantially the terms set forth in Article 8, at which time BRCL and/or Canadian Hunter, as applicable, shall cease to be a Borrower hereunder and shall cease to have any liability under this Agreement, the Notes, if any, or any other Financing Document except under such guarantee and Article 8. Any merger, amalgamation or consolidation in compliance with Section 5.02(d) of (i) either Borrower with Parent or a wholly-owned Subsidiary of Parent organized under the laws of Canada or any political subdivision thereof, or 100 (ii) Parent shall not constitute an assignment for purposes of this Section 9.06. SECTION 9.07 ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that each such assignment shall be to an Eligible Assignee and the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and, except in the case of an assignment to a Lender Affiliate, a processing and recordation fee of Cdn.$3,500, and shall send to the Borrowers an executed counterpart of such Assignment and Acceptance, and provided further, however, that (i) except in the case of an assignment to a Lender Affiliate, each such assignment shall be of a constant, and not a varying, percentage of all such Lender's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned to the assignee pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) must be equal to or greater than Cdn.$10,000,000, or if less, the entire amount of such assigning Lender's "Commitment" (unless the Borrowers and the Administrative Agent shall otherwise consent, which consent may be withheld for any reason) and must be an integral multiple of Cdn.$1,000,000, and (iii) except in the case of an assignment by a Schedule II Lender to a Lender Affiliate thereof that is a Schedule III Bank, any assignment to a Lender Affiliate will not relieve the assigning Lender of its obligation to make Advances hereunder timely in accordance with the terms hereof in the event such Lender Affiliate shall fail to do so. Upon the execution, delivery, acceptance and recording of each Assignment and Acceptance by the parties thereto, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, subject to clause (iii) above, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) except in the circumstances contemplated in clause (iii) above, the 101 Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto, provided, however, such assigning Lender shall retain any claim with respect to any fee, interest, cost, expense or indemnity which accrues, or relates to an event that occurs, prior to the date of such assignment pursuant to Section 2.03, 2.06, 2.12, 2.13, 2.16 or 9.04. (b) By executing and delivering an Assignment and Acceptance, each Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or Parent or the performance or observance by the Borrowers or Parent of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is (subject to approval in writing by the Borrowers and the Administrative Agent to the extent required) an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably 102 incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance, each New Lender Agreement and each Commitment Increase Agreement delivered to and accepted by it and a register (which register may be in electronic form) for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by either Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit D hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers. Within five Business Days after its receipt of such notice and its receipt of an executed counterpart of such Assignment and Acceptance, the applicable Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for any surrendered Note or Notes new Notes evidencing Advances made to such Borrower to the order of such Eligible Assignee and, if the assigning Lender has retained a Commitment hereunder, new Notes to the order of the assigning Lender. Any such new Note or Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement 103 (including all or a portion of its Commitment, and the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including its Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) such Lender shall continue to be able to agree to any modification or amendment of this Agreement or any waiver hereunder without the consent, approval or vote of any such participant or group of participants, other than modifications, amendments and waivers which (A) postpone any date fixed for any payment of, or reduce any payment of, principal of or interest on such Lender's Advances or any facility fees or utilization fees payable under this Agreement, or (B) increase the amount of such Lender's Commitment in a manner which would have the effect of increasing the amount of a participant's participation, or (C) reduce the interest rate payable under this Agreement and such Lender's Advances, or (D) consent to the assignment or the transfer by the Borrowers or Parent of their respective rights and obligations under the Agreement, and (vi) except as contemplated by the immediately preceding clause (v), no participant shall be deemed to be or to have any of the rights or obligations of a "Lender" hereunder. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing for the benefit of the Borrowers to preserve the confidentiality of any confidential information relating to the Borrowers received by it from such Lender in a manner consistent with Section 9.08. (g) Anything in this Agreement to the contrary notwithstanding, any Lender may at any time create a 104 security interest in all or any portion of its rights under this Agreement (including the Advances owing to it) and the Notes, if any, issued to it hereunder in favor of any United States Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System of the United States (or any successor regulation) and the applicable operating circular of such Federal Reserve Bank. SECTION 9.08 CONFIDENTIALITY. Each Lender and the Administrative Agent (each, a "PARTY") agrees that it will use its best reasonable efforts not to disclose, without the prior consent of the Borrowers (other than to its, or its Affiliates, employees, auditors, accountants, counsel or other representatives, whether existing at the Effective Date or any subsequent time), any information with respect to the Borrowers or Parent which is furnished pursuant to this Agreement, provided that any party may disclose any such information (i) as has become generally available to the public, (ii) as may be required or appropriate in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over such party, (iii) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation or regulatory proceeding, (iv) in order to comply with any law, order, regulation or ruling applicable to such party, or (v) to any prospective assignee or participant in connection with any contemplated assignment of any rights or obligations hereunder or any sale of any participation therein, by such party pursuant to Section 9.07, if such prospective assignee or participant, as the case may be, executes an agreement with the Borrowers containing provisions substantially similar to those contained in this Section 9.08; provided, however, that the Borrowers and Parent acknowledge that the Administrative Agent has disclosed and may continue to disclose such information as the Administrative Agent in its sole discretion determines is appropriate to the Lenders from time to time. SECTION 9.09 CONSENT TO JURISDICTION. (a) Each Borrower and Parent hereby irrevocably and unconditionally submit itself and its property to the non-exclusive jurisdiction of the Courts of the Province of Alberta in any action or proceeding by the 105 Administrative Agent, the Arranger, any Lender or the holder of any Note in respect of, but only in respect of, any claims or causes of action arising out of or relating to this Agreement, the Notes or the other Financing Documents (such claims and causes of action, collectively, being "PERMITTED CLAIMS"), and each Borrower and Parent hereby irrevocably agrees that all Permitted Claims may be heard and determined in Alberta. Each Borrower and Parent hereby irrevocably and unconditionally waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding in any aforementioned court in respect of Permitted Claims. Service of the statement of claim and any other process which may be served by the Administrative Agent, the Arranger, any Lender or the holder of any Note on the Borrowers or Parent in any such action or proceeding in any aforementioned court in respect of Permitted Claims may be made by delivering separate copies of such process to each Borrower and Parent by courier and by registered mail (return receipt requested), fees and postage prepaid at the address of each Borrower and Parent specified pursuant to Section 9.02, to the attention of each of the Treasurer and the Vice President and General Counsel of Parent, or each of the General Counsel and Assistant Treasurer in the case of the Borrowers. Each Borrower and Parent agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section 9.09 (i) shall affect the right of the Arranger, the Borrowers, Parent, any Lender, the holder of any Note or the Administrative Agent to serve legal process in any other manner permitted by law or affect any right otherwise existing of the Borrowers, any Lender, the Arranger, the holder of any Note or the Administrative Agent to bring any action or proceeding in the courts of other jurisdictions or (ii) shall be deemed to be a general consent to jurisdiction in any particular court or a general waiver of any defense or a consent to jurisdiction of the courts expressly referred to in subsection (a) above in any action or proceeding in respect of any claim or cause of action other than Permitted Claims. SECTION 9.10 GOVERNING LAW. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the Province of Alberta and the federal 106 laws of Canada applicable therein. SECTION 9.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery to the Administrative Agent of a counterpart executed by a Lender shall constitute delivery of such counterpart to all of the Lenders. Delivery of an executed counterpart by facsimile shall be as effective as delivery of a manually executed original counterpart. SECTION 9.12 WAIVER OF JURY TRIAL. EACH BORROWER, PARENT, THE ADMINISTRATIVE AGENT, AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE NOTES OR ANY OTHER FINANCING DOCUMENT OR OTHER INSTRUMENT OR DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.13 ENTIRE AGREEMENT, ETC.. This Agreement, together with any other documents executed in connection herewith, express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 9.01. 107 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BURLINGTON RESOURCES CANADA LTD. By: /s/ DANIEL D. HAWK --------------------------- Daniel D. Hawk Treasurer CANADIAN HUNTER EXPLORATION LTD. By: /s/ DANIEL D. HAWK --------------------------- Daniel D. Hawk Treasurer BURLINGTON RESOURCES INC. By: /s/ DANIEL D. HAWK --------------------------- Daniel D. Hawk Vice President and Treasurer SIGNATURE PAGE TO BURLINGTON RESOURCES CANADA LTD. CANADIAN HUNTER EXPLORATION LTD. BURLINGTON RESOURCES INC. CANADIAN CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: JPMORGAN CHASE BANK, TORONTO BRANCH, AS ADMINISTRATIVE AGENT By: /S/ Russell A. Johnson Name: Russell A. Johnson Title: Vice President NAME OF INSTITUTION: JPMORGAN CHASE BANK, TORONTO BRANCH, AS LENDER By: /S/ Russell A. Johnson Name: Russell A. Johnson Title: Vice President NAME OF INSTITUTION: ABN AMRO BANK N.V., CANADA BRANCH By: /S/ Lawrence J. Maloney Name: Lawrence J. Maloney Title: Senior Vice President By: /S/ Margot Cordina Name: Margot Cordina Title: Vice President NAME OF INSTITUTION: BANK OF AMERICA, N.A. CANADA BRANCH By: /S/ Medina Sales de Andrade Name: Medina Sales de Andrade Title: Assistant Vice President NAME OF INSTITUTION: THE BANK OF NEW YORK By: /S/ Peter W. Keller Name: Peter W. Keller Title: Vice President NAME OF INSTITUTION: THE BANK OF NOVA SCOTIA By: /S/ Dan W. Lindquist Name: Dan W. Lindquist Title: Director SIGNATURE PAGE TO BURLINGTON RESOURCES CANADA LTD. CANADIAN HUNTER EXPLORATION LTD. BURLINGTON RESOURCES INC. CANADIAN CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: THE BANK OF TOKYO-MITSUBISHI, LTD. By: /S/ John W. McGhee Name: John McGhee Title: Vice President and Manager NAME OF INSTITUTION: BANK ONE, N.A. (MAIN OFFICE CHICAGO) By: /S/ Thomas Okamoto Name: Thomas E. Okamoto Title: Associate Director NAME OF INSTITUTION: BARCLAYS BANK PLC By: /S/ Nicholas A. Bell Name: Nicholas A. Bell Title: Director, Loan Transaction Management NAME OF INSTITUTION: BNP PARIBAS By: /S/ Brian M. Malone Name: Brian M. Malone Title: Managing Director By: /S/ Polly Schott Name: Polly Schott Title: Vice President NAME OF INSTITUTION: CITIBANK, NA, CANADIAN BRANCH By: /S/ James K.G. Campbell Name: James K.G. Campbell Title: SIGNATURE PAGE TO BURLINGTON RESOURCES CANADA LTD. CANADIAN HUNTER EXPLORATION LTD. BURLINGTON RESOURCES INC. CANADIAN CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: CREDIT SUISSE FIRST BOSTON By: /S/ James P. Morgan Name: James P. Morgan Title: Director By: /S/ Ian W. Nalitt Name: Ian W. Nalitt Title: Associate NAME OF INSTITUTION: FLEET NATIONAL BANK By: /S/ Allison I. Rossi Name: Allison I. Rossi Title: Director NAME OF INSTITUTION: JPMORGAN CHASE BANK By: /S/ Russell A. Johnson Name: Russell A. Johnson Title: Vice President NAME OF INSTITUTION: MELLON BANK, N.A. CANADA BRANCH By: /S/ Wendy B.H. Bocti Name: Wendy B.H. Bocti Title: Principal Officer NAME OF INSTITUTION: MERRILL LYNCH CAPITAL CANADA By: /S/ Susan Rimmer Name: Susan Rimmer Title: Vice President NAME OF INSTITUTION: MORGAN STANLEY SENIOR FUNDING, INC. CANADIAN DIVISION By: /S/ Bradley Crompton Name: Bradley Crompton Title: Vice President SIGNATURE PAGE TO BURLINGTON RESOURCES CANADA LTD. CANADIAN HUNTER EXPLORATION LTD. BURLINGTON RESOURCES INC. CANADIAN CREDIT AGREEMENT DATED AS OF DECEMBER 5, 2002 NAME OF INSTITUTION: ROYAL BANK OF CANADA By: /S/ Lorne Gartner Name: Lorne Gartner Title: Vice President NAME OF INSTITUTION: THE ROYAL BANK OF SCOTLAND PLC By: /S/ Paul McDonagh Name: Paul McDonagh Title: Sr. Vice President NAME OF INSTITUTION: WACHOVIA BANK, NATIONAL ASSOCIATION By: /S/ Philip Trinder Name: Philip Trinder Title: Vice President NAME OF INSTITUTION: WELLS FARGO BANK TEXAS, N.A. By: /S/ Paul A. Squires Name: Paul A. Squires Title: Vice President SCHEDULE I MATERIAL SUBSIDIARIES OF PARENT Burlington Resources Canada Ltd. Canadian Hunter Exploration Ltd. The Louisiana Land and Exploration Company Burlington Resources Oil & Gas Company LP BROG GP Inc. BROG LP Inc. Burlington Resources Canada Partnership 110 SCHEDULE II PRICING GRID
- ------------------------------------------------------------------------------------------------------------------------------------ LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI - ------------------------------------------------------------------------------------------------------------------------------------ Basis for Pricing If the If the If the If the If the If the Levels Parent's Parent's Parent's Parent's Parent's I-V do not senior senior senior senior senior apply. unsecured unsecured unsecured unsecured unsecured long term long term long term long term long term debt is debt is debt is debt is debt is rated at rated at rated at rated at rated at least A by least A- least BBB+ least BBB least BBB- S&P or A2 by S&P or by S&P or by S&P or by S&P or by Moody's. A3 by Baa1 by Baa2 by Baa3 by Moody's. Moody's. Moody's. Moody's. - ------------------------------------------------------------------------------------------------------------------------------------ Facility Fee Percentage .080% .100% .125% .150% .200% .250% - ------------------------------------------------------------------------------------------------------------------------------------ Applicable Margin .270% .300% .375% .450% .650% .750% - ------------------------------------------------------------------------------------------------------------------------------------
The applicable pricing level shall change on the date of any relevant change in the rating by S&P or Moody's of any public long term senior unsecured debt securities of the Parent. In the case of split ratings from S&P and Moody's, the rating to be used to determine the applicable pricing level is the higher of the two (e.g., A-/Baa1 results in Level II pricing), provided that in the event the split is more than one full category, the average (or the higher of two intermediate ratings) shall be used (e.g., A-/Baa2 results in Level III pricing, as does A-/Baa3). For the avoidance of doubt, the amount to be paid with respect to any Acceptance Fee shall be determined on the date of the acceptance of the applicable B/A, and the Acceptance Fee paid on each date shall not be subject to adjustment based on a subsequent change in the pricing level. 111 SCHEDULE III
Commitments The Initial Lenders ----------- ------------------- Cdn. $35,086,500.00 JP Morgan Chase Bank, Toronto Branch Cdn. $35,086,500.00 Citibank, NA Cdn. $35,086,500.00 Fleet National Bank Cdn. $35,086,500.00 Bank of America, N.A. Canada Branch Cdn. $35,086,500.00 The Bank of Nova Scotia Cdn. $28,242,961.71 Bank of Tokyo-Mitusbisi, LTD. Cdn. $28,242,961.71 Barclays Bank plc Cdn. $28,242,961.71 BNP Paribas (Canada) Cdn. $28,242,961.71 The Royal Bank of Scotland(plc) Cdn. $28,242,961.71 Wachovia Bank, National Association Cdn. $23,391,000.00 Merrill Lynch Capital Canada Inc. Cdn. $23,391,000.00 Morgan Stanley Senior Funding, Inc. Canadian Division Cdn. $16,707,857.14 ABN Amro Bank, N.V. Cdn. $16,707,857.14 The Bank of New York Cdn. $16,707,857.14 Bank One, NA Cdn. $16,707,857.14 Royal Bank of Canada Cdn. $16,707,857.14 Wells Fargo Bank Texas, N.A. Cdn. $10,826,691.43 Credit Suisse First Boston Cdn. $10,024,714.29 Mellon Bank, N.A. =================== Cdn. $467,820,000.0
112 EX-10.33 9 h02234exv10w33.txt 1997 EMPLOYEE STOCK INCENTIVE PLAN EXHIBIT 10.33 CONFORMED COPY INCLUDING ALL AMENDMENTS AS OF FEBRUARY 2003 BURLINGTON RESOURCES INC. 1997 EMPLOYEE STOCK INCENTIVE PLAN SECTION 1. PURPOSE The purpose of the Burlington Resources Inc. 1997 Employee Stock Incentive Plan (the "Plan") is to promote the interests of Burlington Resources Inc. (the "Company") and its stockholders by strengthening the Company's ability to attract and retain employees in the employ of the Company and its Subsidiaries by furnishing suitable recognition of their ability and industry which contributed materially to the success of the Company and to align the interests and efforts of such employees to the long term interests of the Company's stockholders. The Plan provides for the grant of nonqualified stock options and restricted stock in accordance with the terms and conditions set forth below. SECTION 2. DEFINITIONS Unless otherwise required by the context, the following terms when used in the Plan shall have the meanings set forth in this Section 2: 2.1 BENEFICIARY The Participant's legal representative, estate or the person or persons to whom the Participant's rights under the Plan shall have passed by will or the laws of descent and distribution. 2.2 BOARD OF DIRECTORS The Board of Directors of the Company. 2.3 CAUSE A termination for Cause is a termination in accordance with the Company's or Subsidiary's personnel policies concerning "cause" as in effect from time to time. 2.4 CHANGE IN CONTROL A "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of its common stock ("Shares") or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 2.7(a), Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined). (b) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued ( a "Merger"), unless such Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger where: (A) the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (B) the individuals who were members of the Incumbent Board (as hereinafter defined) immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and (C) no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such Merger, was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such Merger, had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Shares has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (ii) A complete liquidation or dissolution of the Company; or -2- (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets). (c) The individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the members of the Board or, following a Merger which results in a Parent Corporation, the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increase the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 2.5 CHIEF EXECUTIVE OFFICER The Chief Executive Officer of the Company. 2.6 CODE The Internal Revenue Code of 1986, as amended and in effect from time to time, and the temporary or final regulations of the Secretary of the U.S. Treasury adopted pursuant thereto. 2.7 COMMITTEE The Compensation and Nominating Committee of the Board of Directors. -3- 2.8 COMMON STOCK The Common Stock of the Company, par value $.01 per share, or such other class of shares or other securities as may be applicable pursuant to the provisions of Section 5. 2.9 FAIR MARKET VALUE As applied to a specific date, the mean between the highest and lowest quoted selling prices at which Common Stock was sold on such date as reported in the NYSE-Composite Transactions by The Wall Street Journal on such date or, if no Common Stock was traded on such date, on the next preceding day on which Common Stock was so traded. 2.10 OPTION An option granted under the Plan which shall not be an incentive stock option within the meaning of Section 422 of the Code. 2.11 OPTION PRICE The price per share of Common Stock at which each Option is exercisable. 2.12 PARTICIPANT An eligible employee of the Company or a Subsidiary to whom an Option or Restricted Stock is granted under the Plan as set forth in Section 4. 2.13 PERMANENT DISABILITY A Participant shall be deemed to have a Permanent Disability for purposes of the Plan if the Plan Administrator shall find upon the basis of medical evidence satisfactory to it that the Participant is totally disabled, whether due to a physical or mental condition, so as to be prevented from engaging in further employment by the Company or any Subsidiary, and that such disability will be permanent and continuous during the remainder of the Participant's life. 2.14 PLAN ADMINISTRATOR The Chief Executive Officer or the committee appointed pursuant to Section 3 to administer the Plan. 2.15 RESTRICTED STOCK Common Stock granted under the Plan that is subject to the requirements of Section 7 and such other restrictions as the Plan Administrator deems appropriate. -4- 2.16 SUBSIDIARY An entity, including, without limitation, a corporation, limited liability company or a joint venture, in which the Company owns (directly or indirectly) a significant equity interest and which entity is designated by the Plan Administrator as a subsidiary for purposes of the Plan. SECTION 3. ADMINISTRATION 3.1 The Plan shall be administered by the Chief Executive Officer or, in the event and to the extent the Chief Executive Officer shall appoint and/or authorize a committee or committees to administer the Plan, by such committee or committees. The administrator of the Plan shall hereinafter be referred to as the "Plan Administrator." In the event a member of the committee may be eligible, subject to the restrictions set forth in Section 4, to participate in or receive or hold Options or Restricted Stock under the Plan, no member of the committee shall vote with respect to the granting of Options or Restricted Stock hereunder to himself or herself, as the case may be. The members of any committee serving as Plan Administrator shall be appointed by the Chief Executive Officer for such term as the Chief Executive Officer may determine. The Chief Executive Officer may from time to time remove members from, or add members to, the committee. Vacancies on the committee, however caused, may be filled by the Chief Executive Officer. 3.2 Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have full authority to construe and interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, to administer the Plan and to take all such steps and make all such determinations in connection with the Plan and the Options and Restricted Stock granted hereunder as it may deem necessary or advisable, which determination shall be final and binding upon all Participants. The Plan Administrator shall cause the Company at its expense to take any action related to the Plan which may be required or necessary to comply with the provisions of any federal or state law or any regulations issued thereunder. 3.3 The Committee, the Chief Executive Officer and members of any committee acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. SECTION 4. ELIGIBILITY To be eligible for selection to receive a grant of an Option or Restricted Stock under the Plan, an individual must be, as of the date on which such Option or Restricted Stock is granted, -5- (i) an employee of the Company or a Subsidiary and (ii) ineligible to receive a grant or award under the 1993 Burlington Resources Inc. Stock Incentive Plan or any successor plan. SECTION 5. SHARES AVAILABLE FOR THE PLAN 5.1 Subject to Section 5.3 and in addition to any substitute Options granted pursuant to Section 6.2(k), (i) the maximum number of shares for which Options and Restricted Stock may be granted under the Plan on and after April 17, 2002 is 5,000,000 shares of Common Stock and (ii) the maximum number of shares for which Options and Restricted Stock may be granted under the Plan in any calendar year is 1,500,000 shares of Common Stock. Shares of Common Stock issued under the Plan may be treasury shares or authorized but unissued shares of the Company, or both, as determined by the Board of Directors. 5.2 Notwithstanding the foregoing, and subject to Section 5.3, the number of shares for which Restricted Stock may be granted under the Plan in any calendar year may not exceed 150,000 shares of Common Stock. 5.3 In the event of a recapitalization, stock split, stock dividend, exchange of shares, merger, reorganization, change in corporate structure or shares of the Company or similar event, the Board of Directors, upon the recommendation of the Plan Administrator, may make appropriate adjustments in the number of shares authorized for the Plan, and, with respect to outstanding Options and Restricted Stock, the Plan Administrator may make appropriate adjustments in the number of shares and the Option Price. SECTION 6. STOCK OPTIONS 6.1 Options may be granted to eligible employees in such number and at such times during the term of the Plan as the Committee shall determine, taking into account the duties of the respective employees, their present and potential contributions to the success of the Company, and such other factors as the Committee shall deem relevant in accomplishing the purposes of the Plan. The granting of an Option shall take place when the Committee by resolution, written consent or other appropriate written action determines to grant such an option to a particular Participant at a particular price. Each Option shall be evidenced by a written instrument delivered by or on behalf of the Company containing provisions not inconsistent with the Plan. 6.2 All Options under the Plan shall be granted subject to the following terms and conditions: -6- (a) OPTION PRICE The Option Price shall be determined by the Committee at the time of grant, but shall not be less than 100% of the Fair Market Value of the Common Stock on the date the Option is granted. (b) DURATION OF OPTIONS Options shall be exercisable at such time and under such conditions as set forth in the option grant, but in no event shall any Option be exercisable later than the tenth anniversary of the date of its grant. (c) EXERCISE OF OPTIONS Subject to Section 6.2(j), an optionee may not exercise an Option until he or she has completed one year of continuous employment with the Company or one of its Subsidiaries from and including the date on which the Option is granted, or such longer period as the Committee may determine in a particular case. This requirement is waived in the event of death or Permanent Disability of an optionee before such period of continuous employment is completed. Thereafter, shares of Common Stock covered by an Option, to the extent then vested, may be purchased at one time (but not in installments) during the option period as may be provided in the option grant. To the extent that the right to purchase shares has vested thereunder, such vested Options may be exercised by written notice to the Company. (d) PAYMENT The Option Price of shares purchased under Options shall be paid in full to the Company upon the exercise of the Option by delivery of consideration equal to the product of the Option Price and the number of shares purchased. Such consideration may be either (i) in cash or check acceptable to the Company or (ii) at the discretion of the Plan Administrator, in Common Stock already owned by the Participant for at least six months, or any combination of cash and such Common Stock. The Fair Market Value of such Common Stock as delivered shall be valued as of the day prior to delivery. The Plan Administrator can determine at the time the Option is granted that additional forms of payment will be permitted. To the extent permitted by the Plan Administrator and applicable laws and regulations (including, but not limited to, federal tax and securities laws and regulations and state corporate law), an Option may also be exercised by delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the Option Price of shares purchased under the Option and any applicable withholding taxes. -7- (e) RESTRICTIONS The Plan Administrator shall determine and reflect in the Option grant, with respect to each Option, the nature and extent of the restrictions, if any, to be imposed on the shares of Common Stock which may be purchased thereunder, including, but not limited to, restrictions on the transferability of such shares acquired through the exercise of such Options for such periods as the Plan Administrator may determine. (f) NONTRANSFERABILITY OF OPTIONS Except as provided below, during a Participant's lifetime, an Option may be exercisable only by the Participant and Options granted under the Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the applicable laws of descent and distribution. The Plan Administrator or the Committee, in its sole discretion, may, from time to time, permit the transfer of Options by Participants on such terms and conditions as the Plan Administrator or the Committee may establish. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Option under the Plan or of any right or privilege conferred thereby, contrary to the provisions of the Plan, or the sale or levy or any attachment or similar process upon the rights and privileges conferred hereby, shall be null and void. (g) PURCHASE FOR INVESTMENT The Plan Administrator shall have the right to require that each Participant or other person who shall exercise an Option under the Plan, and each person into whose name shares of Common Stock shall be issued pursuant to the exercise of an Option, represent and agree that any and all shares of Common Stock purchased pursuant to such Option are being purchased for investment only and not with a view to the distribution or resale thereof and that such shares will not be sold except in accordance with such restrictions or limitations as may be set forth in the option. This Section 6.2(g) shall be inoperative during any period of time when the Company has obtained all necessary or advisable approvals from governmental agencies and has completed all necessary or advisable registrations or other qualifications of shares of Common Stock as to which Options may from time to time be granted as contemplated in Section 8. (h) TERMINATION OF EMPLOYMENT Upon the termination of a Participant's employment with the Company and all Subsidiaries for any reason other than death or Permanent Disability, the Participant's Option shall be exercisable only to the extent that it was then exercisable and, unless the term of the Option expires sooner, such Option shall expire according to the following schedule; provided, however, that the Plan Administrator or the Committee may at any -8- time determine in a particular case that specific limitations and restrictions under the Plan shall not apply: (i) DISABILITY OR RETIREMENT The Option shall expire, unless exercised, 12 months after the Participant's Permanent Disability or retirement from the Company or any Subsidiary. (ii) INVOLUNTARY TERMINATION BY THE COMPANY The Option shall expire, unless exercised, three months after a Participant is terminated as an employee by the Company or any Subsidiary for any reason other than Cause. (iii) TERMINATION FOLLOWING A CHANGE IN CONTROL The Option shall expire, unless exercised, within 12 months of a Participant's termination of employment (other than a termination by the Company or a Subsidiary for Cause) following a Change in Control, provided that said termination of employment occurs on or within two years following a Change in Control. (iv) ALL OTHER TERMINATIONS (EXCEPT DEATH) Except as provided in subparagraphs (i), (ii) and (iii) above or in Section 6.2(i) below, the Option shall expire upon a Participant's termination of employment with the Company and its Subsidiaries, regardless of the reason for such termination. Leaves of absence for such period and purposes conforming to the personnel policy of the Company or of its Subsidiaries, as applicable, shall not be deemed terminations or interruptions of employment. (i) DEATH OF PARTICIPANT Upon the death of a Participant during the Participant's period of employment, the Option shall expire, unless the term of the Option expires sooner, 12 months after the date of the Participant's death, unless the Option is exercised within such 12 month period by the Participant's Beneficiary; provided, however, that the Plan Administrator may determine in a particular case that specific limitations and restrictions under the Plan shall not apply. -9- (j) CHANGE IN CONTROL Notwithstanding other Plan provisions pertaining to the times at which Options may be exercised, all outstanding Options, to the extent not then currently exercisable, shall become exercisable in full upon the occurrence of a Change in Control; provided, that the Plan Administrator or the Committee may determine that such acceleration will not occur if it would render unavailable "pooling of interest" accounting treatment for any reorganization, merger or consolidation of the Company. (k) MERGERS AND ACQUISITIONS Notwithstanding the foregoing, Options may be granted by the Chief Executive Officer from time to time in substitution for stock options held by employees of other corporations who become employees of the Company or a Subsidiary as the result of a merger or consolidation, or the acquisition by the Company or Subsidiary of the assets or stock of the employing corporation. The terms and conditions of substitute Options granted may vary from the terms and conditions set forth above, to the extent the Committee deems it appropriate. (l) RIGHTS AS STOCKHOLDER A Participant shall have none of the rights of a stockholder until the shares of Common Stock are issued to the Participant. (m) TERM LIMIT Notwithstanding other Plan provisions pertaining to the times at which Options may be exercised, no Option shall continue to be exercisable pursuant to Section 6.2(h) or Section 6.2(i) at a time that would violate the maximum duration of Section 6.2(b). SECTION 7. RESTRICTED STOCK 7.1 Restricted Stock may be granted to eligible employees in such number and at such times during the term of the Plan as the Committee (or the Chief Executive Officer acting pursuant to Section 7.8) shall determine, taking into account the duties of the respective Participants, their present and potential contributions to the success of the Company, and such other factors as the Committee or the Chief Executive Officer, as the case may be, shall deem relevant in accomplishing the purposes of the Plan. The granting of Restricted Stock shall take place when the Committee (or the Chief Executive Officer acting pursuant to Section 7.8) by resolution, written consent or other appropriate written action determines to grant such Restricted Stock to a particular Participant. Each grant shall be evidenced by a written instrument delivered -10- by or on behalf of the Company containing provisions not inconsistent with the Plan. The Participant receiving a grant of Restricted Stock shall be recorded as a stockholder of the Company and, subject to the provisions hereof, shall have all the rights of a stockholder with respect to such shares, including the right to vote the shares and receive all dividends or other distributions made or paid with respect to such shares; provided, however, that the shares themselves, and any new, additional or different shares or securities which the Participant may be entitled to receive with respect to such shares by virtue of a stock split or stock dividend or any other change in the corporate or capital structure of the Company, shall be subject to the restrictions hereinafter described. 7.2 A grant of Restricted Stock shall entitle a Participant to receive, on the date or dates designated by the Committee or the Chief Executive Officer, as the case may be, upon payment to the Company of consideration determined by the Committee or the Chief Executive Officer, as the case may be, which consideration shall be at least equal to the par value of the Common Stock, in a manner determined by the Committee or the Chief Executive Officer, as the case may be, the number of shares of Common Stock selected by the Committee or the Chief Executive Officer, as the case may be. The certificates for Restricted Stock granted under the Plan shall be held in custody by a bank or other institution, or by the Company until the Restriction Period (as defined in Section 7.3) expires or until restrictions thereon otherwise lapse. 7.3 During a period of years following the date of grant, as determined by the Committee or the Chief Executive Officer, as the case may be, which shall in no event be less than one year (the "Restriction Period"), the Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of by the recipient, except in the event of death or Permanent Disability, the waiver or modification of such restrictions by the Committee or the Chief Executive Officer, as the case may be, in the agreement evidencing the grant of Restricted Stock or by written resolution of the Committee or the Chief Executive Officer, as the case may be, adopted at any time. 7.4 Except as provided in Section 7.5 or 7.6, if a Participant terminates employment with the Company and its Subsidiaries for any reason before the expiration of the Restriction Period, all shares of Restricted Stock still subject to restriction shall be forfeited by the Participant to the Company. In addition, in the event of any attempt by the Participant to sell, exchange, transfer, pledge or otherwise dispose of shares of Restricted Stock in violation of the terms of the Plan, such shares shall be forfeited to the Company. 7.5 The Restriction Period for any Participant shall be deemed to end and all restrictions on shares of Restricted Stock shall lapse upon the Participant's death or Permanent Disability or any termination of employment determined by the Committee or the Chief Executive Officer, as the case may be, to end the Restriction Period. 7.6 The Restriction Period for any Participant shall be deemed to end and all restrictions on shares of Restricted Stock shall terminate immediately upon a Change in Control. -11- 7.7 When the restrictions imposed by Section 7.3 expire or otherwise lapse with respect to one or more shares of Restricted Stock, the Company shall deliver to the Participant (or the Participant's Beneficiary) one share of Common Stock for each share of Restricted Stock. At that time, the written instrument referred to in Section 7.1, as it relates to such shares, shall be terminated. 7.8 Of the shares of Restricted Stock authorized under Section 5.2 of the Plan, up to an aggregate of 25,000 shares of Common Stock may be granted by the Chief Executive Officer in any calendar year as fully paid and non-assessable on the terms and conditions set forth in this Section 7; provided, however, that the maximum grant to any individual will be limited to 1,000 shares of Restricted Stock. SECTION 8. REGULATORY APPROVALS AND LISTING 8.1 The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of an Option granted under the Plan prior to: (a) the obtaining of any approval or ruling from the Securities and Exchange Commission, the Internal Revenue Service or any other governmental agency which the Company, in its sole discretion, shall determine to be necessary or advisable; (b) the listing of such shares on any stock exchange on which the Common Stock may then be listed; or (c) the completion of any registration or other qualification of such shares under any federal or state laws, rulings or regulations of any governmental body which the Company, in its sole discretion, shall determine to be necessary or advisable. 8.2 All certificates for shares issued in respect of Restricted Stock awards shall be subject to such stop-transfer orders and other restrictions as the Plan Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which Common Stock is then listed and any applicable federal or state securities laws, and the Plan Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The foregoing provisions of this Section 8.2 shall not be effective if and to the extent that the shares of Common Stock delivered under the Plan are covered by an effective and current registration statement under the Securities Act of 1933, as amended, or if and so long as the Plan Administrator determines that application of such provisions is no longer required or desirable. In making such determination, the Plan Administrator may rely upon an opinion of counsel for the Company. -12- SECTION 9. EFFECTIVE DATE AND TERM OF THE PLAN The Plan shall become effective upon its adoption by the Board of Directors and shall continue until terminated by the Board of Directors or the Committee. SECTION 10. GENERAL PROVISIONS 10.1 Nothing contained in the Plan, or in any Option or Restricted Stock granted pursuant to the Plan, shall confer upon any employee any right with respect to continuance of employment by the Company or a Subsidiary, or interfere in any way with the right of the Company or a Subsidiary to terminate the employment of such employee at any time with or without assigning any reason therefor. 10.2 Grants, vesting or payment of Options or Restricted Stock shall not be considered as part of a Participant's salary or used for the calculation of any other pay, allowance, pension or other benefit unless otherwise permitted by other benefit plans provided by the Company or a Subsidiary, or required by law or by contractual obligations of the Company or a Subsidiary. 10.3 The right of a Participant or Beneficiary to the payment of any compensation under the Plan may not be assigned, transferred, pledged or encumbered, nor shall such right or other interests be subject to attachment, garnishment, execution or other legal process. 10.4 Leaves of absence for such periods and purposes conforming to the personnel policy of the Company or a Subsidiary, as applicable, shall not be deemed terminations or interruptions of employment. 10.5 Subject to Section 6.2(h) in the event a Participant is transferred from the Company to a Subsidiary, or vice versa, or is promoted or given different responsibilities, the Options and/or Restricted Stock granted to the Participant prior to such date shall not be affected. 10.6 The Plan shall be construed and governed in accordance with the laws of the State of Delaware, except that it shall be construed and governed in accordance with applicable federal law in the event that such federal law preempts state law. 10.7 Appropriate provision shall be made for all taxes required to be withheld in connection with the exercise, grant or other taxable event with respect to Options and Restricted Stock under the applicable laws or regulations of any governmental authority, whether federal, state or local and whether domestic or foreign. Unless otherwise provided in the option grant, a Participant is permitted to deliver shares of Common Stock (including shares acquired pursuant to the exercise of an Option other than the Option currently being exercised, to the extent permitted by applicable regulations) for payment of withholding taxes on the exercise of an Option or upon the vesting of the Restricted Stock. The Fair Market Value of such Common Stock as delivered shall be valued as of the day prior to delivery. At the election of the Plan Administrator or, subject to approval of the Plan Administrator at its sole discretion, at the -13- election of a Participant, shares of Common Stock may be withheld from the shares issuable to the optionee upon exercise of an Option or upon the vesting of the Restricted Stock to satisfy tax withholding obligations. The Fair Market Value of such Common Stock as is withheld shall be valued as of the day prior to exercise of the option, or the vesting of the Restricted Stock. SECTION 11. AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN 11.1 The Board of Directors and the Committee may from time to time make such amendments to the Plan as it may deem proper and in the best interest of the Company, including, but not limited to, any amendment necessary to ensure that the Company may obtain any regulatory approval referred to in Section 8; provided, however, that an amendment which increases the number of shares of Common Stock that may be granted under the Plan, changes the class of employees eligible to receive awards or grants, or changes the type of awards or grants that may be made under the Plan may only be made by the Board of Directors; provided further, however, that no change in any Option or Restricted Stock theretofore granted may be made without the consent of the Participant which would impair the right of the Participant to acquire or retain Common Stock that the Participant may have acquired as a result of the Plan. 11.2 The Board of Directors may at any time suspend the operation of or terminate the Plan with respect to any shares of Common Stock or rights not at the time subject to any Option or grant of Restricted Stock. -14- EX-21.1 10 h02234exv21w1.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 BURLINGTON RESOURCES INC. SUBSIDIARIES OF THE REGISTRANT The following is a list of the significant subsidiaries of Burlington Resources Inc. showing the place of incorporation or organization and the percentage of voting securities owned.
PERCENTAGE OF VOTING SECURITIES OWNED JURISDICTION OF DIRECTLY OR INCORPORATION INDIRECTLY BY NAME OF COMPANY OR ORGANIZATION IMMEDIATE PARENT --------------- --------------- ---------------- Burlington Resources International Inc...... Delaware 100% Burlington Resources Hydrocarbons Inc....... Delaware 100% Burlington Resources Oil & Gas Company LP... Delaware 100% Burlington Resources Trading Inc............ Delaware 100% Glacier Park Company........................ Delaware 100% The Louisiana Land and Exploration Company.. Maryland 100% BROG GP Inc................................. Delaware 100% BROG LP Inc................................. Delaware 100% Burlington Resources Canada Ltd............. Alberta, Canada 100% Canadian Hunter Exploration Ltd............. Alberta, Canada 100% Burlington Resources Canada Partnership..... Alberta, Canada 100%
The names of certain subsidiaries are omitted as such subsidiaries, considered as a single subsidiary, would not constitute a significant subsidiary. EX-23.1 11 h02234exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 Registration Nos. (333-91247, 333-95071, 333-52324, 33-22493, 33-25807, 33-26024, as amended in Registration No. 2-97533, 33-33626, 33-46518, 33-53973, 333-02029, 333-32603, 333-40565, 333-60081 and 333-90906) and on Form S-3 Registration Nos. (33-54477, 333-24999, 333-52213, 333-83163, 333-36032, 333-61600 and 333-87170) of Burlington Resources Inc. of our report dated February 19, 2003 relating to the financial statements, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Houston, Texas March 12, 2003 EX-23.2 12 h02234exv23w2.txt CONSENT OF MILLER AND LENTS, LTD. EXHIBIT 23.2 [Miller and Lents, Ltd. Letterhead] CONSENT We hereby consent to the reference to our firm name and our review of the estimates of proved reserves of natural gas, oil and natural gas liquids that Burlington Resources Inc. attributed to its net interests in oil and gas properties located in the U.S. and internationally (excluding Canada and Argentina) as of December 31, 2002, which appears in this Form 10-K. In addition, we hereby consent to the incorporation by reference in the Registration Statements on Form S-8 Registration Nos. (333-91247, 333-95071, 333-52324, 33-22493, 33-25807, 33-26024, as amended in Registration No. 2-97533, 33-33626, 33-46518, 33-53973, 333-02029, 333-32603, 333-40565, 333-60081 and 333-90906) and on Form S-3 Registration Nos. (33-54477, 333-24999, 333-52213, 333-83163, 333-36032, 333-61600 and 333-87170) of Burlington Resources Inc. to the reference to our firm name and our review of the estimates of proved reserves of natural gas, oil and natural gas liquids that Burlington Resources Inc. attributed to its net interests in oil and gas properties located in the U.S. and internationally (excluding Canada and Argentina) as of December 31, 2002, which appears in this Form 10-K. MILLER AND LENTS, LTD. By /s/ CHRISTOPHER A. BUTTA --------------------------------- Christopher A. Butta Senior Vice President Houston, Texas March 10, 2003 EX-23.3 13 h02234exv23w3.txt CONSENT OF SPROULE ASSOCIATES LIMITED EXHIBIT 23.3 [Sproule Associates Limited Letterhead] March 10, 2003 Burlington Resources Inc. 5051 Westheimer, Suite 1400 Houston, Texas 77056 Re: Consent We hereby consent to the reference to our firm name and our review of the estimates of proved reserves of natural gas, oil and natural gas liquids that Burlington Resources Inc. attributed to its net interests in oil and gas properties located in Canada and Argentina as of December 31, 2002, which appears in this Form 10-K. In addition, we hereby consent to the incorporation by reference in the Registration Statements on Form S-8 Registration Nos. (333-91247, 333-95071, 333-52324, 33-22493, 33-25807, 33-26024, as amended in Registration No. 2-97533, 33-33626, 33-46518, 33-53973, 333-02029, 333-32603, 333-40565, 333-60081 and 333-90906) and on Form S-3 Registration Nos. (33-54477, 333-24999, 333-52213, 333-83163, 333-36032, 333-61600 and 333-87170) of Burlington Resources Inc. of the reference to our firm name and our review of the estimates of proved reserves of natural gas, oil and natural gas liquids that Burlington Resources Inc. attributed to its net interests in oil and gas properties located in Canada and Argentina as of December 31, 2002, which appears in this Form 10-K. Sincerely, /s/ KEN H. CROWTHER, P. ENG. -------------------------------- Ken H. Crowther, P. Eng. President -----END PRIVACY-ENHANCED MESSAGE-----