-----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, WDTSiwz3VBP9DXD3HnfXLW7MiPnxd9oG9LRpVDIXpVy2dH9qO0jch5Q4VQnDuTFL MIGqq4LmlzuUsjv/cIKe4g== 0000950134-98-009893.txt : 19981228 0000950134-98-009893.hdr.sgml : 19981228 ACCESSION NUMBER: 0000950134-98-009893 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981210 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVON ENERGY CORP /OK/ CENTRAL INDEX KEY: 0000837330 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731333969 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10067 FILM NUMBER: 98774505 BUSINESS ADDRESS: STREET 1: 20 N BROADWAY STE 1500 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102-8260 BUSINESS PHONE: 4052353611 MAIL ADDRESS: STREET 1: 20 NORTH BROADWAY SUITE 1500 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102-8260 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 10, 1998 DEVON ENERGY CORPORATION (Exact Name of Registrant as Specified in its Charter) OKLAHOMA 1-10067 1474008 (State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Incorporation or Organization) Identification Number) 20 NORTH BROADWAY, SUITE 1500, OKLAHOMA CITY, OK 73102 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (405) 235-3611 Page 1 of __ total pages 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS THE COMBINATION On December 10, 1998, Devon Energy Corporation ("Devon") acquired all 68.5 million common shares of Northstar Energy Corporation ("Northstar"). The Northstar common shares were acquired in exchange for approximately 16.1 million exchangeable shares (the "Exchangeable Shares"). Devon also assumed Northstar's $312.6 million of long-term debt outstanding. The Exchangeable Shares were issued by Northstar, but are exchangeable at any time into Devon's common shares on a one-for-one basis. Prior to such exchange, the Exchangeable Shares have rights identical to those of Devon's common shares, including dividend, voting and liquidation rights. The issuance of the Exchangeable Shares for the Northstar common shares is hereafter referred to as the "Combination." The Combination was approved by Devon's shareholders at a special meeting held on December 9, 1998. The Combination was approved by Northstar's shareholders at a special meeting held on December 10, 1998. PROPERTIES ACQUIRED The Combination significantly expands Devon's oil and gas property base. Northstar's properties had estimated proved reserves as of December 31, 1997, of 128 million barrels of oil equivalent ("MMBoe"). This total included 31.7 million barrels of oil, 550.1 billion cubic feet of natural gas and 4.6 million barrels of natural gas liquids. The addition of the Northstar proved reserves increased Devon's year-end 1997 total proved reserves by 70%. Northstar also had approximately 1.6 million net undeveloped acres as of the end of 1997. This is over three times Devon's year-end 1997 net undeveloped acreage prior to the Combination. All of Northstar's oil and gas properties, including undeveloped acreage, are located in Canada, with the majority in Alberta. After the Combination, 54% of Devon's pro forma year-end 1997 proved reserves were located in the United States and 46% were located in Canada. The oil/gas mix of such pro forma reserves was 38% oil and natural gas liquids and 62% natural gas. FINANCIAL EFFECTS OF THE COMBINATION The Combination is being accounted for under the pooling-of-interests method of accounting for business combinations. Under the pooling-of-interests method, the assets, liabilities and operating results of Devon for all prior periods will be restated to include Northstar's historical assets, liabilities and operating results stated in accordance with U.S. generally accepted accounting principles ("GAAP"). Item 7 of this report includes a pro forma balance sheet as of September 30, 1998, and pro forma statements of operations for the nine month periods ended September 30, 1998 and 1997, and for the years ended December 31, 1997, 1996 and 1995. The pro forma financial statements combine the accounts of Devon and Northstar, and are presented in U.S. dollars and under U.S. GAAP. Item 7 also includes the historical 2 3 consolidated financial statements of Northstar for such periods. Such historical financial statements are presented in Canadian dollars and under Canadian GAAP. The significant differences between U.S. and Canadian GAAP are disclosed in note 13 to Northstar's consolidated financial statements. NEW LONG-TERM CREDIT FACILITIES In connection with the closing of the Combination, Devon entered into new long-term credit facilities aggregating $400 million. The new facilities replace Devon's previous long-term credit facilities that totaled $208 million. The new facilities include a U.S. facility of $205 million and a Canadian facility of $195 million. At closing, $114.7 million was drawn against the facilities ($20.0 million in the U.S. and $94.7 million in Canada). Also at closing, in addition to the $114.7 million of debt borrowed under the new credit facilities, Devon assumed Northstar's $225 million of long-term, fixed rate debt. The new credit facilities are unsecured "balance sheet" facilities, and contain financial covenants similar to Devon's previous facilities. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Consolidated Financial Statements of Northstar Energy Corporation: Auditors' Report to the Shareholders Consolidated Balance Sheets Consolidated Statements of Earnings Consolidated Statements of Retained Earnings Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements (b) Pro Forma Financial Information: Devon-Northstar Unaudited Pro Forma Combined Financial Information: Unaudited Pro Forma Combined Balance Sheet Unaudited Pro Forma Combined Statements of Operations Notes to Unaudited Pro Forma Combined Financial Statements Unaudited U.S. GAAP Financial Information - Northstar: Unaudited U.S. GAAP Balance Sheet - Northstar Unaudited U.S. GAAP Statements of Operations - Northstar Notes to Unaudited U.S. GAAP Financial Statements - Northstar 3 4 (c) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 Amended and Restated Combination Agreement between the Registrant and Northstar Energy Corporation dated June 29, 1998 (incorporated by reference to Annex B to Registrant's definitive proxy statement for a special meeting of shareholders, filed November 6, 1998). 3 Registrant's Amended and Restated Certificate of Incorporation 4.1 Support Agreement, dated December 10, 1998, between the Registrant and Northstar Energy Corporation 4.2 Provisions Attaching to the Exchangeable Shares 9 Voting and Exchange Trust Agreement, dated December 10, 1998, by and between the Registrant, Northstar Energy Corporation and CIBC Mellon Trust Company 10.1 US Credit Agreement, dated December 11, 1998, among the Registrant, as US Borrower, NationsBank, N.A., as Administrative Agent, NationsBanc Montgomery Securities, L.L.C., as Arranger, Bank One, Texas, N.A., as Syndication Agent, Bank of Montreal, as Documentation Agent, First Union, as Co-Documentation Agent, and Certain Financial Institutions, as Lenders 10.2 Canadian Credit Agreement, dated December 11, 1998, among Northstar Energy Corporation and Devon Energy Canada Corporation, as Canadian Borrowers, Bank of America Canada, as Administrative Agent, NationsBanc Montgomery Securities, L.L.C., as Arranger, First Chicago Capital Markets, Inc., as Syndication Agent, Bank of Montreal, as Documentation Agent, First Union, as Co-Documentation Agent, and Certain Financial Institutions, as Lenders 23 Consent of Deloitte & Touche LLP
4 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DEVON ENERGY CORPORATION Date: December 22, 1998 By /s/ Danny J. Heatly ---------------------- Danny J. Heatly Controller 5 6 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Northstar Energy Corporation as at December 31, 1997 and 1996 and the consolidated statements of earnings, retained earnings and cash flow for each of the years in the three year period ended December 31, 1997. These consolidated 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 in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 1997 and 1996, and the results of its operations and the changes in its cash flow for each of the years in the three year period ended December 31, 1997 in accordance with Canadian generally accepted accounting principles. Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of net earnings and cash flows for each of the years in the three year period ended December 31, 1997 and the determination of shareholders' equity at December 31, 1997 and 1996 to the extent summarized in Note 13. (SIGNED) DELOITTE & TOUCHE ------------------------------------ Deloitte & Touche Chartered Accountants Calgary, Canada March 19, 1998 (except Note 12 which is as of December 10, 1998) 6 7 NORTHSTAR ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
AS AT AS AT DECEMBER 31, SEPTEMBER 30, ----------------------- 1998 1997 1996 ------------- ---------- ---------- (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS) Current assets Cash and short-term investments....................... $ -- $ -- $ 33,859 Accounts receivable................................... 59,417 73,044 79,486 Investments (note 3).................................. 2,954 61,477 187 Nevis gas plant and B.C. pipeline (note 11)........... -- -- 138,113 Property disposition proceeds receivable (note 4)..... -- -- 64,500 Note receivable (note 3).............................. 34,813 -- -- ---------- ---------- ---------- 97,184 134,521 316,145 Capital assets (note 4)................................. 1,061,727 1,037,350 875,226 Deferred charges and investments (note 3)............... 29,063 6,291 53,513 ---------- ---------- ---------- $1,187,974 $1,178,162 $1,244,884 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities.............. $ 59,707 $ 81,431 $ 84,032 Short-term bank loan (note 5)......................... 34,813 -- -- Current portion of long-term debt..................... -- 70,000 170,973 Current portion of deferred revenue................... 1,322 1,322 1,322 ---------- ---------- ---------- 95,842 152,753 256,327 Long-term debt (note 5)................................. 463,102 435,141 184,896 Deferred revenue (note 6)............................... 9,487 12,040 14,861 Provision for future site restoration (note 4).......... 19,829 17,372 14,662 Deferred income taxes................................... 174,491 168,761 136,066 ---------- ---------- ---------- 762,751 786,067 606,812 Shareholders' equity (note 8)........................... 425,223 392,095 638,072 ---------- ---------- ---------- $1,187,974 $1,178,162 $1,244,884 ========== ========== ==========
Approved on behalf of the board (SIGNED) JOHN A. HAGG (SIGNED) A. GORDON STOLLERY - ----------------------------------------------------- ----------------------------------------------------- John A. Hagg A. Gordon Stollery Director Director
7 8 NORTHSTAR ENERGY CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31, ------------------------- --------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS) Revenues Oil and gas sales.................... $189,132 $233,228 $313,275 $334,128 $261,119 Net royalties........................ (26,100) (46,716) (57,776) (63,138) (43,372) -------- -------- -------- -------- -------- 163,032 186,512 255,499 270,990 217,747 Interest and other income............ 3,174 1,985 2,138 14,576 10,258 Gain on sale of assets (note 11)..... 40,241 40,677 40,671 14,453 -- Equity earnings (note 3)............. -- 6,102 8,578 8,111 1,905 -------- -------- -------- -------- -------- 206,447 235,276 306,886 308,130 229,910 -------- -------- -------- -------- -------- Expenses Operating............................ 43,854 37,854 53,274 56,940 47,852 General and administrative........... 11,248 10,847 12,494 7,639 8,969 Interest on long-term debt........... 23,742 15,684 27,302 17,105 12,392 Foreign exchange loss on repayment of $US debt (note 5)................. -- -- 4,003 -- -- Depletion and depreciation (note 4)................................ 90,549 86,698 118,815 119,828 101,353 Income and capital taxes (note 9).... 7,511 38,120 40,933 44,556 22,766 -------- -------- -------- -------- -------- 176,904 189,203 256,821 246,068 193,332 -------- -------- -------- -------- -------- Net earnings................. $ 29,543 $ 46,073 $ 50,065 $ 62,062 $ 36,578 ======== ======== ======== ======== ======== Earnings per share -- basic............ $ 0.43 $ 0.61 $ 0.68 $ 0.72 $ 0.45 -- fully diluted... $ 0.41 $ 0.59 $ 0.66 $ 0.70 $ 0.44
8 9 NORTHSTAR ENERGY CORPORATION CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31, ------------------------- ---------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- ---------- --------- --------- (UNAUDITED) (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS) Retained earnings, beginning of period.............................. $ 77,723 $246,443 $ 246,443 $186,975 $152,908 Net earnings.......................... 29,543 46,073 50,065 62,062 36,578 Repurchase of common shares (note 8).................................. -- (206,353) (206,353) -- -- Merger costs, net of deferred taxes (note 1)............................ -- (12,384) (12,432) -- -- Dividends............................. -- -- -- (2,594) (2,511) -------- -------- --------- -------- -------- Retained earnings, end of period...... $107,266 $ 73,779 $ 77,723 $246,443 $186,975 ======== ======== ========= ======== ========
9 10 NORTHSTAR ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31, ------------------------- --------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS) Provided by operating activities Cash flow from operations (note 10)... $ 87,448 $ 125,255 $ 167,044 $ 205,307 $ 157,096 Change in non-cash trade accounts..... (8,097) (21,422) 3,841 (4,531) (9,810) -------- --------- --------- --------- --------- 79,351 103,833 170,885 200,776 147,286 -------- --------- --------- --------- --------- Provided by (used for) financing activities Long-term debt, net................... (64,944) 108,183 141,240 143,759 191,704 Common shares issued for cash......... 3,585 16,582 16,777 55,950 14,030 Common shares repurchased............. -- (300,387) (300,387) -- -- Merger costs.......................... -- (17,370) (17,453) -- -- Deferred revenue...................... (2,553) (3,789) (2,821) (6,926) 5,060 Dividends............................. -- -- -- (2,594) (2,511) -------- --------- --------- --------- --------- (63,912) (196,781) (162,644) 190,189 208,283 -------- --------- --------- --------- --------- Provided by (used for) investing activities Capital assets........................ (110,799) (184,687) (275,777) (193,663) (329,777) Investments and other assets.......... -- -- (6,750) (10,799) (20,699) Proceeds on sale of assets............ 97,030 243,776 243,284 23,125 -- Site restoration...................... (1,670) -- (2,857) (1,852) (1,038) Acquisition of Nevis gas plant (note 11)................................ -- -- -- (119,295) -- Changes in non-cash working capital related to investing activities.... -- -- -- (64,500) (16,750) -------- --------- --------- --------- --------- (15,439) 59,089 (42,100) (366,984) (368,264) -------- --------- --------- --------- --------- Increase (decrease) in cash position.... -- (33,859) (33,859) 23,981 (12,695) Cash position, beginning of period...... -- 33,859 33,859 9,878 22,573 -------- --------- --------- --------- --------- Cash position, end of period............ $ -- $ -- $ -- $ 33,859 $ 9,878 ======== ========= ========= ========= =========
10 11 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION AS AT SEPTEMBER 30, 1998 AND FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED) Northstar Energy Corporation ("the Company" or "Northstar") operates in the oil and gas industry in Canada. The consolidated financial statements of the Company are stated in Canadian dollars and have been prepared by management in accordance with accounting principles generally accepted in Canada, consistently applied. These consolidated financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and in light of information available up to March 19, 1998. Significant accounting policies are summarized in Note 2. NOTE 1 -- BASIS OF PRESENTATION On March 14, 1997, pursuant to an offer to purchase all of the shares of Morrison Petroleums Ltd. ("Morrison") set out in an information circular dated February 21, 1997, the Company entered into a business combination with Morrison, a company operating in the oil and gas industry primarily in western Canada. In March 1997 Northstar issued a total of 46,146,933 common shares, at a rate of 0.7 Northstar common share for each Morrison share, following which the former shareholders of Morrison held 53 percent and the former shareholders of Northstar held 47 percent of the then outstanding common shares of the combined company. On March 14, 1997, the closing market price of the Northstar common shares was $14.70 per share. The nature of the business combination was such that neither of the combining companies could be identified as the acquirer for accounting purposes. Accordingly, the business combination has been accounted for using the pooling-of-interest method of accounting whereby the consolidated financial statements reflect the combined historical carrying values of the assets, liabilities and shareholders' equity, and the historical operating results of Northstar and Morrison for each of the periods presented. The accounting policies of both companies were substantially identical and changes were not required to the numbers previously reported by the two companies. However, certain prior year information has been reclassified to conform to the current method of presentation. The book value of the assets and liabilities brought into the combination by each of the combining companies approximate those at March 31, 1997, which are set out below:
NORTHSTAR MORRISON --------- --------- (THOUSANDS) Assets Current assets............................................ $ 46,443 $ 101,424 Capital assets............................................ 384,156 548,161 Investments and other assets.............................. 28,950 29,120 -------- --------- 459,549 678,705 -------- --------- Liabilities Current liabilities....................................... (44,267) (51,594) Long-term debt............................................ (83,058) (103,823) Deferred revenue.......................................... (6,156) (7,488) Deferred obligations...................................... (6,652) (8,873) Deferred income taxes..................................... (45,215) (112,289) -------- --------- $274,201 $ 394,638 ======== =========
11 12 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The revenues and net income of Northstar and Morrison for the period January 1, 1997 to March 31, 1997 are set out below:
NORTHSTAR MORRISON --------- -------- (THOUSANDS) Revenues, net of royalties.................................. $38,920 $26,751 Net earnings................................................ $ 9,411 $28,515(1) ======= =======
- --------------- (1) Includes an after-tax gain on sale of assets of $24.9 million. Costs of $17.8 million ($12.4 million net of deferred income taxes), consisting mainly of professional and advisory fees, employee severance charges and other costs directly related to the business combination have been charged to retained earnings in the current period. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The accounts of Mountain Energy Inc. ("Mountain Energy"), a corporation in which both Northstar and Morrison Middlefield Resources Limited ("MMRL") each have a 50% interest, is accounted for using the proportionate consolidation basis. Substantially all of the Company's petroleum and natural gas operations are conducted jointly with others and these financial statements reflect only the Company's proportionate interest in such activities. SHORT-TERM INVESTMENTS Short-term investments consist of readily marketable Canadian government bonds and similar investments and are recorded at the lower of cost and market value. EQUITY INVESTMENTS The Company holds a 48% interest in West Windsor Power (an Ontario General Partnership) ("West Windsor Power") and, accordingly, accounts for this investment using the equity method. Those direct costs relating to the investment incurred by the Company are amortized over the estimated useful life of the cogeneration plant owned by the partnership, which is estimated to be 30 years. The Company also accounts for its 21.5% interest in MMRL under the equity method. EXPLORATION AND DEVELOPMENT COSTS The Company follows the full cost method whereby exploration and development costs are capitalized. Those costs include direct acquisition, exploration and development costs together with applicable overhead and carrying charges, net of government incentives and tax credits. Interest expense is not capitalized except for interest on financing which is directly related to the pre-production phase of major development projects. Proceeds from disposals are normally deducted from net capital costs without recognition of gains or losses. Costs subject to depletion under the full cost method include estimated future site restoration costs. This estimate includes the cost of production equipment removal and environmental clean-up based upon regulations and economic considerations applicable at year-end. The annual provision for future restoration costs is included with depletion and depreciation. A ceiling test is employed annually to ensure costs accumulated by the Company do not exceed estimated future cash flows from proven reserves and the cost of undeveloped properties. For the purposes of this test, 12 13 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) future cash flows are determined using year-end prices and costs, including deductions for applicable overhead, financing and income tax expenses. The Company periodically performs an impairment test relative to the capitalized cost of undeveloped properties. DEPLETION AND DEPRECIATION Petroleum and natural gas properties, excluding undeveloped properties, are depleted using the unit-of-production method based on estimated proven reserves before deduction of royalties and after conversion to units of common measure based on relative energy content. Processing facilities are depreciated based on the estimated reserve life of each facility. Other assets are depreciated or amortized based on various rates relating to the estimated useful life of each asset. REVENUE RECOGNITION Payments received for undelivered gas are initially deferred and are recognized as revenue when deliveries are made or on the expiry of the period allowed for such deliveries. FOREIGN CURRENCY TRANSLATION Revenues and expenses arising in foreign currencies are translated at the average rate of exchange during the month in which the transaction occurred. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates in effect at the balance sheet date. Exchange gains and losses are included in income, except for unrealized exchange gains or losses arising on translation of long-term debt, which are deferred and amortized over the term of the debt. COMMODITY PRICE SWAPS The Company has entered into oil and natural gas price and foreign exchange rate swap contracts to mitigate the effects of price and foreign exchange fluctuations on its earnings. Gains and losses arising from the swaps are deferred and reported as adjustments to revenues at the time of sale of the related products (see Financial Instruments, Note 7). The carrying amounts of these instruments are included in accounts receivable in the case of contracts in a net receivable position and accounts payable in the case of contracts in a net payable position. MEASUREMENT UNCERTAINTY The amounts recorded for depletion, depreciation and amortization of capital assets and the provision for future site restoration and reclamation costs are based on estimates. The ceiling test is based on estimates of proved reserves, production rates, oil and gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. 13 14 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- DEFERRED CHARGES AND INVESTMENTS
DECEMBER 31, SEPTEMBER 30, ----------------- 1998 1997 1996 ------------- ------- ------- (THOUSANDS) West Windsor Power -- investment........................... $ -- $11,744 $10,211 -- direct costs..................... -- 16,175 16,075 ------- ------- ------- -- 27,919 26,286 Less: amortization....................................... -- 1,142 606 ------- ------- ------- -- 26,777 25,680 MMRL (market value December 31, 1997 -- $44,277; December 31, 1996 -- $38,098)..................................... -- 29,754 20,362 Other investments.......................................... 2,954 4,946 4,749 ------- ------- ------- Total investments.......................................... 2,954 61,477 50,791 Land....................................................... 948 971 971 Deferred foreign exchange.................................. 25,925 4,801 712 Deferred charges, net of accumulated amortization.......... 2,190 519 1,226 ------- ------- ------- 32,017 67,768 53,700 Less: investments classified as current assets........... 2,954 61,477 187 ------- ------- ------- $29,063 $ 6,291 $53,513 ======= ======= =======
In March 1998, the Company completed the sale of its investment in West Windsor Power for consideration of $72.3 million, resulting in a pre-tax gain of approximately $40 million. The proceeds received include two non-interest bearing notes receivable of $36 million and $36.3 million. The $36 million note was purchased by a chartered bank on a discounted basis, and the proceeds of $35.8 million were applied against long-term bank debt. The $36.3 million note receivable has been recorded on the balance sheet at its discounted value of $34.8 million. This note was used to secure a new short-term bank loan of $34.8 million which was applied against long-term bank debt (Note 5). West Windsor Power owns and operates a 109 megawatt cogeneration plant located in Windsor, Ontario which produces power which is sold to Ontario Hydro under a 20 year contract. The plant commenced commercial operations in November 1995. The partnership's interest in its cogeneration facility was financed by way of a non-recourse term loan to the partnership through a syndicate of international banks. Security for the loan was limited to the assets of the partnership, with no recourse to other assets of the Company or its partners. In connection with the construction of the plant and financing, the Company contributed $14.7 million of equity (December 31, 1997 and 1996 -- $14.7 million). The Company also issued irrevocable letters of credit amounting to $6.2 million in favour of the financing syndicate. The Company capitalized $NIL, $NIL, $0.1 million, $3.0 million and $0.1 million during the nine month periods ended September 30, 1998 and 1997, and the years ended December 31, 1997, 1996 and 1995, respectively of direct costs, net of development fees, in connection with its investment in the partnership. Equity income recorded from the Company's investment in West Windsor Power amounted to $NIL and $3.7 million for the nine month periods ended September 30, 1998 and 1997, and $5.7 million, $3.9 million and $1.0 million for the years ended December 31, 1997, 1996 and 1995 respectively. On July 31, 1998, the Company completed the exchange of its shares and options of MMRL for MMRL's 50% interest in Mountain Energy which owns certain of MMRL's Canadian oil and gas properties. The transaction was effective June 30, 1998. Under the terms of the agreement, Northstar no longer acts as co-manager of MMRL and has not received management fees effective June 1, 1998. Prior to the July 31, 14 15 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1998 exchange, the investment in MMRL represented the cost, together with equity earnings, of the Company's investment in the common shares of MMRL. The Company had accounted for its interest in MMRL under the equity method with effect from January 6, 1995. At that time the Company's cost was less than MMRL's underlying net book value by $1.5 million. This difference was being amortized to earnings over the life of the related oil and natural gas reserves. The Company was a co-manager of MMRL and received management fees for services provided to MMRL. Management fees earned in the nine month periods ended September 30, 1998 and 1997 amounted to $0.3 million and $3.7 million, respectively, and in the years ended December 31, 1997, 1996 and 1995 amounted to $4.4 million, $4.1 million and $1.9 million, respectively. At September 30, 1998 MMRL owed Northstar $0.5 million (December 31, 1997 -- $0.7 million; December 31, 1996 -- $0.2 million due to MMRL) in respect of activities managed by Northstar. On January 31, 1996, the Company increased its investment in common shares of MMRL through the exercise of warrants to purchase common shares. Substantially all of the warrants held by other warrant holders of MMRL were exercised prior to their expiry on January 31, 1996, following which Northstar's interest in MMRL was diluted. A dilution gain of $1.4 million was recorded on the deemed disposition of a portion of Northstar's investment in MMRL and is included in equity income. Equity income recorded from the Company's investment in MMRL amounted to $NIL, $2.4 million, $2.9 million, $4.2 million and $0.9 million for the nine month periods ended September 30, 1998 and 1997, and for the years ended December 31, 1997, 1996 and 1995, respectively. Other investments at September 30, 1998 include marketable securities with an aggregate cost of $2.2 million; (December 31, 1997 -- $3.3 million; December 31, 1996 -- $1.5 million) which have a market value of $2.4 million (December 31, 1997 -- $5.6 million; December 31, 1996 -- $2.5 million). Northstar's other investments, including the cost of the investment in MMRL, were classified as current assets at December 31, 1997 due to Northstar's intention to sell these investments in 1998. NOTE 4 -- CAPITAL ASSETS
SEPTEMBER 30, 1998 DECEMBER 31, 1997 --------------------------------------- --------------------------------------- ACCUMULATED ACCUMULATED DEPLETION AND DEPLETION AND COST DEPRECIATION NET COST DEPRECIATION NET ---------- ------------- ---------- ---------- ------------- ---------- (THOUSANDS) Petroleum and natural gas properties...... $1,552,709 $591,757 $ 960,952 $1,440,909 $511,171 $ 929,738 Natural gas processing facilities.......... 120,772 27,280 93,492 123,456 24,126 99,330 Other assets......... 20,496 13,213 7,283 20,295 12,013 8,282 ---------- -------- ---------- ---------- -------- ---------- $1,693,977 $632,250 $1,061,727 $1,584,660 $547,310 $1,037,350 ========== ======== ========== ========== ======== ========== DECEMBER 31, 1996 ------------------------------------- ACCUMULATED DEPLETION AND COST DEPRECIATION NET ---------- ------------- -------- (THOUSANDS) Petroleum and natural gas properties...... $1,173,468 $405,930 $767,538 Natural gas processing facilities.......... 116,694 18,160 98,534 Other assets......... 18,803 9,649 9,154 ---------- -------- -------- $1,308,965 $433,739 $875,226 ========== ======== ========
Undeveloped acreage and related seismic costs not subject to depletion amounted to $78.8 million at September 30, 1998 and December 31, 1997, and $73.5 million at December 31, 1996. The provision for future estimated site reclamation costs amounted to $4.1 million, $5.0 million, $5.9 million, $6.3 million and $4.2 million for the nine month periods ended September 30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995, respectively. In December 1996, the Company entered into agreements relating to the sale of certain non-core oil and natural gas properties. Proceeds aggregating $64.5 million were receivable at December 31, 1996 in respect of dispositions which closed in January 1997. The amounts receivable in respect of these sales have been removed from property, plant and equipment and classified as a current asset. No gains or losses were attributable to these dispositions. 15 16 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- SHORT-TERM BANK LOAN AND LONG-TERM DEBT In March 1998, Northstar arranged a short-term non-revolving bank loan in the amount of $34.8 million with a Canadian chartered bank. The loan is repayable in full on January 4, 1999 and is secured by the note receivable in connection with the sale of West Windsor Power.
DECEMBER 31, SEPTEMBER 30, -------------------- 1998 1997 1996 ------------- -------- -------- (THOUSANDS) 6.79% senior notes due March 2, 2009 (US$150,000)........ $228,885 $ -- $ -- 6.76% senior notes due July 19, 2005 (US$75,000)......... 114,443 107,183 102,720 7.03% senior notes due November 7, 2005 (US$60,000)...... -- 85,746 82,176 Bank debt................................................ 119,774 312,212 121,680 Promissory note payable and preferred shares of Mountain Energy................................................. -- -- 44,290 Capital lease obligation................................. -- -- 5,003 -------- -------- -------- 463,102 505,141 355,869 Less: portion classified as current...................... -- 70,000 170,973 -------- -------- -------- $463,102 $435,141 $184,896 ======== ======== ========
On March 2, 1998, Northstar issued US$150 million senior notes by way of a private placement. The notes, which are unsecured, bear interest at 6.79% and are repayable in three equal annual installments of US$50 million commencing in 2007. Proceeds received from the notes were used to repay US$60 million outstanding under the Company's 7.03% senior notes and the balance was applied to bank debt. Foreign exchange losses and other charges which had previously been deferred in respect of the 7.03% senior notes were charged to earnings at December 31, 1997. The 6.76% senior notes, which are unsecured, were issued in 1995 pursuant to a private placement with institutional investors in the United States. The notes bear interest at the annual interest rates disclosed above and are repayable in five annual installments of US$15 million, commencing in 2001. In 1997, Northstar arranged an extendible revolving term credit facility in the amount of $300 million with a syndicate of Canadian banks and a separate $60 million extendible operating credit facility with a Canadian chartered bank. These facilities, which are unsecured, are renewable annually by mutual agreement. In the event that the facilities are not renewed by the lenders, any borrowings outstanding become repayable in equal consecutive quarterly installments over a 66 month period commencing four months after the renewal date. The facilities provide for various interest rate and Bankers Acceptance fee options, which are based on market rates in effect from time to time and the Company's debt to cash flow ratio. During the third quarter of 1998, the extendible revolving long-term credit facility and the extendible operating credit facility were reduced to $90 million and $60 million, respectively, at the request of the Company. At June 30, 1998, borrowings under these facilities amounted to $125.0 million and bore interest at an average interest rate of 6.33%. In March 1998, following the receipt of proceeds on the sale of the cogeneration investment, long-term bank debt was reduced by approximately $70.0 million. Accordingly, this amount has been classified as a current liability at December 31, 1997. Bank debt outstanding at December 31, 1996 was classified as current due to its repayment in January 1997 with proceeds received on the sale of the Nevis gas plant and the B.C. pipeline to the Morrison Facilities Income Fund. 16 17 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The promissory note payable and preferred shares of Mountain Energy represented Northstar's proportionate share of obligations of Mountain Energy in connection with an oil and natural gas property purchase completed by that company. The preferred shares, which were entitled to dividends at 2.2% per annum, were redeemed by Mountain Energy in 1997. The promissory note, of which Northstar's share was $11.4 million, bore interest at 5.25% per annum and was repaid in 1997. In October 1997, the Company exercised its buyout option under a capital lease obligation in respect of certain gas plant equipment which bore interest at 8.75% per annum. At December 31, 1996, the capitalized cost of the leased equipment was $9.4 million and accumulated depreciation amounted to $3.8 million. NOTE 6 -- DEFERRED REVENUE Included in deferred revenue at September 30, 1998, and December 31, 1997 and 1996 is $5.2 million, $6.6 million, and $8.4 million, respectively, representing amounts received on foreign exchange and crude oil and natural gas price forward sale agreements. These amounts will be recognized in income during the period 1998 to 2000, the terms of the related forward sale agreements. Deferred revenue also includes at September 30, 1998 and at December 31, 1997 and 1996, $5.8 million, $6.7 million, and $7.8 million, respectively, in respect of a prepaid gas sales contract. Under the contract, the Company is required to sell 26 billion cubic feet of natural gas to a United States-based purchaser over an estimated 12 year period, which commenced November 1, 1990. In addition to amounts paid by the purchaser for the natural gas sold under the contract, the contract requires the purchaser to pay operating fees and Crown royalties associated with contracted production. Cumulative natural gas deliveries pursuant to the contract to September 30, 1998 amounted to 16.7 billion cubic feet. Estimated deliveries for 1998 are 2.2 billion cubic feet, in respect of which $1.3 million has been classified as a current liability. The Company's obligation to deliver natural gas under the contract is secured by a fixed charge on certain natural gas reserves. In management's opinion, the Company has available production capacity in excess of the contracted volumes. Therefore, delivery obligations will be satisfied from production, and no repayments will be required. NOTE 7 -- FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS FINANCIAL INSTRUMENTS Northstar has entered into contracts to manage its exposure to fluctuations in oil and natural gas prices and foreign exchange rates. The Company is exposed to credit risk to the extent of non-performance by counterparties to the contracts. However, the Company minimizes this risk by only entering into agreements with highly rated major international financial institutions. Maximum exposure to credit losses on these financial instruments approximates their fair value as disclosed below. OIL AND NATURAL GAS PRICES At September 30, 1998, the Company had sold forward approximately 7,000 Bbls per day of remaining 1998 crude oil and liquids production, representing approximately 41 percent of first nine months of 1998 production levels. Approximately 6,000 Bbls per day have been sold at an average price of US$19.02 per Bbl and 1,000 Bbls per day have been sold at a price of Cdn$24.13 per Bbl. Approximately 500 Bbls per day of 1999 production has been sold at an average price of US$20.01 per Bbl. In addition, the Company has sold call options in respect of 13,700 Bbls per day of production during the period October to December 1998 and 7,500 Bbls per day during the period January to December 1999. The options are exercisable by the holder at an average price of US$19.54 per Bbl and US$20.03 per Bbl, respectively. 17 18 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Northstar has also sold forward approximately 30 MMcf per day of 1998 natural gas production (representing approximately 16 percent of the first nine months of 1998 production levels) at an average price of $2.05 per Mcf. Production sold forward in respect of subsequent years approximates 23 MMcf per day in 1999, 5 MMcf per day in 2000, 5 MMcf per day in 2001 and 4 MMcf per day in 2002, at $2.27, $1.88, $2.64 and $2.66 per Mcf, respectively. In addition, the Company has entered into indexed base swap arrangements in respect of 10 MMcf per day of 1998 natural gas production, 5 MMcf per day of 1999 production and 5 MMcf per day for the period January 1, 2000 to March 31, 2002 and has also sold call options in respect of 25 MMcf per day of production during the month of October 1998 and 5 MMcf per day during the period November 1999 to October 2000. The options are exercisable by the holder at an average price of $2.37 and $2.53 per Mcf, respectively. FOREIGN EXCHANGE To reduce the exposure to exchange rate fluctuations on US dollar revenues, the Company has entered into exchange rate contracts to sell US$60 million during each of the years 1998 and 1999 at an average rate of US$0.732 and US$0.726, respectively, and US$30 million in 2000 at US$0.727. Of the amount hedged in 1999 and 2000, U.S. $10 million is extendable, at the option of the counter party, for an additional one-year period at rates of U.S. $0.713 and U.S. $0.710, respectively. CARRYING AMOUNTS AND ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS Northstar's financial instruments recognized on the consolidated balance sheets consist of cash, marketable securities, accounts receivable, investments, accounts payable and long-term debt. With the exception of investments, the fair values of all financial instruments classified as current assets or current liabilities approximate their carrying amounts due to the short-term maturity of these instruments. The following table summarizes estimated fair value of commodity and foreign exchange contracts, investments and non-current financial instruments:
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 --------------------- --------------------- ---------------------- CARRYING FAIR CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- --------- ---------- (THOUSANDS) Crude oil contracts.......... $ (1,173) $ 3,300 $ 221 $ 4,900 $ (313) $ (7,021) Natural gas contracts.......... (442) (8,500) (357) 200 139 (3,244) Foreign exchange contracts.......... (1,989) (18,100) (483) (7,200) -- 2,500 Cogeneration investment......... -- -- 26,777 72,400 25,680 Note below Investments.......... 2,954 3,175 34,700 51,602 25,111 52,630 Long-term debt....... $(463,102) $(486,349) $(435,141) $(444,926) $(184,896) $ (182,361)
The fair value of crude oil and natural gas contracts is based on quotes provided by brokers while the fair value of investments is determined primarily on the basis of market quotes. The fair value of long-term debt has been estimated by discounting the principal and interest payments at rates available to the Company for debt of similar terms and maturity. The fair value of the cogeneration investment at December 31, 1997 is based on the selling price negotiated with the purchaser in a sale completed in March 1998. At December 31, 1996, management estimated that the fair value of the cogeneration investment was in excess of its carrying value. COMMODITY CONTRACTS In addition to the financial instruments set out above, Northstar has also entered into fixed price natural gas sales contracts for approximately 49.7 MMcf per day in 1998 at an average price of $2.05 per Mcf, 57.7 MMcf per day in 1999 at an average price of $2.07 per Mcf and 53.1 MMcf per day for the years 2000 to 18 19 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2002 at average prices between $2.24 and $2.33 per Mcf. Another 32 MMcf per day of natural gas production has been sold under five to ten year contracts at an initial price of $1.87 per Mcf, escalating at approximately 4% for the duration of the contracts. NOTE 8 -- SHAREHOLDERS' EQUITY
DECEMBER 31, ---------------------------------------------- SEPTEMBER 30, 1998 1997 1996 --------------------- ---------------------- --------------------- NUMBER OF NUMBER OF NUMBER OF SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- -------- ----------- -------- ---------- -------- (THOUSANDS FOR DOLLAR AMOUNTS) Common shares Authorized: unlimited number of shares issued: Beginning of period........... 67,963,722 $314,372 86,956,189 $391,629 81,790,738 $334,712 On exercise of stock options and employee retirement savings plan................ 505,963 3,585 1,697,060 16,777 897,761 7,467 Shares repurchased............ -- -- (20,689,527) (94,034) Public share offering......... -- -- -- -- 3,500,000 48,691 Under flow through share agreements.................. -- -- -- -- 767,690 759 ---------- -------- ----------- -------- ---------- -------- End of period................. 68,469,685 317,957 67,963,722 314,372 86,956,189 391,629 Retained earnings................. -- 107,266 -- 77,723 -- 246,443 ---------- -------- ----------- -------- ---------- -------- -- $425,223 -- $392,095 -- $638,072 ========== ======== =========== ======== ========== ========
On April 16, 1997, pursuant to an issuer bid, the Company repurchased 20,689,527 of its common shares at a price of $14.50 per share. The aggregate cost of the repurchase amounted to $300.4 million, of which $94.0 million was charged to share capital. The remaining $206.4 million, representing the amount paid in excess of the average carrying value of the common shares repurchased, was charged to retained earnings. On February 23, 1996, the Company issued 3,500,000 common shares for proceeds of $47.8 million net of issue costs. Under the flow through share agreements, subscribers are entitled to deduct, for income tax purposes, the expenditures made by the Company on qualifying oil and gas activities from funds subscribed and the Company retains the right to the oil and gas properties to which the expenditures relate. The Company has recorded as share capital the share subscriptions received, less the tax effect of subsequent oil and gas expenditures not being deductible for income tax purposes by the Company. Flow through shares issued in 1996 include 701,750 common shares for which the related subscriptions of $8.0 million were received and included in share capital in 1995. The shares were issued in 1996 after the qualifying expenditures had been incurred. STOCK OPTIONS As at September 30, 1998, the Company had reserved 4,593,150 common shares under stock option agreements granted to employees pursuant to Northstar's stock option plan. Options in respect of an additional 963,479 common shares were also outstanding, resulting from conversion privileges granted to former Morrison option holders at the time of the merger. All options are exercisable at prices ranging from $4.76 to $15.50 per share at various times during the period ending 2004. The weighted average exercise price for these options is approximately $11.14. Options in respect of 2,016,179 common shares were vested at September 30, 1998. 19 20 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PREFERRED SHARES The authorized capital of the Company includes 100 million First Preferred Shares and 100 million Second Preferred Shares, of which none are currently issued or outstanding. NOTE 9 -- INCOME AND CAPITAL TAXES The income tax provision differs from the amount that would be computed by applying the combined Canadian federal and provincial income tax rate of 44.6% (1996 -- 44.8%, 1995 -- 44.2%) to earnings before taxes. The reasons for this difference are as follows:
SEPTEMBER 30, DECEMBER 31, ---------------------------------- ----------------------------------------------------- 1998 1997 1997 1996 1995 ---------------- --------------- ---------------- ---------------- --------------- (THOUSANDS) Earnings before taxes........... $ 37,054 100.0% $84,193 100.0% $ 90,998 100.0% $106,618 100.0% $59,344 100.0% -------- ----- ------- ----- -------- ----- -------- ----- ------- ----- Computed "expected" income taxes......................... 16,534 44.6 37,567 44.6 $ 40,603 44.6 $ 47,775 44.8 26,209 44.2 Non-deductible crown payments... 9,809 26.5 17,364 20.6 20,935 23.0 22,603 21.2 15,114 25.4 Resource allowance.............. (10,434) (28.2) (14,851) (17.6) (21,163) (23.3) (23,049) (21.6) (17,198) (29.0) Alberta royalty tax credit...... (467) (1.3) (745) (0.9) (937) (1.0) (1,390) (1.3) (1,393) (2.3) Non-deductible depletion........ 1,882 5.1 1,416 1.7 2,254 2.5 (65) (0.1) (1,558) (2.6) Non-taxable portion of capital gains......................... (11,689) (31.5) (2,457) (2.9) (1,920) (2.1) (1,913) (1.8) -- -- Other........................... 95 0.3 (2,512) (3.0) (1,665) (1.8) (2,232) (2.1) (104) (0.2) -------- ----- ------- ----- -------- ----- -------- ----- ------- ----- Deferred income taxes........... 5,730 15.5 35,782 42.5 38,107 41.9 41,729 39.1 21,070 35.5 Capital taxes................... 1,781 4.8 2,338 2.8 2,826 3.1 2,827 2.7 1,696 2.9 -------- ----- ------- ----- -------- ----- -------- ----- ------- ----- $ 7,511 20.3% $38,120 45.3% $ 40,933 45.0% $ 44,556 41.8% $22,766 38.4% ======== ===== ======= ===== ======== ===== ======== ===== ======= =====
NOTE 10 -- CASH FLOW FROM OPERATIONS
SEPTEMBER 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings................................ $ 29,543 $ 46,073 $ 50,065 $ 62,062 $ 36,578 Non cash items: -- depletion and depreciation................ 90,549 86,098 118,815 119,828 101,353 -- deferred income taxes... 5,730 35,782 38,107 41,729 21,070 -- gain on sale of assets...................... (40,241) (40,677) (40,671) (14,453) -- -- equity earnings......... -- (6,102) (8,578) (8,111) (1,905) -- cash distribution from West Windsor Power earnings................ -- 3,481 4,632 4,057 -- -- amortization of deferred charges.......... 1,867 -- 671 195 -- -- foreign exchange loss on repayment of $US debt... -- -- 4,003 -- -- -------- -------- -------- -------- -------- Cash flow from operations................... $ 87,448 $125,255 $167,044 $205,307 $157,096 ======== ======== ======== ======== ========
NOTE 11 -- NEVIS GAS PLANT AND B.C. PIPELINE On January 28, 1997, the Company completed the sale of its 100 percent interest in both the Nevis gas plant and a crude oil pipeline system in northeastern British Columbia to a wholly owned subsidiary of the Morrison Facilities Income Fund ("the Fund") for a net cash consideration of $178.8 million. A gain of $40.7 million was recorded in 1997 related to this disposition. The Fund, which raised the proceeds through a public issue of trust units, is an unincorporated trust governed by the laws of Alberta. Northstar does not hold any trust units in the Fund but has entered into management and administration agreements with the Fund 20 21 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and its subsidiary. Under these agreements, Northstar provides management and other services to the Fund, for which it earned a management fee of $0.7 million in 1997. Included in accounts receivable at December 31, 1997 is an amount of $1.1 million due from the Fund in respect of costs incurred by Northstar on behalf of the Fund. At December 31, 1996, the cost of the assets subsequently sold to the Fund was $142.1 million and accumulated depreciation thereon amounted to $4.0 million. The net book value of $138.1 million was classified as a current asset. In November 1996, a gain of $14.5 million was recorded on the sale of an investment in CGGS Canadian Gas Gathering Systems Inc. ("CGGS"), a private company formerly managed by the Company. All of the shares of CGGS, including those held by the Company, were acquired by a third party on November 16, 1996. Prior to the sale of CGGS, the Company was entitled to receive fees upon the acquisition by CGGS of producing natural gas properties, gas plants and related gas gathering systems as well as fees for management services provided to CGGS. Fees earned from CGGS during the year ended December 31, 1996 amounted to $3.3 million. NOTE 12 -- SUBSEQUENT EVENT On June 29, 1998 Northstar reached an agreement with Devon Energy Corporation, an oil and gas exploration and development company based in Oklahoma, to merge the two companies. On December 10, 1998, following the approval of both companies' shareholders and certain other regulatory and court approvals, the merger was closed. Under the agreement, Northstar shareholders received .235 Devon common equivalent shares. NOTE 13 -- CANADIAN AND UNITED STATES DIFFERENCES IN ACCOUNTING PRINCIPLES These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). As indicated below, in certain aspects GAAP as applied in the United States differs from Canadian GAAP. (a) Under U.S. GAAP, the business combination with Morrison Petroleums Ltd. in March 1997 would have been accounted for as a purchase, with Morrison being deemed the acquirer, rather than as a pooling-of-interests. Under the purchase method of accounting, the consideration paid is based on the fair value of the Northstar shares deemed to have been issued to the former Northstar shareholders and the purchase price including the fair value of assumed liabilities would be allocated to the assets acquired. Under the purchase method of accounting, results of operations of the acquired entity are included in the purchaser's results from the date of acquisition; whereas, under the pooling-of-interests method, all periods prior to the combination are restated to show the combined historical results of the entities being pooled. Accounting for the acquisition of Northstar under the purchase method resulted in an additional amount being allocated to the oil and gas properties acquired. Such higher costs of capital assets resulted in a corresponding increase in the provision for depletion. (b) Under the full cost method of accounting, as prescribed by the U.S. Securities and Exchange Commission, the costs capitalized in a cost center are limited to an amount equal to the present value of future net revenues from proved reserves discounted at 10 percent plus the lower of cost or estimated fair value of unproven properties. Under Canadian GAAP, future net revenue is not discounted but projected financing and general and administration costs are deducted. Due to this difference, the Northstar acquisition being accounted for as a purchase and significant oil and gas price declines, an adjustment to reflect a reduction in the carrying amount of oil and gas property costs at December 31, 1997 and 1995 was required under U.S. GAAP. Additionally, an adjustment to reflect Northstar's share of a reduction in the carrying amount of oil and gas property costs of Mountain Energy, Inc., an equity investee of Northstar was required in 1997. 21 22 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The reductions to the carrying amount of oil and gas property costs in 1997 and 1995, along with reductions that were also required in 1994 and 1991, resulted in decreases to Northstar's historical provisions for depreciation and depletion expense in periods subsequent to the write-downs. (c) U.S. GAAP requires the use of the liability method of accounting for income taxes. Under this method, deferred income taxes are recognized, at current enacted rates, to reflect the expected future tax consequences arising from the differences between the financial statement basis and tax basis of assets and liabilities. Under Canadian GAAP, deferred income taxes are accounted for using the deferred method. Effective January 1, 1993, Morrison adopted the liability method for reporting income taxes under SFAS 109 for U.S. GAAP purposes. This change resulted in a reduction of deferred income taxes and a corresponding increase in retained earnings. (d) U.S. GAAP requires that an interest in a corporate joint venture of which a joint venturer exercises significant influence, but which is not controlled by the venturer, be accounted for under the equity method of accounting. Under Canadian GAAP, such investments are accounted for using the proportionate consolidation method. (e) U.S. GAAP requires that gains and losses arising from the translation of all long-term monetary assets and liabilities denominated in foreign currencies be recognized in earnings in the periods in which such gains or losses occur. Under Canadian GAAP, foreign exchange gains and losses on the translation of long-term monetary assets and liabilities with a fixed and ascertainable life extending beyond the following year are not recognized in earnings immediately, but are amortized on a systematic and rational basis over the remaining life of the related asset or liability. (f) Basic earnings per share under Canada GAAP and U.S. GAAP are calculated in the same manner. Diluted earnings per share under U.S. GAAP reflects the potential dilution that could occur if options were exercised (calculated using the treasury stock method) or if convertible securities were converted to common stock. Potential dilution under Canadian GAAP is not based on the treasury stock method. 22 23 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following presents material differences between Canadian GAAP and U.S. GAAP balance sheet presentation. CAPITAL ASSETS
DECEMBER 31, SEPTEMBER 30, ---------------------- 1998 1997 1996 ------------- ---------- --------- (UNAUDITED) As reported, Canadian GAAP.............................. $1,061,727 $1,037,350 $ 875,226 Accounting for Morrison transaction under the purchase method(a)............................................. 439,606 388,384 (363,224) Adjustment in carrying value of properties(b)........... (998,412) (998,412) (149,672) Adjustment to account for interest in oil and gas corporation under equity method of accounting(d)...... (11,092) (48,897) (43,434) Adjustment for other differences........................ (13,177) (10,438) (8,389) ---------- ---------- --------- Capital assets, U.S. GAAP............................... $ 478,652 $ 367,987 $ 310,507 ========== ========== ========= STOCKHOLDER'S EQUITY Reconciliation of stockholders' equity: Total stockholders' equity under Canadian GAAP........ $ 425,223 $ 392,095 $ 638,072 Accounting for Morrison transaction under the purchase method(a).......................................... 332,014 315,376 (264,178) Adjustment in carrying value of properties(b)......... (647,296) (624,450) (83,079) Adjustment to account for interest in oil and gas corporation under equity method of accounting(d)... (11,092) (10,473) (635) Adjustment for conversion to US GAAP method for accounting for income taxes(c)..................... 18,703 7,957 (6,829) Adjustment to record foreign currency transaction gains and losses in accordance with U.S. GAAP(e)... (25,926) (4,801) (693) ---------- ---------- --------- Total stockholders' equity under U.S. GAAP.... $ 91,626 $ 75,704 $ 282,658 ========== ========== =========
SHARE CAPITAL The following information would have been presented on the face of the balance sheet: The common shares had no par value at September 30, 1998. An unlimited number of common shares were authorized at September 30, 1998. Common shares issued were as follows:
DECEMBER 31, SEPTEMBER 30, ----------------------- 1998 1997 1996 ------------- ---------- ---------- (UNAUDITED) 68,469,685 67,963,722 45,687,565
23 24 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following reconciles differences between Canadian GAAP and U.S. GAAP statement of earnings presentation.
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- -------- -------- (UNAUDITED) (UNAUDITED) Net earnings, as reported............. $29,543 $ 46,073 $ 50,065 $ 62,062 $ 36,578 Decrease for Morrison transaction under the purchase method(a)........ (40,241) (31,650) (51,969) $(43,357) (27,111) Write-down of oil and gas assets required under U.S. ceiling test(b)............................. -- -- (865,883) -- (133,015) Decrease in depletion and depreciation expense due to prior periods' write-downs of oil and gas assets required under U.S. ceiling test(b)............................. 51,222 9,175 17,143 18,688 4,102 Decrease for adjustment to account for interest in oil and gas corporation under the equity method of accounting including share of write-down of investee(d)........... (619) (9,154) (9,838) (635) -- Adjustment for foreign currency transaction losses(e)............... (21,125) (563) (4,108) (272) (421) Tax effect of above adjustments....... (17,188) 3,031 330,281 9,067 65,223 Decrease for conversion to U.S. GAAP method for accounting for income taxes(c)............................ 10,745 7,600 14,814 (803) (715) ------- -------- --------- -------- -------- Net earnings (loss) in accordance with U.S. GAAP........................... $12,337 $ 24,512 $(519,495) $ 44,750 $(55,359) ======= ======== ========= ======== ======== Net earnings per common share: Basic............................... $ 0.18 $ 0.38 $ (8.24) $ 0.99 $ (1.25) Diluted............................. $ 0.18 $ 0.37 $ (8.24) $ 0.99 $ (1.25)
Basic earnings per share under Canada GAAP and U.S. GAAP are calculated in the same manner. Diluted earnings per share under U.S. GAAP reflect the potential dilution that could occur if options were exercised (calculated using the treasury stock method) or if convertible securities were converted to common stock. Potential dilution under Canadian GAAP is not based on the treasury stock method. For U.S. reporting, the information contained in the consolidated statement of operations and retained earnings would be combined to develop a complete statement of shareholders' equity. 24 25 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effect of U.S. GAAP on retained earnings would be as follows: Retained earnings under Canadian GAAP, December 31, 1994.... $ 152,908 Impact of purchase accounting treatment for business combination with Morrison................................. December 31, 1995......................................... (48,804) Decrease for cumulative effect of write-down of oil and gas assets under U.S. ceiling test............................ (21,975) Decrease for conversion to U.S. GAAP method for accounting for income taxes(c)....................................... (5,311) --------- Retained earnings at December 31, 1994 restated under U.S. GAAP...................................................... 76,818 Net income (loss) under U.S. GAAP for the years ended: December 31, 1995........................................... (55,359) December 31, 1996........................................... 44,750 December 31, 1997........................................... (519,495) Dividends paid.............................................. (5,105) --------- Retained earnings (deficit) at December 31, 1997 under U.S. GAAP...................................................... (458,391) Net income under U.S. GAAP for the nine months ended September 30, 1998 (unaudited)............................ 12,337 --------- Retained earnings (deficit) at September 30, 1998 restated under U.S. GAAP (unaudited)............................... $(446,054) =========
The U.S. GAAP cash flows would be as follows:
SEPTEMBER 30, DECEMBER 31, ------------------------- --------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities under Canadian GAAP.......................... $ 79,351 103,833 $ 170,885 $ 200,776 $ 147,286 - - Reclassification of certain financing and investing activities to operating activities.................... (4,223) (4,229) (4,898) (6,738) 5,748 - - Accounting for Morrison transaction under purchase method........................ -- (33,022) (33,022) (113,357) (69,630) - - Adjustment to account for oil and gas company under equity method of accounting.......... 2,491 (7,404) (15,553) (2,141) -- -------- --------- --------- --------- --------- Cash flows from operating activities under U.S. GAAP.... 77,619 59,178 117,412 78,540 83,404 -------- --------- --------- --------- --------- Cash flows from investing activities under Canadian GAAP.......................... (15,439) 59,089 (42,100) (366,984) (368,264) - - Accounting for Morrison transaction under purchase method........................ -- 46,107 46,024 117,940 174,440 - - Reclassification of certain investing activities to operating activities.......... 1,670 767 2,404 953 585 - - Adjustment to account for oil and gas company under equity method of accounting.......... (2,839) (35,731) (28,811) 45,263 -- -------- --------- --------- --------- --------- Cash flows from investing activities under U.S. GAAP.... (16,608) 70,232 (22,483) (202,828) (193,239) -------- --------- --------- --------- ---------
25 26 NORTHSTAR ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, DECEMBER 31, ------------------------- --------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) Cash flows from financing activities under Canadian GAAP.......................... (63,912) (196,781) (162,644) 190,189 208,283 - - Reclassification of certain financing activities to operating activities.......... 2,553 3,462 2,494 5,785 (6,333) - - Accounting for Morrison transaction under purchase method........................ -- 14,106 14,189 (31,774) (99,347) - - Adjustment to account for oil and gas company under equity method of accounting.......... 348 44,303 45,532 (44,290) -- -------- --------- --------- --------- --------- Cash flows from financing activities under U.S. GAAP.... (61,011) (134,910) (100,429) 119,910 102,603 -------- --------- --------- --------- ---------
Cash flows reported under U.S. GAAP differ from those reported under Canadian GAAP in certain respects. Site restoration costs and deferred revenue which are shown as investing and financing activities, respectively, under Canadian GAAP are shown as operating activities under U.S. GAAP. Changes in activities related to a corporate joint venture which is accounted for using the proportionate consolidation method under Canadian GAAP have been removed and restated to reflect accounting for the investment under the equity method of accounting for U.S. GAAP purposes. Under Canadian GAAP, the Morrison combination has been shown as a pooling-of-interests. For U.S. GAAP, this transaction has been accounted for as a purchase. NOTE 14 -- RECLASSIFICATION OF THE PRIOR YEAR'S BALANCES Certain balances from the prior year's consolidated financial statements have been reclassified to conform with the current year's presentation. 26 27 DEVON-NORTHSTAR UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION Set forth below is certain unaudited pro forma combined financial information with respect to the Combination. Such information gives effect to the Combination under the pooling-of-interests method of accounting under U.S. GAAP. Accordingly, the unaudited pro forma combined balance sheet has been presented as if Devon and Northstar were combined at the date of such pro forma balance sheet. The unaudited pro forma combined statements of operations have been presented as if Devon and were combined as of the beginning of the earliest period presented. The following unaudited pro forma combined financial statements should be read in conjunction with the notes thereto immediately following such unaudited pro forma combined financial statements, and the consolidated financial statements and related notes of Devon included in Devon's Form 10-K for the year ended December 31, 1997, and Devon's Form 10-Q for the quarter ended September 30, 1998. The following unaudited pro forma combined financial statements should also be read in conjunction with the consolidated financial statements and related notes of Northstar, which are included elsewhere herein. The unaudited pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of actual results of operations or financial position that would have been achieved had the Combination been consummated at the beginning of the earliest period presented. The unaudited pro forma combined financial information is also not necessarily indicative of future results. UNAUDITED PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 1998 (IN THOUSANDS)
COMBINATION DEVON- RELATED NORTHSTAR NORTHSTAR PRO FORMA PRO FORMA DEVON U.S. GAAP(1) ADJUSTMENTS(2) COMBINED -------- ------------ -------------- ---------- Assets: Current assets......................... $ 51,069 $ 63,695 $(13,000)(a) $ 101,764 Oil and gas properties, net............ 651,441 308,936 960,377 Other property and equipment, net...... 21,000 4,773 25,773 Deferred income taxes.................. -- 53,553 (53,553)(b) -- Other assets, net...................... 13,839 1,645 15,484 -------- --------- -------- ---------- Total assets................... $737,349 $ 432,602 $(66,553) $1,103,398 ======== ========= ======== ========== Liabilities: Current liabilities.................... $ 23,623 $ 62,815 $ 86,438 Revenues and royalties due to others... 2,970 6,218 9,188 Other liabilities...................... 24,343 -- 24,343 Long-term debt......................... -- 303,517 303,517 Deferred income taxes.................. 67,588 -- $(53,553)(b) 14,035 Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trust holding solely 6.5% convertible junior subordinated debentures of Devon Energy Corporation............ 149,500 -- 149,500 Stockholders' equity: Preferred stock........................ -- -- -- Common stock........................... 3,232 -- 1,609(c) 4,841 Additional paid-in capital............. 392,937 397,178 (1,609)(c) 788,506 Retained earnings (deficit)............ 79,769 (316,760) (13,000)(a) (249,991) Accumulated other comprehensive earnings (loss) -- foreign currency translation adjustments............. (6,613) (20,366) (26,979) -------- --------- -------- ---------- Total stockholders' equity..... 469,325 60,052 (13,000) 516,377 -------- --------- -------- ---------- Total liabilities and stockholders' equity......... $737,349 $ 432,602 $(66,553) $1,103,398 ======== ========= ======== ==========
See accompanying notes to unaudited pro forma combined financial statements. 27 28 DEVON-NORTHSTAR UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
DEVON- NORTHSTAR NORTHSTAR PRO FORMA DEVON U.S. GAAP(1) COMBINED -------- ------------ --------- Revenues: Oil sales................................................ $ 65,470 $ 45,931 $111,401 Gas sales................................................ 102,770 54,524 157,294 Natural gas liquids sales................................ 11,120 2,469 13,589 Other.................................................... 5,146 10,652 15,798(4) -------- -------- -------- Total revenues................................... 184,506 113,576 298,082 -------- -------- -------- Costs and expenses: Lease operating expenses................................. 55,306 30,492 85,798 Production taxes......................................... 9,786 1,030 10,816 Depreciation, depletion and amortization................. 68,197 24,716 92,913 General and administrative expenses...................... 9,907 7,773 17,680 Interest expense......................................... 184 16,160 16,344 Deferred effect of changes in foreign currency exchange rate on long-term debt................................ -- 15,433 15,433 Distributions on preferred securities of subsidiary trust................................................. 7,288 -- 7,288 Reduction of carrying value of oil and gas properties.... 126,900 -- 126,900 -------- -------- -------- Total costs and expenses......................... 277,568 95,604 373,172 -------- -------- -------- Earnings (loss) before income taxes........................ (93,062) 17,972 (75,090) Income tax expense (benefit): Current.................................................. 5,482 1,032 6,514 Deferred................................................. (33,215) 8,408 (24,807) -------- -------- -------- Total income tax expense (benefit)............... (27,733) 9,440 (18,293) -------- -------- -------- Net earnings (loss)........................................ $(65,329) $ 8,532 $(56,797) ======== ======== ======== Net earnings (loss) per average common share outstanding: Basic.................................................... $ (2.02) $ (1.17) Diluted.................................................. $ (2.02) $ (1.17) Weighted average common shares outstanding -- basic........ 32,320 48,362
See accompanying notes to unaudited pro forma combined financial statements. 28 29 DEVON-NORTHSTAR UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
DEVON- NORTHSTAR NORTHSTAR PRO FORMA DEVON U.S. GAAP(1) COMBINED -------- ------------ --------- Revenues: Oil sales............................................. $100,857 $ 53,016 $153,873 Gas sales............................................. 107,458 44,413 151,871 Natural gas liquids sales............................. 16,534 1,380 17,914 Other................................................. 5,563 37,176 42,739(4) -------- -------- -------- Total revenues................................ 230,412 135,985 366,397 -------- -------- -------- Costs and expenses: Lease operating expenses.............................. 46,156 24,711 70,867 Production taxes...................................... 13,165 803 13,968 Depreciation, depletion and amortization.............. 60,389 55,751 116,140 General and administrative expenses................... 9,229 9,564 18,793 Interest expense...................................... 249 10,192 10,441 Deferred effect of changes in foreign currency exchange rate on long-term debt.................... -- 406 406 Distributions on preferred securities of subsidiary trust.............................................. 7,288 -- 7,288 -------- -------- -------- Total costs and expenses...................... 136,476 101,427 237,903 -------- -------- -------- Earnings before income taxes............................ 93,936 34,558 128,494 Income tax expense: Current............................................... 14,091 1,465 15,556 Deferred.............................................. 23,484 15,414 38,898 -------- -------- -------- Total income tax expense...................... 37,585 16,879 54,454 -------- -------- -------- Net earnings............................................ $ 56,361 $ 17,679 $ 74,040 ======== ======== ======== Net earnings per average common share outstanding: Basic................................................. $ 1.75 $ 1.59 Diluted............................................... $ 1.62 $ 1.51 Weighted average common shares outstanding-basic........ 32,181 46,628
See accompanying notes to unaudited pro forma combined financial statements. 29 30 DEVON-NORTHSTAR UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
DEVON- NORTHSTAR NORTHSTAR PRO FORMA DEVON U.S. GAAP(1) COMBINED -------- ------------ --------- Revenues: Oil sales.............................................. $133,445 $ 74,280 $ 207,725 Gas sales.............................................. 150,549 68,910 219,459 Natural gas liquids sales.............................. 21,754 3,166 24,920 Other.................................................. 7,392 40,163 47,555(4) -------- --------- --------- Total revenues................................. 313,140 186,519 499,659 -------- --------- --------- Costs and expenses: Lease operating expenses............................... 65,655 35,242 100,897 Production taxes....................................... 17,924 1,303 19,227 Depreciation, depletion and amortization............... 85,307 83,801 169,108 General and administrative expenses.................... 12,922 11,459 24,381 Interest expense....................................... 274 18,514 18,788 Deferred effect of changes in foreign currency exchange rate on long-term debt.............................. -- 5,860 5,860 Distributions on preferred securities of subsidiary trust............................................... 9,717 -- 9,717 Reduction of carrying value of oil and gas properties.......................................... -- 625,514 625,514 -------- --------- --------- Total costs and expenses....................... 191,799 781,693 973,492 -------- --------- --------- Earnings (loss) before income taxes...................... 121,341 (595,174) (473,833) Income tax expense (benefit): Current................................................ 25,202 1,655 26,857 Deferred............................................... 20,847 (221,546) (200,699) -------- --------- --------- Total income tax expense (benefit)............. 46,049 (219,891) (173,842) -------- --------- --------- Net earnings (loss)...................................... $ 75,292 $(375,283) $(299,991) ======== ========= ========= Net earnings (loss) per average common share outstanding: Basic.................................................. $ 2.34 $ (6.38) Diluted................................................ $ 2.17 $ (6.38) Weighted average common shares outstanding -- basic...... 32,216 47,040
See accompanying notes to unaudited pro forma combined financial statements. 30 31 DEVON-NORTHSTAR UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
DEVON- NORTHSTAR NORTHSTAR PRO FORMA DEVON U.S. GAAP(1) COMBINED -------- ------------ --------- Revenues: Oil sales............................................. $ 80,142 $ 55,881 $136,023 Gas sales............................................. 68,049 33,394 101,443 Natural gas liquids sales............................. 14,367 4,932 19,299 Other................................................. 1,459 33,111 34,570(4) -------- -------- -------- Total revenues................................ 164,017 127,318 291,335 -------- -------- -------- Costs and expenses: Lease operating expenses.............................. 31,568 27,166 58,734 Production taxes...................................... 10,658 222 10,880 Depreciation, depletion and amortization.............. 43,361 26,946 70,307 General and administrative expenses................... 9,101 6,010 15,111 Interest expense...................................... 5,277 7,385 12,662 Deferred effect of changes in foreign currency exchange rate on long-term debt.................... -- 199 199 Distributions on preferred securities of subsidiary trust.............................................. 4,753 -- 4,753 -------- -------- -------- Total costs and expenses...................... 104,718 67,928 172,646 -------- -------- -------- Earnings before income taxes............................ 59,299 59,390 118,689 Income tax expense: Current............................................... 6,709 1,125 7,834 Deferred.............................................. 17,789 25,463 43,252 -------- -------- -------- Total income tax expense...................... 24,498 26,588 51,086 -------- -------- -------- Net earnings............................................ $ 34,801 $ 32,802 $ 67,603 ======== ======== ======== Net earnings per average common share outstanding: Basic................................................. $ 1.57 $ 2.06 Diluted............................................... $ 1.52 $ 1.99 Weighted average common shares outstanding -- basic..... 22,160 32,812
See accompanying notes to unaudited pro forma combined financial statements. 31 32 DEVON-NORTHSTAR UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
DEVON- NORTHSTAR NORTHSTAR PRO FORMA DEVON U.S. GAAP(1) COMBINED -------- ------------ --------- Revenues: Oil sales............................................. $ 55,290 $ 60,316 $115,606 Gas sales............................................. 50,732 20,462 71,194 Natural gas liquids sales............................. 6,404 2,687 9,091 Other................................................. 877 13,375 14,252(4) -------- -------- -------- Total revenues................................ 113,303 96,840 210,143 -------- -------- -------- Costs and expenses: Lease operating expenses.............................. 27,289 24,435 51,724 Production taxes...................................... 6,832 220 7,052 Depreciation, depletion and amortization.............. 38,090 35,350 73,440 General and administrative expenses................... 8,419 6,487 14,906 Interest expense...................................... 7,051 3,834 10,885 Deferred effect of changes in foreign currency exchange rate on long-term debt.................... -- 307 307 Reduction of carrying value of oil and gas properties......................................... -- 97,061 97,061 -------- -------- -------- Total costs and expenses...................... 87,681 167,694 255,375 -------- -------- -------- Earnings (loss) before income taxes..................... 25,622 (70,854) (45,232) Income tax expense (benefit): Current............................................... 4,495 797 5,292 Deferred.............................................. 6,625 (31,256) (24,631) -------- -------- -------- Total income tax expense (benefit)............ 11,120 (30,459) (19,339) -------- -------- -------- Net earnings (loss)..................................... $ 14,502 $(40,395) $(25,893) ======== ======== ======== Net earnings (loss) per average common share outstanding: Basic................................................. $ 0.66 $ (0.80) Diluted............................................... $ 0.65 $ (0.80) Weighted average common shares outstanding -- basic..... 22,074 32,473
See accompanying notes to unaudited pro forma combined financial statements. 32 33 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 1. BASIS OF PRESENTATION The accompanying unaudited pro forma combined financial information is presented to reflect the consummation of the Combination as described elsewhere herein. The pro forma combined balance sheet and statements of operations are presented under the pooling-of-interests method of accounting under U.S. GAAP. Accordingly, the unaudited pro forma combined balance sheet has been presented as if Devon and Northstar were combined at the date of such pro forma balance sheet. The unaudited pro forma combined statements of operations have been prepared as if Devon and Northstar were combined as of the beginning of the earliest period presented. The accompanying unaudited pro forma combined financial information has been prepared based on estimates and assumptions deemed by Devon to be appropriate and does not purport to be indicative of the financial position or results of operations which would actually have been attained if the Combination had been consummated as presented in such statements or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, changes in prices received for oil, gas and NGLs, future acquisitions and other factors. The unaudited pro forma combined financial information should be read in conjunction with the historical consolidated financial statements and related notes thereto for Devon included in Devon's Form 10-K for the year ended December 31, 1997, and Devon's Form 10-Q for the quarter ended September 30, 1998. The unaudited pro forma combined financial information should also be read in conjunction with the historical consolidated financial statements and related notes for Northstar which are included elsewhere herein. The historical consolidated financial statements for Northstar were prepared under Canadian GAAP and in Canadian dollars. For these unaudited pro forma combined financial statements, the historical financial information of Northstar has been converted to U.S. dollars using the September 30, 1998, exchange rate for the balance sheet and the average exchange rates for the nine month periods ended September 30, 1998 and 1997, and the years 1997, 1996 and 1995, for the statements of operations. These unaudited pro forma financial statements also present the historical Northstar financial statements under U.S. GAAP. See "Unaudited U.S. GAAP Financial Information -- Northstar" for more complete information on Northstar's U.S. GAAP financial data, including the adjustments made to convert Northstar's historical data from Canadian GAAP and Canadian dollars to U.S. GAAP and U.S. dollars. Also, see Note 13 to Northstar's historical consolidated financial statements included elsewhere herein for a description of the adjustments to convert Northstar's financial statements from Canadian GAAP to U.S. GAAP. In addition, certain reclassifications have been made to Northstar's historical consolidated financial statements to conform to Devon's financial statement presentation. In March, 1997, Northstar acquired all the outstanding common shares of Morrison by issuing approximately 46.1 million Northstar Common Shares. The Northstar Common Shares received by the Morrison shareholders represented approximately 53% of the combined company's outstanding shares. Therefore, under U.S. GAAP, this transaction would be accounted for as a reverse acquisition of Northstar by Morrison. Accordingly, the results presented for periods through March, 1997 for Northstar using U.S. GAAP represent the historical results of Morrison, the "accounting acquirer." Because Northstar was the "legal acquirer," the financial results and other information for periods through March, 1997, are referred to as "Northstar's" results and information, even though they represent the historical results of Morrison. For periods subsequent to March, 1997, the results presented for Northstar using U.S. GAAP represent the historical results of Morrison, combined with the results of Northstar after valuing Northstar's March, 1997, assets and liabilities at fair value, rather than historical book value. 33 34 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 Under Canadian GAAP, the Morrison transaction was accounted for under the pooling-of-interests method of accounting. Accordingly, for Northstar's results presented using Canadian GAAP, the historical results of Northstar and Morrison have been combined for all periods presented. 2. PRO FORMA ADJUSTMENTS The accompanying unaudited pro forma combined balance sheet includes the following adjustments: (a) To record payment of estimated business combination costs of $13 million, representing primarily professional and advisory fees directly related to the Combination. These one-time business combination costs are not reflected in the pro forma statements of operations since they are non-recurring in nature. These costs were expensed by Devon in the fourth quarter when the Combination was consummated. (b) To reclassify deferred tax assets against deferred tax liabilities. (c) To record the issuance of 16,090,376 shares, par value $0.10, of Devon common stock in exchange for all 68,469,685 shares of Northstar common shares outstanding on September 30, 1998, based upon an exchange ratio which is indirectly equivalent to 0.235 shares of Devon common stock for each Northstar common share and assuming all Exchangeable Shares are exchanged for Devon common stock on such basis. The unaudited pro forma combined statements of operations reflect no adjustments to the historical statements of Devon or the U.S. GAAP statements of Northstar. Northstar's historical statements are adjusted for differences between Canadian GAAP and U.S. GAAP, and for differences between Northstar's and Devon's presentation, in the "Unaudited U.S. GAAP Financial Information -- Northstar" immediately following these notes. 3. COMMON SHARES OUTSTANDING Net earnings per average common share outstanding have been calculated based upon the pro forma weighted average number of shares outstanding for each period presented. For computing pro forma basic net earnings per share, Devon's historical weighted average number of shares outstanding was increased in each period by the weighted average number of Northstar common shares outstanding, multiplied by the exchange ratio of 0.235. For computing pro forma diluted earnings per share, Devon's historical weighted average number of diluted shares was further increased by the dilutive effect of Northstar's stock options that Devon assumed under the Combination. For the nine month periods ended September 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995, the additional number of diluted shares added for the effect of Northstar options assumed were 174,000, 150,000, 282,000, 17,000, and 21,000 shares, respectively. 34 35 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 4. OTHER REVENUE Devon-Northstar pro forma combined other revenues consists of the following items:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------- --------------------------- 1998 1997 1997 1996 1995 -------- -------- ------- ------- ------- (THOUSANDS) Third party gas processing income............ $ 4,324 $ 5,916 $ 7,318 $ 6,313 $ 1,465 Gain from termination of gas contract........ 5,047 -- -- -- -- Management contract termination fee.......... 2,765 -- -- -- -- Gain (loss) on sale of assets................ 93 29,536 29,573 10,598 (273) Management and administration fees........... 884 3,947 4,963 6,209 4,579 Alberta royalty tax credits.................. 1,418 1,573 2,137 1,191 1,076 Marketing revenues........................... (3) 175 165 688 1,273 Pipeline revenues............................ -- -- -- 3,455 3,179 Earnings (loss) from investments in unconsolidated subsidiaries................ (902) (884) 382 3,559 684 Interest and other........................... 2,172 2,476 3,017 2,557 2,269 ------- ------- ------- ------- ------- Total.............................. $15,798 $42,739 $47,555 $34,570 $14,252 ======= ======= ======= ======= =======
In the nine month period ended September 30, 1998, Northstar U.S. GAAP other revenues included $0.8 million of management and administration fees. However, the arrangements under which such fees were generated were terminated during the second quarter of 1998. Northstar received $2.8 million in June 1998 related to the termination of such management arrangements. Also in June 1998, Northstar received a one-time payment of $5.0 million from a gas purchaser for the termination of a gas contract. 5. DEPRECIATION, DEPLETION AND AMORTIZATION RATE Following is a comparison of Devon's combined depreciation, depletion and amortization rate per Boe for its U.S. and Canadian full cost pools on an historical basis before the Combination and on a pro forma basis after the Combination.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, -------------- ----------------------- 1998 1997 1997 1996 1995 ----- ----- ----- ----- ----- Historical rate prior to the Combination........... $4.29 $3.86 $4.08 $3.88 $3.65 Pro forma rate after the Combination............... $3.28 $4.62 $4.86 $3.69 $4.04
The pro forma rates after the Combination for the nine months ended September 30, 1998, and the years 1997 and 1995 do not include the effects of reductions of the carrying value of oil and gas properties under ceiling limitations of its full cost pool in accordance with SEC rules and regulations. The reductions totaled $126.9 million in the nine months ended September 30, 1998, $625.5 million in the year 1997 and $97.1 million in the year 1995. The amounts of these reductions per Boe were $4.64 per Boe in the nine months ended September 30, 1998, $45.36 per Boe in 1997 and $12.74 per Boe in the year 1995. 35 36 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 6. SUPPLEMENTAL PRO FORMA INFORMATION ON OIL AND GAS OPERATIONS The following pro forma supplemental information regarding oil and gas operations is presented pursuant to the disclosure requirements promulgated by the SEC and Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities." Pro Forma Capitalized Costs The following table sets forth the aggregate amount of pro forma capitalized costs relating to oil and gas producing activities and the aggregate amount of related accumulated depreciation, depletion and amortization assuming the Combination was consummated as of December 31, 1997. Oil and gas properties: Subject to amortization................................... $ 2,304,808,000 Not subject to amortization............................... 130,747,000 --------------- 2,435,555,000 Accumulated depreciation, depletion and amortization...... (1,466,336,000) --------------- Net capitalized costs..................................... $ 969,219,000 =============== Share of equity method investee's net capitalized costs..... $ 48,131,000 ===============
Pro Forma Results of Operations for Oil and Gas Producing Activities The following tables include pro forma revenues and expenses associated directly with oil and gas producing activities for the years ended December 31, 1997, 1996 and 1995, assuming the Combination was consummated at the beginning of 1995. The following information does not include any allocation of pro forma interest costs or general corporate overhead and, therefore, is not necessarily indicative of the contribution to net earnings of oil and gas operations. Income tax expense has been calculated by applying statutory income tax rates to oil and gas sales after deducting costs, including depreciation, depletion and amortization and reductions of carrying value of oil and gas properties, and after giving effect to permanent differences and tax credits.
TOTAL ------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------- 1997 1996 1995 ------------- ------------ ------------ Oil, gas and natural gas liquids ("NGLs") sales... $ 452,104,000 $256,765,000 $195,890,000 Production and operating expenses................. (120,124,000) (69,614,000) (58,776,000) Depreciation, depletion and amortization.......... (164,977,000) (67,832,000) (71,376,000) Reduction of carrying value of oil and gas properties...................................... (625,514,000) -- (97,061,000) Income tax (expense) benefit...................... 159,511,000 (45,870,000) 17,016,000 ------------- ------------ ------------ Results of operations for oil and gas producing activities...................................... $(299,000,000) $ 73,449,000 $(14,307,000) ============= ============ ============ Share of equity method investee's results of operations for oil and gas producing activities...................................... $ (1,981,000) $ 620,000 $ -- ============= ============ ============
36 37 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995
DOMESTIC ------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ Oil, gas and NGLs sales............................ $273,860,000 $162,558,000 $112,425,000 Production and operating expenses.................. (75,758,000) (42,226,000) (34,121,000) Depreciation, depletion and amortization........... (73,091,000) (41,538,000) (36,640,000) Income tax expense................................. (44,648,000) (27,796,000) (15,536,000) ------------ ------------ ------------ Results of operations for oil and gas producing activities....................................... $ 80,363,000 $ 50,998,000 $ 26,128,000 ============ ============ ============
CANADA ------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------- 1997 1996 1995 ------------- ------------ ------------ Oil, gas and NGLs sales........................... $ 178,244,000 $ 94,207,000 $ 83,465,000 Production and operating expenses................. (44,366,000) (27,388,000) (24,655,000) Depreciation, depletion and amortization.......... (91,886,000) (26,294,000) (34,736,000) Reduction of carrying value of oil and gas properties...................................... (625,514,000) -- (97,061,000) Income tax (expense) benefit...................... 204,159,000 (18,074,000) 32,552,000 ------------- ------------ ------------ Results of operations for oil and gas producing activities...................................... $(379,363,000) $ 22,451,000 $(40,435,000) ============= ============ ============ Share of equity method investee's results of operations for oil and gas producing activities...................................... $ (1,981,000) $ 620,000 $ -- ============= ============ ============
37 38 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 Pro Forma Quantities of Oil and Gas Reserves Set forth below is a pro forma summary of the changes in the net quantities of crude oil, natural gas and NGLs reserves for the three year period ended December 31, 1997. The following information assumes the Combination was effective as of the end of 1994.
TOTAL ---------------------------------------- OIL (BBLS) GAS (MCF) NGLs (Bbls) ----------- ------------ ----------- Actual Devon proved reserves as of December 31, 1994............................................... 42,165,000 347,560,000 5,442,000 Actual Northstar proved reserves as of December 31, 1994............................................ 15,779,000 191,600,000 2,223,000 ----------- ------------ ---------- Pro forma Devon proved reserves as of December 31, 1994............................................... 57,944,000 539,160,000 7,665,000 Revisions of previous estimates.................... 2,250,000 (2,683,000) 532,000 Extensions and discoveries......................... 4,661,000 82,445,000 773,000 Purchase of reserves............................... 1,879,000 109,085,000 3,680,000 Production......................................... (7,130,000) (58,234,000) (831,000) Sale of reserves................................... (605,000) (20,027,000) (269,000) ----------- ------------ ---------- Pro forma proved reserves as of December 31, 1995.... 58,999,000 649,746,000 11,550,000 Revisions of previous estimates.................... 4,982,000 (31,569,000) 1,022,000 Extensions and discoveries......................... 4,433,000 149,049,000 1,154,000 Purchase of reserves............................... 21,189,000 252,122,000 2,130,000 Production......................................... (6,780,000) (62,186,000) (1,255,000) Sale of reserves................................... (2,668,000) (58,843,000) (411,000) ----------- ------------ ---------- Pro forma proved reserves as of December 31, 1996.... 80,155,000 898,319,000 14,190,000 Revisions of previous estimates.................... 42,000 (46,390,000) 1,544,000 Extensions and discoveries......................... 9,387,000 145,508,000 424,000 Purchase of reserves............................... 19,396,000 275,592,000 2,914,000 Production......................................... (11,783,000) (121,810,000) (1,891,000) Sale of reserves................................... (156,000) (615,000) (3,000) ----------- ------------ ---------- Pro forma proved reserves as of December 31, 1997.... 97,041,000 1,150,604,000 17,178,000 =========== ============ ========== Pro forma proved developed reserves as of: December 31, 1994.................................. 34,497,000 515,902,000 5,346,000 December 31, 1995.................................. 43,236,000 597,564,000 8,230,000 December 31, 1996.................................. 72,330,000 810,465,000 12,563,000 December 31, 1997.................................. 88,258,000 984,374,000 16,332,000 Share of equity method investee's proved reserves as of: December 31, 1996.................................. 3,435,000 12,730,000 360,000 December 31, 1997.................................. 3,064,000 15,560,000 261,000 Share of equity method investee's proved developed reserves as of: December 31, 1996.................................. 2,665,000 12,433,000 347,000 December 31, 1997.................................. 2,543,000 15,356,000 254,000
38 39 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995
DOMESTIC -------------------------------------- OIL (BBLS) GAS (MCF) NGLS (BBLS) ---------- ----------- ----------- Actual Devon proved reserves as of December 31, 1994... 42,165,000 347,560,000 5,442,000 Actual Northstar proved reserves as of December 31, 1994.............................................. -- -- -- ---------- ----------- ---------- Pro forma Devon proved reserves as of December 31, 1994................................................. 42,165,000 347,560,000 5,442,000 Revisions of previous estimates...................... 1,127,000 (7,431,000) 535,000 Extensions and discoveries........................... 2,959,000 9,645,000 472,000 Purchase of reserves................................. 1,852,000 59,585,000 3,665,000 Production........................................... (3,300,000) (36,886,000) (600,000) Sale of reserves..................................... (337,000) (8,627,000) (45,000) ---------- ----------- ---------- Pro forma proved reserves as of December 31, 1995...... 44,466,000 363,846,000 9,469,000 Revisions of previous estimates...................... 2,365,000 4,359,000 1,096,000 Extensions and discoveries........................... 3,680,000 14,849,000 852,000 Purchase of reserves................................. 13,659,000 209,064,000 1,246,000 Production........................................... (3,816,000) (35,714,000) (952,000) Sale of reserves..................................... (403,000) (1,743,000) (16,000) ---------- ----------- ---------- Pro forma proved reserves as of December 31, 1996...... 59,951,000 554,661,000 11,695,000 Revisions of previous estimates...................... (1,358,000) (21,124,000) 1,531,000 Extensions and discoveries........................... 7,394,000 94,925,000 301,000 Purchase of reserves................................. 1,126,000 992,000 16,000 Production........................................... (6,055,000) (61,015,000) (1,468,000) Sale of reserves..................................... (156,000) (615,000) (3,000) ---------- ----------- ---------- Pro forma proved reserves as of December 31, 1997...... 60,902,000 567,824,000 12,072,000 ========== =========== ========== Pro forma proved developed reserves as of: December 31, 1994.................................... 18,718,000 324,302,000 3,123,000 December 31, 1995.................................... 28,703,000 311,664,000 6,149,000 December 31, 1996.................................... 52,672,000 529,407,000 10,328,000 December 31, 1997.................................... 53,059,000 462,082,000 11,289,000
39 40 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995
CANADA -------------------------------------- OIL (BBLS) GAS (MCF) NGLS (BBLS) ---------- ----------- ----------- Actual Devon proved reserves as of December 31, 1994... -- -- -- Actual Northstar proved reserves as of December 31, 1994.............................................. 15,779,000 191,600,000 2,223,000 ---------- ----------- --------- Pro forma Devon proved reserves as of December 31, 1994................................................. 15,779,000 191,600,000 2,223,000 Revisions of previous estimates...................... 1,123,000 4,748,000 (3,000) Extensions and discoveries........................... 1,702,000 72,800,000 301,000 Purchase of reserves................................. 27,000 49,500,000 15,000 Production........................................... (3,830,000) (21,348,000) (231,000) Sale of reserves..................................... (268,000) (11,400,000) (224,000) ---------- ----------- --------- Pro forma proved reserves as of December 31, 1995...... 14,533,000 285,900,000 2,081,000 Revisions of previous estimates...................... 2,617,000 (35,928,000) (74,000) Extensions and discoveries........................... 753,000 134,200,000 302,000 Purchase of reserves................................. 7,530,000 43,058,000 884,000 Production........................................... (2,964,000) (26,472,000) (303,000) Sale of reserves..................................... (2,265,000) (57,100,000) (395,000) ---------- ----------- --------- Pro forma proved reserves as of December 31, 1996...... 20,204,000 343,658,000 2,495,000 Revisions of previous estimates...................... 1,400,000 (25,266,000) 13,000 Extensions and discoveries........................... 1,993,000 50,583,000 123,000 Purchase of reserves................................. 18,270,000 274,600,000 2,898,000 Production........................................... (5,728,000) (60,795,000) (423,000) Sale of reserves..................................... -- -- -- ---------- ----------- --------- Pro forma proved reserves as of December 31, 1997...... 36,139,000 582,780,000 5,106,000 ========== =========== ========= Pro forma proved developed reserves as of: December 31, 1994.................................... 15,779,000 191,600,000 2,223,000 December 31, 1995.................................... 14,533,000 285,900,000 2,081,000 December 31, 1996.................................... 19,658,000 281,058,000 2,235,000 December 31, 1997.................................... 35,199,000 522,292,000 5,043,000 Share of equity method investee's proved reserves as of: December 31, 1996.................................... 3,435,000 12,730,000 360,000 December 31, 1997.................................... 3,064,000 15,560,000 261,000 Share of equity method investee's proved developed reserves as of: December 31, 1996.................................... 2,665,000 12,433,000 347,000 December 31, 1997.................................... 2,543,000 15,356,000 254,000
40 41 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 Pro Forma Standardized Measure of Discounted Future Net Cash Flows The accompanying tables reflect the pro forma standardized measure of discounted future net cash flows relating to Devon's interest in proved oil, gas and NGLs reserves as of December 31, 1997, 1996 and 1995, assuming the Combination was effective as of the beginning of 1995.
TOTAL -------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------- 1997 1996 1995 --------------- --------------- -------------- Future cash inflows......................... $ 3,728,815,000 $ 4,972,804,000 $2,050,722,000 Future costs: Development............................... (120,277,000) (90,638,000) (71,190,000) Production................................ (1,386,943,000) (1,377,410,000) (762,839,000) Future income tax expense................... (399,972,000) (953,748,000) (153,431,000) --------------- --------------- -------------- Future net cash flows....................... 1,821,623,000 2,551,008,000 1,063,262,000 10% discount to reflect timing of cash flows..................................... (720,947,000) (1,096,034,000) (420,857,000) --------------- --------------- -------------- Standardized measure of discounted future net cash flows............................ $ 1,100,676,000 $ 1,454,974,000 $ 642,405,000 =============== =============== ============== Discounted future net cash flows before income taxes.............................. $ 1,340,644,000 $ 1,999,748,000 $ 730,753,000 =============== =============== ============== Share of equity method investee's standardized measure of discounted future net cash flows............................ $ 34,172,000 $ 41,634,000 $ -- =============== =============== ============== Share of equity method investee's discounted future net cash flows before income taxes..................................... $ 45,777,000 $ 64,619,000 $ -- =============== =============== ==============
DOMESTIC ------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------- 1997 1996 1995 -------------- --------------- -------------- Future cash inflows.......................... $2,304,602,000 $ 3,712,956,000 $1,476,418,000 Future costs: Development................................ (83,350,000) (54,064,000) (52,327,000) Production................................. (806,130,000) (1,013,750,000) (496,279,000) Future income tax expense.................... (269,880,000) (713,182,000) (153,431,000) -------------- --------------- -------------- Future net cash flows........................ 1,145,242,000 1,931,960,000 774,381,000 10% discount to reflect timing of cash flows...................................... (481,263,000) (846,174,000) (328,481,000) -------------- --------------- -------------- Standardized measure of discounted future net cash flows................................. $ 663,979,000 $ 1,085,786,000 $ 445,900,000 ============== =============== ============== Discounted future net cash flows before income taxes............................... $ 820,448,000 $ 1,486,603,000 $ 534,248,000 ============== =============== ==============
41 42 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995
CANADA ----------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------- 1997 1996 1995 -------------- -------------- ------------- Future cash inflows............................ $1,424,213,000 $1,259,848,000 $ 574,304,000 Future costs: Development.................................. (36,927,000) (36,574,000) (18,863,000) Production................................... (580,813,000) (363,660,000) (266,560,000) Future income tax expense...................... (130,092,000) (240,566,000) -- -------------- -------------- ------------- Future net cash flows.......................... 676,381,000 619,048,000 288,881,000 10% discount to reflect timing of cash flows... (239,684,000) (249,860,000) (92,376,000) -------------- -------------- ------------- Standardized measure of discounted future net cash flows................................... $ 436,697,000 $ 369,188,000 $ 196,505,000 ============== ============== ============= Discounted future net cash flows before income taxes........................................ $ 520,196,000 $ 513,145,000 $ 196,505,000 ============== ============== ============= Share of equity method investee's standardized measure of discounted future net cash flows........................................ $ 34,172,000 41,634,000 -- ============== ============== ============= Share of equity method investee's discounted future net cash flows before income taxes.... $ 45,777,000 $ 64,619,000 $ -- ============== ============== =============
Future cash inflows are computed by applying year-end prices (averaging $16.22 per barrel of oil, adjusted for transportation and other charges, $1.64 per Mcf of gas and $13.32 per barrel of NGLs at December 31, 1997) to the year-end quantities of proved reserves, except in those instances where fixed and determinable price changes are provided by contractual arrangements in existence at year-end. In addition to the future gas revenues calculated at $1.64 per Mcf, Devon's total future gas revenues also include the future tax credit payments to be received and recorded as gas revenues pursuant to the San Juan Basin Transaction described in Note 3 to Devon's consolidated financial statements included in its 1997 annual report on Form 10-K. Devon's future total and domestic cash inflows as of December 31, 1997, shown in the tables above include $35.2 million related to these tax credit payments from 1998 through 2002. This amount has been calculated using the assumption that the year-end 1997 tax credit rate of $1.05 per MMBtu remains constant. Future development and production costs are computed by estimating the expenditures to be incurred in developing and producing proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Future income tax expenses are computed by applying the appropriate statutory tax rates to the future pretax net cash flows relating to proved reserves, net of the tax basis of the properties involved. The future income tax expenses give effect to permanent differences and tax credits, but do not reflect the impact of future operations. 42 43 DEVON-NORTHSTAR NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 Pro Forma Changes Relating to the Standardized Measure of Discounted Future Net Cash Flows Principal changes in the total U.S. and Canadian combined standardized measure of discounted future net cash flows attributable to Devon's proved reserves are shown in the following table. The following reconciliation assumes that the Combination was effective as of the end of 1994.
TOTAL ----------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------- 1997 1996 1995 -------------- -------------- ------------- Devon's actual beginning balance as of December 31, 1994....................................... $ 358,206,000 Northstar's actual beginning balance as of December 31, 1994........................... 168,459,000 ------------- Pro forma beginning balance...................... $1,454,974,000 $ 642,405,000 526,665,000 Sales of oil, gas and NGLs, net of production costs.......................................... (331,980,000) (187,151,000) (137,114,000) Net changes in prices and production costs....... (890,534,000) 763,909,000 55,163,000 Extensions, discoveries, and improved recovery, net of future development costs................ 75,698,000 145,310,000 45,256,000 Purchase of reserves, net of future development costs.......................................... 246,173,000 578,099,000 63,943,000 Development costs incurred during the period which reduced future development costs......... 62,868,000 63,123,000 56,287,000 Revisions of quantity estimates.................. (12,251,000) 35,852,000 17,501,000 Sales of reserves in place....................... (1,395,000) (81,452,000) (14,939,000) Accretion of discount............................ 198,401,000 73,000,000 59,584,000 Net change in income taxes....................... 300,684,000 (456,426,000) (23,906,000) Other, primarily changes in timing............... (1,962,000) (121,695,000) (6,035,000) -------------- -------------- ------------- Pro forma ending balance......................... $1,100,676,000 $1,454,974,000 $ 642,405,000 ============== ============== =============
43 44 UNAUDITED U.S. GAAP FINANCIAL INFORMATION -- NORTHSTAR Set forth below is certain unaudited U.S. GAAP financial information with respect to Northstar prior to the Combination. Such unaudited U.S. GAAP financial information converts Northstar's historical information, which is presented under Canadian GAAP and Canadian dollars, to U.S. GAAP and U.S. dollars, and conforms to Devon presentation. The following unaudited U.S. GAAP financial statements should be read in conjunction with the notes thereto immediately following such unaudited U.S. GAAP financial statements, and the consolidated financial statements and related notes of Northstar which are included elsewhere herein. In March, 1997, Northstar acquired all the outstanding common shares of Morrison by issuing approximately 46.1 million Northstar common shares. Under Canadian GAAP, the Morrison transaction was accounted for under the pooling-of-interests method of accounting. Accordingly, the information presented in the following unaudited U.S. GAAP financial statements as "Northstar Historical" represents Northstar's historical results presented using Canadian GAAP, whereby the historical results of Northstar and Morrison have been combined for all periods presented. The Northstar common shares received by the Morrison shareholders represented approximately 53% of the combined company's outstanding shares. Therefore, under U.S. GAAP, the Morrison transaction would be accounted for as a reverse acquisition of Northstar by Morrison. Accordingly, for the following unaudited U.S. GAAP financial statements, the results presented for periods through March, 1997 as "Northstar Using U.S. GAAP," represent the historical results of Morrison, the "accounting acquirer." Because Northstar was the "legal acquirer," the financial results for periods through March, 1997, are referred to as "Northstar's" results, even though they represent the historical results of Morrison. For periods subsequent to March, 1997, the results presented as "Northstar Using U.S. GAAP" represent the historical results of Morrison, combined with the results of Northstar after valuing Northstar's March, 1997, assets and liabilities at fair value, rather than historical book value. UNAUDITED U.S. GAAP BALANCE SHEET -- NORTHSTAR SEPTEMBER 30, 1998 (IN THOUSANDS)
U.S. GAAP NORTHSTAR CONVERTED NORTHSTAR AND OTHER USING TO HISTORICAL ADJUSTMENTS(3) U.S. GAAP U.S.$(4) ----------- -------------- ---------- --------- Assets: Current assets......................................... C$ 97,184 C$ -- C$ 97,184 $ 63,695 Oil and gas properties, net............................ 1,054,445 423,819(a) 471,370 308,936 (998,412)(b) (8,482)(d) Other property and equipment, net...................... 7,282 -- 7,282 4,773 Deferred income taxes.................................. -- 81,711(c) 81,711 53,553 Other assets, net...................................... 29,063 (627)(a) 2,510 1,645 (25,926)(d) ----------- ---------- ---------- --------- Total assets..................................... C$1,187,974 C$(527,917) C$660,057 $ 432,602 =========== ========== ========== ========= Liabilities: Current liabilities.................................... C$ 95,842 C$ -- C$ 95,842 $ 62,815 Deferred revenue....................................... 9,487 -- 9,487 6,218 Other liabilities...................................... 19,829 (6,652)(a) -- -- (13,177)(d) Long-term debt......................................... 463,102 -- 463,102 303,517 Deferred income taxes.................................. 174,491 129,421(a) -- -- (303,912)(c) Stockholders' equity: Stockholders' equity -- Northstar...................... 317,957 219,723(a) -- -- (537,680)(d) Additional paid-in capital............................. -- 537,680(d) 537,680 397,178 Retained earnings (deficit)............................ 107,266 80,700(a) (446,054) (316,760) (998,412)(b) 385,623(c) (21,231)(d) Accumulated other comprehensive earnings (loss) -- foreign currency translation adjustments... -- -- -- (20,366) ----------- ---------- ---------- --------- Total stockholders' equity....................... 425,223 (333,597) 91,626 60,052 ----------- ---------- ---------- --------- Total liabilities and stockholders' equity....... C$1,187,974 C$(527,917) C$660,057 $ 432,602 =========== ========== ========== =========
See accompanying notes to unaudited U.S. GAAP financial statements. 44 45 UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS -- NORTHSTAR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
U.S. GAAP NORTHSTAR CONVERTED NORTHSTAR AND OTHER USING TO HISTORICAL ADJUSTMENTS(3) U.S. GAAP U.S.$(4) ---------- -------------- --------- --------- Revenues: Oil sales................................ C $81,881 C $(10,922)(e) $C 67,527 $45,931 (3,432)(i) Gas sales................................ 104,094 (22,592)(e) 80,115 54,524 (1,387)(i) Natural gas liquids sales................ 3,157 577(e) 3,625 2,469 (109)(i) Less royalties........................... (26,100) 26,100(e) -- -- Other.................................... 43,415 11,818(e) 15,468 10,652 (1,780)(f) (1,304)(i) (40,241)(h) --------- --------- --------- ------- Total revenues................... 206,447 (39,712) 166,735 113,576 --------- --------- --------- ------- Costs and expenses: Lease operating expenses................. 43,854 2,867(e) 44,785 30,492 (1,936)(i) Production taxes......................... -- 1,511(e) 1,511 1,030 Depreciation, depletion and amortization.......................... 90,549 (2,990)(i) 36,337 24,716 (51,222)(j) General and administrative expenses...... 11,248 603(e) 11,430 7,773 (421)(i) Interest expense......................... 23,742 -- 23,742 16,160 Deferred effect of changes in foreign currency exchange rate on long-term debt.................................. -- 22,905(f) 22,905 15,433 --------- --------- --------- ------- Total costs and expenses......... 169,393 (28,683) 140,710 95,604 --------- --------- --------- ------- Earnings before income taxes............... 37,054 (11,029) 26,025 17,972 Income tax expense: Current.................................. 1,781 (266)(i) 1,515 1,032 Deferred................................. 5,730 12,100(k) 12,173 8,408 (5,657)(h) --------- --------- --------- ------- Total income tax expense......... 7,511 6,177 13,688 9,440 --------- --------- --------- ------- Net earnings............................... C $29,543 C $(17,206) $C 12,337 $ 8,532 ========= ========= ========= ======= Net earnings per average common share outstanding: Basic.................................... C $ 0.43 $C 0.18 $ 0.12 Diluted.................................. C $ 0.41 $C 0.18 $ 0.12 Weighted average common shares outstanding.............................. 68,263 68,263 68,263
See accompanying notes to unaudited U.S. GAAP financial statements. 45 46 UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS -- NORTHSTAR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
U.S. GAAP NORTHSTAR CONVERTED NORTHSTAR AND OTHER USING TO HISTORICAL ADJUSTMENTS(3) U.S. GAAP U.S.$(4) ---------- -------------- --------- --------- Revenues: Oil sales................................. C$126,246 C$(19,526)(e) C$73,454 $53,016 (25,517)(h) (7,749)(i) Gas sales................................. 101,245 (13,660)(e) 61,535 44,413 (23,295)(h) (2,755)(i) Natural gas liquids sales................. 5,737 (1,628)(e) 1,916 1,380 (2,005)(h) (188)(i) Less royalties............................ (46,716) 34,819(e) -- -- 11,897(h) Other..................................... 48,764 10,355(e) 51,534 37,176 (2,025)(h) (5,560)(i) --------- --------- -------- ------- Total revenues.................... 235,276 (46,837) 188,439 135,985 --------- --------- -------- ------- Costs and expenses: Lease operating expenses.................. 37,854 4,930(e) 34,241 24,711 (6,316)(h) (2,227)(i) Production taxes.......................... -- 1,306(e) 1,113 803 (193)(i) Depreciation, depletion and amortization........................... 86,698 (14,811)(h) 77,242 55,751 (4,678)(i) 10,033(j) General and administrative expenses....... 10,847 4,124(e) 13,251 9,564 (1,720)(h) Interest expense.......................... 15,684 (1,564)(h) 14,120 10,192 Deferred effect of changes in foreign currency exchange rate on long-term debt................................... -- 563(f) 563 406 --------- --------- -------- ------- Total costs and expenses.......... 151,083 (10,553) 140,530 101,427 --------- --------- -------- ------- Earnings before income taxes................ 84,193 (36,284) 47,909 34,558 Income tax expense (benefit): Current................................... 2,338 (308)(h) 2,030 1,465 Deferred.................................. 35,782 (6,815)(h) 21,367 15,414 (7,600)(k) --------- --------- -------- ------- Total income tax expense (benefit)....................... 38,120 (14,723) 23,397 16,879 --------- --------- -------- ------- Net earnings................................ C$ 46,073 C$(21,561) C$24,512 $17,679 ========= ========= ======== ======= Net earnings per average common share outstanding: Basic..................................... C$ 0.61 C$ 0.40 $ 0.29 Diluted................................... C$ 0.59 C$ 0.39 $ 0.28 Weighted average common shares outstanding............................... 75,377 61,477 61,477
See accompanying notes to unaudited U.S. GAAP financial statements. 46 47 UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS -- NORTHSTAR FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
U.S. GAAP NORTHSTAR CONVERTED NORTHSTAR AND OTHER USING TO HISTORICAL ADJUSTMENTS(3) U.S. GAAP U.S.$(4) ---------- -------------- ----------- --------- Revenues: Oil sales.............................. C$165,385 C$ (26,868)(e) C$ 102,824 $ 74,280 (25,517)(h) (10,176)(i) Gas sales.............................. 139,776 (17,549)(e) 95,391 68,910 (23,295)(h) (3,541)(i) Natural gas liquids sales.............. 8,114 (1,390)(e) 4,382 3,166 (2,005)(h) (337)(i) Less royalties......................... (57,776) 45,879(e) -- -- 11,897(h) Other.................................. 51,387 12,517(e) 55,596 40,163 (2,025)(h) (6,283)(i) --------- ---------- ----------- --------- Total revenues................. 306,886 (48,693) 258,193 186,519 --------- ---------- ----------- --------- Costs and expenses: Lease operating expenses............... 53,274 5,602(e) 48,784 35,242 (6,316)(h) (3,776)(i) Production taxes....................... -- 1,804(e) 1,804 1,303 Depreciation, depletion and amortization........................ 118,815 20,624(h) 116,003 83,801 (6,293)(i) (17,143)(j) General and administrative expenses.... 12,494 5,183(e) 15,863 11,459 (1,720)(h) (94)(i) Interest expense....................... 31,305 (1,564)(h) 25,629 18,514 (109)(i) (4,003)(f) Deferred effect of changes in foreign currency exchange rate on long-term debt................................ -- 8,111(f) 8,111 5,860 Reduction of carrying value of oil and gas properties...................... -- 865,883(j) 865,883 625,514 --------- ---------- ----------- --------- Total costs and expenses....... 215,888 866,189 1,082,077 781,693 --------- ---------- ----------- --------- Earnings (loss) before income taxes...... 90,998 (914,882) (823,884) (595,174) Income tax expense (benefit): Current................................ 2,826 (308)(h) 2,291 1,655 (227)(i) Deferred............................... 38,107 (6,815)(h) (306,680) (221,546) (337,972)(k) --------- ---------- ----------- --------- Total income tax expense (benefit).................... 40,933 (345,322) (304,389) (219,891) --------- ---------- ----------- --------- Net earnings (loss)...................... C$ 50,065 C$(569,560) C$ (519,495) $(375,283) ========= ========== =========== ========= Net earnings (loss) per average common share outstanding: Basic.................................. C$ 0.68 C$ (8.24) $ (5.95) Diluted................................ C$ 0.66 C$ (8.24) $ (5.95) Weighted average common shares outstanding............................ 73,505 63,080 63,080
See accompanying notes to unaudited U.S. GAAP financial statements. 47 48 UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS -- NORTHSTAR FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
U.S. GAAP NORTHSTAR CONVERTED NORTHSTAR AND OTHER USING TO HISTORICAL ADJUSTMENTS(3) U.S. GAAP U.S.$(4) ---------- -------------- --------- --------- Revenues: Oil sales............................. C$195,497 C$ (22,253)(e) C$ 76,236 $ 55,881 (94,238)(g) (2,770)(i) Gas sales............................. 123,504 (8,995)(e) 45,559 33,394 (68,256)(g) (694)(i) Natural gas liquids sales............. 15,127 (1,612)(e) 6,728 4,932 (6,619)(g) (168)(i) Less royalties........................ (63,138) 31,538 (e) -- -- 31,600 (g) Other................................. 37,140 11,800 (e) 45,172 33,111 (4,448)(g) 680 (i) --------- ---------- --------- -------- Total revenues................ 308,130 (134,435) 173,695 127,318 --------- ---------- --------- -------- Costs and expenses: 4,392 (e) Lease operating expenses.............. 56,940 (23,633)(g) 37,062 27,166 (637)(i) Production taxes...................... -- 303 (e) 303 222 Depreciation, depletion and amortization....................... 119,828 (62,911)(g) 36,761 26,946 (1,468)(i) (18,688)(j) General and administrative expenses... 7,639 5,783 (e) 8,199 6,010 (5,169)(g) (54)(i) Interest expense...................... 17,105 (6,891)(g) 10,075 7,385 (139)(i) Deferred effect of changes in foreign currency exchange rate on long-term debt............................... -- 272 (f) 272 199 --------- ---------- --------- -------- Total costs and expenses...... 201,512 (108,840) 92,672 67,928 --------- ---------- --------- -------- Earnings before income taxes............ 106,618 (25,595) 81,023 59,390 Income tax expense (benefit): Current............................... 2,827 (1,273)(g) 1,535 1,125 (19)(i) Deferred.............................. 41,729 (16,192)(g) 34,738 25,463 9,201 (k) --------- ---------- --------- -------- Total income tax expense (benefit)................... 44,556 (8,283) 36,273 26,588 --------- ---------- --------- -------- Net earnings............................ C$ 62,062 C$ (17,312) C$ 44,750 $ 32,802 ========= ========== ========= ======== Net earnings per average common share outstanding: Basic................................. C$ 0.72 C$ 0.99 $ 0.72 Diluted............................... C$ 0.70 C$ 0.99 $ 0.72 Weighted average common shares outstanding........................... 85,832 45,326 45,326
See accompanying notes to unaudited U.S. GAAP financial statements. 48 49 UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS -- NORTHSTAR FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
U.S. GAAP NORTHSTAR CONVERTED NORTHSTAR AND OTHER USING TO HISTORICAL ADJUSTMENTS(3) U.S. GAAP U.S.$(4) ---------- -------------- --------- --------- Revenues: Oil sales............................ C$156,755 C$ (21,530)(e) C$ 82,658 $ 60,316 (52,567)(g) Gas sales............................ 93,221 (3,246)(e) 28,041 20,462 (61,934)(g) Natural gas liquids sales............ 11,143 (1,590)(e) 3,682 2,687 (5,871)(g) Less royalties....................... (43,372) 25,193(e) -- -- 18,179(g) Other................................ 12,163 7,251(e) 18,330 13,375 (1,084)(g) --------- ---------- --------- -------- Total revenues............... 229,910 (97,199) 132,711 96,840 --------- ---------- --------- -------- Costs and expenses: Lease operating expenses............. 47,852 2,008(e) 33,486 24,435 (16,374)(g) Production taxes..................... -- 301(e) 301 220 Depreciation, depletion and amortization...................... 101,353 (48,806)(g) 48,445 35,350 (4,102)(j) General and administrative expenses.......................... 8,969 3,769(e) 8,890 6,487 (3,848)(g) Interest expense..................... 12,392 (7,138)(g) 5,254 3,834 Deferred effect of changes in foreign currency exchange rate on long-term debt.................... -- 421(f) 421 307 Reduction of carrying value of oil and gas properties................ -- 133,015(j) 133,015 97,061 --------- ---------- --------- -------- Total costs and expenses..... 170,566 59,246 229,812 167,694 --------- ---------- --------- -------- Earnings before income taxes........... 59,344 (156,445) (97,101) (70,854) Income tax expense (benefit): Current.............................. 1,696 (604)(g) 1,092 797 Deferred............................. 21,070 (7,100)(g) (42,834) (31,256) (56,804)(k) --------- ---------- --------- -------- Total income tax expense (benefit).................. 22,766 (64,508) (41,742) (30,459) --------- ---------- --------- -------- Net earnings........................... C$ 36,578 C$ (91,937) C$(55,359) $(40,395) ========= ========== ========= ======== Net earnings per average common share outstanding: Basic................................ C$ 0.45 C$ (1.25) $ (0.91) Diluted.............................. C$ 0.44 C$ (1.25) $ (0.91) Weighted average common shares outstanding.......................... 81,270 44,250 44,250
See accompanying notes to unaudited U.S. GAAP financial statements. 49 50 NOTES TO UNAUDITED U.S. GAAP FINANCIAL STATEMENTS -- NORTHSTAR JUNE 30, 1998 AND 1997, AND DECEMBER 31, 1997, 1996 AND 1995 1. BASIS OF PRESENTATION The accompanying unaudited U.S. GAAP financial information of Northstar is presented to reflect Northstar's financial information under U.S. GAAP and U.S. dollars and in conformity with Devon's financial statement presentation. The unaudited U.S. GAAP financial information should be read in conjunction with the historical consolidated financial statements and related notes thereto for Northstar that are included elsewhere herein. The historical consolidated financial statement information for Northstar was prepared under Canadian GAAP and in Canadian dollars. For these unaudited U.S. GAAP financial statements, the historical financial information of Northstar have been converted to U.S. dollars using the September 30, 1998, exchange rate for the balance sheet and the average exchange rates for the nine month periods ended September 30, 1998 and 1997 and the years 1997, 1996 and 1995, for the statements of operations. These unaudited U.S. GAAP financial statements also contain certain adjustments to conform the historical Northstar financial statements to U.S. GAAP as described in the following notes. Also, see Note 13 to Northstar's historical consolidated financial statements included elsewhere herein for a description of the adjustments to convert Northstar's financial statements from Canadian GAAP to U.S. GAAP. In addition, certain reclassifications have been made to Northstar's historical consolidated financial statements to conform to Devon's financial statement presentation. 2. NORTHSTAR -- MORRISON BUSINESS COMBINATION In March, 1997, Northstar acquired all the outstanding common shares of Morrison by issuing approximately 46.1 million Northstar common shares. Under Canadian GAAP, this acquisition was accounted for as a pooling-of-interests. Accordingly, Northstar's historical financial position as of September 30, 1998, and its historical financial results for the nine month periods ended September 30, 1998 and 1997, and for the years ended December 31, 1997, 1996 and 1995, are presented as if Northstar and Morrison had been combined for all periods presented. The Northstar common shares received by the Morrison shareholders represented approximately 53% of the combined company's outstanding shares. Therefore, under U.S. GAAP, the Morrison transaction would be accounted for as a reverse acquisition of Northstar by Morrison. Accordingly, for the accompanying unaudited U.S. GAAP financial statements, the results presented for periods through March, 1997 as "Northstar Using U.S. GAAP," represent the historical results of Morrison, the "accounting acquirer." Because Northstar was the "legal acquirer," the financial results for periods through March, 1997, are referred to as "Northstar's" results, even though they represent the historical results of Morrison. For periods subsequent to March, 1997, the results presented as "Northstar Using U.S. GAAP" represent the historical results of Morrison, combined with the results of Northstar after valuing Northstar's March, 1997, assets and liabilities at fair value, rather than historical book value. Because of the significant difference in accounting for this acquisition between Canadian GAAP and U.S. GAAP, the accompanying unaudited U.S. GAAP financial statements of Northstar include a number of adjustments concerning the Morrison acquisition. Those adjustments are described in detail in the following Note 3. 3. U.S. GAAP ADJUSTMENTS The accompanying U.S. GAAP balance sheet includes the following adjustments: (a) To adjust for the effect of accounting for the Morrison transaction using the reverse acquisition purchase method of accounting under U.S. GAAP as opposed to the pooling-of-interests method that was used under Canadian GAAP. 50 51 NOTES TO UNAUDITED U.S. GAAP FINANCIAL STATEMENTS -- NORTHSTAR -- (CONTINUED) (b) To adjust for the cumulative effect of reductions to the carrying value of Northstar's oil and gas properties using the U.S. GAAP full cost ceiling limitations set forth by SEC rules and regulations for the full cost method of accounting for oil and gas operations. (c) To adjust for the effect of deferred income tax accounting under U.S. GAAP. (d) To adjust for other miscellaneous differences between Canadian GAAP and U.S. GAAP, including reclassifying accrued site restoration costs from other liabilities to accumulated depreciation, depletion and amortization to conform to Devon's presentation. The accompanying U.S. GAAP statements of operations include the following adjustments: (e) To allocate oil, gas and NGLs royalty payments to oil, gas and NGLs revenues in accordance with U.S. GAAP; to reclassify third party gas processing revenues from lease operating expenses to other revenues to conform to Devon's presentation; to reclassify gain from gas contract terminations from gas sales to other revenues to conform to Devon's presentation; and to reclassify management fees earned from general and administrative expenses to other revenues to conform to Devon's presentation (f) To record foreign currency transaction gains and losses in accordance with U.S. GAAP. (g) To remove the 1996 and 1995 results of Northstar originally recorded as a pooling-of-interests under Canadian GAAP. (h) To remove the first quarter 1997 results of Northstar originally recorded as a pooling-of-interests under Canadian GAAP, and adjust the last nine months of 1997 and the first nine months of 1998 for the effect of recording the Morrison transaction using the reverse acquisition purchase method of accounting under U.S. GAAP. (i) To adjust for the effect of accounting for Northstar's 50% interest in a Canadian oil and gas corporation using the equity method under U.S. GAAP. For Canadian GAAP, this interest is proportionately consolidated. (j) To record a C$865.9 million (U.S.$625.5 million) and a C$133.0 million (U.S.$97.1 million) reduction of the carrying value of oil and gas properties as of December 31, 1997 and 1995, respectively, in accordance with the full cost ceiling limitation set forth by SEC rules and regulations for the full cost method of accounting for oil and gas operations. The deferred tax benefits of these reductions to oil and gas properties were C$315.0 million (U.S.$227.6 million) in 1997 and C$59.3 million (U.S.$43.3 million) in 1995. As a result of the reductions of the carrying values of oil and gas properties in 1997 and 1995, as well as 1994 and 1991, reductions of Northstar's historical depreciation, depletion and amortization expense are reflected in periods subsequent to the reductions. (k) To adjust the historical income tax expense for (1) the effects of the U.S. GAAP adjustments described above, and (2) to convert to the income tax accounting method as prescribed by U.S. GAAP. 4. CONVERSION TO U.S. DOLLARS For the September 30, 1998, U.S. GAAP balance sheet, the stockholders' equity balance was adjusted using historical exchange rates in effect at the time of the various capital transactions. All other accounts were adjusted using the September 30, 1998, exchange rate of C$1.00 to U.S.$0.66. 51 52 NOTES TO UNAUDITED U.S. GAAP FINANCIAL STATEMENTS -- NORTHSTAR -- (CONTINUED) For the U.S. GAAP statements of operations for the nine month periods ended September 30, 1998 and 1997, Canadian dollars were converted to U.S. dollars using exchange rates of $0.69 and $0.72, respectively. For the U.S. GAAP statements of operations for the years ended December 31, 1997, 1996 and 1995, Canadian dollars were converted to U.S. dollars using exchange rates of $0.72, $0.73 and $0.73, respectively. The exchange rates used for all periods were calculated using the averages of the monthly exchange rates during such periods. 52 53 EXHIBIT INDEX
EXHIBIT NUMBER - ------- 2 Amended and Restated Combination Agreement between the Registrant and Northstar Energy Corporation dated June 29, 1998 (incorporated by reference to Annex B to Registrant's definitive proxy statement for a special meeting of shareholders, filed November 6, 1998) 3 Registrant's Amended and Restated Certificate of Incorporation 4.1 Support Agreement, dated December 10, 1998, between the Registrant and Northstar Energy Corporation 4.2 Provisions Attaching to the Exchangeable Shares 9 Voting and Exchange Trust Agreement, dated December 10 1998, by and between the Registrant, Northstar Energy Corporation and CIBC Mellon Trust Company 10.1 US Credit Agreement, dated December 11, 1998, among the Registrant, as US Borrower, NationsBank, N.A., as Administrative Agent, NationsBanc Montgomery Securities, L.L.C., as Arranger, Bank One, Texas, N.A., as Syndication Agent, Bank of Montreal, as Documentation Agent, First Union, as Co-Documentation Agent, and Certain Financial Institutions, as Lenders 10.2 Canadian Credit Agreement, dated December 11, 1998, among Northstar Energy Corporation and Devon Energy Canada Corporation, as Canadian Borrowers, Bank of America Canada, as Administrative Agent, NationsBanc Montgomery Securities, L.L.C., as Arranger, First Chicago Capital Markets, Inc., as Syndication Agent, Bank of Montreal, as Documentation Agent, First Union, as Co- Documentation Agent, and Certain Financial Institutions, as Lenders 23 Consent of Deloitte & Touche LLP
EX-3 2 REGISTRANTS AMENDED/RESTATED CERTIFICATE OF INCORP 1 EXHIBIT 3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION The undersigned, J. Larry Nichols and Marian J. Moon, certify that they are the President and Chief Executive Officer and Corporate Secretary, respectively, of Devon Energy Corporation, a corporation organized and existing under the laws of the State of Oklahoma (the "Corporation"), and do hereby further certify as follows: 1. The name of this Corporation is Devon Energy Corporation. 2. The name under which the Corporation was originally incorporated was Devon Oklahoma Corporation. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Oklahoma on April 13, 1995, with amendments thereto filed on June 7, 1995 and December 31, 1996. 3. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 1077 and 1080 of the Oklahoma General Corporation Act (the "Act") by the affirmative vote of the holders of not less than a majority of the outstanding stock of the Corporation entitled to vote thereon at a special meeting duly called and held in accordance with the provisions of the Act. 4. The text of the Certificate of Incorporation of the Corporation is amended and restated to read in its entirety as follows: FIRST. The name of the Corporation is: DEVON ENERGY CORPORATION SECOND. The address, including the street, number, city and county, of the Corporation's registered office in this state is 735 First National Building, Oklahoma City, Oklahoma 73102; the name of the Corporation's registered agent at such address is The Corporation Company. THIRD. The nature of the business and the purpose of the Corporation shall be any and all lawful acts or activities for which a corporation may be organized under the general corporation law of Oklahoma. FOURTH. The total number of shares of capital stock which the Corporation shall have authority to issue is 403,000,001 shares, consisting of 3,000,000 shares of Preferred Stock, par value $1.00 per share, and 400,000,000 shares of Common stock, par value $.10 per share and one share of Special Voting Stock, par value $.10 per share. Except as otherwise provided herein or as otherwise required by applicable law, all shares of Special Voting Stock and Common Stock shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions. The preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the shares of each class are as follows: DIVISION A EXPRESS TERMS OF THE PREFERRED STOCK Section 1. The Preferred Stock may be issued from time to time in one or more series. All shares of Preferred Stock shall be of equal rank and shall be identical, except in respect of the matters that may be fixed and determined by the board of directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. The board of directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix and determine the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. 1 2 The authority of the board with respect to each series shall include but not be limited to, determination of the following: (a) The designation of the series, which may be by distinguishing number, letter or title. (b) The number of shares of the series, which number the board of directors may (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding). (c) The annual dividend rate or amount of the series, if any, and whether dividends shall be cumulative or non-cumulative. (d) The dates at which dividends, if declared, shall be payable, and the dates from which dividends shall be cumulative, if at all, and the relative rights of priority, if any, of payment of dividends on shares of that series. (e) The redemption rights, if any, for shares of the series and the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary with different conditions and at different redemption dates. (f) The voting rights of such shares, if any, and the terms of and limitations on such voting rights. (g) The terms and amount of any sinking fund provided for the purpose of redemption or purchase of shares of the series. (h) The amounts payable on shares of the series and rights with respect to such shares in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and the relative rights of priority, if any, of payment of shares of that series. (i) Whether the shares of the series shall be convertible into shares of any other class or classes of securities or of any other series of the same or any other class or classes of stock, or any other security, of the Corporation or any other corporation, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made. (j) Restrictions, if any, on the issuance of shares of the same series or of any other class or series. DIVISION B EXPRESS TERMS OF THE COMMON STOCK The Common Stock shall be subject to the express terms of the Preferred Stock and any series thereof. Each share of Common Stock shall be equal to every other share of Common Stock. The holders of shares of Common Stock shall be entitled to one vote for each share of such stock upon all matters presented to the stockholders. 2 3 DIVISION C EXPRESS TERMS OF THE SPECIAL VOTING STOCK Each outstanding share of Special Voting Stock shall be entitled at any relevant date to the number of votes determined in accordance with the "Plan of Arrangement" (as that term is defined in that certain Amended and Restated Combination Agreement dated as of June 29, 1998 (as amended and restated from time to time, the "Combination Agreement"), by and between the Corporation and Northstar Energy Corporation) on all matters presented to the stockholders. No dividend or distribution of assets shall be paid to the holders of Special Voting Stock. The Special Voting Stock is not convertible into any other class or series of the capital stock of the Corporation or into cash, property or other rights, and may not be redeemed. Any shares of Special Voting Stock purchased or otherwise acquired by the Corporation shall be deemed retired and shall be canceled and may not thereafter be reissued or otherwise disposed of by the Corporation. At such time as the Special Voting Stock has no votes attached to it because there are no "Exchangeable Shares" (as that term is defined in the Combination Agreement) outstanding, the Special Voting Stock shall be canceled. In respect of all matters concerning the voting of shares, the Common Stock and the Special Voting Stock shall vote as a single class and such voting rights shall be identical in all respects. FIFTH. The name and address of the incorporator is as follows:
NAME MAILING ADDRESS - ---- --------------- Jerry A. Warren Tenth Floor Leadership Square Oklahoma City, Oklahoma 73102
SIXTH. The number of directors which shall constitute the whole board shall not be less than three nor more than fifteen, and shall be determined by resolution adopted by a vote of two-thirds ( 2/3) of the entire board, or at an annual meeting of stockholders by the affirmative vote of the holders of capital stock entitled to cast sixty-six and two-thirds percent (66 2/3%) of the votes entitled to be cast at the meeting. No reduction in number shall have the effect of removing any director prior to the expiration of his term. The provisions of this Article shall not be altered, amended or repealed except by the affirmative vote of the holders of capital stock entitled to cast at least sixty-six and two-thirds percent (66 2/3%) of the votes entitled to be cast. SEVENTH. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, its directors and its stockholders or any class thereof, as the case may be, it is further provided that: (a) No election of directors need be by written ballot. (b) Except as otherwise provided herein, the power to adopt, amend or repeal the bylaws is conferred on the board of directors. EIGHTH. The Corporation elects that the Control Share Act as set forth in Section 1145 through 1155 of Title 18 of the Oklahoma Statutes shall not apply to the corporation. Furthermore, the Corporation elects not to be governed by Section 1090.3 of Title 18 of the Oklahoma Statutes. NINTH. No director of the Corporation shall be personally liable to the Corporation or its stockholders for damages for breach of fiduciary duty as a director, except for personal liability: (a) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (b) under Section 1053 of the Oklahoma General Corporation Act; (c) for any breach of the director's duty of loyalty to the Corporation or its stockholders; or (d) for any transaction from which the director derived an improper personal benefit. 3 4 TENTH. No action required to be taken or which may be taken at any annual or special meeting of shareholders of the Corporation may be taken without a meeting, and the power of shareholders to consent in writing without a meeting to the taking of any action is specifically denied. ELEVENTH. (a) Notwithstanding any other provisions of Title 18 of the Oklahoma Statutes, the Corporation shall not engage in any business combination with any current or former interested shareholder for a period of three (3) years following the date that such person became an interested shareholder, unless: (i) prior to the date on which a person becomes an interested shareholder, the board of directors of the Corporation approved either the business combination or the transaction which resulted in the person becoming an interested shareholder; (ii) upon consummation of the transaction which resulted in the person becoming an interested shareholder, the interested shareholder owned of record or beneficially capital stock having at least eighty-five percent (85%) of all voting power of the Corporation at the time the transaction commenced, excluding for purposes of determining such voting power the votes attributable to those shares owned of record or beneficially by: a. persons who are directors and also officers, and b. employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the continuing board of directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of all voting power which is not attributable to shares owned of record or beneficially by the interested shareholder. (b) The restrictions contained in this section shall not apply if: (i) the business combination is proposed prior to the consummation of the business transaction and subsequent to the earlier of the public announcement or the notice required hereunder of, a proposed transaction which: a. constitutes one of the transactions described in subparagraph (ii) of this paragraph, b. is with or by a person who either was not an interested shareholder during the previous three (3) years or who became an interested shareholder with the approval of the Corporation's board of directors, and c. is approved or not opposed by a majority of the members of the board of directors then in office, but not less than one, who were directors prior to any person becoming an interested shareholder during the previous three (3) years or were recommended for election or elected to succeed such directors by a majority of such directors; (ii) the proposed transactions referred to in subparagraph (i) of this paragraph are limited to: a. a share acquisition pursuant to Section 1090.1 of Title 18 of the Oklahoma Statutes, or a merger or consolidation of the Corporation, except for a merger in respect of which pursuant to subsection F of Section 1081 of Title 18 of the Oklahoma Statutes, no vote of the shareholders of the Corporation is required, or b. a sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation, other 4 5 than to any direct or indirect wholly-owned subsidiary or to the Corporation, having an aggregate market value equal to fifty percent (50%) or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Corporation, or c. a proposed tender or exchange offer for outstanding stock of the Corporation which represents fifty percent (50%) or more of all voting power of the Corporation, or (iii) a person becomes an interested shareholder inadvertently and: a. as soon as practicable divests sufficient shares so that the person ceases to be an interested shareholder, and b. would not, at any time within the three (3) year period immediately prior to a business combination between the Corporation and such person, have been an interested shareholder but for the inadvertent acquisition. The Corporation shall give not less than twenty (20) days notice to all interested shareholders prior to the consummation of any of the transactions described in divisions (i) or (ii) of this subparagraph. (c) As used in this section only: (i) "affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person; (ii) "all voting power" means the aggregate number of votes which the holders of all classes of capital stock of the Corporation would be entitled to cast in an election of directors generally; (iii) "associate", when used to indicate a relationship with any person, means: a. any corporation or organization of which such person is a director, officer or partner or is, of record or beneficially, the owner of outstanding stock of the Corporation having twenty percent (20%) or more of all voting power of the Corporation, b. any trust or other estate in which such person has at least a twenty percent (20%) beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and c. any relative or spouse of such person, or any relative of such spouse, who has the same residence of such person; (iv) "beneficial ownership" shall have the meaning ascribed to such term by Rule 13d-3 under the Securities Exchange Act of 1934, 15 U.S.C. Section 78a et seq., as amended, except that a person shall be deemed to be the owner or beneficial owner of securities of which he has the right to acquire ownership either immediately or only after the passage of any time or the giving of notice or both; provided, however, that a person shall not be deemed the owner or beneficial owner of any stock if: a. the agreement, arrangement or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to more than ten persons, or b. the stock is tendered pursuant to a tender or exchange offer made by such person or any of such person's affiliates or associates, until such tendered stock is accepted for purchase or exchange; 5 6 (v) "business combination", when used in reference to any corporation and any interested shareholder of such corporation, means: a. any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with: (1) the interested shareholder, or (2) any other corporation if the merger or consolidation is caused by the interested shareholder and as a result of such merger or consolidation subsection (a) of this section is not applicable to the surviving corporation, b. any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, except as proportionately as a shareholder of such corporation, to or with the interested shareholder, whether as part of a dissolution or otherwise, of assets of the corporation or of any direct or indirect majority-owned subsidiary of the corporation which assets have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation, c. any transaction which results in the issuance or transfer by the corporation or by any direct or indirect majority-owned subsidiary of the corporation of any stock of the corporation or of such subsidiary to the interested shareholder, except: (1) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of such corporation or any such subsidiary which securities were outstanding prior to the time that the interested shareholder became such, (2) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of such corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of stock of such corporation subsequent to the time the interested shareholder became such, or (3) pursuant to an exchange offer by the corporation to purchase stock made on the same terms to all holders of said stock; provided, however, that in no case under divisions (2) and (3) of this subparagraph shall there be an increase in the interested shareholder's proportionate share of the stock of any class or series of the corporation or of all voting power of the corporation, d. any transaction involving the corporation or any direct or indirect majority-owned subsidiary of the corporation which has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, or all voting power, of the corporation or of any such subsidiary which is owned by the interested shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of stock not caused, directly or indirectly, by the interested shareholder, e. any receipt by the interested shareholder of the benefit, directly or indirectly, except proportionately as a shareholder of such corporation, of any loans, advances, guarantees, pledges, or other financial benefits, other than those expressly permitted in subparagraphs a. through d. of this paragraph, provided by or through the corporation or any direct or indirect majority-owned subsidiary, or f. any share acquisition pursuant to Section 1090.1 of Title 18 of the Oklahoma Statutes; 6 7 (vi) "control", including the terms "controlling", "controlled by" and "under common control with", means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract, or otherwise. A person who owns, of record or beneficially, outstanding stock of the corporation having twenty percent (20%) or more of all voting power of the corporation shall be presumed to have control of such corporation, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds stock, in good faith and not for the purpose of circumventing this section, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such corporation; (vii) "group" means two or more persons who agree to act together for the purpose of acquiring, holding, voting or disposing of securities of the corporation; (viii) a. "interested shareholder" means: (1) any person, other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation, that: (a) owns of record or beneficially outstanding stock of the Corporation having fifteen percent (15%) or more of all voting power of the Corporation, or (b) is an affiliate or associate of the Corporation and owned of record or beneficially outstanding stock of the Corporation having fifteen percent (15%) or more of all voting power of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested shareholder, and (2) the affiliates and associates of such person; b. the term "interested shareholder" shall not include any person whose ownership of shares in excess of the fifteen percent (15%) limitation set forth herein is the result of action taken solely by the Corporation, provided that such person shall be an interested shareholder if thereafter he acquires additional shares of voting stock of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by such person; c. for the purpose of determining whether a person is an interested shareholder, the stock of the Corporation deemed to be outstanding shall include stock owned of record or beneficially by such person, but shall not include any other unissued stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise; (ix) "person" means any individual, corporation, partnership, unincorporated association, any other entity, any group and any member of a group. TWELFTH. The board of directors shall be divided into three classes as nearly equal in number as possible with the term of office of one class expiring each year. Of the directors chosen at the first stockholders' meeting, the term of office of those of the first class shall expire at the first annual meeting after their election; the term of office of those of the second class shall expire at the second annual meeting after their election; and the term of office of those of the third class shall expire at the third annual meeting after their election. At each annual meeting held after such classification and election, directors shall be chosen for a full term of three years to succeed those whose terms expire. When the number of directors is changed any newly created directorship or any decrease in directorship shall be so apportioned among the classes as to make all classes as nearly equal in number as possible. When the number of directors is increased by the board of directors, there shall be no classification of the additional directors until the next annual meeting of stockholders. 7 8 Subject to the rights, if any, of the holders of Preferred Stock to elect directors, vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of the class for which each such director has been chosen and until his successor is duly elected and qualified, or until his earlier resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of an incumbent director. THIRTEENTH. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation and with respect to any criminal action or proceeding had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine, upon application, that despite the adjudication of liability, but in the view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. (c) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized herein. (d) The Corporation may purchase (upon resolution duly adopted by the board of directors) and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability. (e) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to herein or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 8 9 (f) Every such person shall be entitled, without demand by him upon the Corporation or any action by the Corporation, to enforce his right to such indemnity in an action at law against the Corporation. The right of indemnification and advancement of expenses hereinabove provided shall not be deemed exclusive of any rights to which any such person may now or hereafter be otherwise entitled and specifically, without limiting the generality of the foregoing, shall not be deemed exclusive of any rights pursuant to statute or otherwise, of any such person in any such action, suit or proceeding to have assessed or allowed in his favor against the Corporation or otherwise, his costs and expenses incurred therein or in connection therewith or any part thereof. FOURTEENTH. The provisions of this Article and Articles NINTH through THIRTEENTH of this Amended and Restated Certificate of Incorporation shall not be altered, amended or repealed except by the affirmative vote of the holders of capital stock entitled to cast at least 80% of the votes entitled to be cast thereon. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by J. Larry Nichols, its President and Chief Executive Officer, and attested by Marian J. Moon, its Secretary this 10th day of December, 1998. /s/ J. LARRY NICHOLS ------------------------------------ J. Larry Nichols, President and Chief Executive Officer ATTEST: /s/ MARIAN J. MOON - -------------------------------- Marian J. Moon, Corporate Secretary 9 EX-4.1 3 SUPPORT AGREEMENT 1 EXHIBIT 4.1 SUPPORT AGREEMENT THIS SUPPORT AGREEMENT is entered into as of December 10, 1998, between Devon Energy Corporation, an Oklahoma corporation ("Devon"), and Northstar Energy Corporation, an Alberta corporation ("Northstar"). RECITALS WHEREAS, pursuant to an Amended and Restated Combination Agreement dated as of June 29, 1998, by and between Devon and Northstar (such agreement, as it may be amended or restated, is hereinafter referred to as the "Combination Agreement"), the parties agreed that on the Effective Date (as defined in the Combination Agreement), Devon and Northstar would execute and deliver a Support Agreement containing the terms and conditions set forth in Exhibit D to the Combination Agreement together with such other terms and conditions as may be agreed to by the parties to the Combination Agreement acting reasonably. WHEREAS, pursuant to an arrangement (the "Arrangement") effected by Articles of Arrangement dated December 10, 1998 filed pursuant to the Business Corporations Act (Alberta) (or any successor or other corporate statute by which Northstar may in the future be governed) (the "Act") each issued and outstanding common share of Northstar (a "Northstar Common Share") was exchanged for issued and outstanding Exchangeable Shares of Northstar (the "Exchangeable Shares"). WHEREAS, the Articles of Amendment of Northstar set forth the rights, privileges, restrictions and conditions (collectively, the "Exchangeable Share Provisions") attaching to the Exchangeable Shares. WHEREAS, the parties hereto desire to make appropriate provision and to establish a procedure whereby Devon will take certain actions and make certain payments and deliveries necessary to ensure that Northstar will be able to make certain payments and to deliver or cause to be delivered shares of Devon Common Stock in satisfaction of the obligations of Northstar under the Exchangeable Share Provisions with respect to the payment and satisfaction of dividends, Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance with the Exchangeable Share Provisions. NOW, THEREFORE, in consideration of the respective covenants and agreements provided in this agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 DEFINED TERMS Each term denoted herein by initial capital letters and not otherwise defined herein shall have the meaning attributed thereto in the Exchangeable Share Provisions, unless the context requires otherwise. 1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this agreement into articles, sections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement. 1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall include the plural and vice versa. Words importing the use of any gender shall include all genders. 1 2 1.4 DATE FOR ANY ACTION If any date on which any action is required to be taken under this agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day. ARTICLE 2 COVENANTS OF DEVON AND NORTHSTAR 2.1 COVENANTS OF DEVON REGARDING EXCHANGEABLE SHARES So long as any Exchangeable Shares are outstanding, Devon will: (a) not declare or pay any dividend on Devon Common Stock unless (i) Northstar will have sufficient assets, funds and other property available to enable the due declaration and the due and punctual payment in accordance with applicable law of an equivalent dividend on the Exchangeable Shares and (ii) subsection 2.1(b) shall be complied with in connection with such dividend; (b) cause Northstar to declare simultaneously with the declaration of any dividend on Devon Common Stock an equivalent dividend on the Exchangeable Shares and, when such dividend is paid on Devon Common Stock, cause Northstar to pay simultaneously therewith such equivalent dividend on the Exchangeable Shares, in each case in accordance with the Exchangeable Share Provisions; (c) advise Northstar sufficiently in advance of the declaration by Devon of any dividend on Devon Common Stock and take all such other actions as are necessary, in cooperation with Northstar, to ensure that the respective declaration date, record date and payment date for a dividend on the Exchangeable Shares shall be the same as the record date, declaration date and payment date for the corresponding dividend on Devon Common Stock and that such dividend on the Exchangeable Shares will correspond with any requirement of the principal stock exchange on which the Exchangeable Shares are listed; (d) ensure that the record date for any dividend declared on Devon Common Stock is not less than ten Business Days after the declaration date for such dividend; (e) take all such actions and do all such things as are necessary or desirable to enable and permit Northstar, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Liquidation Amount in respect of each issued and outstanding Exchangeable Share upon the liquidation, dissolution or winding-up of Northstar or any other distribution of the assets of Northstar for the purpose of winding-up its affairs, including without limitation all such actions and all such things as are necessary or desirable to enable and permit Northstar to cause to be delivered shares of Devon Common Stock to the holders of Exchangeable Shares in accordance with the provisions of Article 5 of the Exchangeable Share Provisions; (f) take all such actions and do all such things as are necessary or desirable to enable and permit Northstar, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Retraction Price and the Redemption Price, including without limitation all such actions and all such things as are necessary or desirable to enable and permit Northstar to cause to be delivered shares of Devon Common Stock to the holders of Exchangeable Shares, upon the retraction or redemption of the Exchangeable Shares in accordance with the provisions of Article 6 or Article 7 of the Exchangeable Share Provisions, as the case may be; and (g) not exercise its vote as a direct or indirect shareholder to initiate the voluntary liquidation, dissolution or winding-up of Northstar nor take any action or omit to take any action that is designed to result in the liquidation, dissolution or winding-up of Northstar. 2.2 SEGREGATION OF FUNDS Devon will cause Northstar to deposit a sufficient amount of funds in a separate account and segregate a sufficient amount of such assets and other property as is necessary to enable Northstar to pay or otherwise 2 3 satisfy the applicable dividends, Liquidation Amount, Retraction Price or Redemption Price, in each case for the benefit of holders from time to time of the Exchangeable Shares, and Northstar will use such funds, assets and other property so segregated exclusively for the payment of dividends and the payment or other satisfaction of the Liquidation Amount, the Retraction Price or the Redemption Price, as applicable, net of any corresponding withholding tax obligations and for the remittance of such withholding tax obligations. 2.3 RESERVATION OF SHARES OF DEVON COMMON STOCK Devon hereby represents, warrants and covenants that it has irrevocably reserved for issuance and will at all times keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of shares of Devon Common Stock (or other shares or securities into which Devon Common Stock may be reclassified or changed as contemplated by section 2.7 hereof) (i) as is equal to the sum of (A) the number of Exchangeable Shares issued and outstanding from time to time and (B) the number of Exchangeable Shares issuable upon the exercise of all rights to acquire Exchangeable Shares outstanding from time to time and (ii) as are now and may hereafter be required to enable and permit Northstar to meet its obligations hereunder, under the Voting and Exchange Trust Agreement, under the Exchangeable Share Provisions and under any other security or commitment pursuant to the Arrangement with respect to which Devon may now or hereafter be required to issue shares of Devon Common Stock. 2.4 NOTIFICATION OF CERTAIN EVENTS In order to assist Devon to comply with its obligations hereunder, Northstar will give Devon notice of each of the following events at the time set forth below: (a) immediately, in the event of any determination by the Board of Directors of Northstar to take any action which would require a vote of the holders of Exchangeable Shares for approval; (b) immediately, upon the earlier of (i) receipt by Northstar of notice of, and (ii) Northstar otherwise becoming aware of, any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of Northstar or to effect any other distribution of the assets of Northstar among its shareholders for the purpose of winding-up its affairs; (c) immediately, upon receipt by Northstar of a Retraction Request (as defined in the Exchangeable Share Provisions); (d) at least 130 days prior to any Automatic Redemption Date determined by the Board of Directors of Northstar in accordance with clause (b) of the definition of Automatic Redemption Date in the Exchangeable Share Provisions; (e) as soon as practicable upon the issuance by Northstar of any Exchangeable Shares or rights to acquire Exchangeable Shares; and (f) in the event of any determination by the Board of Directors of Northstar to institute voluntary liquidation, dissolution or winding-up proceedings with respect to Northstar or to effect any other distribution of the assets of Northstar among its shareholders for the purpose of winding-up its affairs, at least 60 days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution. 2.5 DELIVERY OF SHARES OF DEVON COMMON STOCK In furtherance of its obligations hereunder, upon notice of any event which requires Northstar to cause to be delivered shares of Devon Common Stock to any holder of Exchangeable Shares, Devon shall forthwith issue and deliver the requisite shares of Devon Common Stock to or to the order of the former holder of the surrendered Exchangeable Shares, as Northstar shall direct. All such shares of Devon Common Stock shall be duly issued as fully paid and non-assessable and shall be free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest. 3 4 2.6 QUALIFICATION OF SHARES OF DEVON COMMON STOCK Devon covenants that if any shares of Devon Common Stock (or other shares or securities into which Devon Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be issued and delivered hereunder (including for greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights (all as defined in the Voting and Exchange Trust Agreement)) require registration or qualification with or approval of or the filing of any document including any prospectus or similar document, the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or United States federal, provincial or state law or regulation or pursuant to the rules and regulations of any regulatory authority, or the fulfillment of any other legal requirement (collectively, the "Applicable Laws") before such shares (or other shares or securities into which Devon Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) may be issued and delivered by Devon to the initial holder thereof (other than Northstar) or in order that such shares may be freely traded thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of Devon for purposes of Canadian federal or provincial securities law or an "affiliate" of Devon for purposes of United States federal or state securities law), Devon will in good faith expeditiously take all such actions and do all such things as are necessary to cause such shares of Devon Common Stock (or other shares or securities into which Devon Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be and remain duly registered, qualified or approved. Devon represents and warrants that it has in good faith taken all actions and done all things as are necessary under Applicable Laws as they exist on the date hereof to cause the shares of Devon Common Stock (or other shares or securities into which Devon Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be issued and delivered hereunder (including, for greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights) to be freely tradeable thereafter (other than restrictions on transfer by reason of a holder being a "control person" of Devon for the purposes of Canadian federal and provincial securities law or an "affiliate" of Devon for purposes of United States federal or state securities law). Devon will in good faith expeditiously take all such actions and do all such things as are necessary to cause all shares of Devon Common Stock (or other shares or securities into which Devon Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be delivered hereunder (including, for greater certainty, pursuant to Exchangeable Share Provisions, or pursuant to the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights) to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which such shares are listed, quoted or posted for trading at such time. Devon will in good faith expeditiously take all such action and do all such things as are necessary to cause all Exchangeable Shares to be and to continue to be listed and posted for trading on The Toronto Stock Exchange or, in the event that a listing on The Toronto Stock Exchange is not available, on another recognized Canadian stock exchange. 2.7 EQUIVALENCE (a) Devon will not: (i) issue or distribute shares of Devon Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of Devon Common Stock) to the holders of all or substantially all of the then outstanding shares of Devon Common Stock by way of stock dividend or other distribution; or (ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding shares of Devon Common Stock entitling them to subscribe for or to purchase shares of Devon Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of Devon Common Stock); or (iii) issue or distribute to the holders of all or substantially all of the then outstanding shares of Devon Common Stock (A) shares or securities of Devon of any class other than Devon Common Stock (other than shares convertible into or exchangeable for or carrying rights to acquire shares of Devon 4 5 Common Stock), (B) rights, options or warrants other than those referred to in subsection 2.7 (a) (ii) above, (C) evidences of indebtedness of Devon or (D) assets of Devon; unless (iv) one or both of Devon and Northstar is permitted under applicable law to issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets to the holders of the Exchangeable Shares; and (v) one or both of Devon and Northstar shall issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets simultaneously to the holders of the Exchangeable Shares. (b) Devon will not: (i) subdivide, redivide or change the then outstanding shares of Devon Common Stock into a greater number of shares of Devon Common Stock; or (ii) reduce, combine or consolidate or change the then outstanding shares of Devon Common Stock into a lesser number of shares of Devon Common Stock; or (iii) reclassify or otherwise change the shares of Devon Common Stock or effect an amalgamation, merger, reorganization or other transaction involving or affecting the shares of Devon Common Stock; unless (iv) Northstar is permitted under applicable law to simultaneously make the same or an economically equivalent change to, or in the rights of the holders of, the Exchangeable Shares; and (v) the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares. (c) Devon will ensure that the record date for any event referred to in section 2.7 (a) or 2.7(b) above, or (if no record date is applicable for such event) the effective date for any such event, is not less than 20 Business Days after the date on which such event is declared or announced by Devon (with simultaneous notice thereof to be given by Devon to Northstar). 2.8 TENDER OFFERS, ETC. In the event that a tender offer, share exchange offer, issuer bid, take-over bid or similar transaction with respect to Devon Common Stock (an "Offer") is proposed by Devon or is proposed to Devon or its shareholders and is recommended by the Board of Directors of Devon, or is otherwise effected or to be effected with the consent or approval of the Board of Directors of Devon, Devon shall, in good faith, take all such actions and do all such things as are necessary or desirable to enable and permit holders of Exchangeable Shares to participate in such Offer to the same extent and on an equivalent basis as the holders of shares of Devon Common Stock, without discrimination, including, without limiting the generality of the foregoing, Devon will use its good faith efforts expeditiously to (and shall, in the case of a transaction proposed by Devon or where Devon is a participant in the negotiation thereof) ensure that holders of Exchangeable Shares may participate in all such Offers without being required to retract Exchangeable Shares as against Northstar (or, if so required, to ensure that any such retraction shall be effective only upon, and shall be conditional upon, the closing of the Offer and only to the extent necessary to tender or deposit to the Offer). 2.9 OWNERSHIP OF OUTSTANDING SHARES Without the prior approval of Northstar and the prior approval of the holders of the Exchangeable Shares given in accordance with Section 10.2 of the Exchangeable Share Provisions, Devon covenants and agrees in favor of Northstar that, as long as any outstanding Exchangeable Shares are owned by any person or entity other than Devon or any of its Subsidiaries, Devon will be and remain the direct or indirect beneficial owner of all issued and outstanding Northstar Common Shares and of at least 50.1% of all other outstanding securities 5 6 of Northstar carrying or entitled to voting rights in any circumstances generally for the election of directors, in each case other than the Exchangeable Shares. 2.10 DEVON NOT TO VOTE EXCHANGEABLE SHARES Devon covenants and agrees that it will appoint and cause to be appointed proxy holders with respect to all Exchangeable Shares held by Devon and its Subsidiaries for the sole purpose of attending each meeting of holders of Exchangeable Shares in order to be counted as part of the quorum for each such meeting. Devon further covenants and agrees that it will not, and will cause its Subsidiaries not to, exercise any voting rights which may be exercisable by holders of Exchangeable Shares from time to time pursuant to the Exchangeable Share Provisions or pursuant to the provisions of the Act with respect to any Exchangeable Shares held by it or by its Subsidiaries in respect of any matter considered at any meeting of holders of Exchangeable Shares. 2.11 DUE PERFORMANCE On and after the Effective Date, Devon shall duly and timely perform all of its obligations provided for in connection with the Plan of Arrangement, including any obligations that may arise upon the exercise of Devon's rights under the Exchangeable Share Provisions. ARTICLE 3 GENERAL 3.1 TERM This agreement shall come into force and be effective as of the date hereof and shall terminate and be of no further force and effect at such time as no Exchangeable Shares (or securities or rights convertible into or exchangeable for or carrying rights to acquire Exchangeable Shares) are held by any party other than Devon and any of its Subsidiaries. 3.2 CHANGES IN CAPITAL OF DEVON AND NORTHSTAR Notwithstanding the provisions of section 3.4 hereof, at all times after the occurrence of any event effected pursuant to section 2.7 or 2.8 hereof, as a result of which either Devon Common Stock or the Exchangeable Shares or both are in any way changed, this agreement shall forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which Devon Common Stock or the Exchangeable Shares or both are so changed, and the parties hereto shall as soon as possible execute and deliver an agreement in writing giving effect to and evidencing such necessary amendments and modifications. 3.3 SEVERABILITY If any provision of this agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remainder of this agreement shall not in any way be affected or impaired thereby and this agreement shall be carried out as nearly as possible in accordance with its original terms and conditions. 3.4 AMENDMENTS, MODIFICATIONS, ETC. This agreement may not be amended, modified or waived except by an agreement in writing executed by Northstar and Devon and approved by the holders of the Exchangeable Shares in accordance with Section 10.2 of the Exchangeable Share Provisions. 6 7 3.5 MINISTERIAL AMENDMENTS Notwithstanding the provisions of section 3.4, the parties to this agreement may in writing, at any time and from time to time, without the approval of the holders of the Exchangeable Shares, amend or modify this agreement for the purposes of: (a) adding to the covenants of either or both parties for the protection of the holders of the Exchangeable Shares; (b) making such amendments or modifications not inconsistent with this agreement as may be necessary or desirable with respect to matters or questions which, in the opinion of the board of directors of each of Northstar and Devon, it may be expedient to make, provided that each such board of directors shall be of the opinion that such amendments or modifications will not be prejudicial to the interests of the holders of the Exchangeable Shares; or (c) making such changes or corrections which, on the advice of counsel to Northstar and Devon, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error; provided that the boards of directors of each of Northstar and Devon shall be of the opinion that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares. 3.6 MEETING TO CONSIDER AMENDMENTS Northstar, at the request of Devon, shall call a meeting or meetings of the holders of the Exchangeable Shares for the purpose of considering any proposed amendment or modification requiring approval of such shareholders. Any such meeting or meetings shall be called and held in accordance with the by-laws of Northstar, the Exchangeable Share Provisions and all Applicable Laws. 3.7 AMENDMENTS ONLY IN WRITING No amendment to or modification or waiver of any of the provisions of this agreement otherwise permitted hereunder shall be effective unless made in writing and signed by both of the parties hereto. 3.8 INUREMENT This agreement shall be binding upon and inure to the benefit of the parties hereto and the holders, from time to time, of Exchangeable Shares and each of their respective heirs, successors and assigns. 7 8 3.9 NOTICES TO PARTIES All notices and other communications between the parties shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for either such party as shall be specified in like notice): (a) if to Devon to: Devon Energy Corporation 20 North Broadway Suite 1500 Oklahoma City, Oklahoma 73102-8260 Attention: President Facsimile No. 405-552-8171 (b) if to Northstar to: Northstar Energy Corporation 3000, 400 -- 3rd Avenue S.W. Calgary, Alberta T2P 4H2 Attention: President Facsimile No. 403-213-8100 Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof and if given by telecopy shall be deemed to have been given and received on the date of confirmed receipt thereof, unless such day is not a Business Day, in which case it shall be deemed to have been given and received upon the immediately following Business Day. 3.10 COUNTERPARTS This agreement may be executed in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. 3.11 JURISDICTION This agreement shall be construed and enforced in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein. 3.12 ATTORNMENT Devon agrees that any action or proceeding arising out of or relating to this agreement may be instituted in the courts of the Province of Alberta, waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of such courts in any such action or proceeding, agrees to be bound by any judgment of such courts and not to seek, and hereby waives, any review of the merits of any such judgment by the courts of any other jurisdiction and hereby appoints Northstar at its registered office in the Province of Alberta as Devon's attorney for service of process. 8 9 IN WITNESS WHEREOF, Devon and Northstar have caused this agreement to be signed by their respective officers thereunder duly authorized, all as of the date first written above. DEVON ENERGY CORPORATION By: /s/ DUKE R. LIGON ---------------------------------- By: /s/ MARIAN J. MOON ---------------------------------- NORTHSTAR ENERGY CORPORATION By: /s/ JOHN A. HAGG ---------------------------------- By: /s/ MURRAY T. BROWN ---------------------------------- 9 EX-4.2 4 EXCHANGE SHARE PROVISION 1 EXHIBIT 4.2 PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES The Exchangeable Shares in the capital of the Corporation shall have the following rights, privileges, restrictions and conditions: ARTICLE 1 INTERPRETATION 1.1 For the purposes of these rights, privileges, restrictions and conditions: "Act" means the Business Corporations Act (Alberta), as amended, consolidated or reenacted from time to time. "Aggregate Equivalent Vote Amount" means, with respect to any matter, proposition or question on which holders of Devon Common Stock are entitled to vote, consent or otherwise act, the product of (i) the number of Exchangeable Shares then issued and outstanding and held by holders (other than Devon and its Subsidiaries) multiplied by (ii) the number of votes to which a holder of one share of Devon Common Stock is entitled with respect to such matter, proposition or question. "Automatic Redemption Date" means the date for the automatic redemption by the Corporation of Exchangeable Shares pursuant to Article 7 of these share provisions, which date shall be the first to occur of (a) the date, if any, selected pursuant to this clause (a) by the Board of Directors of the Corporation, such date to be no earlier than the 10th anniversary of the Effective Date of the Arrangement, (b) the date selected by the Board of Directors of the Corporation (such date to be no earlier than the third anniversary of the Effective Date of the Arrangement) at a time when less than 5% of the number of Exchangeable Shares issuable on the Effective Date (other than Exchangeable Shares held by Devon and its Subsidiaries, and as such number of shares may be adjusted as deemed appropriate by the Board of Directors to give effect to any subdivision or consolidation of or stock dividend on the Exchangeable Shares, any issuance or distribution of rights to acquire Exchangeable Shares or securities exchangeable for or convertible into or carrying rights to acquire Exchangeable Shares, any issue or distribution of other securities or rights or evidences of indebtedness or assets, or any other capital reorganization or other transaction involving or affecting the Exchangeable Shares) are outstanding, (c) the Business Day prior to the record date for any meeting or vote of the shareholders of the Corporation to consider any matter on which the holders of Exchangeable Shares would be entitled to vote as shareholders of the Corporation, but excluding any meeting or vote as described in clause (d) below, (d) the Business Day following the day on which the holders of Exchangeable Shares fail to take the necessary action at a meeting or other vote of holders of Exchangeable Shares, if and to the extent such action is required, to approve or disapprove, as applicable, any change to, or in the rights of the holders of, Exchangeable Shares, if the approval or disapproval, as applicable, of such change would be required to maintain the economic and legal equivalence of the Exchangeable Shares and the Devon Common Stock or (e) the date on which the share purchase rights issued pursuant to the Rights Agreement, dated as of April 17, 1995, as amended, between Devon and First National Bank of Boston (or pursuant to any similar successor or replacement rights agreement) would separate from the shares of Devon Common Stock and become exercisable. "Board of Directors" means the board of directors of the Corporation and any committee thereof acting within its authority. "Business Day" means any day other than a Saturday, a Sunday or a day when banks are not open for business in either or both of Oklahoma City, Oklahoma and Calgary, Alberta. "Common Shares" means the common shares in the capital of the Corporation. "Corporation" means Northstar Energy Corporation, a corporation organized and existing under the Act and includes any successor corporation. "Current Market Price" means, in respect of a share of Devon Common Stock on any date, the average of the closing sale prices per share (computed and rounded to the third decimal point) of shares of Devon Common Stock during the period of 20 consecutive trading days ending not more than five trading days before such date on the American Stock Exchange, or, if Devon Common Stock is not then traded on the American Stock Exchange, on such 2 -2- other principal U.S. stock exchange or automated quotation system on which the Devon Common Stock is listed or quoted, as the case may be, as may be selected by the Board of Directors for such purpose; provided, however, that if, in the opinion of the Board of Directors the public distribution or trading activity of Devon Common Stock during such period does not create a market which reflects the fair market value of a share of Devon Common Stock, then the Current Market Price of a share of Devon Common Stock shall be determined by the Board of Directors based upon the advice of such qualified independent financial advisors as the Board of Directors may deem to be appropriate, and provided further than any such selection, opinion or determination by the Board of Directors shall be conclusive and binding. "Devon" means Devon Energy Corporation, a corporation organized and existing under the laws of the State of Oklahoma and includes any successor corporation. "Devon Call Notice" has the meaning provided in Section 6.3. "Devon Common Stock" means the shares of common stock of Devon, with a par value of U.S. $0.10 per share, having voting rights of one vote per share, and any other securities resulting from the application of Section 2.7 of the Support Agreement. "Devon Dividend Declaration Date" means the date on which the board of directors of Devon declares any dividend on the Devon Common Stock. "Devon Special Share" means the one share of Special Voting Stock of Devon, with a par value of U.S. $0.10, and having voting rights at meetings of holders of Devon Common Stock equal to the Aggregate Equivalent Voting Amount. "Exchange Put Date" has the meaning provided in Section 8.2. "Exchange Put Right" has the meaning provided in Section 8.1. "Exchangeable Share Consideration" means, for any acquisition of or redemption of or distribution of assets of the Corporation in respect of or purchase pursuant to these share provisions, the Plan of Arrangement, the Support Agreement or the Voting and Exchange Trust Agreement: a. certificates representing the aggregate number of shares of Devon Common Stock deliverable in connection with such action; b. a cheque or cheques payable at par at any branch of the bankers of the payor in the amount of all declared, payable and unpaid, and all undeclared but payable, cash dividends deliverable in connection with such action; and c. such stock or other property constituting any declared and unpaid, and all undeclared but payable, non-cash dividends deliverable in connection with such action, provided that (i) that part of the consideration which represents (a) above, shall be fully paid and satisfied by the delivery of one share of Devon Common Stock for each one Exchangeable Share, such share to be duly issued as a fully paid and non-assessable share, (ii) that part of the consideration which represents (c), above, unpaid shall be fully paid and satisfied by delivery of such non-cash items, and (iii) any such consideration shall be delivered free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest less any tax required to be deducted and withheld therefrom and without interest. "Exchangeable Share Price" means, for each Exchangeable Share, an amount equal to the aggregate of: a. the Current Market Price of a share of Devon Common Stock; plus 3 -3- b. an additional amount equal to the full amount of all cash dividends declared, payable and unpaid on such Exchangeable Share; plus c. an additional amount equal to all dividends declared and payable on Devon Common Stock which have not been declared on Exchangeable Shares in accordance herewith; plus d. an additional amount representing non-cash dividends declared, payable and unpaid on such Exchangeable Share. "Exchangeable Shares" means the Exchangeable Shares of the Corporation having the rights, privileges, restrictions and conditions set forth herein. "Liquidation Amount" has the meaning provided in Section 5.1. "Liquidation Call Right" has the meaning provided in the Plan of Arrangement. "Liquidation Date" has the meaning provided in Section 5.1. "Plan of Arrangement" means the plan of arrangement involving and affecting the Corporation, Devon and the holders of common shares and options of the Corporation under section 186 of the Act contemplated in the Combination Agreement by and among Devon and the Corporation, dated as of June 29, 1998, as amended and restated from time to time. "Purchase Price" has the meaning provided in Section 6.3. "Redemption Call Purchase Price" has the meaning provided in the Plan of Arrangement. "Redemption Call Right" has the meaning provided in the Plan of Arrangement. "Redemption Price" has the meaning provided in Section 7.1. "Retracted Shares" has the meaning provided in subsection 6.1(a). "Retraction Call Right" has the meaning provided in subsection 6.1(c). "Retraction Date" has the meaning provided in subsection 6.1(b). "Retraction Price" has the meaning provided in Section 6.1. "Retraction Request" has the meaning provided in Section 6.1. "Subsidiary", in relation to any person, means any body corporate, partnership, joint venture, association or other entity of which more than 50% of the total voting power of shares of stock or units of ownership or beneficial interest entitled to vote in the election of directors (or members of a comparable governing body) is owned or controlled, directly or indirectly, by such person. "Support Agreement" means the Support Agreement between Devon and the Corporation, made as of December 10, 1998. "Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares, and, if there is more than one such transfer agent, then the principal Canadian transfer agent. "Trustee" means the Trustee appointed under the Voting and Exchange Trust Agreement, and any successor trustee. 4 -4- "Voting and Exchange Trust Agreement" means the Voting and Exchange Trust Agreement among the Corporation, Devon and the Trustee, made as of December 10 , 1998. ARTICLE 2 RANKING OF EXCHANGEABLE SHARES 2.1 The Exchangeable Shares shall be entitled to a preference over the Common Shares and any other shares ranking junior to the Exchangeable Shares, with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs. ARTICLE 3 DIVIDENDS 3.1 A holder of an Exchangeable Share shall be entitled to receive and the Board of Directors shall, subject to applicable law, on each Devon Dividend Declaration Date, declare a dividend on each Exchangeable Share (a) in the case of a cash dividend declared on the Devon Common Stock, in an amount in cash for each Exchangeable Share equal to the cash dividend declared on each share of Devon Common Stock, (b) in the case of a stock dividend declared on the Devon Common Stock to be paid in Devon Common Stock, in such number of Exchangeable Shares for each Exchangeable Share as is equal to the number of shares of Devon Common Stock to be paid on each share of Devon Common Stock, (c) in the case of a dividend declared on the Devon Common Stock in property other than cash or securities of Devon, in such type and amount of property for each Exchangeable Share as is the same as the type and amount of property declared as a dividend on each share of Devon Common Stock or (d) in the case of a dividend declared on the Devon Common Stock to be paid in securities of Devon other than Devon Common Stock, in such number of either such securities or economically equivalent securities of the Corporation, as the Board of Directors determines, for each Exchangeable Share as is equal to the number of securities of Devon to be paid on each share of Devon Common Stock. Such dividends shall be paid out of money, assets or property of the Corporation properly applicable to the payment of dividends, or out of authorized but unissued shares of the Corporation. 3.2 Cheques of the Corporation payable at par at any branch of the bankers of the Corporation shall be issued in respect of any cash dividends contemplated by subsection 3.1(a) hereof and the sending of such a cheque to each holder of an Exchangeable Share (less any tax required to be deducted and withheld from such dividends paid or credited by the Corporation) shall satisfy the cash dividends represented thereby unless the cheque is not paid on presentation. Certificates registered in the name of the registered holder of Exchangeable Shares shall be issued or transferred in respect of any stock dividends contemplated by subsections 3.1(b) or (d) hereof and the sending of such a certificate to each holder of an Exchangeable Share shall satisfy the stock dividend represented thereby or dividend payable in other securities represented thereby. Such other type and amount of property in respect of any dividends contemplated by subsection 3.1(c) hereof shall be issued, distributed or transferred by the Corporation in such manner as it shall determine and the issuance, distribution or transfer thereof by the Corporation to each holder of an Exchangeable Share shall satisfy the dividend represented thereby. In all cases, any such dividends shall be subject to any reduction or adjustment for tax required to be deducted and withheld from such dividends paid or credited by the Corporation. No holder of an Exchangeable Share shall be entitled to recover by action or other legal process against the Corporation any dividend which is represented by a cheque that has not been duly presented to the Corporation's bankers for payment or which otherwise remains unclaimed for a period of six years from the date on which such dividend was payable. 3.3 The record date for the determination of the holders of Exchangeable Shares entitled to receive payment of, and the payment date for, any dividend declared on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as the record date and payment date, respectively, for the corresponding dividend declared on the Devon Common Stock. 5 -5- 3.4 If on any payment date for any dividends declared on the Exchangeable Shares under Section 3.1 hereof the dividends are not paid in full on all of the Exchangeable Shares then outstanding, any such dividends which remain unpaid shall be paid on a subsequent date or dates determined by the Board of Directors on which the Corporation shall have sufficient moneys, assets or property properly applicable to the payment of such dividends. 3.5 Except as provided in this Article 3, the holders of Exchangeable Shares shall not be entitled to receive dividends in respect thereof. ARTICLE 4 CERTAIN RESTRICTIONS 4.1 So long as any of the Exchangeable Shares are outstanding, the Corporation shall not at any time without, but may at any time with, the approval of the holders of the Exchangeable Shares given as specified in Article 10 of these share provisions: a. pay any dividends on the Common Shares, or any other shares ranking junior to the Exchangeable Shares, other than stock dividends payable in any such other shares ranking junior to the Exchangeable Shares; b. redeem or purchase or make any capital distribution in respect of Common Shares or any other shares ranking junior to the Exchangeable Shares with respect to the payment of dividends or on any liquidation distribution; c. redeem or purchase any other shares of the Corporation ranking equally with the Exchangeable Shares with respect of the payment of dividends or on any liquidation distribution; or d. amend the articles or by-laws of the Corporation, in either case in any manner that would affect the rights or privileges of the holders of the Exchangeable Shares. The restrictions in subsections 4.1(a), 4.1(b) and 4.1(c) above shall not apply if all dividends on the outstanding Exchangeable Shares corresponding to dividends declared with a record date on or following the effective date of the Plan of Arrangement on the Devon Common Stock shall have been declared on the Exchangeable Shares and paid in full. Nothing herein shall be interpreted to restrict the Corporation from issuing additional Common Shares. ARTICLE 5 DISTRIBUTION ON LIQUIDATION 5.1 In the event of the liquidation, dissolution or winding-up of the Corporation or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs, a holder of Exchangeable Shares shall be entitled, subject to applicable law, to receive from the assets of the Corporation in respect of each Exchangeable Share held by such holder on the effective date of such liquidation, dissolution or winding-up (the "Liquidation Date"), before any distribution of any part of the assets of the Corporation to the holders of the Common Shares or any other shares ranking junior to the Exchangeable Shares, an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Liquidation Date (the "Liquidation Amount") in accordance with Section 5.2. In connection with payment of the Liquidation Amount, the Corporation shall be entitled to liquidate some of the Devon Common Stock which would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation. 5.2 On or promptly after the Liquidation Date, and subject to the exercise by Devon of the Liquidation Call Right, the Corporation shall cause to be delivered to the holders of the Exchangeable Shares the Liquidation Amount for each such Exchangeable Share upon presentation and surrender of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the 6 -6- Transfer Agent may reasonably require, at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of the Exchangeable Shares. Payment of the total Liquidation Amount for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or by holding for pick up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares, on behalf of the Corporation of the Exchangeable Share Consideration representing the total Liquidation Amount. On and after the Liquidation Date, the holders of the Exchangeable Shares shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the total Liquidation Amount, unless payment of the total Liquidation Amount for such Exchangeable Shares shall not be made upon presentation and surrender of share certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected until the total Liquidation Amount has been paid in the manner hereinbefore provided. The Corporation shall have the right at any time on or after the Liquidation Date to deposit or cause to be deposited the Exchangeable Share Consideration in respect of the Exchangeable Shares represented by certificates that have not at the Liquidation Date been surrendered by the holders thereof in a custodial account or for safe keeping, in the case of non-cash items, with any chartered bank or trust company in Canada. Upon such deposit being made, the rights of the holders of Exchangeable Shares after such deposit shall be limited to receiving their proportionate part of the total Liquidation Amount for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of such Exchangeable Share Consideration, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be the holders of the Devon Common Stock delivered to them. Notwithstanding the foregoing, until such payment or deposit of such Exchangeable Share Consideration, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement. 5.3 After the Corporation has satisfied its obligations to pay the holders of the Exchangeable Shares the Liquidation Amount per Exchangeable Share, such holders shall not be entitled to share in any further distribution of the assets of the Corporation. ARTICLE 6 RETRACTION OF EXCHANGEABLE SHARES BY HOLDER 6.1 A holder of Exchangeable Shares shall be entitled at any time, subject to the exercise by Devon of the Retraction Call Right and otherwise upon compliance with the provisions of this Article 6, to require the Corporation to redeem any or all of the Exchangeable Shares registered in the name of such holder for an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Retraction Date (the "Retraction Price") in accordance with Section 6.4. In connection with payment of the Retraction Price, the Corporation shall be entitled to liquidate some of the Devon Common Stock that would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation. To effect such redemption, the holder shall present and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares the certificate or certificates representing the Exchangeable Shares which the holder desires to have the Corporation redeem, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, and together with a duly executed statement (the "Retraction Request") in the form of Schedule "A" hereto or in such other form as may be acceptable to the Corporation: a. specifying that the holder desires to have all or any number specified therein of the Exchangeable Shares represented by such certificate or certificates (the "Retracted Shares") redeemed by the Corporation; b. stating the Business Day on which the holder desires to have the Corporation redeem the Retracted Shares (the "Retraction Date"), provided that the Retraction Date shall be not less than five Business Days nor more than 7 -7- 10 Business Days after the date on which the Retraction Request is received by the Corporation and further provided that, in the event that no such Business Day is specified by the holder in the Retraction Request, the Retraction Date shall be deemed to be the tenth Business Day after the date on which the Retraction Request is received by the Corporation; and c. acknowledging the overriding right (the "Retraction Call Right") of Devon to purchase all but not less than all the Retracted Shares directly from the holder and that the Retraction Request shall be deemed to be a revocable offer by the holder to sell the Retracted Shares in accordance with the Retraction Call Right on the terms and conditions set out in Section 6.3 below. 6.2 Subject to the exercise by Devon of the Retraction Call Right, upon receipt by the Corporation or the Transfer Agent in the manner specified in Section 6.1 hereof of a certificate or certificates representing the number of Exchangeable Shares which the holder desires to have the Corporation redeem, together with a Retraction Request, and provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7, the Corporation shall redeem the Retracted Shares effective at the close of business on the Retraction Date and shall cause to be delivered to such holder the total Retraction Price with respect to such shares in accordance with Section 6.4 hereof. If only a part of the Exchangeable Shares represented by any certificate are redeemed or purchased by Devon pursuant to the Retraction Call right, a new certificate for the balance of such Exchangeable Shares shall be issued to the holder at the expense of the Corporation. 6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation shall immediately notify Devon thereof. In order to exercise the Retraction Call Right, Devon must notify the Corporation in writing of its determination to do so (the "Devon Call Notice") within two Business Days of such notification. If Devon does not so notify the Corporation within such two Business Days, the Corporation will notify the holder as soon as possible thereafter that Devon will not exercise the Retraction Call Right. If Devon delivers the Devon Call Notice within such two Business Days, and provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7, the Retraction Request shall thereupon be considered only to be an offer by the holder to sell the Retracted Shares to Devon in accordance with the Retraction Call Right. In such event, the Corporation shall not redeem the Retracted Shares and Devon shall purchase from such holder and such holder shall sell to Devon on the Retraction Date the Retracted Shares for a purchase price per share (the "Purchase Price") equal to the Retraction Price. For the purposes of completing a purchase pursuant to the Retraction Call Right, Devon shall deposit with the Transfer Agent, on or before the Retraction Date, the Exchangeable Share Consideration representing the total Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, the closing of the purchase and sale of the Retracted Shares pursuant to the Retraction Call Right shall be deemed to have occurred as at the close of business on the Retraction Date and, for greater certainty, no redemption by the Corporation of such Retracted Shares shall take place on the Retraction Date. In the event that Devon does not deliver a Devon Call Notice within two Business Days or otherwise comply with these Exchangeable Share provisions in respect thereto, and provided that Retraction Request is not revoked by the holder in the manner specified in Section 6.7, the Corporation shall redeem the Retracted Shares on the Retraction Date and in the manner otherwise contemplated in this Article 6. 6.4 The Corporation or Devon, as the case may be, shall deliver or cause the Transfer Agent to deliver to the relevant holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or at the address specified in the holder's Retraction Request or by holding for pick up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares, the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, and such delivery of such Exchangeable Share Consideration to the Transfer Agent shall be deemed to be payment of and shall satisfy and discharge all liability for the total Retraction Price or total Purchase Price, as the case may be, except as to any cheque included therein which is not paid on due presentation. 6.5 On and after the close of business on the Retraction Date, the holder of the Retracted Shares shall cease to be a holder of such Retracted Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive such holder's proportionate part of the total Retraction Price or total Purchase Price, as the case may be, unless upon presentation and surrender of certificates in accordance with the foregoing provisions, 8 -8- payment of the total Retraction Price or the total Purchase Price, as the case may be, shall not be made, in which case the rights of such holder shall remain unaffected until the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, has been paid in the manner hereinbefore provided. On and after the close of business on the Retraction Date, provided that presentation and surrender of certificates and payment of the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, has been made in accordance with the foregoing provisions, the holder of the Retracted Shares so redeemed by the Corporation or purchased by Devon shall thereafter be considered and deemed for all purposes to be a holder of the Devon Common Stock delivered to it. Notwithstanding the foregoing, until such payment of such Exchangeable Share Consideration to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement. 6.6 Notwithstanding any other provision of this Article 6, the Corporation shall not be obligated to redeem Retracted Shares specified by a holder in a Retraction Request to the extent that such redemption of Retracted Shares would be contrary to liquidity or solvency requirements or other provisions of applicable law. If the Corporation believes that on any Retraction Date it would not be permitted by any of such provisions to redeem the Retracted Shares tendered for redemption on such date, and provided that Devon shall not have exercised the Retraction Call Right with respect to the Retracted Shares, the Corporation shall only be obligated to redeem Retracted Shares specified by a holder in a Retraction Request to the extent of the maximum number that may be so redeemed (rounded down to a whole number of shares) as would not be contrary to such provisions and shall notify the holder at least two Business Days prior to the Retraction Date as to the number of Retracted Shares which will not be redeemed by the Corporation. In any case in which the redemption by the Corporation of Retracted Shares would be contrary to liquidity or solvency requirements or other provisions of applicable law, the Corporation shall redeem Retracted Shares in accordance with Section 6.2 of these share provisions on a pro rata basis and shall issue to each holder of Retracted Shares a new certificate, at the expense of the Corporation, representing the Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7, the holder of any such Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 of these share provisions as a result of liquidity or solvency requirements or applicable law shall be deemed by giving the Retraction Request to require Devon to purchase such Retracted Shares from such holder on the Retraction Date or as soon as practicable thereafter on payment by Devon to such holder of the Purchase Price for each such Retracted Share, all as more specifically provided in the Voting and Exchange Trust Agreement, and Devon shall make such purchase. 6.7 A holder of Retracted Shares may, by notice in writing given by the holder to the Corporation before the close of business on the Business Day immediately preceding the Retraction Date, withdraw its Retraction Request in which event such Retraction Request shall be null and void and, for greater certainty, the revocable offer constituted by the Retraction Request to sell the Retracted Shares to Devon shall be deemed to have been revoked. ARTICLE 7 REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION 7.1 Subject to applicable law, and if Devon does not exercise the Redemption Call Right, the Corporation shall on the Automatic Redemption Date redeem the whole of the then outstanding Exchangeable Shares for an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Automatic Redemption Date (the "Redemption Price") in accordance with Section 7.3. In connection with payment of the Redemption Price, the Corporation shall be entitled to liquidate some of the Devon Common Stock which would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation. 7.2 In any case of a redemption of Exchangeable Shares under this Article 7, the Corporation, or the Transfer Agent on behalf of the Corporation, shall, at least 45 days before an Automatic Redemption Date or before a possible Automatic Redemption Date which may result from a failure of the holders of Exchangeable Shares to take necessary action as described in clause (d) of the definition of Automatic Redemption Date send or cause to be sent to each holder of Exchangeable Shares a notice in writing of the redemption or possible redemption by the Corporation or the 9 -9- purchase by Devon under the Redemption Call Right, as the case may be, of the Exchangeable Shares held by such holder. Such notice shall set out the formula for determining the Redemption Price or the Redemption Call Purchase Price, as the case may be, the Automatic Redemption Date and, if applicable, particulars of the Redemption Call Right. In the case of any notice given in connection with a possible Automatic Redemption Date, such notice will be given contingently and will be withdrawn if the contingency does not occur. 7.3 On or after the Automatic Redemption Date and subject to the exercise by Devon of the Redemption Call Right, the Corporation shall cause to be delivered to the holders of the Exchangeable Shares to be redeemed the Redemption Price for each such Exchangeable Share upon presentation and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in such notice of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require. Payment of the total Redemption Price for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register or at any office of the Transfer Agent as may be specified by the Corporation in such notice, on behalf of the Corporation, of the Exchangeable Share Consideration representing the total Redemption Price. On and after the Automatic Redemption Date, the holders of the Exchangeable Shares called for redemption shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the total Redemption Price, unless payment of the total Redemption Price for such Exchangeable Shares shall not be made upon presentation and surrender of certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected until the total Redemption Price has been paid in the manner hereinbefore provided. The Corporation shall have the right at any time after the sending of notice of its intention to redeem the Exchangeable Shares as aforesaid to deposit or cause to be deposited the Exchangeable Share Consideration with respect to the Exchangeable Shares so called for redemption, or of such of the said Exchangeable Shares represented by certificates that have not at the date of such deposit been surrendered by the holders thereof in connection with such redemption, in a custodial account or for safe keeping, in the case of non-cash items, with any chartered bank or trust company in Canada named in such notice. Upon the later of such deposit being made and the Automatic Redemption Date, the Exchangeable Shares in respect whereof such deposit shall have been made shall be redeemed and the rights of the holders thereof after such deposit or Automatic Redemption Date, as the case may be, shall be limited to receiving their proportionate part of the total Redemption Price for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of such Exchangeable Share Consideration, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be holders of the Devon Common Stock delivered to them. Notwithstanding the foregoing, until such payment or deposit of such Exchangeable Share Consideration is made, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement. ARTICLE 8 EXCHANGE PUT RIGHT 8.1 Upon and subject to the terms and conditions contained in these share provisions and the Voting and Exchange Trust Agreement: a. a holder of Exchangeable Shares shall have the right (the "Exchange Put Right") at any time to require Devon to purchase all or any part of the Exchangeable Shares of the holder; and b. upon the exercise by the holder of the Exchange Put Right and provided that, at the time of purchase, the Exchangeable Shares are listed on a recognized Canadian stock exchange, the holder shall be required to sell to Devon, and Devon shall be required to purchase from the holder, that number of Exchangeable Shares in respect of which the Exchange Put Right is exercised, in consideration of the payment by Devon of the Exchangeable Share Price applicable thereto (which shall be the Exchangeable Share Price applicable on the last Business Day prior to receipt of notice required under section 8.2) and delivery by or on behalf of Devon of the Exchangeable Share 10 -10- Consideration representing the total applicable Exchangeable Share Price. In connection with payment of the Exchangeable Share Consideration, the Corporation shall be entitled to liquidate some of the Devon Common Stock which would otherwise be deliverable to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation. 8.2 The Exchange Put Right provided in section 8.1 hereof and in Article 5 of the Voting and Exchange Trust Agreement may be exercised at any time by notice in writing given by the holder to and received by the Trustee (the date of such receipt, the "Exchange Put Date") and accompanied by presentation and surrender of the certificates representing such Exchangeable Shares, together with such documents and instruments as may be required to effect a transfer of Exchangeable Shares under the Act and the by-laws of the Corporation and such additional documents and instruments as the Trustee may reasonably require, at the principal transfer offices in Calgary, Alberta and Toronto, Ontario of the Trustee, or at such other office or offices of the Trustee or of other persons designated by the Trustee for that purpose as may from time to time be maintained by the Trustee for that purpose. Such notice may be (i) in the form of the panel, if any, on the certificates representing Exchangeable Shares, (ii) in the form of the notice and election contained in any letter of transmittal distributed or made available by the Corporation for that purpose, or (iii) in other form satisfactory to the Trustee (or such other persons aforesaid), shall stipulate the number of Exchangeable Shares in respect of which the right is exercised (which may not exceed the number of shares represented by certificates surrendered to the Trustee), shall be irrevocable unless the exchange is not completed in accordance herewith and with the Voting and Exchange Trust Agreement and shall constitute the holder's authorization to the Trustee (and such other persons aforesaid) to effect the exchange on behalf of the holder. 8.3 The completion of the sale and purchase referred to in section 8.1 shall be required to occur, and Devon shall be required to take all actions on its part necessary to permit it to occur, not later than the close of business on the third Business Day following the Exchange Put Date. 8.4 The surrender by the holder of Exchangeable Shares under section 8.2 shall constitute the representation, warranty and covenant of the holder that the Exchangeable Shares so purchased are sold free and clear of any lien, encumbrance, security interest or adverse claim or interest. 8.5 If a part only of the Exchangeable Shares represented by any certificate are to be sold and purchased pursuant to the exercise of the Exchange Put Right, a new certificate for the balance of such Exchangeable Shares shall be issued to the holder at the expense of the Corporation. 8.6 Upon receipt by the Trustee of the notice, certificates and other documents or instruments required by section 8.2, the Trustee shall deliver or cause to be delivered, on behalf of Devon and subject to receipt by the Trustee from Devon of the applicable Exchangeable Share Consideration, to the relevant holder at the address of the holder specified in the notice or by holding for pick-up by the holder at the registered office of the Corporation or at any office of the Trustee (or other persons aforesaid) maintained for that purpose, the Exchangeable Share Consideration representing the total applicable Exchangeable Share Price, within the time stipulated in section 8.3. Delivery by Devon to the Trustee of such Exchangeable Share Consideration shall be deemed to be payment of and shall satisfy and discharge all liability for the total applicable Exchangeable Share Price, except as to any cheque included therein which is not paid on due presentation. 8.7 On and after the close of business on the Exchange Put Date, the holder of the Exchangeable Shares in respect of which the Exchange Put Right is exercised shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive the total applicable Exchangeable Share Price, unless upon presentation and surrender of certificates in accordance with the foregoing provisions, payment of the Exchangeable Share Consideration shall not be made, in which case the rights of such holder shall remain unaffected until such payment has been made. On and after the close of business on the Exchange Put Date provided that presentation and surrender of certificates and payment of the Exchangeable Share Consideration has been made in accordance with the foregoing provisions, the holder of the Exchangeable Shares so purchased by Devon shall thereafter be considered and deemed for all purposes to be a holder of the Devon Common Stock delivered to it. Notwithstanding the foregoing, until payment of the Exchangeable Share Consideration to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement. 11 -11- ARTICLE 9 VOTING RIGHTS 9.1 Except as required by applicable law and the provisions hereof, the holders of the Exchangeable Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting. ARTICLE 10 AMENDMENT AND APPROVAL 10.1 The rights, privileges, restrictions and conditions attaching to the Exchangeable Shares may be added to, changed or removed but, except as hereinafter provided, only with the approval of the holders of the Exchangeable Shares given as hereinafter specified. 10.2 Any approval given by the holders of the Exchangeable Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Exchangeable Shares or any other matter requiring the approval or consent of the holders of the Exchangeable Shares shall be deemed to have been sufficiently given if it shall have been given in accordance with applicable law subject to a minimum requirement that such approval be evidenced by resolution passed by not less than 66 2/3% of the votes cast on such resolution by persons represented in person or by proxy at a meeting of holders of Exchangeable Shares (excluding Exchangeable Shares beneficially owned by Devon or its Subsidiaries) duly called and held at which the holders of at least 25% of the outstanding Exchangeable Shares at that time are present or represented by proxy. If at any such meeting the holders of at least 25% of the outstanding Exchangeable Shares at that time are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date not less than 10 days thereafter and to such time and place as may be designated by the Chairman of such meeting. At such adjourned meeting, the holders of Exchangeable Shares present or represented by proxy thereat may transact the business for which the meeting was originally called and a resolution passed thereat by the affirmative vote of not less than 66 2/3% of the votes cast on such resolution by persons represented in person or by proxy at such meeting (excluding Exchangeable Shares beneficially owned by Devon or its Subsidiaries) shall constitute the approval or consent of the holders of the Exchangeable Shares. For the purposes of this section, any spoiled votes, illegible votes, defective votes and abstinences shall be deemed to be votes not cast. ARTICLE 11 RECIPROCAL CHANGES, ETC. IN RESPECT OF DEVON COMMON STOCK 11.1 a. Each holder of an Exchangeable Share acknowledges that the Support Agreement provides, in part, that Devon will not: i. issue or distribute shares of Devon Common Stock (or securities exchangeable for or convertible into or carry rights to acquire shares of Devon Common Stock) to the holders of all or substantially all of the then outstanding shares of Devon Common Stock by way of stock dividend or other distribution; or ii. issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding shares of Devon Common Stock entitling them to subscribe for or to purchase shares of Devon Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of Devon Common Stock); or iii. issue or distribute to the holders of all or substantially all of the then outstanding shares of Devon Common Stock (A) shares or securities of Devon of any class other than Devon Common Stock (other than shares convertible 12 -12- into or exchangeable for or carrying rights to acquire shares of Devon Common Stock), (B) rights, options or warrants other than those referred to in subsection 11.1(a)(ii) above, (C) evidences of indebtedness of Devon or (D) assets of Devon; unless iv. one or both of Devon and the Corporation is permitted under applicable law to issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets to the holders of the Exchangeable Shares; and v. one or both of Devon and the Corporation shall issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets simultaneously to the holders of the Exchangeable Shares. b. Each holder of an Exchangeable Share acknowledges that the Support Agreement further provides, in part, that Devon will not: i. subdivide, redivide or change the then outstanding shares of Devon Common Stock into a greater number of shares of Devon Common Stock; or ii. reduce, combine or consolidate or change the then outstanding shares of Devon Common Stock into a lesser number of shares of Devon Common Stock; or iii. reclassify or otherwise change the shares of Devon Common Stock or effect an amalgamation, merger, reorganization or other transaction involving or affecting the shares of Devon Common Stock; unless iv. the Corporation is permitted under applicable law to simultaneously make the same or an economically equivalent change to, or in the rights of the holders of, the Exchangeable Shares; and v. the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares. The Support Agreement further provides, in part, that, with the exception of certain ministerial amendments, the aforesaid provisions of the Support Agreement shall not be changed without the approval of the holders of the Exchangeable Shares given in accordance with Article 10 of these share provisions. ARTICLE 12 ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT 12.1 The Corporation will take all such actions and do all such things as shall be necessary or advisable to perform and comply with and to ensure performance and compliance by Devon with all provisions of the Support Agreement, the Voting Trust and Exchange Agreement and Devon's Amended and Restated Certificate of Incorporation applicable to the Corporation and Devon, respectively, in accordance with the terms thereof including, without limitation, taking all such actions and doing all such things as shall be necessary or advisable to enforce to the fullest extent possible for the direct benefit of the Corporation all rights and benefits in favour of the Corporation under or pursuant thereto. 12.2 The Corporation shall not propose, agree to or otherwise give effect to any amendment to, or waiver or forgiveness of its rights or obligations under, the Support Agreement, the Voting Trust and Exchange Agreement or Devon's Amended and Restated Certificate of Incorporation without the approval of the holders of the Exchangeable Shares given in accordance with Article 10 of these share provisions other than such amendments, waivers and/or forgiveness as may be necessary or advisable for the purpose of: 13 -13- a. adding to the covenants of the other party or parties to such agreement for the protection of the Corporation or the holders of Exchangeable Shares; or b. making such provisions or modifications not inconsistent with such agreement or certificate as may be necessary or desirable with respect to matters or questions arising thereunder which, in the opinion of the Board of Directors, it may be expedient to make, provided that the Board of Directors shall be of the opinion, after consultation with counsel, that such provisions and modifications will not be prejudicial to the interests of the holders of the Exchangeable Shares; or c. making such changes in or corrections to such agreement or certificate which, on the advice of counsel to the Corporation, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error contained therein, provided that the Board of Directors shall be of the opinion, after consultation with counsel, that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares. ARTICLE 13 LEGEND 13.1 The certificates evidencing the Exchangeable Shares shall contain or have affixed thereto a legend, in form and on terms approved by the Board of Directors, with respect to the Support Agreement, the provisions of the Plan of Arrangement relating to the Liquidation Call Right, the Retraction Call Right and the Redemption Call Right, and the Voting and Exchange Trust Agreement (including the provisions with respect to the voting rights and exchange provisions thereunder). ARTICLE 14 MISCELLANEOUS 14.1 Any notice, request or other communication to be given to the Corporation by a holder of Exchangeable Shares shall be in writing and shall be valid and effective if given by mail (postage prepaid) or by telecopy or by delivery to the registered office of the Corporation and addressed to the attention of the President. Any such notice, request or other communication, if given by mail, telecopy or delivery, shall only be deemed to have been given and received upon actual receipt thereof by the Corporation. 14.2 Any presentation and surrender by a holder of Exchangeable Shares to the Corporation or the Transfer Agent of certificates representing Exchangeable Shares in connection with the liquidation, dissolution or winding-up of the Corporation or the retraction, redemption or exchange of Exchangeable Shares shall be made by registered mail (postage prepaid) or by delivery to the registered office of the Corporation or to such office of the Transfer Agent as may be specified by the Corporation, in each case addressed to the attention of the President of the Corporation. Any such presentation and surrender of certificates shall only be deemed to have been made and to be effective upon actual receipt thereof by the Corporation or the Transfer Agent, as the case may be, and the method of any such presentation and surrender of certificates shall be at the sole risk of the holder. 14.3 Any notice, request or other communication to be given to a holder of Exchangeable Shares by or on behalf of the Corporation shall be in writing and shall be valid and effective if given by mail (postage prepaid) or by delivery to the address of the holder recorded in the securities register of the Corporation or, in the event of the address of any such holder not being so recorded, then at the last address of such holder known to the Corporation. Any such notice, request or other communication, if given by mail, shall be deemed to have been given and received on the fifth Business Day following the date of mailing and, if given by delivery, shall be deemed to have been given and received on the date of delivery. Accidental failure or omission to give any notice, request or other communication to one or more holders of Exchangeable Shares shall not invalidate or otherwise alter or affect any action or proceeding to be or intended to be taken by the Corporation. 14 -14- 14.4 For greater certainty, the Corporation shall not be required for any purpose under these share provisions to recognize or take account of persons who are not so recorded in such securities register. 14.5 All Exchangeable Shares acquired by the Corporation upon the redemption or retraction thereof shall be canceled. EX-9 5 VOTING AND EXCHANGE TRUST AGREEMENT 1 EXHIBIT 9 VOTING AND EXCHANGE TRUST AGREEMENT THIS VOTING AND EXCHANGE TRUST AGREEMENT is entered into as of December 10, 1998, by and between Devon Energy Corporation, an Oklahoma corporation ("Devon"), Northstar Energy Corporation, an Alberta corporation ("Northstar"), and CIBC Mellon Trust Company, a Canadian trust company ("Trustee"). WHEREAS, pursuant to an Amended and Restated Combination Agreement dated as of June 29, 1998 by and between Devon and Northstar (such agreement as it may be amended or restated is hereinafter referred to as the "Combination Agreement"), the parties agreed that on the Effective Date (as defined in the Combination Agreement), Devon and Northstar would execute and deliver a Voting and Exchange Trust Agreement containing the terms and conditions set forth in Exhibit E to the Combination Agreement together with such other terms and conditions as may be agreed to by the parties to the Combination Agreement acting reasonably. WHEREAS, pursuant to an arrangement (the "Arrangement") effected by Articles of Arrangement dated December 10, 1998 filed pursuant to the Business Corporations Act (Alberta) (or any successor or other corporate statute by which Northstar may in the future be governed) (the "Act"), each issued and outstanding common share of Northstar (a "Northstar Common Share") was exchanged for issued and outstanding Exchangeable Shares of Northstar (the "Exchangeable Shares"). WHEREAS, the Articles of Amendment of Northstar set forth the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares (collectively, the "Exchangeable Share Provisions"). WHEREAS, Devon is to provide voting rights in Devon to each holder (other than Devon and its Subsidiaries) from time to time of Exchangeable Shares, such voting rights per Exchangeable Share to be equivalent to the voting rights per share of Devon Common Stock. WHEREAS, Devon is to grant to and in favor of the holders (other than Devon and its Subsidiaries) from time to time of Exchangeable Shares the right, in the circumstances set forth herein, to require Devon to purchase from each such holder all or any part of the Exchangeable Shares held by the holder. WHEREAS, the parties desire to make appropriate provision and to establish a procedure whereby voting rights in Devon shall be exercisable by holders (other than Devon and its Subsidiaries) from time to time of Exchangeable Shares by and through the Trustee, which will hold legal title to one share of Devon Special Voting Stock (the "Devon Special Voting Stock") to which voting rights attach for the benefit of such holders and whereby the rights to require Devon to purchase Exchangeable Shares from the holders thereof (other than Devon and its Subsidiaries) shall be exercisable by such holders from time to time of Exchangeable Shares by and through the Trustee, which will hold legal title to such rights for the benefit of such holders. WHEREAS, these recitals and any statements of fact in this agreement are made by Devon and Northstar and not by the Trustee. 1 2 NOW THEREFORE, in consideration of the respective covenants and agreements provided in this agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this agreement, the following terms shall have the following meanings: "Aggregate Equivalent Vote Amount" means, with respect to any matter, proposition or question on which holders of Devon Common Stock are entitled to vote, consent or otherwise act, the product of (i) the number of shares of Exchangeable Shares issued and outstanding and held by Holders multiplied by (ii) the Equivalent Vote Amount. "Arrangement" has the meaning provided in the recitals hereto. "Automatic Exchange Rights" means the benefit of the obligation of Devon to effect the automatic exchange of shares of Devon Common Stock for Exchangeable Shares pursuant to Section 5.12 hereof. "Board of Directors" means the Board of Directors of Northstar or Devon, as the case may be. "Business Day" means any day other than a Saturday, a Sunday or a day when the office of the Trustee is not open for business in Calgary, Alberta. "Devon Common Stock" has the meaning provided in the Exchangeable Share Provisions. "Devon Consent" has the meaning provided in Section 4.2 hereof. "Devon Meeting" has the meaning provided in Section 4.2 hereof. "Devon Special Voting Stock" has the meaning provided in the recitals hereto. "Devon Successor" has the meaning provided in subsection 11.1(a) hereof. "Equivalent Vote Amount" means, with respect any matter, proposition or question on which holders of Devon Common Stock are entitled to vote, consent or otherwise act, the number of votes to which a holder of one share of Devon Common Stock is entitled with respect to such matter, proposition or question. "Exchange Put Right" has the meaning provided in the Exchangeable Share Provisions. "Exchange Right" has the meaning provided in Article 5 hereof. "Exchangeable Share Consideration" has the meaning provided in the Exchangeable Share Provisions. "Exchangeable Share Price" has the meaning provided in the Exchangeable Share Provisions. "Exchangeable Share Provisions" has the meaning provided in the recitals hereto. "Exchangeable Shares" has the meaning provided in the recitals hereto. "Holder Votes" has the meaning provided in Section 4.2 hereof. "Holders" means the registered holders from time to time of Exchangeable Shares, other than Devon and its Subsidiaries. "Insolvency Event" means the institution by Northstar of any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the consent of Northstar to the institution of bankruptcy, insolvency, dissolution or winding-up proceedings against it, or the filing of a petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws, including without limitation the Companies Creditors Arrangement Act (Canada) and the Bankruptcy and Insolvency Act 2 3 (Canada), and the failure by Northstar to contest in good faith any such proceedings commenced in respect of Northstar within 15 days of becoming aware thereof, or the consent by Northstar to the filing of any such petition or to the appointment of a receiver, or the making by Northstar of a general assignment for the benefit of creditors, or the admission in writing by Northstar of its inability to pay its debts generally as they become due, or Northstar's not being permitted, pursuant to liquidity or solvency requirements of applicable law, to redeem any Retracted Shares pursuant to Section 6.6 of the Exchangeable Share Provisions. "Liquidation Call Right" has the meaning provided in the Exchangeable Share Provisions. "Liquidation Event" has the meaning provided in subsection 5.12(b) hereof. "Liquidation Event Effective Time" has the meaning provided in subsection 5.12(c) hereof. "List" has the meaning provided in Section 4.6 hereof. "Officer's Certificate" means, with respect to Devon or Northstar, as the case may be, a certificate signed by any one of the Chairman of the Board, the Vice-Chairman of the Board (if there be one), the President or any Vice-President of Devon or Northstar, as the case may be. "Person" includes an individual, body corporate, partnership, company, unincorporated syndicate or organization, trust, trustee, executor, administrator and other legal representative. "Plan of Arrangement" has the meaning provided in the Exchangeable Share Provisions. "Redemption Call Right" has the meaning provided in the Exchangeable Share Provisions. "Retracted Shares" has the meaning provided in Section 5.7 hereof. "Retraction Call Right" has the meaning provided in the Exchangeable Share Provisions. "Subsidiary" has the meaning provided in the Exchangeable Share Provisions. "Support Agreement" means that certain support agreement made as of even date hereof by and between Devon and Northstar. "Trust" means the trust created by this agreement. "Trust Estate" means the Voting Share, any other securities, the Exchange Put Right, the Exchange Right, the Automatic Exchange Rights and any money or other property which may be held by the Trustee from time to time pursuant to this agreement. "Trustee" means CIBC Mellon Trust Company and, subject to the provisions of Article 10 hereof, includes any successor trustee or permitted assigns. "Voting Rights" means the voting rights attached to the Voting Share. "Voting Share" means the one share of Devon Special Voting Stock, U.S. $0.10 par value, issued by Devon to and deposited with the Trustee, which entitles the holder of record to a number of votes at meetings of holders of Devon Common Stock equal to the Aggregate Equivalent Vote Amount. 1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this agreement into articles, sections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement. 1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall include the plural and vice versa. Words importing the use of any gender shall include all genders. 3 4 1.4 DATE FOR ANY ACTION If any date on which any action is required to be taken under this agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day. 1.5 PAYMENTS All payments to be made hereunder will be made without interest and less any tax required by Canadian law to be deducted or withheld. ARTICLE 2 PURPOSE OF AGREEMENT The purpose of this agreement is to create the Trust for the benefit of the Holders, as herein provided. The Trustee will hold the Voting Share in order to enable the Trustee to exercise the Voting Rights and will hold the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights in order to enable the Trustee to exercise such rights, in each case as trustee for and on behalf of the Holders as provided in this agreement. ARTICLE 3 VOTING SHARE 3.1 ISSUANCE AND OWNERSHIP OF THE VOTING SHARE Devon hereby issues to and deposits with the Trustee the Voting Share to be hereafter held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the Holders and in accordance with the provisions of this agreement. Devon hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Holders of good and valuable consideration (and the adequacy thereof) for the issuance of the Voting Share by Devon to the Trustee. During the term of the Trust and subject to the terms and conditions of this agreement, the Trustee shall possess and be vested with full legal ownership of the Voting Share and shall be entitled to exercise all of the rights and powers of an owner with respect to the Voting Share, provided that the Trustee shall: (a) hold the Voting Share and the legal title thereto as trustee solely for the use and benefit of the Holders in accordance with the provisions of this agreement; and (b) except as specifically authorized by this agreement, have no power or authority to sell, transfer, vote or otherwise deal in or with the Voting Share, and the Voting Share shall not be used or disposed of by the Trustee for any purpose other than the purposes for which this Trust is created pursuant to this agreement. 3.2 LEGENDED SHARE CERTIFICATES Northstar will cause each certificate representing Exchangeable Shares to bear an appropriate legend notifying the Holders of their right to instruct the Trustee with respect to the exercise of the Voting Rights with respect to the Exchangeable Shares held by a Holder. 3.3 SAFE KEEPING OF CERTIFICATE The certificate representing the Voting Share shall at all times be held in safe keeping by the Trustee or its agent. 4 5 ARTICLE 4 EXERCISE OF VOTING RIGHTS 4.1 VOTING RIGHTS The Trustee, as the holder of record of the Voting Share, shall be entitled to all of the Voting Rights, including the right to consent to or to vote in person or by proxy the Voting Share, on any matter, question or proposition whatsoever that may properly come before the stockholders of Devon at a Devon Meeting or in connection with a Devon Consent (in each case, as hereinafter defined). The Voting Rights shall be and remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Voting Rights only on the basis of instructions received pursuant to this Article 4 from Holders entitled to instruct the Trustee as to the voting thereof at the time at which a Devon Consent is sought or a Devon Meeting is held. To the extent that no instructions are received from a Holder with respect to the Voting Rights to which such Holder is entitled, the Trustee shall not exercise or permit the exercise of such Holder s Voting Rights. 4.2 NUMBER OF VOTES With respect to all meetings of stockholders of Devon at which holders of shares of Devon Common Stock are entitled to vote (a "Devon Meeting") and with respect to all written consents sought by Devon from its stockholders including the holders of shares of Devon Common Stock (a "Devon Consent"), each Holder shall be entitled to instruct the Trustee to cast and exercise, in the manner instructed, a number of votes equal to the Equivalent Vote Amount for each Exchangeable Share owned of record by such Holder on the record date established by Devon or by applicable law for such Devon Meeting or Devon Consent, as the case may be, (the "Holder Votes") in respect of each matter, question or proposition to be voted on at such Devon Meeting or to be consented to in connection with such Devon Consent. 4.3 MAILINGS TO SHAREHOLDERS With respect to each Devon Meeting and Devon Consent, the Trustee will mail or cause to be mailed (or otherwise communicate in the same manner as Devon utilizes in communications to holders of Devon Common Stock, subject to the Trustee's ability to provide this method of communication and upon being advised in writing of such method) to each of the Holders named in the List on the same day as the initial mailing or notice (or other communication) with respect thereto is given by Devon to its stockholders: (a) a copy of such notice, together with any proxy or information statement and related materials to be provided to stockholders of Devon; (b) a statement that such Holder is entitled to instruct the Trustee as to the exercise of the Holder Votes with respect to such Devon Meeting or Devon Consent, as the case may be, or, pursuant to Section 4.7 hereof, to attend such Devon Meeting and to exercise personally the Holder Votes thereat; (c) a statement as to the manner in which such instructions may be given to the Trustee, including an express indication that instructions may be given to the Trustee to give: (i) a proxy to such Holder or such Holder's designee to exercise personally the Holder Votes; or (ii) a proxy to a designated agent or other representative of the management of Devon to exercise such Holder Votes; (d) a statement that if no such instructions are received from the Holder, the Holder Votes to which such Holder is entitled will not be exercised; (e) a form of direction whereby the Holder may so direct and instruct the Trustee as contemplated herein; and (f) a statement of (i) the time and date by which such instructions must be received by the Trustee in order to be binding upon it, which in the case of a Devon Meeting shall not be earlier than the close of 5 6 business on the Business Day prior to such meeting, and (ii) the method for revoking or amending such instructions. The materials referred to above are to be provided by Devon to the Trustee, but shall be subject to review and comment by the Trustee. For the purpose of determining Holder Votes to which a Holder is entitled in respect of any such Devon Meeting or Devon Consent, the number of Exchangeable Shares owned of record by the Holder shall be determined at the close of business on the record date established by Devon or by applicable law for purposes of determining stockholders entitled to vote at such Devon Meeting or to give written consent in connection with such Devon Consent. Devon will notify the Trustee in writing of any decision of the board of directors of Devon with respect to the calling of any such Devon Meeting or the seeking of any such Devon Consent and shall provide all necessary information and materials to the Trustee in each case promptly and in any event in sufficient time to enable the Trustee to perform its obligations contemplated by this Section 4.3. 4.4 COPIES OF STOCKHOLDER INFORMATION Devon will deliver to the Trustee copies of all proxy materials, (including notices of Devon Meetings, but excluding proxies to vote shares of Devon Common Stock), information statements, reports (including without limitation all interim and annual financial statements) and other written communications that are to be distributed from time to time to holders of Devon Common Stock in sufficient quantities and in sufficient time so as to enable the Trustee to send those materials to each Holder at the same time as such materials are first sent to holders of Devon Common Stock. The Trustee will mail or otherwise send to each Holder, at the expense of Devon, copies of all such materials (and all materials specifically directed to the Holders or to the Trustee for the benefit of the Holders by Devon) received by the Trustee from Devon at the same time as such materials are first sent to holders of Devon Common Stock. The Trustee will make copies of all such materials available for inspection by any Holder at the Trustee s principal transfer office in the cities of Calgary and Toronto. 4.5 OTHER MATERIALS Immediately after receipt by Devon or any stockholder of Devon of any material sent or given generally to the holders of Devon Common Stock by or on behalf of a third party, including without limitation dissident proxy and information circulars (and related information and material) and tender and exchange offer circulars (and related information and material), Devon shall use its best efforts to obtain and deliver to the Trustee copies thereof in sufficient quantities so as to enable the Trustee to forward such material (unless the same has been provided directly to Holders by such third party) to each Holder as soon as possible thereafter. As soon as practicable after receipt thereof, the Trustee will mail or otherwise send to each Holder, at the expense of Devon, copies of all such materials received by the Trustee from Devon. The Trustee will also make copies of all such materials available for inspection by any Holder at the Trustee s principal transfer office in the cities of Calgary and Toronto. 4.6 LIST OF PERSONS ENTITLED TO VOTE Northstar shall, (i) prior to each annual, general or special Devon Meeting or the seeking of any Devon Consent and (ii) forthwith upon each request made at any time by the Trustee in writing, prepare or cause to be prepared a list (a "List") of the names and addresses of the Holders arranged in alphabetical order and showing the number of Exchangeable Shares held of record by each such Holder, in each case at the close of business on the date specified by the Trustee in such request or, in the case of a List prepared in connection with a Devon Meeting or a Devon Consent, at the close of business on the record date established by Devon or pursuant to applicable law for determining the holders of Devon Common Stock entitled to receive notice of and/or to vote at such Devon Meeting or to give consent in connection with such Devon Consent. Each such List shall be delivered to the Trustee promptly after receipt by Northstar of such request or the record date for such meeting or seeking of consent, as the case may be, and in any event within sufficient time as to enable the Trustee to perform its obligations under this agreement. Devon agrees to give Northstar written notice (with a 6 7 copy to the Trustee) of the calling of any Devon Meeting or the seeking of any Devon Consent, together with the record dates therefor, sufficiently prior to the date of the calling of such meeting or seeking of such consent so as to enable Northstar to perform its obligations under this Section 4.6. 4.7 ENTITLEMENT TO DIRECT VOTES Any Holder named in a List prepared in connection with any Devon Meeting or any Devon Consent will be entitled (i) to instruct the Trustee in the manner described in Section 4.3 hereof with respect to the exercise of the Holder Votes to which such Holder is entitled or (ii) to attend such meeting and personally to exercise thereat (or to exercise with respect to any written consent), as the proxy of the Trustee, the Holder Votes to which such Holder is entitled. 4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING. (a) In connection with each Devon Meeting and Devon Consent, the Trustee shall exercise, either in person or by proxy, in accordance with the instructions received from a Holder pursuant to Section 4.3 hereof, the Holder Votes as to which such Holder is entitled to direct the vote (or any lesser number thereof as may be set forth in the instructions); provided, however, that such written instructions are received by the Trustee from the Holder prior to the time and date fixed by it for receipt of such instructions in the notice given by the Trustee to the Holder pursuant to Section 4.3 hereof. (b) The Trustee shall cause such representatives as are empowered by it to sign and deliver, on behalf of the Trustee, proxies for Voting Rights to attend each Devon Meeting. Upon submission by a Holder (or its designee) of identification satisfactory to the Trustee's representatives, and at the Holder's request, such representatives shall sign and deliver to such Holder (or its designee) a proxy to exercise personally the Holder Votes as to which such Holder is otherwise entitled hereunder to direct the vote, if such Holder either: (i) has not previously given the Trustee instructions pursuant to Section 4.3 hereof in respect of such meeting, or (ii) submits to the Trustee s representatives written revocation of any such previous instructions. At such meeting, the Holder exercising such Holder Votes shall have the same rights as the Trustee to speak at the meeting in respect of any matter, question or proposition, to vote by way of ballot at the meeting in respect of any matter, question or proposition and to vote at such meeting by way of a show of hands in respect of any matter, question or proposition. 4.9 DISTRIBUTION OF WRITTEN MATERIALS Any written materials to be distributed by the Trustee to the Holders pursuant to this agreement shall be delivered or sent by mail (or otherwise communicated in the same manner as Devon utilizes in communications to holders of Devon Common Stock subject to the Trustee's ability to provide this method of communication and upon being advised in writing of such method) to each Holder at its address as shown on the books of Northstar. Northstar shall provide or cause to be provided to the Trustee for this purpose, on a timely basis and without charge or other expense: (a) current lists of the Holders; and (b) on the request of the Trustee, mailing labels to enable the Trustee to carry out its duties under this agreement. The materials referred to above are to be provided by Northstar to the Trustee, but shall be subject to review and comment by the Trustee. 7 8 4.10 TERMINATION OF VOTING RIGHTS Except as otherwise provided herein or in the Exchangeable Share Provisions, all of the rights of a Holder with respect to the Holder Votes exercisable in respect of the Exchangeable Shares held by such Holder, including the right to instruct the Trustee as to the voting of or to vote personally such Holder Votes, shall be deemed to be surrendered by the Holder to Devon, and such Holder Votes and the Voting Rights represented thereby shall cease immediately, upon the delivery by such Holder to the Trustee of the certificates representing such Exchangeable Shares in connection with the exercise by the Holder of the Exchange Put Right or the Exchange Right or the occurrence of the automatic exchange of Exchangeable Shares for shares of Devon Common Stock, as specified in Article 5 hereof (unless in any case Devon shall not have delivered the Exchangeable Share Consideration deliverable in exchange therefor to the Trustee for delivery to the Holders), or upon the redemption of Exchangeable Shares pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions, or upon the effective date of the liquidation, dissolution or winding-up of Northstar or any other distribution of the assets of Northstar among its shareholders for the purpose of winding up its affairs pursuant to Article 5 of the Exchangeable Share Provisions, or upon the purchase of Exchangeable Shares from the holder thereof by Devon pursuant to the exercise by Devon of the Retraction Call Right, the Redemption Call Right or the Liquidation Call Right. ARTICLE 5 EXCHANGE RIGHT AND AUTOMATIC EXCHANGE 5.1 GRANT AND OWNERSHIP OF THE EXCHANGE PUT RIGHT, EXCHANGE RIGHT AND AUTOMATIC EXCHANGE RIGHT Devon hereby grants to the Trustee as trustee for and on behalf of, and for the use and benefit of, the Holders: (a) the Exchange Put Right; (b) the right (the "Exchange Right"), upon the occurrence and during the continuance of an Insolvency Event, to require Devon to purchase from each or any Holder all or any part of the Exchangeable Shares held by the Holders; and (c) the Automatic Exchange Rights, all in accordance with the provisions of this agreement and the Exchangeable Share Provisions, as the case may be. Devon hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Holders of good and valuable consideration (and the adequacy thereof) for the grant of the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights by Devon to the Trustee. During the term of the Trust and subject to the terms and conditions of this agreement, the Trustee shall possess and be vested with full legal ownership of the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights and shall be entitled to exercise all of the rights and powers of an owner with respect to the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights, provided that the Trustee shall: (d) hold the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights and the legal title thereto as trustee solely for the use and benefit of the Holders in accordance with the provisions of this agreement; and (e) except as specifically authorized by this agreement, have no power or authority to exercise or otherwise deal in or with the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, and the Trustee shall not exercise any such rights for any purpose other than the purposes for which this Trust is created pursuant to this agreement. 8 9 5.2 LEGENDED SHARE CERTIFICATES Northstar will cause each certificate representing Exchangeable Shares to bear an appropriate legend notifying the Holders of: (a) their right to instruct the Trustee with respect to the exercise of the Exchange Put Right and the Exchange Right in respect of the Exchangeable Shares held by a Holder; and (b) the Automatic Exchange Rights. 5.3 GENERAL EXERCISE OF EXCHANGE PUT RIGHT AND EXCHANGE RIGHT The Exchange Put Right and the Exchange Right shall be and remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Exchange Put Right and the Exchange Right only on the basis of instructions received pursuant to this Article 5 from Holders entitled to instruct the Trustee as to the exercise thereof. To the extent that no instructions are received from a Holder with respect to the Exchange Put Right and the Exchange Right, the Trustee shall not exercise or permit the exercise of the Exchange Put Right and the Exchange Right. 5.4 PURCHASE PRICE The purchase price payable by Devon for each Exchangeable Share to be purchased by Devon (i) under the Exchange Put Right shall be the amount determined under the Exchangeable Share Provisions, and (ii) under the Exchange Right shall be an amount equal to the Exchangeable Share Price on the last Business Day prior to the day of closing of the purchase and sale of such Exchangeable Share under the Exchange Right. In connection with each exercise of the Exchange Right, Devon will provide to the Trustee an Officer s Certificate setting forth the calculation of the applicable Exchangeable Share Price for each Exchangeable Share. The applicable Exchangeable Share Price for each such Exchangeable Share so purchased may be satisfied only by Devon's issuing and delivering or causing to be delivered to the Trustee, on behalf of the relevant Holder, the applicable Exchangeable Share Consideration representing the total applicable Exchangeable Share Price. 5.5 EXERCISE INSTRUCTIONS FOR EXCHANGE RIGHT Subject to the terms and conditions herein set forth, a Holder shall be entitled, upon the occurrence and during the continuance of an Insolvency Event, to instruct the Trustee to exercise the Exchange Right with respect to all or any part of the Exchangeable Shares registered in the name of such Holder on the books of Northstar. To cause the exercise of the Exchange Right by the Trustee, the Holder shall deliver to the Trustee, in person or by certified or registered mail, at its principal transfer offices in Calgary, Alberta and Toronto, Ontario or at such other places in Canada as the Trustee may from time to time designate by written notice to the Holders, the certificates representing the Exchangeable Shares which such Holder desires Devon to purchase, duly endorsed in blank, and accompanied by such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of Northstar and such additional documents and instruments as the Trustee may reasonably require, together with: (a) a duly completed form of notice of exercise of the Exchange Right, contained on the reverse of or attached to the Exchangeable Share certificates, stating: (i) that the Holder thereby instructs the Trustee to exercise the Exchange Right so as to require Devon to purchase from the Holder the number of Exchangeable Shares specified therein, (ii) that such Holder has good title to and owns all such Exchangeable Shares to be acquired by Devon free and clear of all liens, claims, encumbrances, security interests and adverse claims or interests, (iii) the names in which the certificates representing Devon Common Stock issuable in connection with the exercise of the Exchange Right are to be issued, and 9 10 (iv) the names and addresses of the persons to whom the Exchangeable Share Consideration should be delivered; and (b) payment (or evidence satisfactory to the Trustee, Northstar and Devon of payment) of the taxes (if any) payable as contemplated by Section 5.8 of this agreement. If only a part of the Exchangeable Shares represented by any certificate or certificates delivered to the Trustee are to be purchased by Devon under the Exchange Right, a new certificate for the balance of such Exchangeable Shares shall be issued to the Holder at the expense of Northstar. 5.6 DELIVERY OF EXCHANGEABLE SHARE CONSIDERATION; EFFECT OF EXERCISE As soon as practicable after receipt of the certificates representing the Exchangeable Shares which the Holder desires Devon to purchase under the Exchange Put Right or the Exchange Right (together with such documents and instruments of transfer and a duly completed form of notice of exercise of the Exchange Put Right or the Exchange Right), duly endorsed for transfer to Devon, the Trustee shall notify Devon and Northstar of its receipt of the same, which notice to Devon and Northstar shall constitute exercise of the Exchange Put Right or the Exchange Right by the Trustee on behalf of the Holder of such Exchangeable Shares, and Devon shall immediately thereafter deliver or cause to be delivered to the Trustee, for delivery to the Holder of such Exchangeable Shares (or to such other persons, if any, properly designated by such Holder), the Exchangeable Share Consideration deliverable in connection with the exercise of the Exchange Put Right or the Exchange Right; provided, however, that no such delivery shall be made unless and until the Holder requesting the same shall have paid (or provided evidence satisfactory to the Trustee, Northstar and Devon of the payment of) the taxes (if any) payable as contemplated by Section 5.8 of this agreement. Immediately upon the giving of notice by the Trustee to Devon and Northstar of the exercise of the Exchange Put Right or the Exchange Right, as provided in this Section 5.6, (i) the closing of the transaction of purchase and sale contemplated by the Exchange Put Right or the Exchange Right shall be deemed to have occurred, (ii) Devon shall be required to take all action necessary to permit it to occur, including delivery to the Trustee of the relevant Exchangeable Share Consideration, no later than the close of business on the third Business Day following the receipt by the Trustee of notice, certificates and other documents as aforesaid and (iii) the Holder of such Exchangeable Shares shall be deemed to have transferred to Devon all of its right, title and interest in and to such Exchangeable Shares and the related interest in the Trust Estate, shall cease to be a holder of such Exchangeable Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive his proportionate part of the total purchase price therefor, unless such Exchangeable Share Consideration is not delivered by Devon to the Trustee by the date specified above, in which case the rights of the Holder shall remain unaffected until such Exchangeable Share Consideration is delivered by Devon and any cheque included therein is paid. Concurrently with such Holder ceasing to be a holder of Exchangeable Shares, the Holder shall be considered and deemed for all purposes to be the holder of the shares of Devon Common Stock delivered to it pursuant to the Exchange Put Right or the Exchange Right. Notwithstanding the foregoing, until the Exchangeable Share Consideration is delivered to the Holder, the Holder shall be deemed to still be a holder of the sold Exchangeable Shares for purposes of voting rights with respect thereto under this agreement. 5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION In the event that a Holder has exercised its right under Article 6 of the Exchangeable Share Provisions to require Northstar to redeem any or all of the Exchangeable Shares held by the Holder (the "Retracted Shares") and is notified by Northstar pursuant to Section 6.6 of the Exchangeable Share Provisions that Northstar will not be permitted as a result of liquidity or solvency provisions of applicable law to redeem all such Retracted Shares, subject to receipt by the Trustee of written notice to that effect from Northstar and provided that Devon shall not have exercised the Retraction Call Right with respect to the Retracted Shares and that the Holder has not revoked the retraction request delivered by the Holder to Northstar pursuant to Section 6.1 of the Exchangeable Share Provisions, the retraction request will constitute and will be deemed to constitute notice from the Holder to the Trustee instructing the Trustee to exercise the Exchange Right with 10 11 respect to those Retracted Shares which Northstar is unable to redeem. In any such event, Northstar hereby agrees with the Trustee and in favour of the Holder immediately to notify the Trustee of such prohibition against Northstar's redeeming all of the Retracted Shares and immediately to forward or cause to be forwarded to the Trustee all relevant materials delivered by the Holder to Northstar or to the transfer agent of the Exchangeable Shares (including without limitation a copy of the retraction request delivered pursuant to Section 6.1 of the Exchangeable Share Provisions) in connection with such proposed redemption of the Retracted Shares, and the Trustee will thereupon exercise the Exchange Right with respect to the Retracted Shares which Northstar is not permitted to redeem and will require Devon to purchase such shares in accordance with the provisions of this Article 5. 5.8 STAMP OR OTHER TRANSFER TAXES Upon any sale of Exchangeable Shares to Devon pursuant to the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, the share certificate or certificates representing Devon Common Stock to be delivered as Exchangeable Share Consideration in connection with the payment of the total purchase price therefor shall be issued in the name of the Holder of the Exchangeable Shares so sold or in such names as such Holder may otherwise direct in writing without charge to the holder of the Exchangeable Shares so sold, provided, however, that such Holder: (a) shall pay (and neither Devon, Northstar nor the Trustee shall be required to pay) any documentary, stamp, transfer or other similar taxes that may be payable in respect of any transfer involved in the issuance or delivery of such shares to a person other than such Holder; or (b) shall have established to the satisfaction of the Trustee, Devon and Northstar that such taxes, if any, have been paid. 5.9 NOTICE OF INSOLVENCY EVENT Immediately upon the occurrence of an Insolvency Event or any event which with the giving of notice or the passage of time or both would be an Insolvency Event, Northstar and Devon shall give written notice thereof to the Trustee. As soon as practicable after receiving notice from Northstar or Devon of the occurrence of an Insolvency Event, the Trustee will mail to each Holder, at the expense of Devon with funds provided in advance, a notice of such Insolvency Event in the form provided by Devon, which notice shall contain a brief statement of the right of the Holders with respect to the Exchange Right. 5.10 QUALIFICATION OF DEVON COMMON STOCK Devon covenants that if any shares of Devon Common Stock to be issued and delivered pursuant to the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights require registration or qualification with or approval of or the filing of any document including any prospectus or similar document, the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or United States federal, provincial or state law or regulation or pursuant to the rules and regulations of any regulatory authority, or the fulfillment of any other legal requirement (collectively, the "Applicable Laws") before such shares may be issued and delivered by Devon to the initial holder thereof (other than Northstar) or in order that such shares may be freely traded thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of Devon for purposes of Canadian federal or provincial securities law or an "affiliate" of Devon for purposes of United States federal or state securities law), Devon will in good faith expeditiously take all such actions and do all such things as are necessary to cause such shares of Devon Common Stock to be and remain duly registered, qualified or approved. Devon represents and warrants that it has in good faith taken all actions and done all things as are necessary under Applicable Laws as they exist on the date hereof to cause the shares of Devon Common Stock to be issued and delivered pursuant to the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights and to be freely tradeable thereafter (other than restrictions on transfer by reason of a holder being a "control person" of Devon for the purposes of Canadian federal and provincial securities law or an "affiliate" of Devon for the purposes of United States federal or state securities law). Devon will in good faith 11 12 expeditiously take all such actions and do all such things as are necessary to cause all shares of Devon Common Stock to be delivered pursuant to the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which such shares are listed, quoted or posted for trading at such time. 5.11 RESERVATION OF SHARES OF DEVON COMMON STOCK Devon hereby represents, warrants and covenants that it has irrevocably reserved for issuance and will at all times keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of shares of Devon Common Stock: (a) as is equal to the sum of (i) the number of Exchangeable Shares issued and outstanding from time to time, and (ii) the number of Exchangeable Shares issuable upon the exercise of all rights to acquire Exchangeable Shares outstanding from time to time; and (b) as are now and may hereafter be required to enable and permit Northstar to meet its obligations hereunder, under the Amended and Restated Certificate of Incorporation of Devon, under the Support Agreement, under the Exchangeable Share Provisions and under any other security or commitment pursuant to the Arrangement with respect to which Devon may now or hereafter be required to issue shares of Devon Common Stock. 5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF DEVON (a) Devon will give the Trustee written notice of each of the following events at the time set forth below: (i) in the event of any determination by the board of directors of Devon to institute voluntary liquidation, dissolution or winding-up proceedings with respect to Devon or to effect any other distribution of assets of Devon among its stockholders for the purpose of winding-up its affairs, at least 60 days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution; and (ii) immediately, upon the earlier of A. receipt by Devon of notice of, and B. Devon's otherwise becoming aware of any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of Devon or to effect any other distribution of assets of Devon among its stockholders for the purpose of winding-up its affairs. (b) Immediately following receipt by the Trustee from Devon of notice of any event (a "Liquidation Event") contemplated by Section 5.12(a) above, the Trustee will give notice thereof to the Holders. Such notice will be provided by Devon to the Trustee and shall include a brief description of the automatic exchange of Exchangeable Shares for shares of Devon Common Stock provided for in Section 5.12(c) below. (c) In order that the Holders will be able to participate on a pro rata basis with the holders of Devon Common Stock in the distribution of assets of Devon in connection with a Liquidation Event, immediately prior to the effective time (the "Liquidation Event Effective Time") of a Liquidation Event, all of the then outstanding Exchangeable Shares shall be automatically exchanged for shares of Devon Common Stock. To effect such automatic exchange, Devon shall be deemed to have purchased each Exchangeable Share outstanding immediately prior to the Liquidation Event Effective Time and held by Holders, and each Holder shall be deemed to have sold the Exchangeable Shares held by it at such time, for a purchase price per share equal to the Exchangeable Share Price applicable at such time. In connection with such automatic exchange, Devon will provide to the Trustee an Officer's Certificate setting forth the calculation of the purchase price for each Exchangeable Share. 12 13 (d) The closing of the transaction of purchase and sale contemplated by Section 5.12(c) above shall be deemed to have occurred immediately prior to the Liquidation Event Effective Time, and each Holder of Exchangeable Shares shall be deemed to have transferred to Devon all of the Holder's right, title and interest in and to such Exchangeable Shares and the related interest in the Trust Estate and shall cease to be a holder of such Exchangeable Shares, and Devon shall deliver to the Holder the Exchangeable Share Consideration deliverable upon the automatic exchange of Exchangeable Shares. Concurrently with such Holder's ceasing to be a holder of Exchangeable Shares, the Holder shall be considered and deemed for all purposes to be the holder of the shares of Devon Common Stock issued to it pursuant to the automatic exchange of Exchangeable Shares for Devon Common Stock, and the certificates held by the Holder previously representing the Exchangeable Shares exchanged by the Holder with Devon pursuant to such automatic exchange shall thereafter be deemed to represent the shares of Devon Common Stock issued to the Holder by Devon pursuant to such automatic exchange. Upon the request of a Holder and the surrender by the Holder of Exchangeable Share certificates deemed to represent shares of Devon Common Stock, duly endorsed in blank and accompanied by such instruments of transfer as Devon may reasonably require, Devon shall deliver or cause to be delivered to the Holder certificates representing the shares of Devon Common Stock of which the Holder is the holder. Notwithstanding the foregoing, until each Holder is actually entered on the register of holders of Devon Common Stock, such Holder shall be deemed to still be a holder of the transferred Exchangeable Shares for purposes of all voting rights with respect thereto under this agreement. ARTICLE 6 RESTRICTIONS ON ISSUANCE OF DEVON SPECIAL VOTING STOCK During the term of this agreement, Devon will not issue any shares of Devon Special Voting Stock in addition to the Voting Share. ARTICLE 7 CONCERNING THE TRUSTEE 7.1 POWERS AND DUTIES OF THE TRUSTEE The rights, powers and authorities of the Trustee under this agreement, in its capacity as trustee of the Trust, shall include: (a) receipt and deposit of the Voting Share from Devon as trustee for and on behalf of the Holders in accordance with the provisions of this agreement; (b) granting proxies and distributing materials to Holders as provided in this agreement; (c) voting the Holder Votes in accordance with the provisions of this agreement; (d) receiving the grant of the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights from Devon as trustee for and on behalf of the Holders in accordance with the provisions of this agreement; (e) exercising the Exchange Put Right and the Exchange Right and enforcing the benefit of the Automatic Exchange Rights, in each case in accordance with the provisions of this agreement, and in connection therewith receiving from Holders Exchangeable Shares and other requisite documents and distributing to such Holders the shares of Devon Common Stock and cheques, if any, to which such Holders are entitled upon the exercise of the Exchange Put Right and the Exchange Right or pursuant to the Automatic Exchange Rights, as the case may be; (f) holding title to the Trust Estate; (g) investing any moneys forming, from time to time, a part of the Trust Estate as provided in this agreement; 13 14 (h) taking action at the direction of a Holder or Holders to enforce the obligations of Devon under this agreement; and (i) taking such other actions and doing such other things as are specifically provided in this agreement. In the exercise of such rights, powers and authorities, the Trustee shall have (and is granted) such incidental and additional rights, powers and authority not in conflict with any of the provisions of this agreement as the Trustee, acting in good faith and in the reasonable exercise of its discretion, may deem necessary, appropriate or desirable to effect the purpose of the Trust. Any exercise of such discretionary rights, powers and authorities by the Trustee shall be final, conclusive and binding upon all persons. For greater certainty, the Trustee shall have only those duties as are set out specifically in this agreement. The Trustee in exercising its rights, powers, duties and authorities hereunder shall act honestly and in good faith with a view to the best interests of the Holders and shall exercise the care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. The Trustee shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall be specifically required to do so under the terms hereof nor shall the Trustee be required to take any notice of, or to do or to take any act, action or proceeding as a result of any default or breach of any provision hereunder, unless and until notified in writing of such default or breach, which notices shall distinctly specify the default or breach desired to be brought to the attention of the Trustee and in the absence of such notice the Trustee may for all purposes of this agreement conclusively assume that no default or breach has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. 7.2 NO CONFLICT OF INTEREST The Trustee represents to Northstar and Devon that at the date of execution and delivery of this agreement there exists no material conflict of interest in the role of the Trustee as a fiduciary hereunder and the role of the Trustee in any other capacity. The Trustee shall, within 90 days after it becomes aware that such a material conflict of interest exists, either eliminate such material conflict of interest or resign in the manner and with the effect specified in Article 10 hereof. If, notwithstanding the foregoing provisions of this Section 7.2, the Trustee has such a material conflict of interest, the validity and enforceability of this agreement shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Trustee contravenes the foregoing provisions of this Section 7.2, any interested party may apply to the superior court of the province in which Northstar has its registered office for an order that the Trustee be replaced as trustee hereunder. 7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. Northstar and Devon irrevocably authorize the Trustee, from time to time, to: (a) consult, communicate and otherwise deal with the respective registrars and transfer agents, and with any such subsequent registrar or transfer agent, of the Exchangeable Shares and Devon Common Stock; and (b) requisition, from time to time, (i) from any such registrar or transfer agent any information readily available from the records maintained by it which the Trustee may reasonably require for the discharge of its duties and responsibilities under this agreement, and (ii) from the transfer agent of Devon Common Stock, and any subsequent transfer agent of such shares, to complete the exercise from time to time of the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights in the manner specified in Article 5 hereof, the share certificates issuable upon such exercise. 14 15 Northstar and Devon irrevocably authorize their respective registrars and transfer agents to comply with all such requests. Devon covenants that it will supply its transfer agent with duly executed share certificates for the purpose of completing the exercise from time to time of the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights, in each case pursuant to Article 5 hereof. 7.4 BOOKS AND RECORDS The Trustee shall keep available for inspection by Devon and Northstar, at the Trustee's principal transfer office in Calgary, Alberta, correct and complete books and records of account relating to the Trustee's actions under this agreement, including without limitation all information relating to mailings and instructions to and from Holders and all transactions pursuant to the Voting Rights, the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights for the term of this agreement. On or before March 31, 1999, and on or before March 31 in every year thereafter, so long as the Voting Share is on deposit with the Trustee, the Trustee shall transmit to Devon and Northstar a brief report, dated as of the preceding December 31, with respect to: (a) the property and funds comprising the Trust Estate as of that date; (b) the number of exercises of the Exchange Put Right and the Exchange Right, if any, and the aggregate number of Exchangeable Shares received by the Trustee on behalf of Holders in consideration of the issue and delivery by Devon of shares of Devon Common Stock in connection with the Exchange Put Right and the Exchange Right, during the calendar year ended on such date; and (c) all other actions taken by the Trustee in the performance of its duties under this agreement which it had not previously reported. 7.5 INCOME TAX RETURNS AND REPORTS The Trustee shall, to the extent necessary, prepare and file on behalf of the Trust appropriate United States and Canadian income tax returns and any other returns or reports as may be required by applicable law or pursuant to the rules and regulations of any securities exchange or other trading system through which the Exchangeable Shares are traded and, in connection therewith, may obtain the advice and assistance of such experts as the Trustee may consider necessary or advisable. If requested by the Trustee, Devon shall retain such experts for purposes of providing such advice and assistance. 7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE The Trustee shall exercise any or all of the rights, duties, powers or authorities vested in it by this agreement at the request, order or direction of any Holder upon such Holder's furnishing to the Trustee reasonable funding, security and indemnity against the costs, expenses and liabilities which may be incurred by the Trustee therein or thereby; provided that no Holder shall be obligated to furnish to the Trustee any such funding, security or indemnity in connection with the exercise by the Trustee of any of its rights, duties, powers and authorities with respect to the Voting Share pursuant to Article 4 hereof, subject to Section 7.15 hereof, and with respect to the Exchange Put Right and the Exchange Right pursuant to Article 5 hereof, subject to Section 7.15 hereof, and with respect to the Automatic Exchange Rights pursuant to Article 5 hereof. None of the provisions contained in this agreement shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the exercise of any of its rights, powers, duties or authorities unless funded, given funds, security and indemnified as aforesaid. 7.7 ACTIONS BY HOLDERS No Holder shall have the right to institute any action, suit or proceeding or to exercise any other remedy authorized by this agreement for the purpose of enforcing any of its rights or for the execution of any trust or power hereunder unless the Holder has requested the Trustee to take or institute such action, suit or proceeding and furnished the Trustee with the funding, security and indemnity referred to in Section 7.6 hereof and the Trustee shall have failed to act within a reasonable time thereafter. In such case, but not 15 16 otherwise, the Holder shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken; it being understood and intended that no one or more Holders shall have any right in any manner whatsoever to affect, disturb or prejudice the rights hereby created by any such action, or to enforce any right hereunder or under the Voting Rights, the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, except subject to the conditions and in the manner herein provided, and that all powers and trusts hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the equal benefit of all Holders. 7.8 RELIANCE UPON DECLARATIONS The Trustee shall not be considered to be in contravention of any of its rights, powers, duties and authorities hereunder if, when required, it acts and relies in good faith upon lists, mailing labels, notices, statutory declarations, certificates, opinions, reports or other papers or documents furnished pursuant to the provisions hereof or required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and authorities hereunder, and such lists, mailing labels, notices, statutory declarations, certificates, opinions, reports or other papers or documents comply with the provisions of Section 7.9 hereof, if applicable, and with any other applicable provisions of this agreement. 7.9 EVIDENCE AND AUTHORITY TO TRUSTEE Northstar and/or Devon shall furnish to the Trustee evidence of compliance with the conditions provided for in this agreement relating to any action or step required or permitted to be taken by Northstar and/or Devon or the Trustee under this agreement or as a result of any obligation imposed under this agreement, including, without limitation, in respect of the Voting Rights or the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights and the taking of any other action to be taken by the Trustee at the request of or on the application of Northstar and/or Devon forthwith if and when: (a) such evidence is required by any other section of this agreement to be furnished to the Trustee in accordance with the terms of this Section 7.9; or (b) the Trustee, in the exercise of its rights, powers, duties and authorities under this agreement, gives Northstar and/or Devon written notice requiring it to furnish such evidence in relation to any particular action or obligation specified in such notice. Such evidence shall consist of an Officer's Certificate of Northstar and/or Devon or a statutory declaration or a certificate made by persons entitled to sign an Officer's Certificate stating that any such condition has been complied with in accordance with the terms of this agreement. Whenever such evidence relates to a matter other than the Voting Rights or the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, and except as otherwise specifically provided herein, such evidence may consist of a report or opinion of any solicitor, auditor, accountant, appraiser, valuer, engineer or other expert or any other person whose qualifications give authority to a statement made by him, provided that, if such report or opinion is furnished by a director, officer or employee of Northstar and/or Devon, it shall be in the form of an Officer's Certificate or a statutory declaration. Each statutory declaration, certificate, opinion or report furnished to the Trustee as evidence of compliance with a condition provided for in this agreement shall include a statement by the person giving the evidence: (i) the condition in question; A. describing the nature and scope of the examination or investigation upon which such person based the statutory declaration, certificate, statement or opinion; and 16 17 B. declaring that such person has made such examination or investigation as such person believes is necessary to enable such person to make the statements or give the opinions contained or expressed therein. 7.10 EXPERTS, ADVISERS AND AGENTS The Trustee may: (a) in relation to these presents act and rely on the opinion or advice of or information obtained from or prepared by any solicitor, auditor, accountant, appraiser, valuer, engineer or other expert, whether retained by the Trustee or by Northstar and/or Devon or otherwise, and may employ such assistants as may be necessary to the proper determination and discharge of its powers and duties and determination of its rights hereunder and may pay proper and reasonable compensation for all such legal and other advice or assistance as aforesaid; and (b) retain or employ such agents and other assistants as it may reasonably require for the proper determination and discharge of its powers and duties hereunder, and may pay reasonable remuneration for all services performed for it (and shall be entitled to receive reasonable remuneration for all services performed by it) in the discharge of the trusts hereof and compensation for all disbursements, costs and expenses made or incurred by it in the determination and discharge of its duties hereunder and in the management of the Trust. 7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE Unless herein otherwise expressly provided, any of the funds held by the Trustee may be deposited in a trust account in the name of the Trustee (which may be held with the Trustee or an affiliate or related party of the Trustee), which account shall be interest bearing. Upon the written direction of Northstar, the Trustee shall invest in its name such funds in Authorized Investments (as defined herein) in accordance with such direction. Any direction by Northstar to the Trustee as to the investment of the funds shall be in writing and shall be provided to the Trustee no later than 9:00 a.m. on the day on which the investment is to be made. Any such direction received by the Trustee after 9:00 a.m. or received on a non-Business Day, shall be deemed to have been given prior to 9:00 a.m. the next Business Day. "Authorized Investments" means short term interest bearing or discount debt obligations issued or guaranteed by the Government of Canada or a Province of Canada or a Canadian chartered bank (which may include an affiliate or related party of the Trustee, including without limitation the Mellon Bank Canada and the Canadian Imperial Bank of Commerce) provided that each such obligation is rated at least RI (middle) by DBRS Inc. or an equivalent rating by Canadian Bond Rating Service. 7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY The Trustee shall not be required to give any bond or security in respect of the execution of the trusts, rights, duties, powers and authorities of this agreement or otherwise in respect of the premises. 7.13 TRUSTEE NOT BOUND TO ACT ON REQUEST Except as in this agreement otherwise specifically provided, the Trustee shall not be bound to act in accordance with any direction or request of Northstar and/or Devon or of the directors thereof until a duly authenticated copy of the instrument or resolution containing such direction or request shall have been delivered to the Trustee, and the Trustee shall be empowered to act and rely upon any such copy purporting to be authenticated and believed by the Trustee to be genuine. 7.14 AUTHORITY TO CARRY ON BUSINESS The Trustee represents to Northstar and Devon that at the date of execution and delivery by it of this agreement it is authorized to carry on the business of a trust company in the Province of Alberta but if, notwithstanding the provisions of this Section 7.14, it ceases to be so authorized to carry on business, the validity and enforceability of this agreement and the Voting Rights, the Exchange Put Right, the Exchange 17 18 Right and the Automatic Exchange Rights shall not be affected in any manner whatsoever by reason only of such event; provided, however, the Trustee shall, within 90 days after ceasing to be authorized to carry on the business of a trust company in the Province of Alberta, either become so authorized or resign in the manner and with the effect specified in Article 10 hereof. 7.15 CONFLICTING CLAIMS If conflicting claims or demands are made or asserted with respect to any interest of any Holder in any Exchangeable Shares, including any disagreement between the heirs, representatives, successors or assigns succeeding to all or any part of the interest of any Holder in any Exchangeable Shares resulting in conflicting claims or demands being made in connection with such interest, then the Trustee shall be entitled, at its sole discretion, to refuse to recognize or to comply with any such claim or demand. In so refusing, the Trustee may elect not to exercise any Voting Rights, Exchange Put Right, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands and, in so doing, the Trustee shall not be or become liable to any person on account of such election or its failure or refusal to comply with any such conflicting claims or demands. The Trustee shall be entitled to continue to refrain from acting and to refuse to act until: (a) the rights of all adverse claimants with respect to the Voting Rights, Exchange Put Right, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands have been adjudicated by a final judgment of a court of competent jurisdiction; or (b) all differences with respect to the Voting Rights, Exchange Put Right, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands have been conclusively settled by a valid written agreement binding on all such adverse claimants, and the Trustee shall have been furnished with an executed copy of such agreement. If the Trustee elects to recognize any claim or comply with any demand made by any such adverse claimant, it may in its discretion require such claimant to furnish such surety bond or other security satisfactory to the Trustee as it shall deem appropriate fully to indemnify it as between all conflicting claims or demands. 7.16 ACCEPTANCE OF TRUST The Trustee hereby accepts the Trust created and provided for by and in this agreement and agrees to perform the same upon the terms and conditions herein set forth and to hold all rights, privileges and benefits conferred hereby and by law in trust for the various persons who shall from time to time be Holders, subject to all the terms and conditions herein set forth. ARTICLE 8 COMPENSATION Devon and Northstar jointly and severally agree to pay to the Trustee reasonable compensation for all of the services rendered by it under this agreement and will reimburse the Trustee for all reasonable expenses (including but not limited to taxes, compensation paid to counsel, experts, agents and advisors, and travel expenses) and disbursements, including the cost and expense of any suit or litigation of any character and any proceedings before any governmental agency, reasonably incurred by the Trustee in connection with its rights and duties under this agreement; provided that Devon and Northstar shall have no obligation to reimburse the Trustee for any expenses or disbursements paid, incurred or suffered by the Trustee in any suit or litigation in which the Trustee is determined to have acted in bad faith or with negligence or willful misconduct. 18 19 ARTICLE 9 INDEMNIFICATION AND LIMITATION OF LIABILITY 9.1 INDEMNIFICATION OF THE TRUSTEE Devon and Northstar jointly and severally agree to indemnify and hold harmless the Trustee and each of its directors, officers, employees and agents appointed and acting in accordance with this agreement (collectively, the "Indemnified Parties") against all claims, losses, damages, costs, penalties, fines and reasonable expenses (including reasonable expenses of the Trustee's legal counsel) which, without fraud, negligence, willful misconduct or bad faith on the part of such Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by reason of or as a result of the Trustee's acceptance or administration of the Trust, its compliance with its duties set forth in this agreement, or any written or oral instructions (to be confirmed in writing) delivered to the Trustee by Devon or Northstar pursuant hereto. In no case shall Devon or Northstar be liable under this indemnity for any claim against any of the Indemnified Parties unless Devon and Northstar shall be notified by the Trustee of the written assertion of a claim or of any action commenced against the Indemnified Parties, promptly after any of the Indemnified Parties shall have received any such written assertion of a claim or shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Subject to (ii) below, Devon and Northstar shall be entitled to participate at their own expense in the defense and, if Devon or Northstar so elect at any time after receipt of such notice, either of them may assume the defense of any suit brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in any such suit and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Trustee unless: (i) the employment of such counsel has been authorized by Devon or Northstar, such authorization not to be unreasonably withheld; or (ii) the named parties to any such suit include both the Trustee and Devon or Northstar and the Trustee shall have been advised by counsel acceptable to Devon or Northstar that there may be one or more legal defenses available to the Trustee that are different from or in addition to those available to Devon or Northstar and that an actual or potential conflict of interest exists (in which case Devon and Northstar shall not have the right to assume the defense of such suit on behalf of the Trustee, but shall be liable to pay the reasonable fees and expenses of counsel for the Trustee). This indemnity shall survive the resignation or removal of the Trustee and the termination of the trust. 9.2 LIMITATION OF LIABILITY The Trustee shall not be held liable for any loss which may occur by reason of depreciation of the value of any part of the Trust Estate or any loss incurred on any investment of funds pursuant to this agreement, except to the extent that such loss is attributable to the fraud, negligence, willful misconduct or bad faith on the part of the Trustee. ARTICLE 10 CHANGE OF TRUSTEE 10.1 RESIGNATION The Trustee, or any trustee hereafter appointed, may at any time resign by giving written notice of such resignation to Devon and Northstar specifying the date on which it desires to resign, provided that such notice shall never be given less than 60 days before such desired resignation date unless Devon and Northstar otherwise agree and provided further that such resignation shall not take effect until the date of the appointment of a successor trustee and the acceptance of such appointment by the successor trustee. Upon receiving such notice of resignation, Devon and Northstar shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which shall be delivered to the resigning trustee and one copy to the successor trustee. Failing acceptance by a successor trustee, a successor trustee may be appointed by an order of the superior court of the province in which Northstar has its registered office upon application of one or more of the parties hereto. Should the retiring Trustee apply for the appointment of a successor trustee by an order of court of competent jurisdiction it shall be at the joint and several expense of Devon and Northstar. 19 20 10.2 REMOVAL The Trustee, or any trustee hereafter appointed, may be removed with or without cause, at any time on 60 days prior notice by written instrument executed by Devon and Northstar, in duplicate, one copy of which shall be delivered to the trustee so removed and one copy to the successor trustee; provided that, in connection with such removal, provision is made for a replacement trustee similar to that contemplated in Section 10.1. 10.3 SUCCESSOR TRUSTEE Any successor trustee appointed as provided under this agreement shall execute, acknowledge and deliver to Devon and Northstar and to its predecessor trustee an instrument accepting such appointment. Thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor under this agreement, with like effect as if originally named as trustee in this agreement. However, on the written request of Devon and Northstar or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of this agreement, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon the request of any such successor trustee, Devon, Northstar and such predecessor trustee shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. 10.4 NOTICE OF SUCCESSOR TRUSTEE Upon acceptance of appointment by a successor trustee as provided herein, Devon and Northstar shall cause to be mailed notice of the succession of such trustee hereunder to each Holder specified in a List. If Devon or Northstar shall fail to cause such notice to be mailed within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of Devon and Northstar. ARTICLE 11 DEVON SUCCESSORS 11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. Devon shall not enter into any transaction (whether by way of reconstruction, reorganization, consolidation, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its undertaking, property and assets would become the property of any other Person or, in the case of a merger, of the continuing corporation resulting therefrom, but may do so if: (a) such other Person or continuing corporation (the "Devon Successor"), by operation of law, becomes, without further action, bound by the terms and provisions of this agreement or, if not so bound, executes, prior to or contemporaneously with the consummation of such transaction an agreement supplemental hereto and such other instruments (if any) as are satisfactory to the Trustee relying on the opinion of legal counsel to the Trustee are necessary or advisable to evidence the assumption by the Devon Successor of liability for all moneys payable and property deliverable hereunder, the covenant of such Devon Successor to pay and deliver or cause to be delivered the same and its agreement to observe and perform all the covenants and obligations of Devon under this agreement; and (b) such transaction shall, to the satisfaction of the Trustee relying on the opinion of legal counsel to the Trustee, be upon such terms which substantially preserve and do not impair in any material respect any of the rights, duties, powers and authorities of the Trustee or of the Holders as a whole hereunder. 20 21 11.2 VESTING OF POWERS IN SUCCESSOR Whenever the conditions of Section 11.1 hereof have been duly observed and performed, the Trustee, if required by Section 11.1 hereof, the Devon Successor and Northstar shall execute and deliver the supplemental agreement provided for in Article 12 hereof, and thereupon the Devon Successor shall possess and from time to time may exercise each and every right and power of Devon under this agreement in the name of Devon or otherwise and any act or proceeding by any provision of this agreement required to be done or performed by the board of directors of Devon or any officers of Devon may be done and performed with like force and effect by the directors or officers of such Devon Successor. 11.3 WHOLLY-OWNED SUBSIDIARIES Nothing herein shall be construed as preventing the amalgamation or merger of any wholly-owned subsidiary of Devon with or into Devon or the winding-up, liquidation or dissolution of any wholly-owned subsidiary of Devon provided that all of the assets of such subsidiary are transferred to Devon or another wholly-owned subsidiary of Devon, and any such transactions are expressly permitted by this Article 11. ARTICLE 12 AMENDMENTS AND SUPPLEMENTAL AGREEMENTS 12.1 AMENDMENTS, MODIFICATIONS, ETC. Subject to Sections 12.2 and 12.4, this agreement may not be amended, modified or waived except by an agreement in writing executed by Northstar, Devon and the Trustee and approved by the Holders in accordance with Section 10.2 of the Exchangeable Share Provisions. No amendment to or modification or waiver of any of the provisions of this agreement otherwise permitted hereunder shall be effective unless made in writing and signed by all of the parties hereto. 12.2 MINISTERIAL AMENDMENTS Notwithstanding the provisions of Section 12.1 hereof, the parties to this agreement may in writing, at any time and from time to time, without the approval of the Holders, amend or modify this agreement for the purposes of: (a) adding to the covenants of any or all of the parties hereto for the protection of the Holders hereunder subject to the receipt by the Trustee of an opinion of counsel that the addition of the proposed covenant is not prejudicial to the interests of the holders as a whole or the Trustee; (b) making such amendments or modifications not inconsistent with this agreement as may be necessary or desirable with respect to matters or questions which, in the opinion of the board of directors of each of Devon and Northstar and in the opinion of the Trustee relying on the opinion of counsel, having in mind the best interests of the Holders as a whole, it may be expedient to make, provided that such boards of directors and the Trustee and its counsel shall be of the opinion that such amendments and modifications will not be prejudicial to the interests of the Holders as a whole; or (c) making such changes or corrections which, on the advice of counsel to Northstar, Devon and the Trustee, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error; provided that the Trustee and its counsel and the board of directors of each of Northstar and Devon shall be of the opinion that such changes or corrections will not be prejudicial to the interests of the Holders as a whole. 12.3 MEETING TO CONSIDER AMENDMENTS Northstar, at the request of Devon, shall call a meeting or meetings of the Holders for the purpose of considering any proposed amendment or modification requiring approval pursuant hereto. Any such meeting 21 22 or meetings shall be called and held in accordance with the by-laws of Northstar, the Exchangeable Share Provisions and all applicable laws. 12.4 CHANGES IN CAPITAL OF DEVON AND NORTHSTAR At all times after the occurrence of any event effected pursuant to Section 2.7 or Section 2.8 of the Support Agreement, as a result of which either Devon Common Stock or the Exchangeable Shares or both are in any way changed, this agreement shall forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which Devon Common Stock or the Exchangeable Shares or both are so changed, and the parties hereto shall execute and deliver a supplemental agreement giving effect to and evidencing such necessary amendments and modifications. 12.5 EXECUTION OF SUPPLEMENTAL AGREEMENTS From time to time, Northstar (when authorized by a resolution of its Board of Directors), Devon (when authorized by a resolution of its board of directors) and the Trustee may, subject to the provisions of these presents, and they shall, when so directed by these presents, execute and deliver by their proper officers, agreements or other instruments supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes: (a) evidencing the succession of any Devon Successors to Devon and the covenants of and obligations assumed by each such Devon Successor in accordance with the provisions of Article 11 and the successor of any successor trustee in accordance with the provisions of Article 10; (b) making any additions to, deletions from or alterations of the provisions of this agreement or the Voting Rights, the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights which, in the opinion of the Trustee and its counsel, will not be prejudicial to the interests of the Holders as a whole or are in the opinion of counsel to the Trustee necessary or advisable in order to incorporate, reflect or comply with any legislation the provisions of which apply to Devon, Northstar, the Trustee or this agreement; and (c) for any other purposes not inconsistent with the provisions of this agreement, including without limitation to make or evidence any amendment or modification to this agreement as contemplated hereby, provided that, in the opinion of counsel to the Trustee, the rights of the Trustee and the Holders as a whole will not be prejudiced thereby. ARTICLE 13 TERMINATION 13.1 TERM The Trust created by this agreement shall continue until the earliest to occur of the following events: (a) no outstanding Exchangeable Shares are held by a Holder; (b) each of Northstar and Devon elects in writing to terminate the Trust and such termination is approved by the Holders of the Exchangeable Shares in accordance with Section 10.1 of the Exchangeable Share Provisions; and (c) 21 years after the death of the last survivor of the descendants of His Majesty King George VI of the United Kingdom of Great Britain and Northern Ireland living on the date of the creation of the Trust. 13.2 SURVIVAL OF AGREEMENT This agreement shall survive any termination of the Trust and shall continue until there are no Exchangeable Shares outstanding held by a Holder; provided, however, that the provisions of Articles 8 and 9 hereof shall survive any such termination of this agreement. 22 23 ARTICLE 14 GENERAL 14.1 SEVERABILITY If any provision of this agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remainder of this agreement shall not in any way be affected or impaired thereby, and the agreement shall be carried out as nearly as possible in accordance with its original terms and conditions. 14.2 INUREMENT This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and to the benefit of the Holders. 14.3 NOTICES TO PARTIES All notices and other communications between the parties hereunder shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for such party as shall be specified in like notice): (a) if to Devon to: Devon Energy Corporation 20 North Broadway Suite 1500 Oklahoma City, Oklahoma 73102-8260 Attention: President Facsimile No. 405-552-8171 (b) if to Northstar to: Northstar Energy Corporation 3000, 400 -- 3rd Avenue S.W. Calgary, Alberta T2P 4H2 Attention: President Facsimile No. 403-213-8100 (c) if to the Trustee to: CIBC Melon Trust Company 600, 333 -- 7th Avenue S.W. Calgary, Alberta T2P 2Z1 Attention: Corporate Trust Department Facsimile No. 403-264-2100 Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof, and if given by telecopy shall be deemed to have been given and received on the date of receipt thereof unless such day is not a Business Day in which case it shall be deemed to have been given and received upon the immediately following Business Day. 14.4 NOTICE TO HOLDERS Any and all notices to be given and any documents to be sent to any Holders may be given or sent to the address of such Holder shown on the register of Holders of Exchangeable Shares in any manner permitted by the Exchangeable Share Provisions and shall be deemed to be received (if given or sent in such manner) at 23 24 the time specified in such Exchangeable Share Provisions, the provisions of which Exchangeable Share Provisions shall apply mutatis mutandis to notices or documents as aforesaid sent to such Holders. 14.5 RISK OF PAYMENTS BY POST Whenever payments are to be made or documents are to be sent to any Holder by the Trustee, by Northstar or by Devon or by such Holder to the Trustee or to Devon or Northstar, the making of such payment or sending of such document sent through the mail shall be at the risk of Northstar or Devon, in the case of payments made or documents sent by the Trustee or Northstar or Devon, and the Holder, in the case of payments made or documents sent by the Holder. 14.6 COUNTERPARTS This agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 14.7 JURISDICTION This agreement shall be construed and enforced in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein. 14.8 ATTORNMENT Devon agrees that any action or proceeding arising out of or relating to this agreement may be instituted in the courts of Alberta, waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of such courts in any such action or proceeding, agrees to be bound by any judgment of such courts and agrees not to seek, and hereby waives, any review of the merits of any such judgment by the courts of any other jurisdiction and hereby appoints Northstar at its registered office in the Province of Alberta as Devon's attorney for service of process. 24 25 IN WITNESS WHEREOF, the parties hereby have caused this agreement to be duly executed as of the date first above written. DEVON ENERGY CORPORATION By: /s/ DUKE R. LIGON ---------------------------------- By: /s/ MARIAN J. MOON ---------------------------------- NORTHSTAR ENERGY CORPORATION By: /s/ JOHN A. HAGG ---------------------------------- By: /s/ MURRAY T. BROWN ---------------------------------- CIBC MELLON TRUST COMPANY By: /s/ RHONDA L. MACLEOD ---------------------------------- By: /s/ JACQUIE FISHER ---------------------------------- 25 EX-10.1 6 U.S. CREDIT AGREEMENT 1 EXHIBIT 10.1 [EXECUTION] =============================================================================== US CREDIT AGREEMENT ------------------------------------------------------- DEVON ENERGY CORPORATION as US Borrower NATIONSBANK, N.A. as Administrative Agent NATIONSBANC MONTGOMERY SECURITIES, L.L.C. as Arranger FIRST CHICAGO CAPITAL MARKETS, INC. as Syndication Agent BANK OF MONTREAL as Documentation Agent FIRST UNION as Co-Documentation Agent and CERTAIN FINANCIAL INSTITUTIONS as Lenders ------------------------------------------------------- US $205,000,000 December 11, 1998 ============================================================================== 2
TABLE OF CONTENTS Page CREDIT AGREEMENT..................................................................................................1 ARTICLE I - The US Loans..........................................................................................1 Section 1.1. Commitments to Lend; US Notes..........................................................1 Section 1.2. Requests for New US Loans..............................................................4 Section 1.3. Continuations and Conversions of Existing US Loans.....................................5 Section 1.4. Use of Proceeds........................................................................6 Section 1.5. Interest Rates and Fees................................................................6 Section 1.6. Prepayments............................................................................8 Section 1.7. Competitive Bid Loans..................................................................8 ARTICLE II - Letters of Credit...................................................................................11 Section 2.1. Letters of Credit.....................................................................11 Section 2.2. Requesting Letters of Credit..........................................................12 Section 2.3. Reimbursement and Participations......................................................12 Section 2.4. Letter of Credit Fees.................................................................13 Section 2.5. No Duty to Inquire....................................................................13 Section 2.6. LC Collateral.........................................................................14 ARTICLE III - Payments to Lenders................................................................................15 Section 3.1. General Procedures....................................................................15 Section 3.2. Increased Cost and Reduced Return.....................................................16 Section 3.3. Limitation on Types of US Loans.......................................................18 Section 3.4. Illegality............................................................................18 Section 3.5. Treatment of Affected US Loans........................................................19 Section 3.6. Compensation..........................................................................19 Section 3.7. Change of Applicable Lending Office...................................................20 Section 3.8. Replacement of Lenders................................................................20 Section 3.9. Taxes.................................................................................20 Section 3.10. Currency Conversion and Currency Indemnity............................................22 ARTICLE IV - Conditions Precedent to Lending.....................................................................23 Section 4.1. Documents to be Delivered.............................................................23 Section 4.2. Additional Conditions Precedent to First US Loan or First Letter of Credit................................................................................24 Section 4.3. Additional Conditions Precedent to all US Loan and Letters of Credit..................25 ARTICLE V - Representations and Warranties.......................................................................25 Section 5.1. No Default............................................................................25 Section 5.2. Organization and Good Standing........................................................25 Section 5.3. Authorization.........................................................................26 Section 5.4. No Conflicts or Consents..............................................................26
i 3 Section 5.5. Enforceable Obligations...............................................................26 Section 5.6. Full Disclosure.......................................................................26 Section 5.7. Litigation............................................................................27 Section 5.8. ERISA Plans and Liabilities...........................................................27 Section 5.9. Environmental and Other Laws..........................................................27 Section 5.10. Names and Places of Business..........................................................27 Section 5.11. US Borrower's Subsidiaries............................................................28 Section 5.12. Title to Properties; Licenses.........................................................28 Section 5.13. Government Regulation.................................................................28 Section 5.14. Insider...............................................................................28 Section 5.15. Solvency..............................................................................28 Section 5.16. Year 2000 Compliance..................................................................29 ARTICLE VI - Affirmative Covenants of US Borrower................................................................29 Section 6.1. Payment and Performance...............................................................29 Section 6.2. Books, Financial Statements and Reports...............................................29 Section 6.3. Other Information and Inspections.....................................................30 Section 6.4. Notice of Material Events and Change of Address.......................................31 Section 6.5. Maintenance of Properties.............................................................31 Section 6.6. Maintenance of Existence and Qualifications...........................................31 Section 6.7. Payment of Trade Liabilities, Taxes, etc..............................................31 Section 6.8. Insurance.............................................................................32 Section 6.9. Performance on US Borrower's Behalf...................................................32 Section 6.10. Interest..............................................................................32 Section 6.11. Compliance with Law...................................................................32 Section 6.12. Environmental Matters.................................................................32 Section 6.13. Bank Accounts; Offset.................................................................33 Section 6.14. Year 2000 Compliance..................................................................33 ARTICLE VII - Negative Covenants of US Borrower..................................................................33 Section 7.1. Indebtedness..........................................................................33 Section 7.2. Limitation on Liens...................................................................35 Section 7.3. Limitation on Mergers.................................................................35 Section 7.4. Limitation on Issuance of Securities by Subsidiaries of US Borrower...................35 Section 7.5. Limitation on Restricted Payments.....................................................36 Section 7.6. Transactions with Affiliates..........................................................36 Section 7.7. Prohibited Contracts; ERISA...........................................................36 Section 7.8. Funded Debt to Total Capitalization...................................................36 Section 7.9. Funded Debt to EBITDA.................................................................36 Section 7.10. Devon Trust; Devon Trust Securities...................................................36 ARTICLE VIII - Events of Default and Remedies....................................................................38 Section 8.1. Events of Default.....................................................................38 Section 8.2. Remedies..............................................................................40
ii 4 ARTICLE IX - US Agent............................................................................................40 Section 9.1. Appointment, Powers, and Immunities...................................................40 Section 9.2. Reliance by US Agent..................................................................41 Section 9.3. Defaults..............................................................................41 Section 9.4. Rights as Lender......................................................................41 Section 9.5. Indemnification.......................................................................42 Section 9.6. Non-Reliance on US Agent and Other Lenders............................................42 Section 9.7. Rights as Lender......................................................................42 Section 9.8. Sharing of Set-Offs and Other Payments................................................43 Section 9.9. Investments...........................................................................43 Section 9.10. Benefit of Article IX.................................................................43 Section 9.11. Resignation...........................................................................43 Section 9.12. Lenders to Remain Pro Rata............................................................44 ARTICLE X - Miscellaneous........................................................................................44 Section 10.1. Waivers and Amendments; Acknowledgments...............................................44 Section 10.2. Survival of Agreements; Cumulative Nature.............................................46 Section 10.3. Notices...............................................................................46 Section 10.4. Payment of Expenses; Indemnity........................................................47 Section 10.5. Parties in Interest...................................................................48 Section 10.6. Assignments and Participations........................................................48 Section 10.7. Confidentiality.......................................................................50 Section 10.8. Governing Law; Submission to Process..................................................50 Section 10.9. Limitation on Interest................................................................50 Section 10.10. Termination; Limited Survival.........................................................51 Section 10.11. Severability..........................................................................52 Section 10.12. Counterparts; Fax.....................................................................52 Section 10.13. Waiver of Jury Trial, Punitive Damages, etc...........................................52 Section 10.14. Defined Terms.........................................................................52 Section 10.15. Annex I, Exhibits and Schedules; Additional Definitions...............................52 Section 10.16. Amendment of Defined Instruments......................................................52 Section 10.17. References and Titles.................................................................53 Section 10.18. Calculations and Determinations.......................................................53 Section 10.19. Construction of Indemnities and Releases..............................................53 Section 10.20. Termination of Existing Agreement.....................................................53
iii 5 Schedules and Exhibits: - ----------------------- Annex I - Defined Terms Annex II - Lenders Schedule Schedule 1 - Disclosure Schedule Exhibit A-1 - Tranche A Promissory Note Exhibit A-2 - Tranche B Promissory Note Exhibit B - Borrowing Notice Exhibit C - Continuation/Conversion Notice Exhibit D - Certificate Accompanying Financial Statements Exhibit E - Opinion of Counsel for Restricted Persons Exhibit F - Assignment and Acceptance Agreement Exhibit G - Letter of Credit Application and Agreement Exhibit H - Competitive Bid Request Exhibit I - Invitation to Bid Exhibit J - Competitive Bid Exhibit K - Competitive Bid Accept/Reject Letter Exhibit L - Competitive Bid Note
iv 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT is made as of December 11, 1998, by and among Devon Energy Corporation, an Oklahoma corporation (herein called "US Borrower"), NationsBank, N.A., individually and as administrative agent (herein called "US Agent") and the undersigned Lenders. In consideration of the mutual covenants and agreements contained herein the parties hereto agree as follows: ARTICLE I - The US Loans Section 1.1. Commitments to Lend; US Notes. (a) Tranche A. Subject to the terms and conditions hereof, each Lender agrees to make loans to US Borrower (herein called such Lender's "Tranche A Loans") upon US Borrower's request from time to time during the US Facility Commitment Period, provided that (i) subject to Sections 3.3, 3.4 and 3.5, all Lenders are requested to make Tranche A Loans of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing, (ii) such Lender's Percentage Share of the US Facility Usage shall never exceed such Lender's Percentage Share of the US Maximum Credit Amount, and (iii) such Lender's Percentage Share of the Tranche A Facility Usage shall never exceed such Lender's Percentage Share of the Tranche A Maximum Credit Amount. The aggregate amount of all Tranche A Loans in any Borrowing must be an integral multiple of US $100,000 which equals or exceeds US $200,000 or must equal the unadvanced portion of the US Maximum Credit Amount. The obligation of US Borrower to repay to each Lender the aggregate amount of all Tranche A Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by a single promissory note (herein called such Lender's "Tranche A Note") made by US Borrower payable to the order of such Lender in the form of Exhibit A-1 with appropriate insertions. The amount of principal owing on any Lender's Tranche A Note at any given time shall be the aggregate amount of all Tranche A Loans theretofore made by such Lender minus all payments of principal theretofore received by such Lender on such Tranche A Note. Interest on each Tranche A Note shall accrue and be due and payable as provided herein and therein. Each Tranche A Note shall be due and payable as provided herein and therein, and shall be due and payable in full on the US Facility Maturity Date. Subject to the terms and conditions hereof, US Borrower may borrow, repay, and reborrow Tranche A Loans under the US Agreement during the US Facility Commitment Period. US Borrower may have no more than ten Borrowings of US Dollar Eurodollar Loans (including Tranche A Loans and Tranche B Loans) outstanding at any time. (b) Tranche B. Subject to the terms and conditions hereof, each Lender agrees to make loans to US Borrower (herein called such Lender's "Tranche B Loans") upon US Borrower's request from time to time during the Tranche B Revolving Period, provided that (i) subject to Sections 3.3, 3.4 and 3.5, all Lenders are requested to make Tranche B Loans of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing, (ii) such Lender's Percentage Share of the US Facility Usage shall never exceed such 1 7 Lender's Percentage Share of the US Maximum Credit Amount, and (iii) such Lender's Percentage Share of the Tranche B Facility Usage shall never exceed such Lender's Percentage Share of the Tranche B Maximum Credit Amount. The aggregate amount of all Tranche B Loans in any Borrowing must be an integral multiple of US $100,000 which equals or exceeds US $200,000 or must equal the unadvanced portion of the US Maximum Credit Amount. The obligation of US Borrower to repay to each Lender the aggregate amount of all Tranche B Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by a single promissory note (herein called such Lender's "Tranche B Note") made by US Borrower payable to the order of such Lender in the form of Exhibit A-2 with appropriate insertions. The amount of principal owing on any Lender's Tranche B Note at any given time shall be the aggregate amount of all Tranche B Loans theretofore made by such Lender minus all payments of principal theretofore received by such Lender on such Tranche B Note. Interest on each Tranche B Note shall accrue and be due and payable as provided herein and therein. Each Tranche B Note shall be due and payable as provided herein and therein, and shall be due and payable in full on the Tranche B Maturity Date. Subject to the terms and conditions hereof, US Borrower may borrow, repay, and reborrow Tranche B Loans under the US Agreement during the Tranche B Revolving Period. US Borrower may have no more than ten Borrowings of US Dollar Eurodollar Loans (including Tranche A Loans and Tranche B Loans) outstanding at any time. (c) Extension of Conversion Date. (i) US Borrower may, at its option and from time to time during the Tranche B Revolving Period, request an offer to extend the Tranche B Revolving Period by delivering to US Agent a Request for an Offer of Extension not more than sixty days prior to the then current Tranche B Conversion Date. US Agent shall forthwith provide a copy of the Request for an Offer of Extension to each of the Lenders. Upon receipt by US Agent from US Borrower of an executed Request for an Offer of Extension, each Lender shall, within thirty days after the date US Agent receives such request from US Borrower, either: (1) notify US Agent of its acceptance of the Request for an Offer of Extension, and the terms and conditions, if any, upon which such Lender is prepared to extend the Tranche B Conversion Date; or (2) notify US Agent that the Request for an Offer of Extension has been denied, such notice to forthwith be forwarded by US Agent to US Borrower to allow US Borrower to seek a replacement lender pursuant to Section 1.1(e) (any Lender giving notice of such denial is herein called a "Non-Accepting Lender"). The failure of a Lender to so notify US Agent within such thirty day period shall be deemed to be notification by such Lender to US Agent that such Lender has denied US Borrower's Request for an Offer of Extension. (ii) Provided that all Lenders provide notice to US Agent under Section 1.1(c)(i) that they accept the Request for an Offer of Extension, or if there are Non- Accepting Lenders, such Lenders shall have been repaid pursuant to Section 1.1(e) or 2 8 replacement lenders shall have become parties hereto pursuant to Section 1.1(e) and shall have accepted the Request for an Offer of Extension, such acceptance having common terms and conditions, US Agent shall deliver to US Borrower an Offer of Extension incorporating the said terms and conditions. Such offer shall be open for acceptance by US Borrower until the fifth Business Day immediately preceding the then current Tranche B Conversion Date. Upon written notice by US Borrower to US Agent accepting an outstanding Offer of Extension and agreeing to the terms and conditions, if any, specified therein (the date of such notice of acceptance in this Section 1.1 being called the "Extension Date"), the Tranche B Conversion Date shall be extended to the date 364 days from the Extension Date and the terms and conditions specified in such Offer of Extension shall be immediately effective. (iii) US Borrower understands that the consideration of any Request for an Offer of Extension constitutes an independent credit decision which each Lender retains the absolute and unfettered discretion to make and that no commitment in this regard is hereby given by a Lender and that any offer to extend the Tranche B Conversion Date may be on such terms and conditions in addition to those set out herein as the extending Lenders stipulate. (d) Conversion to Tranche B Term Loan. Effective at 11:59 p.m. Dallas, Texas time on the day immediately preceding the Tranche B Conversion Date, (i) each Lender's obligation to make new Tranche B Loans shall be canceled automatically, and (ii) each Lender's Tranche B Loans shall become term loans maturing on the Tranche B Maturity Date. (e) Non-Accepting Lender. Provided that Lenders whose Percentage Shares represent more than 50% but less than 100% of the US Maximum Credit Amount provide notice to US Agent under Section 1.1(c)(i) that they accept the Request for an Offer of Extension, on notice of US Borrower to US Agent, US Borrower shall be entitled to choose any of the following in respect of each Non-Accepting Lender prior to the expiration of the Tranche B Revolving Period, provided that if US Borrower does not make an election prior to the expiration of the Tranche B Revolving Period, US Borrower shall be deemed to have irrevocably elected to exercise the provisions of Section 1.1(e)(i): (i) the Non-Accepting Lender's obligations to make US Loans shall be canceled as of the Extension Date, the US Maximum Credit Amount shall be reduced by the amount so canceled, and on or prior to the Extension Date the US Borrower shall repay in full all Obligations then outstanding to the Non-Accepting Lender (as defined in Section 1.1(c)(i)(2)), or (ii) replace the Non-Accepting Lender by reaching satisfactory arrangements with one or more existing Lenders or new Lenders, for the purchase, assignment and assumption of all Canadian Obligations and US Obligations of the Non-Accepting Lender, provided that any new Lender, with, if necessary, any Affiliate, shall take a pro rata assignment of both Canadian Obligations and US Obligations, and such Non- 3 9 Accepting Lender shall be obligated to sell such Obligations in accordance with such satisfactory arrangements. In connection with any such replacement of a Lender Party pursuant to this Section 1.1(e), US Borrower shall pay all costs that would have been due to such Lender Party pursuant to Section 3.6 if such Lender Party's US Loans had been prepaid at the time of such replacement. Section 1.2. Requests for New US Loans. US Borrower must give to US Agent written notice (or telephonic notice promptly confirmed in writing) of any requested Borrowing of new US Loans to be advanced by Lenders. Each such notice constitutes a "Borrowing Notice" hereunder and must: (a) specify the aggregate amount of any such Borrowing of new US Base Rate Loans and the date on which such US Base Rate Loans are to be advanced, or the aggregate amount of any such Borrowing of new US Dollar Eurodollar Loans, the date on which such US Dollar Eurodollar Loans are to be advanced (which shall be the first day of the Eurodollar Interest Period which is to apply thereto), and the length of the applicable Eurodollar Interest Period; and (b) be received by US Agent not later than 11:00 a.m., Dallas, Texas time, on the day on which any such US Base Rate Loans are to be made, or the second Business Day preceding the day on which any such US Dollar Eurodollar Loans are to be made. Each such written request or confirmation must be made in the form and substance of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each such telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by US Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Borrowing Notice, US Agent shall give each Lender notice of the terms thereof not later than 2:00 p.m., Dallas, Texas time on the day it receives such Borrowing Notice from US Borrower if it receives such Borrowing Notice by 11:00 a.m., Dallas, Texas time, otherwise on the next Business Day. If all conditions precedent to such new US Loans have been met, each Lender will on the date requested promptly remit to US Agent at US Agent's office in Dallas, Texas the amount of such Lender's new US Loan in immediately available funds, and upon receipt of such funds, unless to its actual knowledge any conditions precedent to such US Loans have been neither met nor waived as provided herein, US Agent shall promptly make such US Loans available to US Borrower. Unless US Agent shall have received prompt notice from a Lender that such Lender will not make available to US Agent such Lender's new US Loan, US Agent may in its discretion assume that such Lender has made such US Loan available to US Agent in accordance with this section and US Agent may if it chooses, in reliance upon such assumption, make such US Loan available to US Borrower. If and to the extent such Lender shall not so make its new US Loan available to US Agent, such Lender and US Borrower severally agree to pay or repay to US Agent within three days after demand the amount of such US Loan together with interest thereon, for each day from the date such amount was made available to US Borrower until the date such amount is paid or repaid to US Agent, with interest at (1) the Federal Funds Rate, if such Lender is making such payment; provided that US Agent gave notice of the terms of the Borrowing Notice to such Lender in accordance with the terms of 4 10 this Section 1.2, and (2) the interest rate applicable at the time to the other new US Loans made on such date, if US Borrower is making such repayment. If neither such Lender nor US Borrower pays or repays to US Agent such amount within such three-day period, US Agent shall in addition to such amount be entitled to recover from such Lender and from US Borrower, on demand, interest thereon at the Default Rate for US Base Rate Loans, calculated from the date such amount was made available to US Borrower. The failure of any Lender to make any new US Loan to be made by it hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its new US Loan, but no Lender shall be responsible for the failure of any other Lender to make any new US Loan to be made by such other Lender. Section 1.3. Continuations and Conversions of Existing US Loans. US Borrower may make the following elections with respect to US Loans already outstanding under this Agreement: to convert US Base Rate Loans to US Dollar Eurodollar Loans, to convert US Dollar Eurodollar Loans to US Base Rate Loans on the last day of the Eurodollar Interest Period applicable thereto, and to continue US Dollar Eurodollar Loans beyond the expiration of such Eurodollar Interest Period by designating a new Eurodollar Interest Period to take effect at the time of such expiration. In making such elections, US Borrower may combine existing Tranche A Loans made pursuant to separate Borrowings into one new Borrowing or divide existing Tranche A Loans made pursuant to one Borrowing into separate new Borrowings, or combine existing Tranche B Loans made pursuant to separate Borrowings into one new Borrowing or divide existing Tranche B Loans made pursuant to one Borrowing into separate new Borrowings, provided that US Borrower may have no more than ten Borrowings of US Dollar Eurodollar Loans outstanding at any time. To make any such election, US Borrower must give to US Agent written notice (or telephonic notice promptly confirmed in writing) of any such Conversion or Continuation of existing US Loans, with a separate notice given for each new Borrowing. Each such notice constitutes a "Continuation/Conversion Notice" hereunder and must: (a) specify the existing US Loans made under this Agreement which are to be continued or converted and whether such US Loans are Tranche A Loans or Tranche B Loans; (b) specify the aggregate amount of any Borrowing of US Base Rate Loans into which such existing US Loans are to be continued or converted and the date on which such Continuation or Conversion is to occur, or the aggregate amount of any Borrowing of US Dollar Eurodollar Loans into which such existing US Dollar Eurodollar Loans are to be continued or converted, the date on which such Continuation or Conversion is to occur (which shall be the first day of the Eurodollar Interest Period which is to apply to such US Dollar Eurodollar Loans), and the length of the applicable Eurodollar Interest Period; and (c) be received by US Agent not later than 10:00 a.m., Dallas, Texas time, on the day on which any such Continuation or Conversion to US Base Rate Loans is to occur, or the second Business Day preceding the day on which any such Continuation or Conversion to US Dollar Eurodollar Loans is to occur. Each such written request or confirmation must be made in the form and substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly completed. Each such 5 11 telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by US Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Continuation/Conversion Notice, US Agent shall give each Lender prompt notice of the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and binding on US Borrower. During the continuance of any Default, US Borrower may not make any election to convert existing US Loans made under this Agreement into US Dollar Eurodollar Loans or continue existing US Loans made under this Agreement as US Dollar Eurodollar Loans. If (due to the existence of a Default or for any other reason) US Borrower fails to timely and properly give any Continuation/Conversion Notice with respect to a Borrowing of existing US Dollar Eurodollar Loans at least two Business Days prior to the end of the Eurodollar Interest Period applicable thereto, such US Dollar Eurodollar Loans shall automatically be converted into US Base Rate Loans at the end of such Eurodollar Interest Period. No new funds shall be repaid by US Borrower or advanced by any Lender in connection with any Continuation or Conversion of existing US Loans pursuant to this section, and no such Continuation or Conversion shall be deemed to be a new advance of funds for any purpose; such Continuations and Conversions merely constitute a change in the interest rate applicable to already outstanding US Loans. Section 1.4. Use of Proceeds. US Borrower shall use all US Loans made under this Agreement to pay in full on the Closing Date all indebtedness outstanding under the Existing Agreement and thereafter to refinance existing indebtedness (including any commercial paper issued by or for the account of US Borrower), to finance capital expenditures, to refinance Matured US LC Obligations outstanding under this Agreement, and provide working capital for its operations and for other general business purposes. US Borrower shall use all Letters of Credit for its general corporate purposes. In no event shall the funds from any US Loan or any Letter of Credit be used directly or indirectly by any Person for personal, family, household or agricultural purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock. US Borrower represents and warrants that US Borrower is not engaged principally, or as one of US Borrower's important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock. Section 1.5. Interest Rates and Fees. (a) Tranche A Loans. The following interest and fees shall be payable with respect to Tranche A Loans: (i) Interest. Each Tranche A Loan that is a US Base Rate Loan shall bear interest on each day outstanding at the US Base Rate in effect on such day. Each Tranche A Loan that is a US Dollar Eurodollar Loan shall bear interest on each day during the related Eurodollar Interest Period at the related Adjusted US Dollar Eurodollar Rate in effect on such day. 6 12 (ii) Facility Fees. In consideration of each Lender's commitment to make Tranche A Loans under this Agreement, US Borrower will pay to US Agent for the account of each Lender a facility fee determined on a daily basis by applying the Facility Fee Rate to such Lender's Percentage Share of the Tranche A Maximum Credit Amount on each day during the US Facility Commitment Period. This facility fee shall be due and payable in arrears on the last day of each Fiscal Quarter and at the end of the US Facility Commitment Period. (b) Tranche B Loans. The following interest and fees shall be payable with respect to Tranche B Loans: (i) Interest. Each Tranche B Loan that is a US Base Rate Loan shall bear interest on each day outstanding at the US Base Rate in effect on such day. Each Tranche B Loan that is a US Dollar Eurodollar Loan shall bear interest on each day during the related Eurodollar Interest Period at the related Adjusted US Dollar Eurodollar Rate in effect on such day. (ii) Facility Fees. In consideration of each Lender's commitment to make Tranche B Loans under this Agreement, US Borrower will pay to US Agent for the account of each Lender a facility fee determined on a daily basis by applying the Tranche B Facility Fee Rate to such Lender's Percentage Share of the Tranche B Maximum Credit Amount on each day during the period from the date hereof until the Tranche B Maturity Date. This facility fee shall be due and payable in arrears on the last day of each Fiscal Quarter and on the Tranche B Maturity Date. (c) Utilization Fees. In consideration of each Lender's commitment to make US Loans under this Agreement, US Borrower will pay to US Agent for the account of each Lender a utilization fee for each day during the US Facility Commitment Period that the US Facility Usage exceeds fifty percent (50%) of the US Maximum Credit Amount. The amount of the utilization fee shall be determined on a daily basis by applying a rate of 15 Basis Points per annum to such Lender's Percentage Share of the US Facility Usage on each such day. This utilization fee shall be due and payable in arrears on each Interest Payment Date for US Base Rate Loans and at the end of the US Facility Commitment Period. (d) Competitive Bid Loans. Each Competitive Bid Loan shall bear interest on each day outstanding at the Competitive Bid Rate for such Competitive Bid Loan. (e) All US Loans. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing, all US Loans shall bear interest on each day outstanding at the applicable Default Rate. Past due payments of principal and interest shall bear interest at the rates and in the manner set forth in the US Notes. (f) US Agent's Fees. In addition to all other amounts due to US Agent under the US Loan Documents, US Borrower will pay fees to US Agent as described in a letter agreement dated September 30, 1998 between US Agent and US Borrower. 7 13 Section 1.6. Prepayments. (a) Optional Prepayments. US Borrower may, upon giving notice to US Agent by 11:00 a.m., Dallas, Texas time on the Business Day of prepayment, from time to time and without premium or penalty prepay the US Notes, including Competitive Bid Notes, in whole or in part, so long as all partial prepayments of principal concurrently paid on the US Notes are in increments of US $100,000 and in an aggregate amount greater than or equal to US $200,000, and so long as US Borrower pays all amounts owing in connection with the prepayment of any US Dollar Eurodollar Loan owing under Section 3.6. US Agent shall give each Lender notice thereof by 2:00 p.m. Dallas, Texas time on the date such notice is received from US Borrower. Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the US Loan Documents at the time of such prepayment. Unless otherwise designated by US Borrower, any prepayment of Competitive Bid Loans shall be applied to the outstanding Competitive Bid Loans in order of shortest maturity. (b) Mandatory Prepayments of Tranche A Loans. If the Tranche A Facility Usage exceeds the Tranche A Maximum Credit Amount, US Borrower shall immediately prepay the principal of the Tranche A Loans in an amount at least equal to such excess. (c) Mandatory Prepayments of Tranche B Loans. If the aggregate amount of the outstanding Tranche B Loans ever exceeds the Tranche B Maximum Credit Amount, US Borrower shall immediately prepay the principal of the Tranche B Loans in an amount at least equal to such excess. (d) Procedures. Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the US Loan Documents at the time of such prepayment. Section 1.7. Competitive Bid Loans. (a) US Borrower may request that each Lender submit Competitive Bids (on a several basis) to US Borrower on any Business Day during the US Facility Commitment Period, provided that all Lenders are requested to make a Competitive Bid on the same basis at the same time. In order to request Competitive Bids, US Borrower shall deliver by hand or facsimile to US Agent a Competitive Bid Request, to be received by US Agent not later than 9:00 a.m., Dallas, Texas time one Business Day before the date specified for a proposed Competitive Bid Loan. A Competitive Bid Request that does not conform substantially to the format of Exhibit H may be rejected in US Agent's sole discretion, and US Agent shall promptly notify US Borrower of such rejection by facsimile. After receiving an acceptable Competitive Bid Request, US Agent shall no later than 12:00 noon, Dallas, Texas time on the date such Competitive Bid 8 14 Request is received by US Agent, by facsimile deliver to Lenders an Invitation to Bid substantially in the form of Exhibit I with respect thereto. (b) Each Lender may, in its sole discretion, make one or more Competitive Bids to US Agent responsive to each Competitive Bid Request given by US Borrower. Each Competitive Bid by a Lender must be received by US Agent by facsimile not later than 9:00 a.m., Dallas, Texas time on the date specified for a proposed Competitive Bid Loan. Multiple bids may be accepted by US Agent. Competitive Bids that do not conform substantially to the format of Exhibit J may be rejected by US Agent after conferring with, and upon the instruction of, US Borrower, and US Agent shall notify the bidding Lender of such rejection as soon as practicable. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify US Agent by facsimile not later than 9:00 a.m., Dallas, Texas time, on the date specified for a Competitive Bid Loan; provided, however, that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Loan and by such failure such Lender shall be deemed to have rejected such Competitive Bid. A Competitive Bid submitted by a Lender shall be irrevocable. (c) Promptly, and in no event later than 9:30 a.m., Dallas, Texas time, on the date specified for a proposed Competitive Bid Loan, US Agent shall notify US Borrower by facsimile of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Bid Loan in respect of which a Competitive Bid was made, and the identity of each Lender that made each Competitive Bid. US Agent shall send a copy of all Competitive Bids to US Borrower for its records as soon as practicable after completion of the bidding process. (d) US Borrower may, subject only to the provisions hereof, accept or reject any Competitive Bid. US Borrower shall notify US Agent by facsimile pursuant to a Competitive Bid Accept/Reject Letter whether and to what extent US Borrower has decided to accept or reject any or all of the Competitive Bids, not later than 10:00 a.m., Dallas, Texas time, on the date specified for a proposed Competitive Bid Loan; provided, however, that: (i) the failure by US Borrower to accept or reject any Competitive Bid within the time period specified herein shall be deemed to be a rejection of such Competitive Bid, (ii) the aggregate amount of the Competitive Bids accepted by US Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iii) the aggregate amount of all outstanding US Loans and US LC Obligations shall never exceed the US Maximum Credit Amount, (iv) if US Borrower shall accept a Competitive Bid or Competitive Bids made at a particular Competitive Bid Rate, but the amount of such Competitive Bid or Competitive Bids shall cause the total amount of Competitive Bids to be accepted by US Borrower to exceed the amount specified in the Competitive Bid Request, then US Borrower shall accept a portion of such Competitive Bid or Competitive Bids in an 9 15 amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate, and (v) no Competitive Bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of US $5,000,000 or a higher integral multiple thereof; provided, however, that if a Competitive Bid Loan must be in an amount less than US $5,000,000 because of the provisions of clause (iv) above, such Competitive Bid Loan may be for a minimum of US $1,000,000 or any higher integral multiple thereof, and in calculating the pro rata allocation of acceptances or portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv), the amounts shall be rounded to integral multiples of US $1,000,000 in a manner which shall be in the sole and absolute discretion of US Borrower. (e) Promptly on each date US Borrower accepts a Competitive Bid, US Agent shall notify each Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by facsimile transmission sent by US Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Bid Loan in respect of which its Competitive Bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, US Agent shall notify each Lender of the aggregate principal amount of all Competitive Bids accepted. Each Lender which is to make a Competitive Bid Loan shall, before 11:00 a.m., Dallas, Texas time, on the borrowing date specified in the Competitive Bid Request applicable thereto, make available to US Agent in immediately available funds the amount of each Competitive Bid Loan to be made by such Lender, and US Agent shall promptly deposit such funds to an account designated by US Borrower. As soon as practicable thereafter, US Agent shall notify each Lender of the aggregate amount of Competitive Bid Loans advanced, the respective Competitive Bid Interest Periods thereof and Competitive Bid Rate applicable thereto. (f) The obligation of US Borrower to repay to each Lender the aggregate amount of all Competitive Bid Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by promissory notes (respectively, such Lender's "Competitive Bid Note") made by US Borrower payable to the order of such Lender in the form of Exhibit L, with appropriate insertions. The amount of principal owing on any Lender's Competitive Bid Note at any given time shall be the aggregate amount of all Competitive Bid Loans theretofore made by such Lender thereunder minus all payments of principal theretofore received by such Lender thereon. Interest on each Competitive Bid Note shall accrue and be due and payable as provided herein and therein. US Borrower shall repay on the final day of the Competitive Bid Interest Period of each Competitive Bid Loan (such date being that specified by US Borrower for repayment of such Competitive Bid Loan in the related Competitive Bid Request and such date being no later than six months after the date of the Competitive Bid Loan) the then unpaid principal amount of such Competitive Bid Loan. Subject to Section 1.6 and the payment of 10 16 amounts described in Section 3.6, US Borrower shall have the right to prepay any principal amount of any Competitive Bid Loan. (g) No Competitive Bid Loan shall be made within five Business Days after the date of any other Competitive Bid Loan, unless US Borrower and US Agent shall mutually agree otherwise. If US Agent shall at any time elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to US Borrower requesting such Competitive Bid one quarter of an hour earlier than the latest time at which the other Lenders are required to submit their bids to US Agent. ARTICLE II - Letters of Credit Section 2.1. Letters of Credit. Subject to the terms and conditions hereof, US Borrower may during the US Facility Commitment Period request US LC Issuer to issue one or more Letters of Credit, provided that, after taking such Letter of Credit into account: (a) the Tranche A Facility Usage does not exceed the Tranche A Maximum Credit Amount at such time; (b) the aggregate amount of US LC Obligations arising from Letters of Credit issued under this Agreement at such time does not exceed the US LC Sublimit; (c) the expiration date of such Letter of Credit is prior to the end of the US Facility Commitment Period; (d) such Letter of Credit is to be used for general corporate purposes of US Borrower; (e) such Letter of Credit is not directly or indirectly used to assure payment of or otherwise support any Indebtedness of any Person other than Indebtedness of any Restricted Person permitted by this Agreement; (f) the issuance of such Letter of Credit will be in compliance with all applicable governmental restrictions, policies, and guidelines and will not subject US LC Issuer to any cost which is not reimbursable under Article III; (g) the form and terms of such Letter of Credit are acceptable to US LC Issuer in its reasonable discretion; and (h) all other conditions in this Agreement to the issuance of such Letter of Credit have been satisfied. US LC Issuer will honor any such request if the foregoing conditions (a) through (h) (in the following Section 2.2 called the "LC Conditions") have been met as of the date of issuance of such Letter of Credit. US LC Issuer may choose to honor any such request for any other Letter of 11 17 Credit but has no obligation to do so and may refuse to issue any other requested Letter of Credit for any reason which US LC Issuer in its sole discretion deems relevant. Upon the execution and delivery of this Agreement by each of the parties hereto, any letters of credit issued under the Existing Agreement and outstanding as of the date hereof shall be deemed Letters of Credit issued hereunder as of the date hereof and shall be subject to the terms and conditions hereof, including without limitation US Borrower's reimbursement obligations under Section 2.3 and Lenders' participation obligations under Section 2.3. Section 2.2. Requesting Letters of Credit. US Borrower must make written application for any Letter of Credit at least three Business Days before the date on which US Borrower desires for US LC Issuer to issue such Letter of Credit. By making any such written application US Borrower shall be deemed to have represented and warranted that the LC Conditions described in Section 2.1 will be met as of the date of issuance of such Letter of Credit. Each such written application for a Letter of Credit must be made in writing in the form and substance of Exhibit G, the terms and provisions of which are hereby incorporated herein by reference (or in such other form as may mutually be agreed upon by US LC Issuer and US Borrower). Two Business Days after the LC Conditions for a Letter of Credit have been met as described in Section 2.1 (or if US LC Issuer otherwise desires to issue such Letter of Credit), US LC Issuer will issue such Letter of Credit at US LC Issuer's office in Dallas, Texas. If any provisions of any LC Application conflict with any provisions of this Agreement, the provisions of this Agreement shall govern and control. Section 2.3. Reimbursement and Participations. (a) Reimbursement by US Borrower. If the beneficiary of any Letter of Credit issued hereunder makes a draft or other demand for payment thereunder then Tranche A Loans that are US Base Rate Loans shall be made by Lenders to US Borrower in the amount of such draft or demand notwithstanding the fact that one or more conditions precedent to the making of such US Base Rate Loans may not have been satisfied. Such US Base Rate Loans shall be made concurrently with US LC Issuer's payment of such draft or demand without any request therefor by US Borrower and shall be immediately used by US LC Issuer to repay the amount of the resulting Matured US LC Obligation. (b) Participation by Lenders. US LC Issuer irrevocably agrees to grant and hereby grants to each Lender, and to induce US LC Issuer to issue Letters of Credit hereunder, each Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from US LC Issuer, on the terms and conditions hereinafter stated and for such Lender's own account and risk, an undivided interest equal to such Lender's Percentage Share of US LC Issuer's obligations and rights under each Letter of Credit issued hereunder and the amount of each Matured US LC Obligation paid by US LC Issuer thereunder. Each Lender unconditionally and irrevocably agrees with US LC Issuer that, if a Matured US LC Obligation is paid under any Letter of Credit issued hereunder for which US LC Issuer is not reimbursed in full, whether pursuant to Section 2.3(a) above or otherwise, such Lender shall (in all circumstances and without set-off or counterclaim) pay to US LC Issuer on demand, in immediately available funds at US LC Issuer's address for notices hereunder, such Lender's Percentage Share of such Matured US LC 12 18 Obligation (or any portion thereof which has not been reimbursed by US Borrower). Each Lender's obligation to pay US LC Issuer pursuant to the terms of this subsection is irrevocable and unconditional. If any amount required to be paid by any Lender to US LC Issuer pursuant to this subsection is paid by such Lender to US LC Issuer within three Business Days after the date such payment is due, US LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Federal Funds Rate. If any amount required to be paid by any Lender to US LC Issuer pursuant to this subsection is not paid by such Lender to US LC Issuer within three Business Days after the date such payment is due, US LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Default Rate. (c) Distributions to Participants. Whenever US LC Issuer has in accordance with this section received from any Lender payment of such Lender's Percentage Share of any Matured US LC Obligation, if US LC Issuer thereafter receives any payment of such Matured US LC Obligation or any payment of interest thereon (whether directly from US Borrower or by application of LC Collateral or otherwise, and excluding only interest for any period prior to US LC Issuer's demand that such Lender make such payment of its Percentage Share), US LC Issuer will distribute to such Lender its Percentage Share of the amounts so received by US LC Issuer; provided, however, that if any such payment received by US LC Issuer must thereafter be returned by US LC Issuer, such Lender shall return to US LC Issuer the portion thereof which US LC Issuer has previously distributed to it. (d) Calculations. A written advice setting forth in reasonable detail the amounts owing under this section, submitted by US LC Issuer to US Borrower or any Lender from time to time, shall be conclusive, absent manifest error, as to the amounts thereof. Section 2.4. Letter of Credit Fees. In consideration of US LC Issuer's issuance of any Letter of Credit, US Borrower agrees to pay (a) to US LC Issuer for its own account, a letter of credit fronting fee at a rate equal to 12.5 Basis Points multiplied by the face amount of such Letter of Credit, payable on the date of issuance, and (b) to US Agent, for the account of all Lenders in accordance with their respective Percentage Shares, a letter of credit issuance fee calculated by applying the Applicable Margin to the face amount of all Letters of Credit outstanding on each day, payable in arrears on the last day of each Fiscal Quarter. Section 2.5. No Duty to Inquire. (a) Drafts and Demands. US LC Issuer is authorized and instructed to accept and pay drafts and demands for payment under any Letter of Credit without requiring, and without responsibility for, any determination as to the existence of any event giving rise to said draft, either at the time of acceptance or payment or thereafter. US LC Issuer is under no duty to determine the proper identity of anyone presenting such a draft or making such a demand (whether by tested telex or otherwise) as the officer, representative or agent of any beneficiary under any Letter of Credit, and payment by US LC Issuer to any such beneficiary when requested by any such purported officer, representative or agent is hereby authorized and approved. US BORROWER RELEASES EACH LENDER PARTY FROM, AND AGREES TO HOLD EACH LENDER PARTY HARMLESS 13 19 AND INDEMNIFIED AGAINST, ANY LIABILITY OR CLAIM IN CONNECTION WITH OR ARISING OUT OF THE SUBJECT MATTER OF THIS SECTIOn, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. (b) Extension of Maturity. If the maturity of any Letter of Credit is extended by its terms or by Law or governmental action, if any extension of the maturity or time for presentation of drafts or any other modification of the terms of any Letter of Credit is made at the request of any Restricted Person, or if the amount of any Letter of Credit is increased at the request of any Restricted Person, this Agreement shall be binding upon all Restricted Persons with respect to such Letter of Credit as so extended, increased or otherwise modified, with respect to drafts and property covered thereby, and with respect to any action taken by US LC Issuer, US LC Issuer's correspondents, or any Lender Party in accordance with such extension, increase or other modification. (c) Transferees of Letters of Credit. If any Letter of Credit provides that it is transferable, US LC Issuer shall have no duty to determine the proper identity of anyone appearing as transferee of such Letter of Credit, nor shall US LC Issuer be charged with responsibility of any nature or character for the validity or correctness of any transfer or successive transfers, and payment by US LC Issuer to any purported transferee or transferees as determined by US LC Issuer is hereby authorized and approved, and US BORROWER RELEASES EACH LENDER PARTY FROM, AND AGREES TO HOLD EACH LENDER PARTY HARMLESS AND INDEMNIFIED AGAINST, ANY LIABILITY OR CLAIM IN CONNECTION WITH OR ARISING OUT OF THE FOREGOING, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. Section 2.6. LC Collateral. (a) US LC Obligations in Excess of US Maximum Credit Amount. If, after the making of all mandatory prepayments required under Section 1.6(b), the US LC Obligations outstanding under the US Agreement will exceed the Tranche A Maximum Credit Amount, then in addition to prepayment of the entire principal balance of the US Loans US Borrower will immediately pay to US LC Issuer an amount equal to such excess. US LC Issuer will hold such amount as security for the remaining US LC Obligations outstanding under the US Agreement (all such amounts held as security for US LC Obligations being herein collectively called "LC Collateral") and the other US Obligations, and such collateral may be applied from time to time 14 20 to any Matured US LC Obligations or other US Obligations which are due and payable. Neither this subsection nor the following subsection shall, however, limit or impair any rights which US LC Issuer may have under any other document or agreement relating to any Letter of Credit, LC Collateral or US LC Obligation, including any LC Application, or any rights which any Lender Party may have to otherwise apply any payments by US Borrower and any LC Collateral under Section 3.1. (b) Acceleration of US LC Obligations. If the US Obligations or any part thereof become immediately due and payable pursuant to Section 8.1 then, unless Required Lenders otherwise specifically elect to the contrary (which election may thereafter be retracted by Required Lenders at any time), all US LC Obligations shall become immediately due and payable without regard to whether or not actual drawings or payments on the Letters of Credit have occurred, and US Borrower shall be obligated to pay to US LC Issuer immediately an amount equal to the aggregate US LC Obligations which are then outstanding. (c) Investment of LC Collateral. Pending application thereof, all LC Collateral shall be invested by US LC Issuer in such Investments as US LC Issuer may choose in its sole discretion. All interest on (and other proceeds of) such Investments shall be reinvested or applied to Matured US LC Obligations or other US Obligations which are due and payable. When all US Obligations have been satisfied in full, including all US LC Obligations, all Letters of Credit have expired or been terminated, and all of US Borrower's reimbursement obligations in connection therewith have been satisfied in full, US LC Issuer shall release any remaining LC Collateral. US Borrower hereby assigns and grants to US LC Issuer a continuing security interest in all LC Collateral paid by it to US LC Issuer, all Investments purchased with such LC Collateral, and all proceeds thereof to secure its Matured US LC Obligations and the other US Obligations hereunder, each US Note, and the other US Loan Documents. US Borrower further agrees that US LC Issuer shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as adopted in the State of Texas with respect to such security interest and that an Event of Default under this Agreement shall constitute a default for purposes of such security interest. When US Borrower is required to provide LC Collateral for any reason and fails to do so on the day when required, US LC Issuer may without notice to US Borrower or any other Restricted Person provide such LC Collateral (whether by transfers from other accounts maintained with US LC Issuer, or otherwise) using any available funds of US Borrower or any other Person also liable to make such payments. ARTICLE III - Payments to Lenders Section 3.1. General Procedures. US Borrower will make each payment which it owes under the US Loan Documents to US Agent for the account of the Lender Party to whom such payment is owed, in lawful money of the United States of America, without set-off, deduction or counterclaim, and in immediately available funds. Each such payment must be received by US Agent not later than 11:00 a.m., Dallas, Texas time, on the date such payment becomes due and payable. Any payment received by US Agent after such time will be deemed to have been made on the next following Business Day. Should any such payment become due and payable on a day 15 21 other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue and be payable thereon for the period of such extension as provided in the US Loan Document under which such payment is due. Each payment under a US Loan Document shall be due and payable at the place provided therein and, if no specific place of payment is provided, shall be due and payable at the place of payment of US Agent's US Note. When US Agent collects or receives money on account of the US Obligations, US Agent shall distribute all money so collected or received by 2:00 p.m. Dallas, Texas time on the Business Day received, if received by 11:00 a.m. Dallas, Texas time, otherwise on the day of deemed receipt, and each Lender Party shall apply all such money so distributed, as follows: (a) first, for the payment of all US Obligations which are then due (and if such money is insufficient to pay all such US Obligations, first to any reimbursements due US Agent under Section 6.9 or 10.4, then to any reimbursement due any other Lender Party under Section 10.4, and then to the partial payment of all other US Obligations then due in proportion to the amounts thereof, or as Lender Parties shall otherwise agree); (b) then for the prepayment of amounts owing under the US Loan Documents (other than principal on the US Notes) if so specified by US Borrower; (c) then for the prepayment of principal on the US Notes, together with accrued and unpaid interest on the principal so prepaid; and (d) last, for the payment or prepayment of any other US Obligations. All payments applied to principal or interest on any US Note shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and interest in compliance with Sections 1.6 and 2.1. All distributions of amounts described in any of subsections (b), (c) or (d) above shall be made by US Agent pro rata to each Lender Party then owed US Obligations described in such subsection in proportion to all amounts owed to all Lender Parties which are described in such subsection; provided that if any Lender then owes payments to US LC Issuer for the purchase of a participation under Section 2.3(b) or to US Agent under Section 9.9, any amounts otherwise distributable under this section to such Lender shall be deemed to belong to US LC Issuer, or US Agent, respectively, to the extent of such unpaid payments, and US Agent shall apply such amounts to make such unpaid payments rather than distribute such amounts to such Lender. Section 3.2. Increased Cost and Reduced Return. (a) If, after the date hereof, the adoption of any applicable Law, rule, or regulation, or any change in any applicable Law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender Party (or its Applicable Lending Office) with any request or directive (whether or not having the force of Law) of any such Governmental Authority, central bank, or comparable agency: 16 22 (i) shall subject such Lender Party (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any US Dollar Eurodollar Loans or Competitive Bid Loans, or its obligation to make US Dollar Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender Party (or its Applicable Lending Office) under this Agreement or its Note in respect of any US Dollar Eurodollar Loans or Competitive Bid Loans (other than taxes (including franchise taxes) imposed on the overall net income of such Lender Party by the jurisdiction in which such Lender Party has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted US Dollar Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender Party (or its Applicable Lending Office), including the commitment of such Lender Party hereunder; or (iii) shall impose on such Lender Party (or its Applicable Lending Office) or the London interbank market any other condition affecting this Agreement or its US Notes or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender Party (or its Applicable Lending Office) of making, converting into, continuing, or maintaining any US Dollar Eurodollar Loans or Competitive Bid Loans or to reduce any sum received or receivable by such Lender Party (or its Applicable Lending Office) under this Agreement or its US Notes with respect to any US Dollar Eurodollar Loans or Competitive Bid Loans, then US Borrower shall pay to such Lender Party on demand such amount or amounts as will compensate such Lender Party for such increased cost or reduction. If any Lender Party requests compensation by US Borrower under this Section 3.2(a), US Borrower may, by notice to such Lender Party (with a copy to US Agent), suspend the obligation of such Lender Party to make or continue US Loans of the Type with respect to which such compensation is requested, or to convert US Loans of any other Type into US Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.5 shall be applicable); provided that such suspension shall not affect the right of such Lender Party to receive the compensation so requested. (b) If, after the date hereof, any Lender Party shall have determined that the adoption of any applicable Law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of Law) of any such Governmental Authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender Party or any corporation controlling such Lender Party as a consequence the obligations of such Lender Party hereunder to a level below that which such Lender Party or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital 17 23 adequacy), then from time to time upon demand US Borrower shall pay such Lender Party such additional amount or amounts as will compensate such Lender Party for such reduction, but only to the extent that such Lender Party has not been compensated therefor by any increase in the Adjusted US Dollar Eurodollar Rate; provided that if such Lender Party fails to give notice to US Borrower of any additional costs within ninety (90) days after it has actual knowledge thereof, such Lender Party shall not be entitled to compensation for such additional costs incurred more than ninety (90) days prior to the date on which notice is given by such Lender Party. (c) US LC Issuer and each Lender Party shall promptly notify US Borrower and US Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle US LC Issuer or such Lender Party to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender Party, be otherwise disadvantageous to it. US LC Issuer or any Lender Party claiming compensation under this Section shall furnish to US Borrower and US Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, US LC Issuer or such Lender Party shall act in good faith and may use any reasonable averaging and attribution methods. Section 3.3. Limitation on Types of US Loans. If on or prior to the first day of any Eurodollar Interest Period for any US Dollar Eurodollar Loan: (a) US Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the US Dollar Eurodollar Rate for such Eurodollar Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify US Agent that the Adjusted US Dollar Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding US Dollar Eurodollar Loans or for such Eurodollar Interest Period; then US Agent shall give US Borrower prompt notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lender Parties shall be under no obligation to make additional US Dollar Eurodollar Loans, continue US Dollar Eurodollar Loans or convert US Base Rate Loans into US Dollar Eurodollar Loans, and US Borrower shall, on the last day(s) of the then current Eurodollar Interest Period(s) for the outstanding US Dollar Eurodollar Loans, either prepay such US Loans or convert such US Loans into US Base Rate Loans in accordance with the terms of this Agreement. Section 3.4. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender Party or its Applicable Lending Office to make, maintain, or fund US Dollar Eurodollar Loans hereunder, then such Lender Party shall promptly notify US Borrower thereof and such Lender Party's obligation to make or continue US Dollar Eurodollar Loans and to convert US Base Rate Loans into US Dollar Eurodollar Loans shall be 18 24 suspended until such time as such Lender Party may again make, maintain, and fund US Dollar Eurodollar Loans (in which case the provisions of Section 3.5 shall be applicable). Section 3.5. Treatment of Affected US Loans. If the obligation of any Lender Party to make a particular Type of Loan or to continue, or to convert US Loans of any other Type into, US Loans of a particular Type shall be suspended pursuant to Sections 3.2, 3.3 or 3.4 hereof (US Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Lender Party's Affected Loans shall be automatically converted into US Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 3.4 hereof, on such earlier date as such Lender Party may specify to US Borrower with a copy to US Agent) and, unless and until such Lender Party gives notice as provided below that the circumstances specified in Sections 3.2, 3.3 or 3.4 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender Party's Affected Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Lender Party's Affected Loans shall be applied instead to its US Base Rate Loans; and (b) all US Loans that would otherwise be made or continued by such Lender Party as US Loans of the Affected Type shall be made or continued instead as US Base Rate Loans, and all US Loans of such Lender Party that would otherwise be converted into US Loans of the Affected Type shall be converted instead into (or shall remain as) US Base Rate Loans. If such Lender Party gives notice to US Borrower (with a copy to US Agent) that the circumstances specified in Section 3.2, 3.3 or 3.4 hereof that gave rise to the Conversion of such Lender Party's Affected Loans pursuant to this Section no longer exist (which such Lender Party agrees to do promptly upon such circumstances ceasing to exist) at a time when US Loans of the Affected Type made by other Lender Parties are outstanding, such Lender Party's US Base Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding US Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all US Loans held by the Lender Parties holding US Loans of the Affected Type and by such Lender Party are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their Percentage Shares of the US Maximum Credit Amount. Section 3.6. Compensation. Upon the request of any Lender Party, US Borrower shall pay to such Lender Party such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender Party) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a US Dollar Eurodollar Loan for any reason (including, without limitation, the acceleration of the US Loans pursuant to Section 8.1) on a date other than the last day of the Interest Period for such US Loan; or (b) any failure by US Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article IV to be satisfied) to borrow, convert, 19 25 continue, or prepay a US Dollar Eurodollar Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. Section 3.7. Change of Applicable Lending Office. Each Lender Party agrees that, upon the occurrence of any event giving rise to the operation of Sections 3.2 through 3.5 with respect to such Lender Party, it will, if requested by US Borrower, use reasonable efforts (subject to overall policy considerations of such Lender Party) to designate another Applicable Lending Office, provided that such designation is made on such terms that such Lender Party and its Applicable Lending Office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such section. Nothing in this section shall affect or postpone any of the obligations of US Borrower or the rights of any Lender Party provided in Sections 3.2 through 3.5. Section 3.8. Replacement of Lenders. If any Lender Party seeks reimbursement for increased costs under Sections 3.2 through 3.5, or if a US Borrower is required to increase any such payment under Section 3.9, then within ninety days thereafter -- provided no Event of Default then exists -- US Borrower shall have the right (unless such Lender Party withdraws its request for additional compensation) to replace such Lender Party by requiring such Lender Party to assign its US Loans, US Notes, US LC Obligations, Canadian Advances, Canadian Notes, Canadian LC Obligations and its commitments hereunder and under the Canadian Agreement to an Eligible Transferee reasonably acceptable to all Borrowers, provided that: (a) all Obligations of Borrowers owing to such Lender Party being replaced (including such increased costs, but excluding principal and accrued interest on the US Notes and the Canadian Notes being assigned) shall be paid in full to such Lender Party concurrently with such assignment, and (b) the replacement Eligible Transferee shall purchase the foregoing by paying to such Lender Party a price equal to the principal amount thereof plus accrued and unpaid interest thereon. In connection with any such assignment US Borrower, US Agent, such Lender Party and the replacement Eligible Transferee shall otherwise comply with Section 10.5. Notwithstanding the foregoing rights of US Borrower under this section, however, US Borrower may not replace any Lender Party which seeks reimbursement for increased costs under Section 3.2 through 3.5 unless US Borrower is at the same time replacing all Lender Parties which are then seeking such compensation. In connection with any such replacement of a Lender Party, US Borrower shall pay all costs that would have been due to such Lender Party pursuant to Section 3.6 if such Lender Party's US Loans had been prepaid at the time of such replacement. Section 3.9. Taxes. (a) Any and all payments by US Borrower to or for the account of any Lender Party, US Agent or US LC Issuer hereunder or under any other US Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender Party, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the Laws of which such Lender Party (or its Applicable Lending Office) is organized or is a resident for tax purposes or any political subdivision thereof (all such NON-EXCLUDED taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter in this section 3.9 referred to as "Taxes"). If US 20 26 Borrower shall be required by Law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other US Loan Document to any Lender Party, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this section) such Lender Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) US Borrower shall make such deductions, and (iii) US Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law. (b) In addition, US Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other US Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other US Loan Document (hereinafter in this Section 3.9 referred to as "Other Taxes"). (c) US Borrower agrees to indemnify each Lender Party, US Agent and US LC Issuer for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this section) paid by such Lender Party or US Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender Party organized under the Laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender Party listed on the signature pages hereof and on or prior to the date on which it becomes a Lender Party in the case of each other Lender Party, and from time to time thereafter if requested in writing by US Borrower or US Agent (but only so long as such Lender Party remains lawfully able to do so), shall provide US Borrower and US Agent with a properly executed (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender Party is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender Party is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other US Loan Documents. (e) For any period with respect to which a Lender Party has failed to provide US Borrower and US Agent with the appropriate form pursuant to Section 3.9(d) (unless such failure is due to a change in treaty, Law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender Party shall not be entitled to indemnification under Sections 3.9(a), 3.9(b) or 3.9(c) with respect to Taxes imposed by the United States; provided, however, that should a Lender Party, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, US Borrower shall take such steps as such Lender Party shall reasonably 21 27 request to assist such Lender Party to recover such Taxes. Further, US Borrower shall not be required to indemnify such Lender Party for any withholding taxes which US Borrower is required to withhold and remit in respect of any principal, interest or other amount paid or payable by US Borrower to or for account of any Lender Party hereunder or under any other US Loan Document. (f) If US Borrower is required to pay additional amounts to or for the account of any Lender Party pursuant to this Section, then such Lender Party will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender Party, is not otherwise disadvantageous to such Lender Party and in the event Lender Party is reimbursed for an amount paid by US Borrower pursuant to this Section, it shall promptly return such amount to US Borrower. (g) Within thirty (30) days after the date of any payment of Taxes, US Borrower shall furnish to US Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of US Borrower hereunder, the agreements and obligations of US Borrower contained in this section shall survive the termination of the US Facility Commitment Period and the payment in full of the US Notes. Section 3.10. Currency Conversion and Currency Indemnity. (a) Restricted Persons shall make payment relative to any US Obligation in the currency (the "Agreed Currency") in which the US Obligation was incurred. If any payment is received on account of any US Obligation in any currency (the "Other Currency") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any security or the liquidation of such Restricted Person or otherwise howsoever), such payment shall constitute a discharge of the liability of a Restricted Person hereunder and under the other US Loan Documents in respect of such US Obligation only to the extent of the amount of the Agreed Currency which the relevant Lender Parties are able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. (b) If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the"Judgment Currency") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the next Business Day following the date such judgment is given and in any event each Restricted Person shall be obligated to pay the Lender Parties any deficiency in accordance with Section 3.10(c). For the foregoing purposes "rate of exchange" means the rate at which the relevant Lender Parties, as applicable, in accordance with their normal banking procedures are able on the relevant date to purchase the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. 22 28 (c) If (i) any Lender Party receives any payment or payments on account of the liability of a Restricted Person hereunder pursuant to any judgment or order in any Other Currency, and (ii) the amount of the Agreed Currency which the relevant Lender Party is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such US Obligations immediately prior to such judgment or order, then US Borrower on demand shall, and US Borrower hereby agrees to, indemnify and save such Lender Party harmless from and against any loss, cost or expense arising out of or in connection with such deficiency. The agreement of indemnity provided for in this Section 3.10(c) shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Lender Parties or any of them 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 hereunder or under any judgment or order. ARTICLE IV - Conditions Precedent to Lending Section 4.1. Documents to be Delivered. No Lender has any obligation to make its first US Loan, and US LC Issuer has no obligation to issue the first Letter of Credit, unless US Agent shall have received all of the following, at US Agent's office in Dallas, Texas, duly executed and delivered and in form, substance and date satisfactory to US Agent: (a) This Agreement and any other documents that Lenders are to execute in connection herewith. (b) Each US Note. (c) Certain certificates of US Borrower including: (i) An "Omnibus Certificate" of the Secretary or Assistant Secretary and of the Chairman of the Board, President, or Vice President - Finance of US Borrower, which shall contain the names and signatures of the officers of US Borrower authorized to execute US Loan Documents and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (1) a copy of resolutions duly adopted by the Board of Directors of US Borrower and in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other US Loan Documents delivered or to be delivered in connection herewith and the consummation of the transactions contemplated herein and therein, (2) a copy of the charter documents of US Borrower and all amendments thereto, certified by the appropriate official of the State of Oklahoma, and (3) a copy of any bylaws of US Borrower; and 23 29 (ii) A "Compliance Certificate" of the Chairman of the Board or President and of the Vice President - Finance of US Borrower, of even date with such US Loan or such Letter of Credit, in which such officers certify to the satisfaction of the conditions set out in subsections (a), (b), and (c) of Section 4.3. (d) certificate (or certificates) of the due formation, valid existence and good standing of US Borrower in the State of Oklahoma, issued by the appropriate official of such State. (e) A favorable opinion of McAfee & Taft, a professional corporation, counsel for Restricted Persons, substantially in the form set forth in Exhibit E and a favorable opinion of Thompson & Knight, P.C. covering the matters requested by US Agent. (f) The Initial Financial Statements. (g) A copy of each Acquisition Document. Section 4.2. Additional Conditions Precedent to First US Loan or First Letter of Credit. No Lender has any obligation to make its first US Loan, and US LC Issuer has no obligation to issue the first Letter of Credit, unless on the date thereof: (a) US Borrower shall have consummated the transactions contemplated under the Acquisition Documents, and acquired, directly or indirectly, one hundred percent (100%) of the outstanding common shares of Northstar Energy. (b) All approvals, if any, required under the Hart-Scott Rodino Antitrust Improvement Act of 1976, as amended, in connection with the transactions contemplated by the Acquisition Documents, shall have been obtained. (c) All commitment, facility, agency, legal and other fees required to be paid or reimbursed to any Lender pursuant to any US Loan Documents or any commitment agreement heretofore entered into shall have been paid. (d) No event which would reasonably be expected to have a Material Adverse Effect shall have occurred since September 30, 1998. (e) US Borrower shall have certified to US Agent and Lenders that the Initial Financial Statements fairly present US Borrower's Consolidated financial position at the respective dates thereof and the Consolidated results of US Borrower's operations and US Borrower's Consolidated cash flows for the respective periods thereof. (f) US Borrower shall have certified to US Agent and Lenders that no Restricted Person has any outstanding Liabilities of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments) which are, in the aggregate, material to US Borrower or material with respect to US Borrower's Consolidated financial 24 30 condition and not shown in the Initial Financial Statements or disclosed in the Disclosure Schedule. (g) All legal matters relating to the US Loan Documents and the consummation of the transactions contemplated thereby shall be satisfactory to Thompson & Knight, a Professional Corporation, counsel to US Agent. Section 4.3. Additional Conditions Precedent to all US Loan and Letters of Credit. No Lender has any obligation to make any US Loan (including its first), and US LC Issuer has no obligation to issue any Letter of Credit (including its first), unless the following conditions precedent have been satisfied: (a) All representations and warranties made by any Restricted Person in any US Loan Document shall be true on and as of the date of such US Loan or the date of issuance of such Letter of Credit (except to the extent that the facts upon which such representations are based have been changed by the extension of credit hereunder) as if such representations and warranties had been made as of the date of such US Loan or the date of issuance of such Letter of Credit. (b) No Default shall exist at the date of such US Loan or the date of issuance of such Letter of Credit. (c) The making of such US Loan or the issuance of such Letter of Credit shall not be prohibited by any Law and shall not subject any Lender or any US LC Issuer to any material penalty under or pursuant to any such Law. ARTICLE V - Representations and Warranties To confirm each Lender's understanding concerning Restricted Persons and Restricted Persons' businesses, properties and obligations and to induce each Lender to enter into this Agreement and to extend credit hereunder, US Borrower represents and warrants to each Lender that: Section 5.1. No Default. No event has occurred and is continuing which constitutes a Default. Section 5.2. Organization and Good Standing. Each Restricted Person is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization, having all powers required to carry on its business and enter into and carry out the transactions contemplated hereby. Each Restricted Person is duly qualified, in good standing, and authorized to do business in all other jurisdictions within the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary except where failure to so qualify would not have a Material Adverse Effect. Each Restricted Person has taken all actions and procedures customarily taken in order to enter, for the purpose of conducting business or owning property, each jurisdiction 25 31 outside the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such actions and procedures desirable except where failure to so qualify would not have a Material Adverse Effect. Section 5.3. Authorization. US Borrower and Canadian Borrowers have duly taken all action necessary to authorize the execution and delivery by it of the Loan Documents to which it is a party and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder. US Borrower is duly authorized to borrow funds hereunder. Section 5.4. No Conflicts or Consents. The execution and delivery by the various Restricted Persons of the Loan Documents to which each is a party, the performance by each of its obligations under such Loan Documents, and the consummation of the transactions contemplated by the various Loan Documents, do not and will not (i) conflict with any provision of (A) any Law, (B) the organizational documents of any Restricted Person, or (C) any agreement, judgment, license, order or permit applicable to or binding upon any Restricted Person unless such conflict would not reasonably be expected to have a Material Adverse Effect, or (ii) result in the acceleration of any Indebtedness owed by any Restricted Person which would reasonably be expected to have a Material Adverse Effect, or (iii) result in or require the creation of any Lien upon any assets or properties of any Restricted Person which would reasonably be expected to have a Material Adverse Effect, except as expressly contemplated or permitted in the Loan Documents. Except as expressly contemplated in the Loan Documents no consent, approval, authorization or order of, and no notice to or filing with, any Tribunal or third party is required in connection with the execution, delivery or performance by any Restricted Person of any Loan Document or to consummate any transactions contemplated by the Loan Documents, unless failure to obtain such consent would not reasonably be expected to have a Material Adverse Effect. Section 5.5. Enforceable Obligations. This Agreement is, and the other Loan Documents when duly executed and delivered will be, legal, valid and binding obligations of each Restricted Person which is a party hereto or thereto, enforceable in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency or similar Laws of general application relating to the enforcement of creditors' rights. Section 5.6. Full Disclosure. No certificate, statement or other information delivered herewith or heretofore by any Restricted Person to any Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact known to any Restricted Person (other than industry-wide risks normally associated with the types of businesses conducted by Restricted Persons) necessary to make the statements contained herein or therein not misleading as of the date made or deemed made. There is no fact known to any Restricted Person (other than industry-wide risks normally associated with the types of businesses conducted by Restricted Persons) that has not been disclosed to each Lender in writing which would reasonably be expected to have a Material Adverse Effect. 26 32 Section 5.7. Litigation. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule: (a) there are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the knowledge of any Restricted Person threatened, against any Restricted Person before any Tribunal which would reasonably be expected to have a Material Adverse Effect, and (b) there are no outstanding judgments, injunctions, writs, rulings or orders by any such Tribunal against any Restricted Person which would reasonably be expected to have a Material Adverse Effect. Section 5.8. ERISA Plans and Liabilities. All currently existing ERISA Plans are listed in the Disclosure Schedule. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule, no Termination Event has occurred with respect to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all material respects. No ERISA Affiliate is required to contribute to, or has any other absolute or contingent liability in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule: (a) no "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code) exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, and (b) the current value of each ERISA Plan's benefits does not exceed the current value of such ERISA Plan's assets available for the payment of such benefits by more than US $25,000,000. Section 5.9. Environmental and Other Laws. Except as disclosed in the Disclosure Schedule: (a) Restricted Persons are conducting their businesses in material compliance with all applicable Laws, including Environmental Laws, and have and are in compliance with all licenses and permits required under any such Laws, unless failure to so comply would not reasonably be expected to have a Material Adverse Effect; (b) none of the operations or properties of any Restricted Person is the subject of federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any Hazardous Materials into the environment or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Materials, unless such remedial action would not reasonably be expected to have a Material Adverse Effect; and (c) no Restricted Person (and to the best knowledge of US Borrower, no other Person) has filed any notice under any Law indicating that any Restricted Person is responsible for the improper release into the environment, or the improper storage or disposal, of any material amount of any Hazardous Materials or that any Hazardous Materials have been improperly released, or are improperly stored or disposed of, upon any property of any Restricted Person, unless such failure to so comply would not reasonably be expected to have a Material Adverse Effect. Section 5.10. Names and Places of Business. No Restricted Person has, during the preceding five years, had, been known by, or used any other trade or fictitious name, except as disclosed in the Disclosure Schedule. Except as otherwise indicated in the Disclosure Schedule, the chief executive office and principal place of business of each Restricted Person are (and for the preceding five years have been) located at the address of US Borrower set out on the signature pages hereto. Except as indicated in the Disclosure Schedule, no Restricted Person has any other office or place of business. 27 33 Section 5.11. US Borrower's Subsidiaries. US Borrower does not presently have any Subsidiary or own any stock in any other corporation or association except those listed in the Disclosure Schedule. Neither US Borrower nor any Restricted Person is a member of any general or limited partnership, limited liability company, joint venture formed under the laws of the United States or any State thereof or association of any type whatsoever except those listed in the Disclosure Schedule and associations, joint ventures or other relationships (a) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (b) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state Law, and (c) whose businesses are limited to the exploration, development and operation of oil, gas or mineral properties, pipelines or gathering systems and interests owned directly by the parties in such associations, joint ventures or relationships. US Borrower owns, directly or indirectly, the equity interest in each of its Subsidiaries which is indicated in the Disclosure Schedule. Section 5.12. Title to Properties; Licenses. Each Restricted Person has good and defensible title to all of its material properties and assets, free and clear of all Liens other than Permitted Liens and of all impediments to the use of such properties and assets in such Restricted Person's business except to the extent failure to have such title would not have a Material Adverse Effect. Each Restricted Person possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, and other intellectual property (or otherwise possesses the right to use such intellectual property without violation of the rights of any other Person) which are necessary to carry out its business as presently conducted and as presently proposed to be conducted hereafter, and no Restricted Person is in violation in any material respect of the terms under which it possesses such intellectual property or the right to use such intellectual property except to the extent failure to possess such licenses, permits, franchises, and intellectual property would not have a Material Adverse Effect. Section 5.13. Government Regulation. Neither US Borrower nor any other Restricted Person owing Obligations is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940 (as any of the preceding acts have been amended) or any other Law which regulates the incurring by such Person of Indebtedness, including Laws relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services. Section 5.14. Insider. Except as disclosed on the Disclosure Schedule, no Restricted Person, nor any Person having "control" (as that term is defined in 12 U.S.C. ss. 375b(9) or in regulations promulgated pursuant thereto) of any Restricted Person, is a "director" or an "executive officer" or "principal shareholder" (as those terms are defined in 12 U.S.C. ss. 375b(8) or (9) or in regulations promulgated pursuant thereto) of any Lender, of a bank holding company of which any Lender is a Subsidiary or of any Subsidiary of a bank holding company of which any Lender is a Subsidiary. Section 5.15. Solvency. Upon giving effect to the issuance of the US Notes, the execution of the US Loan Documents by US Borrower and the consummation of the transactions 28 34 contemplated hereby, US Borrower will be solvent (as such term is used in applicable bankruptcy, liquidation, receivership, insolvency or similar Laws). Section 5.16. Year 2000 Compliance. US Borrower has (a) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by US Borrower and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (b)developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (c) to date, implemented that plan in accordance with that timetable. US Borrower reasonably believes that all computer applications (including those of its suppliers and vendors) that are material to its or any of its Subsidiaries' business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so would not reasonably be expected to have a Material Adverse Effect. ARTICLE VI - Affirmative Covenants of US Borrower To conform with the terms and conditions under which each Lender is willing to have credit outstanding to US Borrower, and to induce each Lender to enter into this Agreement and extend credit hereunder, US Borrower warrants, covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Required Lenders have previously agreed otherwise: Section 6.1. Payment and Performance. US Borrower will pay all amounts due under the US Loan Documents in accordance with the terms thereof and will observe, perform and comply with every covenant, term and condition expressed or implied in the US Loan Documents. US Borrower will cause each other Restricted Person to observe, perform and comply with every such term, covenant and condition in any Loan Document. Section 6.2. Books, Financial Statements and Reports. Each Restricted Person will at all times maintain full and accurate books of account and records. US Borrower will maintain and will cause its Subsidiaries to maintain a standard system of accounting, will maintain its Fiscal Year, and will furnish the following statements and reports to each Lender Party at US Borrower's expense: (a) As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, complete Consolidated financial statements of US Borrower together with all notes thereto, prepared in reasonable detail in accordance with US GAAP, together with an unqualified opinion, based on an audit using generally accepted auditing standards, by KPMG Peat Marwick L.L.P., or other independent certified public accountants selected by US Borrower and acceptable to US Agent, stating that such Consolidated financial statements have been so prepared. These financial statements shall contain a Consolidated balance sheet as of the end of such Fiscal Year and Consolidated statements of earnings, of cash flows, and of changes in 29 35 owners' equity for such Fiscal Year, each setting forth in comparative form the corresponding figures for the preceding Fiscal Year. In addition, within ninety (90) days after the end of each Fiscal Year US Borrower will furnish to US Agent and each Lender a certificate in the form of Exhibit D signed by the President, Vice President - Finance or Controller of US Borrower, stating that such financial statements are accurate and complete, stating that such Person has reviewed the US Loan Documents, containing all calculations required to be made to show compliance or non-compliance with the provisions of Sections 7.8 and 7.9, and further stating that there is no condition or event at the end of such Fiscal Year or at the time of such certificate which constitutes a Default and specifying the nature and period of existence of any such condition or event. (b) As soon as available, and in any event within forty-five (45) days after the end of each Fiscal Quarter, US Borrower's Consolidated and consolidating balance sheet and income statement as of the end of such Fiscal Quarter and a Consolidated statement of cash flows for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and prepared in accordance with US GAAP, subject to changes resulting from normal year-end adjustments. In addition US Borrower will, together with each such set of financial statements, furnish a certificate in the form of Exhibit D signed by the President, Vice President - Finance or Controller of US Borrower stating that such financial statements are accurate and complete (subject to normal year-end adjustments), stating that such Person has reviewed the US Loan Documents, containing all calculations required to be made by US Borrower to show compliance or non-compliance with the provisions of Sections 7.8 and 7.9 and further stating that there is no condition or event at the end of such Fiscal Quarter or at the time of such certificate which constitutes a Default and specifying the nature and period of existence of any such condition or event. (c) Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by any Restricted Person to its stockholders and all registration statements, periodic reports and other statements and schedules filed by any Restricted Person with any securities exchange, the Securities and Exchange Commission or any similar Governmental Authority, including any information or estimates with respect to US Borrower's oil and gas business (including its exploration, development and production activities) which are required to be furnished in US Borrower's annual report pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended. Section 6.3. Other Information and Inspections. Each Restricted Person will furnish to each Lender any information which US Agent may from time to time reasonably request concerning any covenant, provision or condition of the Loan Documents or any matter in connection with Restricted Persons' businesses and operations. Each Restricted Person will permit representatives appointed by US Agent (including independent accountants, auditors, agents, attorneys, appraisers and any other Persons) to visit and inspect upon prior written notice during normal business hours any of such Restricted Person's property, including its books of account, other books and records, and any facilities or other business assets, and to make extra copies therefrom and photocopies and photographs thereof, and to write down and record any information such representatives obtain, and each Restricted Person shall permit US Agent or its 30 36 representatives to investigate and verify the accuracy of the information furnished to US Agent or any Lender in connection with the Loan Documents and to discuss all such matters with its officers, employees and representatives. Section 6.4. Notice of Material Events and Change of Address. US Borrower will promptly notify each Lender in writing, stating that such notice is being given pursuant to this Agreement, of: (a) the occurrence of any event which would have a Material Adverse Effect, (b) the occurrence of any Default, (c) the acceleration of the maturity of any Indebtedness owed by any Restricted Person having a principal balance of more than US $25,000,000, or of any default by any Restricted Person under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such default would have a Material Adverse Effect, (d) the occurrence of any Termination Event, (e) any claim of US $25,000,000 or more, any notice of potential liability under any Environmental Laws which might exceed such amount, or any other material adverse claim asserted against any Restricted Person or with respect to any Restricted Person's properties, and (f) the filing of any suit or proceeding against any Restricted Person in which an adverse decision would have a Material Adverse Effect. US Borrower will also notify US Agent and US Agent's counsel in writing promptly in the event that any Restricted Person changes its name or the location of its chief executive office. Section 6.5. Maintenance of Properties. Each Restricted Person will maintain, preserve, protect, and keep all property used or useful in the conduct of its business in good condition, and will from time to time make all repairs, renewals and replacements needed to enable the business and operations carried on in connection therewith to be promptly and advantageously conducted at all times. Section 6.6. Maintenance of Existence and Qualifications. Each Restricted Person will maintain and preserve its existence and its rights and franchises in full force and effect and will qualify to do business in all states or jurisdictions where required by applicable Law, except where the failure so to qualify will not have a Material Adverse Effect. Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted Person will (a) timely file all required tax returns; (b) timely pay all taxes, assessments, and other governmental charges or levies imposed upon it or upon its income, profits or property; and (c) maintain appropriate accruals and reserves for all of the foregoing in accordance with US 31 37 GAAP. Each Restricted Person may, however, delay paying or discharging any of the foregoing so long as it is in good faith contesting the validity thereof by appropriate proceedings and has set aside on its books adequate reserves therefor. Section 6.8. Insurance. Each Restricted Person will keep or cause to be kept insured in accordance with industry standards by financially sound and reputable insurers, its surface equipment and other property of a character usually insured by similar Persons engaged in the same or similar businesses. Section 6.9. Performance on US Borrower's Behalf. If any Restricted Person fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other amounts it is required to pay under any US Loan Document, US Agent may pay the same, and shall use its best efforts to give at least five (5) Business Days notice to US Borrower prior to making any such payment; provided, however, that any failure by US Agent to so notify US Borrower shall not limit or otherwise impair US Agent's ability to make any such payment. US Borrower shall immediately reimburse US Agent for any such payments and each amount paid by US Agent shall constitute an US Obligation owed hereunder which is due and payable on the date such amount is paid by US Agent. Section 6.10. Interest. US Borrower hereby promises to each Lender Party to pay interest at the Default Rate applicable to Base Rate Loans on all US Obligations (including US Obligations to pay fees or to reimburse or indemnify any Lender) which US Borrower has in this Agreement promised to pay to such Lender Party and which are not paid when due. Such interest shall accrue from the date such US Obligations become due until they are paid. Section 6.11. Compliance with Law. Each Restricted Person will conduct its business and affairs in compliance with all Laws applicable thereto except to the extent failure to do so would not reasonably be expected to have a Material Adverse Effect. Section 6.12. Environmental Matters. (a) Each Restricted Person will comply in all material respects with all Environmental Laws now or hereafter applicable to such Restricted Person, as well as all contractual obligations and agreements with respect to environmental remediation or other environmental matters, and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations and will maintain such authorizations in full force and effect, unless such failure to so comply would not reasonably be expected to have a Material Adverse Effect. (b) will promptly furnish to US Agent all written notices of violation, orders, claims, citations, complaints, penalty assessments, suits or other proceedings received by US Borrower, or of which it has notice, pending or threatened against US Borrower, by any Governmental Authority with respect to any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations in connection with its ownership or use of its 32 38 properties or the operation of its business which involve a potential liability or claim in excess of US $25,000,000. Section 6.13. Bank Accounts; Offset. To secure the repayment of the Obligations US Borrower hereby grants to each Lender a right of offset, each of which shall be in addition to all other interests, liens, and rights of any Lender at common Law, under the Loan Documents, or otherwise, and each of which shall be upon and against (a) any and all moneys, securities or other property (and the proceeds therefrom) of US Borrower now or hereafter held or received by or in transit to any Lender from or for the account of US Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or special, time or demand, provisional or final) of US Borrower with any Lender, and (c) any other credits and claims of US Borrower at any time existing against any Lender, including claims under certificates of deposit. At any time and from time to time after the occurrence of any Default, each Lender is hereby authorized to offset against the Obligations then due and payable (in either case without notice to US Borrower), any and all items hereinabove referred to. To the extent that US Borrower has accounts designated as royalty or joint interest owner accounts, the foregoing right of offset shall not extend to funds in such accounts which belong to, or otherwise arise from payments to US Borrower for the account of, third party royalty or joint interest owners. Section 6.14. Year 2000 Compliance. US Borrower will promptly notify US Agent in the event US Borrower discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its or any of its Subsidiaries' business and operations that will not be Year 2000 compliant on a timely basis, except to the extent that such failure would not reasonably be expected to have a Material Adverse Effect. ARTICLE VII - Negative Covenants of US Borrower To conform with the terms and conditions under which each Lender is willing to have credit outstanding to US Borrower, and to induce each Lender to enter into this Agreement and make the US Loans, US Borrower warrants, covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Required Lenders have previously agreed otherwise: Section 7.1. Indebtedness. No Restricted Person (other than US Borrower) will in any manner owe or be liable for Indebtedness except: (a) the US Obligations and the Canadian Obligations. (b) capital lease obligations (excluding oil, gas or mineral leases) entered into in the ordinary course of such Restricted Person's business in arm's length transactions at competitive market rates under competitive terms and conditions in all respects, provided that the obligations required to be paid in any Fiscal Year under any such capital leases do not in the aggregate exceed US $25,000,000 for all Restricted Persons. 33 39 (c) unsecured Liabilities owed among Restricted Persons. (d) guaranties by one Restricted Person of Liabilities owed by another Restricted Person, if such Liabilities either (i) are not Indebtedness, or (ii) are allowed under subsections (a), (b) or (c) of this Section 7.1. (e) Indebtedness of the Restricted Persons for plugging and abandonment bonds or for letters of credit issued by any Lender in place thereof which are required by regulatory authorities in the area of operations, and Indebtedness of the Restricted Persons for other bonds or letters of credit issued by any Lender which are required by such regulatory authorities with respect to other normal oil and gas operations. (f) obligations under the Subordinated US Borrower Indenture, the Subordinated US Borrower Debentures and the Subordinated US Borrower Guarantee; (g) non-recourse Indebtedness as to which no Restricted Person (i) provides any guaranty or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (ii) is directly or indirectly liable (as a guarantor or otherwise); provided, that after giving effect to such Indebtedness outstanding from time to time, US Borrower is not in violation of Sections 7.8 and 7.9. (h) the following long-term institutional Indebtedness of Northstar Energy: (i) US $150,000,000 indebtedness to The Prudential Insurance Company of America pursuant to a Note Agreement dated as of March 2, 1998 including the following guarantees of such indebtedness: (1) guarantees both dated March 2, 1998 made by Northstar Energy Partnership and David Limited Partnership; (2) guarantee dated as of July 31, 1998 made by 728098 Alberta Ltd.; and (3) any other guarantees of Subsidiaries of Northstar Energy executed after the date hereof pursuant to the terms of such Note Agreement. (ii) US $75,000,000 indebtedness to certain institutional investors pursuant to a Note Agreement dated as of July 19, 1995, as amended from time to time, including the following guarantees of such indebtedness: (1) guarantee dated as of July 31, 1998 made by Northstar Energy Partnership; (2) guarantee dated as of July 31, 1998 made by 728098 Alberta Ltd.; and (3) any other guarantee of Subsidiaries of Northstar Energy executed after the date hereof pursuant to the terms of such Note Agreement. including any refinancing of the above institutional indebtedness on similar terms taking into account current market conditions. (i) Indebtedness that is subordinated to the US Obligations and the Canadian Obligations on terms acceptable to Required Lenders. 34 40 (j) Indebtedness in the amount of C $36,323,766 owing to The Toronto-Dominion Bank due January 1, 1999 relating to the West Windsor Cogeneration Plant sale. (k) Indebtedness in the approximate amount of C $6,000,000 owed to Indeck Gas Supply Corporation by Northstar Energy pursuant to a Gas Sales and Purchase Agreement dated as of March 9, 1989, as heretofore or hereafter amended from time to time. (l) Acquired Debt. (m) Indebtedness under Hedging Contracts permitted under Section 7.11. (n) Indebtedness in the amount of US $15,000,000 to Bank of America Canada payable on demand by Northstar Energy and guaranteed by Canadian Guarantor. (o) miscellaneous items of Indebtedness of all Restricted Persons (other than US Borrower) not described in subsections (a) through (n) which do not in the aggregate exceed US $50,000,000 (with Canadian Borrowers and their Subsidiaries which are Restricted Persons having no more than US $20,000,000) in principal amount at any one time outstanding. Section 7.2. Limitation on Liens. Except for Permitted Liens, no Restricted Person will create, assume or permit to exist any Lien upon any of the properties or assets which it now owns or hereafter acquires. No Restricted Person will allow the filing or continued existence of any financing statement describing as collateral any assets or property of such Restricted Person, other than financing statements which describe only collateral subject to a Lien permitted under this section and which name as secured party or lessor only the holder of such Lien. Section 7.3. Limitation on Mergers. No Restricted Person will merge or consolidate with or into any other Person except that any Subsidiary of US Borrower may be merged into or consolidated with (a) another Subsidiary of US Borrower, or (b) US Borrower, so long as US Borrower is the surviving business entity. Section 7.4. Limitation on Issuance of Securities by Subsidiaries of US Borrower. (a) No Restricted Subsidiary of US Borrower (other than Devon Trust) will issue any additional shares of its capital stock, additional partnership interests or other securities or any options, warrants or other rights to acquire such additional shares, partnership interests or other securities except to another Restricted Person of which such issuer is already directly or indirectly a Subsidiary of US Borrower unless such securities are being issued to acquire a business, directly or indirectly through the use of the proceeds of such issuance, and such securities are convertible into the common or similar securities of US Borrower, including the issuance of the exchangeable shares of Northstar Energy issued pursuant to the Acquisition Documents. Northstar Energy may also issue stock options to its employees from time to time in the form of exchangeable shares of Northstar Energy, provided that such shares are convertible into common shares or similar securities of US Borrower and provided further that such options are granted under a stock option plan of Northstar Energy and/or US Borrower. 35 41 (b) Devon Trust will not issue any securities except common securities to US Borrower and the Devon Trust Securities. Devon Nevada will at all times remain a wholly-owned direct or indirect Subsidiary of US Borrower, US Borrower will at all times own all of the outstanding common securities of Devon Trust. Section 7.5. Limitation on Restricted Payments. Except as permitted below in this section, no Restricted Person shall directly or indirectly (i) make any Restricted Distribution, or (ii) any Restricted Investment (the above being herein collectively referred to as "Restricted Payments"), unless the aggregate amount of Restricted Payments made during any Fiscal Year never exceeds ten percent (10%) of the book value of the Consolidated Assets of US Borrower. Section 7.6. Transactions with Affiliates. No Restricted Person will engage in any material transaction with any of its Affiliates on terms which are less favorable in any material respect to it than those which would have been obtainable at the time in arm's-length dealing with Persons other than such Affiliates, provided that such restriction shall not apply to transactions among US Borrower and the other Restricted Persons that are wholly-owned, directly or indirectly, by US Borrower. Section 7.7. Prohibited Contracts; ERISA. Except as expressly provided for in the US Loan Documents and in the Support Agreement dated December 10, 1998 between the US Borrower and Northstar Energy, no Restricted Person will, directly or indirectly, enter into, create, or otherwise allow to exist any contract or other consensual restriction on the ability of any Restricted Person that is a Subsidiary of US Borrower: (a) to pay dividends or make other distributions to US Borrower, (b) to redeem equity interests held in it by US Borrower, (c) to repay loans and other indebtedness owing by it to US Borrower, or (d) to transfer any of its assets to US Borrower. No ERISA Affiliate will incur any obligation to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA. Section 7.8. Funded Debt to Total Capitalization. At the end of each Fiscal Quarter, the ratio of US Borrower's Consolidated Total Funded Debt to US Borrower's Total Capitalization will never exceed sixty percent (60%). Section 7.9. Funded Debt to EBITDA. At the end of each Fiscal Quarter, the ratio of US Borrower's Consolidated Total Funded Debt to EBITDA, calculated for the four consecutive Fiscal Quarters then ended, will never exceed 3.75 to 1. Section 7.10. Devon Trust; Devon Trust Securities. Devon Trust shall exist for the exclusive purposes of (a) issuing the Devon Trust Securities, (b) investing the gross proceeds of the Devon Trust Securities in the Subordinated US Borrower Debentures and (c) engaging in only those other activities necessary or incidental thereto. US Borrower shall exercise its option to defer interest payments on the Subordinated US Borrower Debentures rather than default on such interest payments. Devon Trust shall not be dissolved without prior written notice by US Borrower to Required Lenders. Devon Trust shall not redeem the Devon Trust Securities prior to their stated maturity, and US Borrower shall not prepay or redeem the Subordinated US Borrower Debentures prior to their stated maturity, unless both immediately before and 36 42 immediately after any such proposed prepayment or redemption, US Borrower is in compliance with Sections 7.8 and 7.9 and no Default under Section 8.1(a), 8.1(f) or 8.1(h) is continuing. Section 7.11. Hedging Contracts. No Restricted Person will be a party to or in any manner be liable on any Hedging Contract, unless such contracts qualify under US GAAP as a hedge of oil and gas production, floating rate Indebtedness or foreign currency needs (and not as a speculative investment), such contracts are entered into in the ordinary course of the Restricted Persons' businesses, and (i) if such contracts are entered into with the purpose and effect of fixing prices on oil or gas expected to be produced by Restricted Persons: (A) such contracts for any single month (determined, in the case of contracts that are not settled on a monthly basis, by a monthly proration acceptable to US Agent) do not, in the aggregate, cover amounts greater than seventy-five percent (75%) of the Restricted Persons' aggregate Projected Oil and Gas Production anticipated to be sold in the ordinary course of the Restricted Persons' businesses for such month; (B) such contracts do not require any Restricted Person to provide any Lien to secure US Borrower's obligations thereunder, other than Liens on cash or cash equivalents in an aggregate amount not more than US $50,000,000; and (C) each such contract is with a counterparty or has a guarantor of the obligation of the counterparty who (unless such counterparty is US Agent, any Lender or any of their Affiliates) at the time the contract is made has long-term obligations rated AA or better by S&P, Aa2 or better by Moody's, A+ or better by CBRS, or AA or better by DBRS or is an investment grade-rated industry participant. As used in this subsection (i), the term "Projected Oil and Gas Production" means the projected production of oil or gas (measured by volume unit or BTU equivalent, not sales price) for the term of the contracts or a particular month, as applicable, from properties and interests owned by any Restricted Person which have attributable to them proved oil or gas reserves. (ii) if such contracts are entered into with the purpose and effect of fixing interest rates on a principal amount of indebtedness of such Restricted Person that is accruing interest at a variable rate, the aggregate notional amount of such contracts never exceeds the anticipated outstanding principal balance of the indebtedness to be hedged by such contracts or an average of such principal balances calculated using a generally accepted method of matching interest swap contracts to declining principal balances, and the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness to be hedged by such contract. 37 43 ARTICLE VIII - Events of Default and Remedies Section 8.1. Events of Default. Each of the following events constitutes an Event of Default under this Agreement: (a) Any Restricted Person fails to pay any principal component of any US Obligation when due and payable or fails to pay any other US Obligation within three (3) days after the date when due and payable, whether at a date for the payment of a fixed installment or as a contingent or other payment becomes due and payable or as a result of acceleration or otherwise; (b) Any "default" or "event of default" occurs under any US Loan Document which defines either such term, and the same is not remedied within the applicable period of grace (if any) provided in such Loan Document; (c) Any Restricted Person fails (other than as referred to in subsections (a) or (b) above) to duly observe, perform or comply with any covenant, agreement, condition or provision of any US Loan Document, and such failure remains unremedied for a period of thirty (30) days after notice of such failure is given by US Agent to US Borrower; (d) Any representation or warranty previously, presently or hereafter made in writing by or on behalf of any Restricted Person in connection with any US Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made provided that if such falsity or lack of correctness is capable of being remedied or cured within a 30-day period, US Borrower shall (subject to the other provisions of this Section 8.1) have a period of 30 days after written notice thereof has been given to US Borrower by US Agent within which to remedy or cure such lack of correctness, or this Agreement or any US Note is asserted to be or at any time ceases to be valid, binding and enforceable in any material respect as warranted in Section 5.5 for any reason other than its release or subordination by US Agent; (e) Any Restricted Person (i) fails to duly pay any Indebtedness in excess of US $25,000,000 constituting principal or interest owed by it with respect to borrowed money or money otherwise owed under any note, bond, or similar instrument, including without limitation the Subordinated US Borrower Debentures, the Subordinated US Borrower Indenture, the Subordinated US Borrower Guarantee and the Devon Trust Securities, or (ii) breaches or defaults in the performance of any agreement or instrument by which any such Indebtedness is issued, evidenced, governed, or secured, other than a breach or default described in clause (i) above, and any such failure, breach or default results in the acceleration of such Indebtedness; (f) Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of US $25,000,000 exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs with respect to any ERISA Plan and the then current value of such ERISA Plan's benefit liabilities exceeds the then current value of such ERISA Plan's assets available for the payment of such benefit liabilities by more than US $25,000,000 (or in the case 38 44 of a Termination Event involving the withdrawal of a substantial employer, the withdrawing employer's proportionate share of such excess exceeds such amount); (g) Any Change in Control occurs; (h) US Borrower or any other Restricted Person having assets with a book value of at least US $25,000,000: (i) suffers the entry against it of a judgment, decree or order for relief by a Tribunal of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar Law of any jurisdiction now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended, or has any such proceeding commenced against it which remains undismissed for a period of thirty days; or (ii) commences a voluntary case under any applicable bankruptcy, insolvency or similar Law now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended; or applies for or consents to the entry of an order for relief in an involuntary case under any such Law; or makes a general assignment for the benefit of creditors; or fails generally to pay (or admits in writing its inability to pay) its debts as such debts become due; or takes corporate or other action to authorize any of the foregoing; or (iii) suffers the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of all or a substantial part of its property in a proceeding brought against or initiated by it, and such appointment or taking possession is neither made ineffective nor discharged within thirty days after the making thereof, or such appointment or taking possession is at any time consented to, requested by, or acquiesced to by it; or (iv) suffers the entry against it of a final judgment for the payment of money in an amount that exceeds (x) the valid and collectible insurance in respect thereof or (y) the amount of an indemnity with respect thereto reasonably acceptable to the Required Lenders by US $25,000,000 or more, unless the same is discharged within thirty days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such period and a stay of execution pending such appeal is obtained; or (v) suffers a writ or warrant of attachment or similar process to be issued by any Tribunal against all or any part of its property having a book value of at least US $25,000,000, and such writ or warrant of attachment or any similar process is not stayed or released within thirty days after the entry or levy thereof or after any stay is vacated or set aside; and (i) Any "Event of Default" occurs under the Canadian Agreement. 39 45 Upon the occurrence of an Event of Default described in subsection (h)(i), (h)(ii) or (h)(iii) of this section with respect to US Borrower, all of the US Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by US Borrower and each Restricted Person who at any time ratifies or approves this Agreement. Upon any such acceleration, any obligation of any Lender and any obligation of US LC Issuer to issue Letters of Credit hereunder to make any further US Loans shall be permanently terminated. During the continuance of any other Event of Default, US Agent at any time and from time to time may (and upon written instructions from Required Lenders, US Agent shall), without notice to US Borrower or any other Restricted Person, do either or both of the following: (1) terminate any obligation of Lenders to make US Loans hereunder, and any obligation of US LC Issuer to issue Letters of Credit hereunder, and (2) declare any or all of the US Obligations immediately due and payable, and all such US Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by US Borrower and each Restricted Person who at any time ratifies or approves this Agreement. Section 8.2. Remedies. If any Default shall occur and be continuing, each Lender Party may protect and enforce its rights under the US Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and each Lender Party may enforce the payment of any US Obligations due it or enforce any other legal or equitable right which it may have. All rights, remedies and powers conferred upon Lender Parties under the US Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the US Loan Documents or at Law or in equity. ARTICLE IX - US Agent Section 9.1. Appointment, Powers, and Immunities. Each Lender hereby irrevocably appoints and authorizes US Agent to act as its agent under this Agreement and the other US Loan Documents with such powers and discretion as are specifically delegated to US Agent by the terms of this Agreement and the other US Loan Documents, together with such other powers as are reasonably incidental thereto. US Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall include its Affiliates and its own and its Affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or 40 46 provided for therein or for any failure by any Restricted Person or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Restricted Person or the satisfaction of any condition or to inspect the property (including the books and records) of any Restricted Person or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. US Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Section 9.2. Reliance by US Agent. US Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Restricted Person), independent accountants, and other experts selected by US Agent. US Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until US Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 10.6 hereof. As to any matters not expressly provided for by this Agreement, US 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 Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that US Agent shall not be required to take any action that exposes US Agent to personal liability or that is contrary to any Loan Document or applicable Law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. Section 9.3. Defaults. US Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless US Agent has received written notice from a Lender or US Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that US Agent receives such a notice of the occurrence of a Default or Event of Default, US Agent shall give prompt notice thereof to the Lenders. US Agent shall (subject to Section 9.1 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders. Notwithstanding the foregoing, unless and until US Agent shall have received such directions, US Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. Section 9.4. Rights as Lender. With respect to its Percentage Share of the US Maximum Credit Amount and the US Loans made by it, US Agent (and any successor acting as US Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as US Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include US Agent in its 41 47 individual capacity. US Agent (and any successor acting as US Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make Investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Restricted Person or any of its Subsidiaries or Affiliates as if it were not acting as US Agent, and US Agent (and any successor acting as US Agent) and its Affiliates may accept fees and other consideration from any Restricted Person or any of its Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. SECTION 9.5. INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY US AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 10.4 HEREOF, BUT WITHOUT LIMITING THE OBLIGATIONS OF US BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE PERCENTAGE SHARES, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST US AGENT (INCLUDING BY ANY LENDER) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY US AGENT UNDER ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF US AGENT); provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse US Agent promptly upon demand for its ratable share of any costs or expenses payable by US Borrower under Section 10.4, to the extent that US Agent is not promptly reimbursed for such costs and expenses by US Borrower. The agreements contained in this section shall survive payment in full of the US Loans and all other amounts payable under this Agreement. Section 9.6. Non-Reliance on US Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on US Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the US Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon US 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 analysis and decisions in taking or not taking action under the US Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by US Agent hereunder, US Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Restricted Person or any of its Subsidiaries or Affiliates that may come into the possession of US Agent or any of its Affiliates. Section 9.7. Rights as Lender. In its capacity as a Lender, US Agent shall have the same rights and obligations as any Lender and may exercise such rights as though it were not US Agent. US Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with any Restricted Person or their Affiliates, all as if it were not US Agent hereunder and without any duty to account therefor to any other Lender. 42 48 Section 9.8. Sharing of Set-Offs and Other Payments. Each Lender Party agrees that if it shall, whether through the exercise of rights under US Loan Documents or rights of banker's lien, set off, or counterclaim against US Borrower or otherwise, obtain payment of a portion of the aggregate Obligations owed to it which, taking into account all distributions made by US Agent under Section 3.1, causes such Lender Party to have received more than it would have received had such payment been received by US Agent and distributed pursuant to Section 3.1, then (a) it shall be deemed to have simultaneously purchased and shall be obligated to purchase interests in the Obligations as necessary to cause all Lender Parties to share all payments as provided for in Section 3.1, and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that US Agent and all Lender Parties share all payments of Obligations as provided in Section 3.1; provided, however, that nothing herein contained shall in any way affect the right of any Lender Party to obtain payment (whether by exercise of rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness other than the Obligations. US Borrower expressly consents to the foregoing arrangements and agrees that any holder of any such interest or other participation in the Obligations, whether or not acquired pursuant to the foregoing arrangements, may to the fullest extent permitted by Law exercise any and all rights of banker's lien, set-off, or counterclaim as fully as if such holder were a holder of the Obligations in the amount of such interest or other participation. If all or any part of any funds transferred pursuant to this section is thereafter recovered from the seller under this section which received the same, the purchase provided for in this section shall be deemed to have been rescinded to the extent of such recovery, together with interest, if any, if interest is required pursuant to the order of a Tribunal order to be paid on account of the possession of such funds prior to such recovery. Section 9.9. Investments. Whenever US Agent in good faith determines that it is uncertain about how to distribute to Lender Parties any funds which it has received, or whenever US Agent in good faith determines that there is any dispute among Lender Parties about how such funds should be distributed, US Agent may choose to defer distribution of the funds which are the subject of such uncertainty or dispute. If US Agent in good faith believes that the uncertainty or dispute will not be promptly resolved, or if US Agent is otherwise required to invest funds pending distribution to Lender Parties, US Agent shall invest such funds pending distribution; all interest on any such Investment shall be distributed upon the distribution of such Investment and in the same proportion and to the same Persons as such Investment. All moneys received by US Agent for distribution to Lender Parties (other than to the Person who is US Agent in its separate capacity as a Lender Party) shall be held by US Agent pending such distribution solely as US Agent for such Lender Parties, and US Agent shall have no equitable title to any portion thereof. Section 9.10. Benefit of Article IX. The provisions of this Article (other than the following Section 9.11) are intended solely for the benefit of Lender Parties, and no Restricted Person shall be entitled to rely on any such provision or assert any such provision in a claim or defense against any Lender. Lender Parties may waive or amend such provisions as they desire without any notice to or consent of US Borrower or any Restricted Person. Section 9.11. Resignation. US Agent may resign at any time by giving written notice thereof to Lenders and US Borrower. Each such notice shall set forth the date of such 43 49 resignation. Upon any such resignation, Required Lenders shall have the right to appoint a successor US Agent. A successor must be appointed for any retiring US Agent, and such US Agent's resignation shall become effective when such successor accepts such appointment. If, within thirty days after the date of the retiring US Agent's resignation, no successor US Agent has been appointed and has accepted such appointment, then the retiring US Agent may appoint a successor US Agent, which shall be a commercial bank organized or licensed to conduct a banking or trust business under the Laws of the United States of America or of any state thereof and if no Default or Event of Default has occurred and is continuing, retiring US Agent shall obtain the consent of US Borrower. Upon the acceptance of any appointment as US Agent hereunder by a successor US Agent, the retiring US Agent shall be discharged from its duties and obligations under this Agreement and the other US Loan Documents. After any retiring US Agent's resignation hereunder the provisions of this Article IX shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was US Agent under the US Loan Documents. Section 9.12. Lenders to Remain Pro Rata. It is the intent of all parties hereto that, except for Competitive Bid Loans and matters related thereto, the pro rata share of each Lender in the US Obligations and in the Canadian Obligations shall be substantially the same at all times during the term of this Agreement. Accordingly, the initial Percentage Share of each Lender in the US Maximum Credit Amount will be the same as the initial Percentage Share of such Lender in the Canadian Maximum Credit Amount. All subsequent assignments and adjustments of the interests of the Lenders in the US Obligations and the Canadian Obligations will be made so as to maintain such a pro rata arrangement; provided that for the purposes of determining these pro rata shares, any Percentage Share held by any Lender's Affiliates shall be included in determining the interests of such Lender. ARTICLE X - Miscellaneous Section 10.1. Waivers and Amendments; Acknowledgments. (a) Waivers and Amendments. No failure or delay (whether by course of conduct or otherwise) by any Lender Party in exercising any right, power or remedy which such Lender Party may have under any of the US Loan Documents shall operate as a waiver thereof or of any other right, power or remedy, nor shall any single or partial exercise by any Lender Party of any such right, power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No waiver of any provision of any US Loan Document and no consent to any departure therefrom shall ever be effective unless it is in writing and signed as provided below in this section, and then such waiver or consent shall be effective only in the specific instances and for the purposes for which given and to the extent specified in such writing. No notice to or demand on any Restricted Person shall in any case of itself entitle any Restricted Person to any other or further notice or demand in similar or other circumstances. This Agreement and the other US Loan Documents set forth the entire understanding between the parties hereto with respect to the transactions contemplated herein and therein and supersede all prior discussions and understandings with respect to the subject matter hereof and thereof, and no waiver, consent, 44 50 release, modification or amendment of or supplement to this Agreement or the other US Loan Documents shall be valid or effective against any party hereto unless the same is in writing and signed by (i) if such party is US Borrower, by US Borrower, (ii) if such party is US Agent or US LC Issuer, by such party, and (iii) if such party is a Lender, by such Lender or by US Agent on behalf of Lenders with the written consent of Required Lenders (which consent has already been given as to the termination of the US Loan Documents as provided in Section 10.10). Notwithstanding the foregoing or anything to the contrary herein, US Agent shall not, without the prior consent of Majority Lenders, execute and deliver on behalf of such Lender any waiver or amendment which would increase the US Maximum Credit Amount hereunder. Notwithstanding the foregoing or anything to the contrary herein, US Agent shall not, without the prior consent of each individual Lender, execute and deliver on behalf of such Lender any waiver or amendment which would: (1) waive any of the conditions specified in Article IV, (2) increase the maximum amount which such Lender is committed hereunder to lend, (3) reduce any fees payable to such Lender hereunder, or the principal of, or interest on, such Lender's Note, (4) postpone any date fixed for any payment of any such fees, principal or interest, (5) amend the definition herein of "Required Lenders", "Majority Lenders", or otherwise change the aggregate amount of Percentage Shares which is required for US Agent, Lenders or any of them to take any particular action under the US Loan Documents, (6) release US Borrower from its obligation to pay such Lender's Note, or (7) amend this Section 10.1(a). (b) Acknowledgments and Admissions. US Borrower hereby represents, warrants, acknowledges and admits that (i) it has been advised by counsel in the negotiation, execution and delivery of the US Loan Documents to which it is a party, (ii) it has made an independent decision to enter into this Agreement and the other US Loan Documents to which it is a party, without reliance on any representation, warranty, covenant or undertaking by US Agent or any Lender, whether written, oral or implicit, other than as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iii) there are no representations, warranties, covenants, undertakings or agreements by any Lender as to the US Loan Documents except as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iv) no Lender has any fiduciary obligation toward US Borrower with respect to any Loan Document or the transactions contemplated thereby, (v) the relationship pursuant to the US Loan Documents between US Borrower and the other Restricted Persons, on one hand, and each Lender, on the other hand, is and shall be solely that of debtor and creditor, respectively, (vi) no partnership or joint venture exists with respect to the US Loan Documents between any Restricted Person and any Lender, (vii) US Agent is not US Borrower's US Agent, but US Agent for Lenders, (viii) without limiting any of the foregoing, US Borrower is not relying upon any representation or covenant by any Lender, or any representative thereof, and no such representation or covenant has been made, that any Lender will, at the time of an Event of Default or Default, or at any other time, waive, negotiate, discuss, or take or refrain from taking any action permitted under the US Loan Documents with respect to any such Event of Default or Default or any other provision of the US Loan Documents, and (ix) all Lender Parties have relied upon the truthfulness of the acknowledgments in this section in deciding to execute and deliver this Agreement and to become obligated hereunder. 45 51 (c) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER US LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 10.2. Survival of Agreements; Cumulative Nature. All of Restricted Persons' various representations, warranties, covenants and agreements in the US Loan Documents shall survive the execution and delivery of this Agreement and the other US Loan Documents and the performance hereof and thereof, including the making or granting of the US Loans and the delivery of the US Notes and the other US Loan Documents, and shall further survive until all of the US Obligations are paid in full to each Lender Party and all of Lender Parties' obligations to US Borrower are terminated. All statements and agreements contained in any certificate or other instrument delivered by any Restricted Person to any Lender Party under any Loan Document shall be deemed representations and warranties by US Borrower or agreements and covenants of US Borrower under this Agreement. The representations, warranties, indemnities, and covenants made by Restricted Persons in the US Loan Documents, and the rights, powers, and privileges granted to Lender Parties in the US Loan Documents, are cumulative, and, except for expressly specified waivers and consents, no Loan Document shall be construed in the context of another to diminish, nullify, or otherwise reduce the benefit to any Lender Party of any such representation, warranty, indemnity, covenant, right, power or privilege. In particular and without limitation, no exception set out in this Agreement to any representation, warranty, indemnity, or covenant herein contained shall apply to any similar representation, warranty, indemnity, or covenant contained in any other Loan Document, and each such similar representation, warranty, indemnity, or covenant shall be subject only to those exceptions which are expressly made applicable to it by the terms of the various US Loan Documents. Section 10.3. Notices. All notices, requests, consents, demands and other communications required or permitted under any Loan Document shall be in writing, unless otherwise specifically provided in such Loan Document (provided that US Agent may give telephonic notices to the other Lender Parties), and shall be deemed sufficiently given or furnished if delivered by personal delivery, by facsimile or other electronic transmission, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, to US Borrower and Restricted Persons at the address of US Borrower specified on the signature pages hereto and to each Lender Party at its address specified on Annex II hereto (unless changed by similar notice in writing given by the particular Person whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery during normal business hours at the address provided herein, (b) in the case of facsimile or other electronic transmission, upon receipt, or (c) in the case of registered or certified United States mail, three 46 52 days after deposit in the mail; provided, however, that no Borrowing Notice shall become effective until actually received by US Agent. Section 10.4. Payment of Expenses; Indemnity. (a) Payment of Expenses. Whether or not the transactions contemplated by this Agreement are consummated, US Borrower will promptly (and in any event, within 30 days after any invoice or other statement or notice) pay: (i) all reasonable costs and expenses incurred by or on behalf of US Agent (including without limitation, attorneys' fees) in connection with (1) the negotiation, preparation, execution and delivery of the US Loan Documents, and any and all consents, waivers or other documents or instruments relating thereto, (2) the filing, recording, refiling and re-recording of any US Loan Documents and any other documents or instruments or further assurances required to be filed or recorded or refiled or re-recorded by the terms of any Loan Document, (3) the borrowings hereunder and other action reasonably required in the course of administration hereof, (4) monitoring or confirming (or preparation or negotiation of any document related to) US Borrower's compliance with any covenants or conditions contained in this Agreement or in any Loan Document, and (ii) all reasonable costs and expenses incurred by or on behalf of any Lender Party (including without limitation, attorneys' fees, consultants' fees and accounting fees) in connection with the defense or enforcement of any of the US Loan Documents (including this section) or the defense of any Lender Party's exercise of its rights thereunder. (B) INDEMNITY. US BORROWER AGREES TO INDEMNIFY EACH LENDER PARTY , UPON DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH LENDER PARTY GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH THE US LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR IN TORT OR OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY LENDER PARTY OR ANY OTHER PERSON OR ANY LIABILITIES OR DUTIES OF ANY LENDER PARTY OR ANY OTHER PERSON WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any 47 53 Person (including US Borrower or any of its Affiliates) ever alleges such gross negligence or willful misconduct by any Lender Party, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the term "Lender Party" shall refer not only to each Person designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Person. Section 10.5. Parties in Interest. All grants, covenants and agreements contained in the US Loan Documents shall bind and inure to the benefit of the parties thereto and their respective successors and assigns; provided, however, that no Restricted Person may assign or transfer any of its rights or delegate any of its duties or obligations under any Loan Document without the prior consent of Required Lenders. Neither US Borrower nor any Affiliates of US Borrower shall directly or indirectly purchase or otherwise retire any Obligations owed to any Lender nor will any Lender accept any offer to do so, unless each Lender shall have received substantially the same offer with respect to the same Percentage Share of the Obligations owed to it. If US Borrower or any Affiliate of US Borrower at any time purchases some but less than all of the Obligations owed to all Lender Parties, such purchaser shall not be entitled to any rights of any Lender under the US Loan Documents unless and until US Borrower or its Affiliates have purchased all of the Obligations. Section 10.6. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Transferees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its US Loans, its Note, and its Percentage Share of the US Maximum Credit Amount); provided, however, that (i) each such assignment shall be to an Eligible Transferee; (ii) together with each such assignment of its rights and obligations under this Agreement, such Lender shall assign the same Percentage Share of its rights and obligations under the Canadian Agreement to the same Eligible Transferee or an Affiliate of such Eligible Transferee. (iii) except in the case of such an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any partial assignment of such Lender's rights and obligations under this Agreement and under the Canadian Agreement shall be in a collective amount at least equal to US $20,000,000 or an integral multiple of US $5,000,000 in excess thereof; (iv) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under the US Loan Documents; 48 54 (v) the parties to such assignment shall execute and deliver to US Agent for its acceptance an Assignment and Acceptance in the form of Exhibit F hereto, together with any Note subject to such assignment and a processing fee of US $3,500; and Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this section, the assignor, US Agent and US Borrower shall make appropriate arrangements so that, if required, new US Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the Laws of the United States of America or a state thereof, it shall deliver to US Borrower and US Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 3.10. (b) US Agent shall maintain at its address referred to in Section 10.3 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and their Percentage Share of the US Maximum Credit Amount of, and principal amount of the US Loans 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 US Borrower, US 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 US Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, US Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons that are Eligible Transferees in all or a portion of its rights and obligations under this Agreement (including all or a portion of its US Maximum Credit Amount and its US Loans); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article III and the right of offset contained in Section 6.14, and (iv) US Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of US Borrower relating to its US Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such US Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such US Loans or Note, or extending its US Maximum Credit Amount). 49 55 (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its US Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning US Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 10.7 hereof. Section 10.7. Confidentiality. US Agent and each Lender (each, a "Lending Party") agrees to keep confidential any information furnished or made available to it by US Borrower pursuant to this Agreement that is marked confidential; provided that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any Affiliate of any Lending Party, or any officer, director, employee, US Agent, or advisor of any Lending Party or Affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any Law, rule, or regulation, (d) upon the order of any court or administrative agency, (e) upon the request or demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its Affiliates may be a party, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, and (i) subject to provisions substantially similar to those contained in this section, to any actual or proposed participant or assignee. Section 10.8. Governing Law; Submission to Process. EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT, THE US LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) DOES NOT APPLY TO THIS AGREEMENT OR TO THE US NOTES. US BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RESTRICTED PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT OR ANY RESTRICTED PERSON IN ANY LEGAL PROCEEDING RELATING TO THE US LOAN DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. Section 10.9. Limitation on Interest. Lender Parties, Restricted Persons and any other parties to the US Loan Documents intend to contract in strict compliance with applicable usury Law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the US Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the 50 56 maximum amount of interest permitted to be charged by applicable Law from time to time in effect. Neither any Restricted Person nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable Law from time to time in effect, and the provisions of this section shall control over all other provisions of the US Loan Documents which may be in conflict or apparent conflict herewith. Lender Parties expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) any Lender or any other holder of any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by applicable Law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at such Lender's or holder's option, promptly returned to US Borrower or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable Law, Lender Parties and Restricted Persons (and any other payors thereof) shall to the greatest extent permitted under applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable Law in order to lawfully charge the maximum amount of interest permitted under applicable Law. In the event applicable Law provides for an interest ceiling under Chapter 303 of the Texas Finance Code (the "Texas Finance Code") as amended, for that day, the ceiling shall be the "weekly ceiling" as defined in the Texas Finance Code; provided that if any applicable Law permits greater interest, the Law permitting the greatest interest shall apply. As used in this section the term "applicable Law" means the Laws of the State of Texas or the Laws of the United States of America, whichever Laws allow the greater interest, as such Laws now exist or may be changed or amended or come into effect in the future. Section 10.10. Termination; Limited Survival. In its sole and absolute discretion US Borrower may at any time that no Obligations are owing elect in a written notice delivered to US Agent to terminate this Agreement. Upon receipt by US Agent of such a notice, if no Obligations are then owing this Agreement and all other US Loan Documents shall thereupon be terminated and the parties thereto released from all prospective obligations thereunder. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by any Restricted Person in any Loan Document, any Obligations under Sections 3.2 through 3.6, and any obligations which any Person may have to indemnify or compensate any Lender Party shall survive any termination of this Agreement or any other Loan Document. At the request and expense of US Borrower, US Agent shall prepare and execute all necessary instruments to reflect and effect such termination of the US Loan Documents. US Agent is 51 57 hereby authorized to execute all such instruments on behalf of all Lenders, without the joinder of or further action by any Lender. Section 10.11. Severability. If any term or provision of any Loan Document shall be determined to be illegal or unenforceable all other terms and provisions of the US Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable Law. Section 10.12. Counterparts; Fax. This Agreement may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. This Agreement and the US Loan Documents may be validly executed and delivered by facsimile or other electronic transmission. Section 10.13. Waiver of Jury Trial, Punitive Damages, etc. US BORROWER AND EACH LENDER PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE US LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER US LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO. Section 10.14. Defined Terms. Capitalized terms and phrases used and not otherwise defined herein shall for all purposes of this Agreement have the meaning given to such terms and phrases in Annex I hereto. Section 10.15. Annex I, Exhibits and Schedules; Additional Definitions. Annex I and all Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Section 10.16. Amendment of Defined Instruments. Unless the context otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document, provided that nothing contained in this section shall be construed to authorize any such renewal, extension, modification, amendment or restatement. 52 58 Section 10.17. References and Titles. All references in this Agreement to Exhibits, Schedules, articles, sections, subsections and other subdivisions refer to the Exhibits, Schedules, articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation". Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Section 10.18. Calculations and Determinations. All calculations under the US Loan Documents of interest chargeable with respect to Eurodollar Loans and of fees shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days. All other calculations of interest made under the US Loan Documents shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 365 or 366 days, as appropriate. Each determination by a Lender Party of amounts to be paid under Article III or any other matters which are to be determined hereunder by a Lender Party (such as any US Dollar Eurodollar Rate, Adjusted US Dollar Eurodollar Rate, Business Day, Interest Period, or Reserve Requirement) shall, in the absence of manifest error, be conclusive and binding. Unless otherwise expressly provided herein or unless Required Lenders otherwise consent all financial statements and reports furnished to any Lender Party hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with US GAAP. Section 10.19. Construction of Indemnities and Releases. All indemnification and release provisions of this Agreement shall be construed broadly (and not narrowly) in favor of the Persons receiving indemnification from or being released. Section 10.20. Termination of Existing Agreement. Upon the payment in full of all outstanding indebtedness owing under the Existing Agreement, the Existing Agreement and the other loan documents executed pursuant thereto shall be terminated and the parties thereto shall have no further obligations or liabilities, covenants, or representations thereunder; provided, however, the indemnification obligations provided in the Existing Agreement shall not be terminated and shall survive the termination of the Existing Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 59 IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. DEVON ENERGY CORPORATION US Borrower By: /s/ WILLIAM T. VAUGHN ------------------------------------ William T. Vaughn Vice President - Finance Address: 20 North Broadway, Suite 1500 Oklahoma City, Oklahoma 73102 Attention: Vice President - Finance Telephone: (405) 235-3611 Fax: (405) 552-8120 60 NATIONSBANK, N.A., Administrative Agent, US LC Issuer and Lender By: /s/ DALE T. WILSON ------------------------------------ Dale T. Wilson Senior Vice President Address: 901 Main Street, 64th Floor Dallas, Texas 75202 Attention: Dale T. Wilson Telephone: (214) 508-1246 Fax: (214) 508-1286 61 BANK OF MONTREAL Lender By: /s/ MICHAEL P. STUCKEY ------------------------------------ Name: Michael P. Stuckey Title: Managing Director, U.S. Corporate Banking 62 THE FIRST NATIONAL BANK OF CHICAGO Lender By: /s/ RONALD L. DIESKER ------------------------------------ Name: Ronald L. Diesker Title: Vice President 63 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION Lender By: /s/ DONNA J. GERMAN ------------------------------------ Name: Donna J. German Title: Managing Director 64 UMB OKLAHOMA BANK Lender By: /s/ RICHARD J. LEHRTER ------------------------------------ Name: Richard J. Lehrter Title: Executive Vice President 65 FIRST UNION NATIONAL BANK Lender By: /s/ ROBERT R. WETTEROFF ------------------------------------ Name: Robert R. Wetteroff Title: Senior Vice President 66 TORONTO-DOMINION (TEXAS), INC. Lender By: /s/ CAROL BRANDT ----------------------------------- Name: Carol Brandt Title: Vice President 67 BANK OF OKLAHOMA, N.A. Lender By: /s/ JOHN N. HUFF ----------------------------------- Name: John N. Huff Title: Vice President 68 WESTDEUTSCHE LANDESBANK GIROZENTRALE Lender By: /s/ KHEIL A. MCINTYRE ----------------------------------- Name: Kheil A. McIntyre Title: Vice President By: /s/ ANTHONY J. ALESSANDRO ----------------------------------- Name: Anthony J. Alessandro Title: Associate 69 THE BANK OF NEW YORK Lender By: /s/ RAYMOND J. PALMER ----------------------------------- Name: Raymond J. Palmer Title: Vice President 70 ROYAL BANK OF CANADA Lender By: /s/ LINDA M. STEPHENS ---------------------------------- Name: Linda M. Stephens Title: Senior Manager 71 SUNTRUST BANK, ATLANTA Lender By: /s/ TODD C. DAVIS ----------------------------------- Name: Todd C. Davis Title: Assistant Vice President By: /s/ DAVID J. EDGE ----------------------------------- Name: David J. Edge Title: Vice President 72 [EXECUTION] ANNEX I DEFINED TERMS "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any assets acquired by such specified Person, and any refinancing of the foregoing indebtedness on similar terms, taking into account current market conditions. "Acquisition Documents" means (a) the Amended and Restated Combination Agreement dated as of June 29, 1998 and all schedules and exhibits thereto pursuant to which US Borrower is acquiring all of the outstanding common shares of Northstar Energy and (b) all other material agreements or instruments delivered in connection therewith to consummate the acquisition contemplated thereby. "Adjusted Canadian Dollar Eurodollar Rate" means, for any Canadian Dollar Eurodollar Loan for any Eurodollar Interest Period therefor, the per annum rate equal to the sum of (a) the Applicable Margin plus (b) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Canadian Agent to be equal to the quotient obtained by dividing (i) the Canadian Dollar Eurodollar Rate for such Canadian Dollar Eurodollar Loan for such Eurodollar Interest Period by (ii) 1 minus the Reserve Requirement for such Canadian Dollar Eurodollar Loan for such Interest Period. The Adjusted Canadian Dollar Eurodollar Rate for any Canadian Dollar Eurodollar Loan shall change whenever the Applicable Margin or the Reserve Requirement changes. No Adjusted Canadian Dollar Eurodollar Rate charged by any Person shall ever exceed the Highest Lawful Rate. "Adjusted US Dollar Eurodollar Rate" means, for any US Dollar Eurodollar Loan for any Eurodollar Interest Period therefor, the per annum rate equal to the sum of (a) the Applicable Margin plus (b) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Agent to be equal to the quotient obtained by dividing (i) the US Dollar Eurodollar Rate for such US Dollar Eurodollar Loan for such Eurodollar Interest Period by (ii) 1 minus the Reserve Requirement for such US Dollar Eurodollar Loan for such Interest Period. The Adjusted US Dollar Eurodollar Rate for any US Dollar Eurodollar Loan shall change whenever the Applicable Margin or the Reserve Requirement changes. No Adjusted US Dollar Eurodollar Rate charged by any Person shall ever exceed the Highest Lawful Rate. "Affiliate" means, as to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control 73 with, such Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 20% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Applicable Currency" means (i) when used with respect to any US Loan or US LC Obligations, US Dollars, and (ii) when used with respect to any Canadian Prime Rate Loan, any Canadian Dollar Eurodollar Loan or any Bankers' Acceptance, Canadian Dollars, and (iii) when used with respect to any Canadian Base Rate Loan or an US Dollar Eurodollar Loan made under the Canadian Agreement, US Dollars. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to US Agent, Canadian Agent, and Borrowers by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means (a) except with respect to any Tranche B Loan, when used in the Canadian Agreement and when used in the US Agreement on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date:
====================================== Applicable Applicable Rating Level Margin ====================================== Level I 27.0 -------------------------------------- Level II 30.0 -------------------------------------- Level III 40.0 -------------------------------------- Level IV 42.5 -------------------------------------- Level V 60.0 ======================================
2 74 (b) when used with respect to any Tranche B Loan on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date:
====================================== Applicable Applicable Rating Level Margin ====================================== Level I 28.0 -------------------------------------- Level II 31.0 -------------------------------------- Level III 42.5 -------------------------------------- Level IV 45.0 -------------------------------------- Level V 62.5 ======================================
Changes in the Applicable Margin will occur automatically without prior notice as changes in the Applicable Rating Level occur. US Agent will give notice promptly to Borrowers and the Lenders of changes in the Applicable Margin. "Applicable Rating Level" means for any day, the highest Rating Level (as such term is defined below in this paragraph) issued by S&P, Duff & Phelps, or Moody's, if Moody's shall have issued such a rating with respect to US Borrower (collectively, in this definition called the "Designated Rating Agencies"); provided that if at any time three Designated Rating Agencies have ratings in effect with respect to US Borrower's Long-Term Debt and the Rating Levels (as such terms are defined below in this paragraph) of at least two of the three Designated Rating Agencies are not the same, "Applicable Rating Level" shall mean the higher of the two lowest Rating Levels of the Designated Rating Agencies. As used in this definition, (i) the term "Rating Level" means for any day with respect to any of the Designated Rating Agencies, the rating level described below (or its then equivalent) applicable on such day, issued by such Designated Rating Agency, from time to time, with respect to US Borrower's Long-Term Debt or if such rating is unavailable, equivalents thereof, including counterparty ratings, implied ratings and corporate ratings; (ii) "US Borrower's Long-Term Debt" means senior, unsecured, non-credit enhanced long-term indebtedness for borrowed money of US Borrower, and (iii) ">" means a rating equal to or more favorable than and "<" means a rating less favorable than. 3 75
====================================================================== Duff & Rating Level S&P Phelps Moody's* ---------------------------------------------------------------------- Level I >=A- >=A- >=A3 ---------------------------------------------------------------------- Level II BBB+ BBB+ Baa1 ---------------------------------------------------------------------- Level III BBB BBB Baa2 ---------------------------------------------------------------------- Level IV BBB- BBB- Baa3 ---------------------------------------------------------------------- Level V *A Moody's rating is not currently available for US Borrower. If any two of the Designated Rating Agencies shall not have in effect a rating for US Borrower's Long-Term Debt or if the rating system of any of the Designated Rating Agencies shall change, or if any of such Designated Rating Agencies shall cease to be in the business of rating corporate debt obligations, US Borrower and Required Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such Designated Rating Agency, but until such an agreement shall be reached, the Applicable Rating Level shall be based only upon the rating by the remaining Designated Rating Agency. "BA Discount Rate" means, in respect of a BA being accepted by a Lender on any date, (i) for a Lender that is listed in Schedule I to the Bank Act (Canada), the average bankers' acceptance rate as quoted on Reuters CDOR page (or such other page as may, from time to time, replace such page on that service for the purpose of displaying quotations for bankers' acceptances accepted by leading Canadian financial institutions) at approximately 10:00 a.m. (Toronto time) on such drawdown date for bankers' acceptances having a comparable maturity date as the maturity date of such BA (the "CDOR Rate"); or, if such rate is not available at or about such time, the average of the bankers' acceptance rates (expressed to five decimal places) as quoted to the Agent by the Schedule I BA Reference Banks as of 10:00 a.m. (Toronto time) on such drawdown date for bankers' acceptances having a comparable maturity date as the maturity date of such BA; and (ii) for a Lender that is listed in Schedule II to the Bank Act (Canada), the rate established by the Canadian Agent to be the lesser of (A) the CDOR Rate plus 10 Basis Points; and (B) the average of the bankers' acceptance rates (expressed to five decimal places) as quoted to the Canadian Agent by the Schedule II BA Reference Banks as of 10:00 a.m. (Toronto time) on such drawdown date for bankers' acceptances having a comparable maturity date as the maturity date of such BA; "Bankers' Acceptance" or "BA" means a Canadian Dollar draft of either Canadian Borrower, for a term selected by such Canadian Borrower of either 30, 60, 90 or 180 days (as reduced or extended by the Lender, acting reasonably, to allow the maturity thereof to fall on a Business Day) payable in Canada. 4 76 "Bankruptcy and Insolvency Act (Canada)" means the Bankruptcy and Insolvency Act, S.C. 1992, c. 27, including the regulations made and, from time to time, in force under that Act. "Basis Point" means one one-hundredth of one percent (0.01%). "Borrower" means any of US Borrower and Canadian Borrowers. "Borrowing" means a borrowing of new Loans of a single Type pursuant to Section 1.2 or a Continuation or Conversion of existing Loans into a single Type (and, in the case of Eurodollar Loans, with the same Interest Period) pursuant to Section 1.3 of the US Agreement or the Canadian Agreement or the acceptance or purchase of Bankers' Acceptances issued by Canadian Borrowers under the Canadian Agreement or the Continuation or Conversion of existing Banker's Acceptances into Canadian Loans of a single Type in the case of Eurodollar Loans with the same Interest Period pursuant to Section 1.3 of the Canadian Agreement. "Borrowing Notice" means a written or telephonic request, or a written confirmation, made by any Borrower which meets the requirements of Section 1.2 of the US Agreement or Section 1.2 of the Canadian Agreement. "Business Day" means (a) with respect to the Canadian Agreement, a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Dallas, Texas and Toronto, Ontario and (b) with respect to the US Agreement, a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Dallas, Texas. Any Business Day in any way relating to Eurodollar Loans (such as the day on which an Interest Period begins or ends) must also be a day on which, in the judgment of US Agent or Canadian Agent, as applicable, significant transactions in dollars are carried out in the interbank eurocurrency market. "Canadian Advances" has the meaning given to such term in Section 1.1 of the Canadian Agreement. "Canadian Agent" means Bank of America Canada, as administrative agent under the Canadian Agreement, and its successors and assigns in such capacity. "Canadian Agreement" means that certain Credit Agreement dated the Closing Date among Canadian Borrowers, Canadian Agent and Lenders, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "Canadian Base Rate Loan" means a Canadian Loan which bears interest at the Canadian US Dollar Base Rate. "Canadian Borrowers" means Northstar Energy and Devon Energy Canada. "Canadian Dollar" or "C$" means the lawful currency of Canada. 5 77 "Canadian Dollar Eurodollar Loan" means a Canadian Loan that bears interest at the Adjusted Canadian Dollar Eurodollar Rate. "Canadian Dollar Eurodollar Rate" means, for any Canadian Dollar Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Dow Jones Market Service (formerly Telerate Access Service) Page 3740 (or any successor page) as the London interbank offered rate for deposits in Canadian Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, then such offered rate shall be otherwise independently determined by Canadian Agent from an alternate, substantially similar independent source available to Canadian Agent or shall be calculated by Canadian Agent by a substantially similar methodology as that theretofore used to determine such offered rate on Dow Jones Market Service, in the London interbank eurodollar market for a period of time equal or comparable to the related Interest Period and in an amount equal to or comparable to the principal amount of the eurodollar portion to which such Interest Period relates. "Canadian Facility Maturity Date" means the date which is five years and one day after the Conversion Date. "Canadian Facility Usage" means, at the time in question, the US Dollar Exchange Equivalent of the aggregate amount of Canadian Loans, Canadian LC Obligations, and BA's outstanding at such time. "Canadian Guarantor" means US Borrower. "Canadian LC Issuer" means Bank of America Canada in its capacity as the issuer of Letters of Credit under the Canadian Agreement, and its successors in such capacity. Canadian Agent may, with the consent of Canadian Borrowers and the Lender in question, appoint any Canadian Resident Lender hereunder as a Canadian LC Issuer in place of or in addition to Bank of America Canada. "Canadian LC Obligations" means, at the time in question, the sum of all Matured Canadian LC Obligations plus the maximum amounts which Canadian LC Issuer might then or thereafter be called upon to advance under all Letters of Credit then outstanding under the Canadian Agreement. "Canadian LC Sublimit" means US $25,000,000. "Canadian Loan Documents" means the Canadian Agreement, the Canadian Notes, the Letters of Credit issued under the Canadian Agreement, the LC Applications related thereto, the BA's, the Guaranty executed by Canadian Guarantor, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters). 6 78 "Canadian Loans" means the Canadian Revolver Loans, the Canadian Term Loans into which such Revolving Loans may be converted and the Competitive Bid Loans made under the Canadian Agreement. "Canadian Maximum Credit Amount" means US $195,000,000 or the Canadian Dollar Exchange Equivalent. "Canadian Notes" means each Lender's "Canadian Note", as defined in Section 1.1 of the Canadian Agreement, and the Competitive Bid Notes issued under the Canadian Agreement. "Canadian Obligations" means all Liabilities from time to time owing by Canadian Borrowers to any Lender Party under or pursuant to any of the Canadian Loan Documents, including all Canadian LC Obligations owing thereunder. "Canadian Obligation" means any part of the Canadian Obligations. "Canadian Prime Rate" means on any day a fluctuating rate of interest per annum equal to the higher of (i) the rate of interest per annum most recently announced by Bank of America Canada as its reference rate for Canadian Dollar commercial loans made to a Person in Canada; and (ii) Bank of America Canada's Discount Rate for Bankers' Acceptances having a maturity of thirty days plus the Applicable Margin. No Canadian Prime Rate charged by any Person shall ever exceed the Highest Lawful Rate "Canadian Prime Rate Loan" means a Canadian Loan that bears interest at the Canadian Prime Rate. "Canadian Resident Lender" means each Lender identified as such on the signature pages to the Canadian Agreement or any Assignment and Acceptance executed by a new Lender, each being a Person that is not a non-resident of Canada for the purposes of the Income Tax Act (Canada). "Canadian Revolving Loans" has the meaning given it in Section 1.1 of the Canadian Agreement. "Canadian Revolving Period" means the period from and including the Closing Date until the Conversion Date (or, if earlier, the day on which the obligations of Lenders to make Canadian Loans or the obligations of Canadian LC Issuer to issue Letters of Credit under the Canadian Agreement have been terminated or the Canadian Notes first become due and payable in full). "Canadian Term Loan" has the meaning given it in Section 1.7 of the Canadian Agreement. "Canadian Term Period" means the period from and including the day immediately following the Conversion Date until and including the Canadian Facility Maturity Date. "Canadian US Dollar Base Rate" means for a day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (b) the rate of 7 79 interest per annum most recently established by Bank of America Canada as its reference rate for US Dollar commercial loans made to a Person in Canada. Any change in the Canadian US Dollar Base Rate due to a change in the Bank of America Canada's reference rate shall be effective on the effective date of such change. No Canadian US Dollar Base Rate charged by any Person shall ever exceed the Highest Lawful Rate. "Cash Equivalents" means Investments in: (a) marketable obligations, maturing within twelve months after acquisition thereof, issued or unconditionally guaranteed by Canada or the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of Canada or the United States of America, as applicable; (b) demand deposits, and time deposits (including certificates of deposit) maturing within twelve months from the date of deposit thereof, with a domestic office (1) of US Agent or Canadian Agent or any Lender, or (2) of any bank or trust company organized under the laws of Canada or the United States of America or any Province or State therein, provided that (x) the full amount of each such deposit in such bank or trust company is insured by the Federal Deposit Insurance Corporation if applicable, or (y) such bank or trust company has capital, surplus and undivided profits aggregating at least US $50,000,000, and (c) (1) publicly traded debt securities with an original term of 270 days or less or (2) interest bearing securities issued to the public by banks, associated entities or similar institutions, which can be put to the issuer at the investor's unconditional option within one month after acquisition, so long as in each case such securities have a credit rating of at least A-1 from S&P or P-1 from Moody's or A-1 [low] from CBRS or R-1 [low] from DBRS. "CBRS" means CBRS Inc., or its successor. "Change of Control" means the occurrence of either of the following events: any Person (or syndicate or group of Persons which is deemed a "person" for the purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) acquires more than thirty percent (30%) of the outstanding stock of US Borrower having ordinary voting power (disregarding changes in voting power based on the occurrence of contingencies) for the election of directors, or during any period of twelve successive months a majority of the Persons who were directors of US Borrower at the beginning of such period cease to be directors of US Borrower. "Closing Date" means December 11, 1998. "Companies' Creditors Arrangement Act (Canada)" means the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, including the regulations made and from time to time in force under that Act. "Competitive Bid" means (i) with respect to the US Agreement, a response from any Lender to an Invitation to Bid, substantially in the form of Exhibit J to the US Agreement and 8 80 (ii) with respect to the Canadian Agreement, a response from any Canadian Resident Lender to an Invitation to Bid, substantially in the form of Exhibit K to the Canadian Agreement. "Competitive Bid Accept/Reject Letter" means (i) with respect to the US Agreement, a notice sent by US Borrower to US Agent, substantially in the form of Exhibit K to the US Agreement, indicating its acceptance or rejection of Competitive Bids from various Lenders and (ii) with respect to the Canadian Agreement, a notice sent by the applicable Canadian Borrower to Canadian Agent, substantially in the form of Exhibit L to the Canadian Agreement, indicating its acceptance or rejection of Competitive Bids from various Lenders. "Competitive Bid Interest Period" means, with respect to any Competitive Bid Loan, a period from one day to one hundred eighty days as specified in the Competitive Bid applicable thereto. "Competitive Bid Loan" means (i) with respect to the US Agreement, a loan from a Lender to US Borrower pursuant to the bidding procedure described in Section 1.7 of the US Agreement and (ii) with respect to the Canadian Agreement, a loan from a Canadian Resident Lender to the applicable Canadian Borrower pursuant to the bidding procedure described in Section 1.9 of the Canadian Agreement. "Competitive Bid Note" (i) with respect to the US Agreement, a "Competitive Bid Note" as defined in Section 1.7 of the US Agreement and (ii) with respect to the Canadian Agreement, a "Competitive Bid Note" as defined in Section 1.9 of the Canadian Agreement. "Competitive Bid Rate" means, for any Competitive Bid Loan, the fixed rate at which such Lender is willing to make such Competitive Bid Loan indicated in its Competitive Bid. The Competitive Bid Rate shall in no event, however, exceed the Highest Lawful Rate. "Competitive Bid Request" means (i) with respect to the US Agreement, a request by US Borrower in the form of Exhibit H to the US Agreement for Lenders to submit Competitive Bids and (ii) with respect to the Canadian Agreement, a request by the applicable Canadian Borrower in the form of Exhibit I to the Canadian Agreement for Canadian Resident Lenders to submit Competitive Bids. "Consolidated" refers to the consolidation of any Person, in accordance with US GAAP, with its properly consolidated subsidiaries. References herein to a Person's Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries. "Consolidated Assets" means the total assets of US Borrower and its Restricted Subsidiaries which would be shown as assets on a Consolidated balance sheet of US Borrower and its Restricted Subsidiaries prepared in accordance with US GAAP, after eliminating all amounts properly attributable to minority interest, if any, in the stock and surplus of the Restricted Subsidiaries. 9 81 "Consolidated Interest Expense" means, for any period, total interest expense (including distributions on the Devon Trust Securities treated as interest expense), whether paid or accrued, including without limitation all commissions, discounts and other fees and charges owed with respect to Letters of Credit. "Continuation" (i) as used in the US Agreement shall refer to the continuation pursuant to Section 1.3 thereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the next Interest Period and (ii) as used in the Canadian Agreement shall refer to the continuation pursuant to Section 1.3 thereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the next Interest Period or a rollover of a Banker's Acceptance at maturity. "Continuation/Conversion Notice" means (i) with respect to the US Agreement, a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 1.3 of the US Agreement, and (ii) with respect to the Canadian Agreement, a written or telephonic request, or a written confirmation, made by the applicable Canadian Borrower which meets the requirements of Section 1.3 of the Canadian Agreement. "Conversion" (i) as used in the US Agreement shall refer to a conversion pursuant to Section 1.3 or Article III of one Type of US Loan into another Type of US Loan and (ii) as used in the Canadian Agreement shall refer to a conversion pursuant to Section 1.3 or Article III of one Type of Canadian Advance into another Type of Canadian Advance. "Conversion Date" means the date which is 364 days after the Closing Date, or such later day to which the Conversion Date is extended pursuant to Section 1.6 of the Canadian Agreement. "DBC" means DBC, Inc., an Oklahoma corporation. "DBRS" means Dominion Bond Rating Service Limited, or its successor. "Default" means any Event of Default and any default, event or condition which would, with the giving of any requisite notices and the passage of any requisite periods of time, constitute an Event of Default. "Default Rate" means at the time in question (i) with respect to any US Base Rate Loan, the rate two percent (2.0%) above the US Base Rate then in effect, (ii) with respect to any US Dollar Eurodollar Loan, the rate two percent (2%) above the Adjusted US Dollar Eurodollar Rate then in effect for such Loan, (iii) with respect to any Canadian Prime Rate Loan, the rate two percent (2.0%) above the Canadian Prime Rate then in effect for such Loan, (iv) with respect to any Canadian Base Rate Loan, the rate two percent (2%) above the Canadian US Dollar Base Rate then in effect for such Loan, (v) with respect to any Canadian Dollar Eurodollar Loan, the rate two percent (2%) above the Adjusted Canadian Dollar Eurodollar Rate then in effect for such Loan; and (vi) with respect to any Competitive Bid Loan, the rate two percent (2%) above the Competitive Bid Rate then in effect for such Loan. No Default Rate charged by any Person shall ever exceed the Highest Lawful Rate. 10 82 "Depository Bills and Notes Act (Canada)" means the Depository Bills and Notes Act (Canada), R.S.C. 1998, c. 13, including the regulations made and, from time to time, in force under that Act. "Devon Energy Canada" means Devon Energy Canada Corporation, a Canadian corporation organized under the laws of Alberta. "Devon Nevada" means Devon Energy Corporation (Nevada), a Nevada corporation. "Devon Trust" means Devon Financing Trust, a statutory business trust formed under the laws of the State of Delaware. "Devon Trust Securities" means those certain Trust Convertible Preferred Securities, issued by Devon Trust in an amount of 2,990,000. "Disclosure Schedule" means (i) with respect to the US Agreement, Schedule 1 thereto, and (ii) with respect to the Canadian Agreement, Schedule 1 thereto. "Discount Proceeds" means, in respect of each Bankers' Acceptance, funds in an amount which is equal to: Face Amount --------------- 1 + (Rate x Term) ----------- 365 (where "Face Amount" is the principal amount of the Bankers' Acceptance being purchased, "Rate" is the BA Discount Rate divided by 100 and "Term" is the number of days in the term of the Bankers' Acceptance.) "Distribution" means (a) any dividend or other distribution made by a Restricted Person on or in respect of any stock, partnership interest, or other equity interest in such Restricted Person (including any option or warrant to buy such an equity interest), or (b) any payment made by a Restricted Person to purchase, redeem, acquire or retire any stock, partnership interest, or other equity interest in such Restricted Person (including any such option or warrant). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" below its name on its signature page to the Canadian Agreement or the US Agreement, or such other office as such Lender may from time to time specify to any Borrower and Agent; with respect to LC Issuer, the office, branch, or agency through which it issues Letters of Credit; and, with respect to Agent, the office, branch, or agency through which it administers this Agreement. "Duff & Phelps" means Duff & Phelps Credit Rating Co., or its successor. "EBITDA" means, for any period, calculated on a Consolidated basis, the sum of the amount for such period of Consolidated net income, Consolidated Interest Expense, depreciation 11 83 expense, depletion expense, amortization expense, federal, state, and provincial income taxes, exploitation and abandonment expense and other non-cash charges and expenses. "Eligible Transferee" means a Person which either (a) is a Lender or an Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by US Agent or Canadian Agent, as applicable, and, so long as no Default or Event of Default is continuing, by the Borrowers, in each case which consent will not be unreasonably withheld; provided that the Borrowers' consent shall not be required for a Person to be an "Eligible Transferee" for purposes of Section 10.6(d) of the US Agreement and Section 10.6(d) of the Canadian Agreement. "Environmental Laws" means any and all Laws relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Affiliate" means US Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with US Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. "ERISA Plan" means any employee pension benefit plan subject to Title IV of ERISA maintained by any ERISA Affiliate with respect to which any Restricted Person has a fixed or contingent liability. "Eurodollar Interest Period" means, with respect to each particular Eurodollar Loan in a Borrowing, the period specified in the Borrowing Notice or Continuation/Conversion Notice applicable thereto, beginning on and including the date specified in such Borrowing Notice or Continuation/Conversion Notice (which must be a Business Day), and ending one, two, three, or six months thereafter, as the applicable Borrower may elect in such notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day in 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 end on the last Business Day in a calendar month; and (c) notwithstanding the foregoing, any Interest Period which would otherwise end after the last day of the US Facility Commitment Period or the Canadian Revolving Period shall end on the last day of the US Facility Commitment Period or the Canadian Revolving Period (or, if the last day of such period is not a Business Day, on the next preceding Business Day). 12 84 "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" below its name on the signature page hereto (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 Borrowers, Canadian Agent, and US Agent. "Eurodollar Loan" means any Canadian Dollar Eurodollar Loan and any US Dollar Eurodollar Loan. "Event of Default" means (i) with respect to the US Agreement the meaning given to such term in Section 8.1 thereof and (ii) with respect to the Canadian Agreement the meaning given to such term in Section 8.1 thereof. "Exchange Equivalent" in respect of one currency (the "Original Currency"), being Canadian Dollars or U.S. Dollars, as the case may be, means, at the date of determination, the amount of currency expressed in the other such currency necessary to purchase, based on the Noon Rate on such date, the specified amount of the Original Currency on such date. "Existing Agreement" means that certain Credit Agreement dated as of May 15, 1998 among US Borrower, Devon Nevada, US Agent, and certain lenders named therein. "Facility Fee Rate" means, on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date:
============================================ Applicable Applicable Rating Level Facility Fee Rate -------------------------------------------- Level I 8.0 -------------------------------------------- Level II 10.0 -------------------------------------------- Level III 12.5 -------------------------------------------- Level IV 17.5 -------------------------------------------- Level V 25.0 ============================================
"Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of Dallas, Texas on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate quoted to US Agent on such day on such transactions as determined by US Agent. 13 85 "Fiscal Quarter" means a three-month period ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means a twelve-month period ending on December 31 of any year. "Governmental Authority" means any domestic or foreign, national, federal, provincial, state, municipal or other local government or body and any division, agency, ministry, commission, board or authority or any quasi-governmental or private body exercising any statutory, regulatory, expropriation or taxing authority under the authority of any of the foregoing, and any domestic, foreign or international judicial, quasi-judicial, arbitration or administrative court, tribunal, commission, board or panel acting under the authority of any of the foregoing. "Hazardous Materials" means any substances regulated under any Environmental Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise. "Hedging Contract" means (a) any agreement providing for options, swaps, floors, caps, collars, forward sales or forward purchases involving interest rates, commodities or commodity prices, equities, currencies, bonds, or indexes based on any of the foregoing, (b) any option, futures or forward contract traded on an exchange, and (c) any other derivative agreement or other similar agreement or arrangement. "Highest Lawful Rate" means, with respect to each Lender Party to whom Obligations are owed, the maximum nonusurious rate of interest that such Lender Party is permitted under applicable Law to contract for, take, charge, or receive with respect to such Obligations. All determinations herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest Lawful Rate, shall be made separately for each Lender Party as appropriate to assure that the Loan Documents are not construed to obligate any Person to pay interest to any Lender Party at a rate in excess of the Highest Lawful Rate applicable to such Lender Party. "Income Tax Act (Canada)" means the Income Tax Act, S.C. 1970-71-72, c. 63, including the regulations made and, from time to time, in force under that Act. "Indebtedness" of any Person means Liabilities in any of the following categories: (a) Liabilities for borrowed money, (b) Liabilities constituting an obligation to pay the deferred purchase price of property or services, other than customary payment terms taken in the ordinary course of such Person's business, (c) Liabilities evidenced by a bond, debenture, note or similar instrument, 14 86 (d) Liabilities arising under conditional sales or other title retention agreements or under leases capitalized in accordance with US GAAP, but excluding customary oil, gas or mineral leases, (e) Liabilities with respect to payments received in consideration of oil, gas, or other minerals yet to be acquired or produced at the time of payment (including obligations under "take-or-pay" contracts to deliver gas in return for payments already received and the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment); (f) Liabilities under Hedging Contracts, (g) Liabilities with respect to letters of credit or applications or reimbursement agreements therefor, or (h) Liabilities under direct or indirect guaranties of Liabilities of any Person or constituting obligations to purchase or acquire or to otherwise protect or insure a creditor against loss in respect of Indebtedness of the types described in paragraphs (a) through (g) above of any Person (such as obligations under working capital maintenance agreements, agreements to keep-well, or agreements to purchase debt, assets, goods, securities or services, but excluding endorsements in the ordinary course of business of negotiable instruments in the course of collection), provided, however, that the "Indebtedness" of any Person shall not include Liabilities that were incurred by such Person on ordinary trade terms to vendors, suppliers, or other Persons providing goods and services for use by such Person in the ordinary course of its business, unless and until such Liabilities are outstanding more than 90 days past the original invoice or billing date therefor. Any Indebtedness owed by a partnership shall be deemed Indebtedness of any partner in such partnership to the extent such partner has any liability of any kind therefor. "Initial Financial Statements" means (i) the audited annual Consolidated financial statements of US Borrower dated as of December 31, 1997, and (ii) the unaudited quarterly Consolidated financial statements of US Borrower dated as of September 30, 1998. "Interest Act (Canada)" means the Interest Act, R.S.C. 1985, c. I-15, including the regulations made and, from time to time, in force under that Act. "Interest Payment Date" means (a) with respect to each US Base Rate Loan, Canadian US Dollar Base Rate Loan, and Canadian Prime Rate Loan, the last day of each March, June, September and December beginning December 31, 1998, and (b) with respect to each Eurodollar Loan, the last day of the Eurodollar Interest Period that is applicable thereto and, if such Eurodollar Interest Period is six months in length, the date specified by Agent which is approximately three months after such Eurodollar Interest Period begins; provided that the last day of each calendar month shall also be an Interest Payment Date for each such Loan so long as any Event of Default exists under Section 8.1 (a) or (b). 15 87 "Interest Period" means (i) with respect to any Eurodollar Loan, the related Eurodollar Interest Period and (ii) with respect to any Competitive Bid Loan, the related Competitive Bid Interest Period. "Internal Revenue Code" means the United States Internal Revenue Code of 1986, as amended from time to time and any successor statute or statutes. "Investment" means any investment made directly or indirectly, in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise and whether made in cash, by the transfer of property, or by any other means. "Invitation to Bid" means (i) with respect to the US Agreement, an invitation by US Agent to each Lender, substantially in the form of Exhibit I thereto, inviting such Lender to submit Competitive Bids in response to a Competitive Bid Request under the US Agreement, and (ii) with respect to the Canadian Agreement, an invitation by Canadian Agent to each Lender, substantially in the form of Exhibit J thereto, inviting such Lender to submit Competitive Bids in response to a Competitive Bid Request under the Canadian Agreement. "Judgment Interest Act (Alberta)" means the Judgment Interest Act, S.A. 1984 c. J-O.5, including the regulations made and, from time to time, in force under that Act. "Law" means any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree, permit, concession, franchise, license, agreement or other governmental restriction of the United States or Canada or any state, province or political subdivision thereof or of any foreign country or any department, province or other political subdivision thereof. "LC Application" means any application for a Letter of Credit hereafter made by any Borrower to US LC Issuer or Canadian LC Issuer. "LC Collateral" (i) as used in the US Agreement, has the meaning given to such term in Section 2.6 of the US Agreement and (ii) as used in the Canadian Agreement, has the meaning given such term in Section 2.11 of the Canadian Agreement. "Lender Parties" means Agent, US LC Issuer, Canadian LC Issuer, and all Lenders. "Lenders" means each signatory to the US Agreement and the Canadian Agreement (other than any Borrower), including NationsBank, N.A. and Bank of America Canada in their capacity as a Lender hereunder rather than as US Agent or Canadian Agent and US LC Issuer or Canadian LC Issuer, respectively, and the successors of each such party as holder of a US Note or a Canadian Note. "Lenders Schedule" means Annex II to the US Agreement and Annex II to the Canadian Agreement which are the same. 16 88 "Letter of Credit" means any letter of credit issued by US LC Issuer under the US Agreement or by Canadian LC Issuer under the Canadian Agreement at the application of any Borrower. "Liabilities" means, as to any Person, all indebtedness, liabilities and obligations of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent, and whether or not required to be considered pursuant to US GAAP. "Lien" means, with respect to any property or assets, any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's or materialman's lien, or any other charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but excluding any right of offset. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of uncertificated securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists. "Loan Documents" means, collectively, the Canadian Loan Documents and the US Loan Documents. "Loans" means, collectively, the Canadian Loans and the US Loans. "Majority Lenders" means Lenders whose aggregate Percentage Shares exceed sixty-six and two thirds percent (66 2/3%). "Material Adverse Effect" means any event which would reasonably be expected to have a material and adverse effect upon (a) US Borrower's Consolidated financial condition, (b) US Borrower's Consolidated operations, properties or prospects, considered as a whole, (c) US Borrower's ability to timely pay the Obligations, or (d) the enforceability of the material terms of any Loan Documents. "Matured Canadian LC Obligations" means all amounts paid by Canadian LC Issuer on drafts or demands for payment drawn or made under or purported to be under any Letter of Credit issued under the Canadian Agreement and all other amounts due and owing to Canadian LC Issuer under any LC Application for any such Letter of Credit, to the extent the same have not been repaid to Canadian LC Issuer (with the proceeds of Loans or otherwise). "Matured US LC Obligations" means all amounts paid by US LC Issuer on drafts or demands for payment drawn or made under or purported to be under any Letter of Credit issued under the US Agreement and all other amounts due and owing to US LC Issuer under any LC Application for any such Letter of Credit, to the extent the same have not been repaid to US LC Issuer (with the proceeds of Loans or otherwise). 17 89 "Maximum Canadian Drawing Amount" means at the time in question the sum of the maximum amounts which Canadian LC Issuer might then or thereafter be called upon to advance under all Letters of Credit issued pursuant to the Canadian Agreement which are then outstanding. "Maximum US Drawing Amount" means at the time in question the sum of the maximum amounts which US LC Issuer might then or thereafter be called upon to advance under all Letters of Credit issued pursuant to the US Agreement which are then outstanding. "Moody's" means Moody's Investor Service, Inc., or its successor. "Net Proceeds" means with respect to any Bankers' Acceptance, the Discount Proceeds less the amount equal to the applicable Stamping Fee Rate multiplied by the face amount of such Bankers' Acceptance.. "Non-resident Lender" means any Lender which is not a Canadian Resident Lender, and shall initially mean each Lender identified as such on the signature pages to the Canadian Agreement or thereafter on any Assignment and Acceptance. "Noon Rate" means, in relation to the conversion of one currency into another currency, the rate of exchange for such conversion as quoted by the Bank of Canada (or, if not so quoted, the spot rate of exchange quoted for wholesale transactions made by Canadian Agent at Toronto, Ontario at approximately noon (Toronto local time)). "Northstar Energy" means Northstar Energy Corporation, an Alberta corporation. "Notes" mean, collectively, the Canadian Notes and the US Notes. "Obligations" means, collectively, the US Obligations and the Canadian Obligations. "Offer of Extension" means (a) with respect to the Canadian Agreement, a written offer by Canadian Agent, for and on behalf of Required Lenders, to Canadian Borrowers to extend the Canadian Facility Revolving Period to a date 364 days from acceptance by Canadian Borrowers of such offer, and setting forth, if applicable, the terms and conditions on which such extension is offered by the Lenders and as may be accepted by Canadian Borrowers, and (b) with respect to the US Agreement, a written offer by US Agent, for and on behalf of Required Lenders, to US Borrower to extend the Tranche B Revolving Period to a date 364 days from acceptance by US Borrower of such offer, and setting forth, if applicable, the terms and conditions on which such extension is offered by the Lenders and as may be accepted by US Borrower. "Percentage Share" means (a) under the US Agreement with respect to any Lender (i) when used in Article I or Article II of the US Agreement, in any Borrowing Notice thereunder or when no US Loans are outstanding, the percentage set forth opposite such Lender's name on the Lenders Schedule as modified by assignments of a Lender's rights and obligations under the US Agreement made by 18 90 or to such Lender in accordance with the terms of the US Agreement, and (ii) when used otherwise, the percentage obtained by dividing (x) the sum of the unpaid principal balance of such Lender's US Loans and such Lender's Percentage Share of the US LC Obligations, by (y) the sum of the aggregate unpaid principal balance of all US Loans at such time plus the aggregate amount of all US LC Obligations outstanding at such time; and (b) under the Canadian Agreement with respect to any Lender (i) when used in Article I or Article II of the Canadian Agreement, in any Borrowing Notice thereunder or when no Canadian Advances are outstanding, the percentage set forth opposite such Lender's name on the Lenders Schedule as modified by assignments of a Lender's rights and obligations under the Canadian Agreement made by or to such Lender in accordance with the terms of the Canadian Agreement, and (ii) when used otherwise, the percentage obtained by dividing (x) the sum of the unpaid principal balance of such Lender's Canadian Advances and such Lender's Percentage Share of the Canadian LC Obligations, by (y) the sum of the aggregate unpaid principal balance of all Canadian Advances at such time plus the aggregate amount of all Canadian LC Obligations outstanding at such time. "Permitted Distribution" means (i) any Distribution made by any Restricted Person that is payable only in common stock of such Restricted Person, and (ii) any other Distribution made by any Restricted Person to US Borrower, Canadian Borrower or to any other Restricted Person that is a wholly-owned Subsidiary of US Borrower. "Permitted Investments" means (a) Cash Equivalents, (b) Investments in Restricted Subsidiaries that are wholly-owned by US Borrower and in Canadian Borrowers, and (c) US Borrower's Investments in Thunder Creek Gas Services L.L.C. and Sage Creek Gas Processors, L.L.C., which are limited liability companies involved in the methane gas and conventional gas production and development in the Powder River basin of central Wyoming and are owned by a Subsidiary of US Borrower and other industry partners (US Borrower will include its pro rata share of these entities in its Consolidated financial statements), (d) payments made for the purchase of oil and gas assets, leaseholds and associated facilities and/or the purchase of equity interests in entities involved in the oil and gas industry, all in accordance with US Borrower's normal business practices; provided that no Default shall exist before or after any such acquisition or Investment, and (e) Investments in any Person, so long as such Person becomes a Restricted Subsidiary of US Borrower within one year after the date such Investment is made. "Permitted Liens" means: (a) Liens for taxes, assessments or governmental charges which are not due or delinquent, or the validity of which US Borrower or any Restricted Subsidiary shall be contesting in good faith; provided US Borrower or such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (b) the Lien of any judgment rendered, or claim filed, against US Borrower or any Restricted Subsidiary which does not constitute an Event of Default and which US Borrower or any such Restricted Subsidiary shall be contesting in good faith; provided US Borrower or 19 91 such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (c) Liens, privileges or other charges imposed or permitted by law such as statutory liens and deemed trusts, carriers' liens, builders' liens, materialmens' liens and other liens, privileges or other charges of a similar nature which relate to obligations not due or delinquent, including any lien or trust arising in connection with workers' compensation, unemployment insurance, pension, employment and similar laws or regulations; (d) Liens arising in the ordinary course of and incidental to construction, maintenance or current operations which have not been filed pursuant to law against US Borrower or any Restricted Subsidiary or in respect of which no steps or proceedings to enforce such lien have been initiated or which relate to obligations which are not due or delinquent or if due or delinquent, which US Borrower or such Restricted Subsidiary shall be contesting in good faith; provided US Borrower or such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (e) Liens incurred or created in the ordinary course of business and in accordance with sound oil and gas industry practice in respect of the exploration, development or operation of oil and gas properties or related production or processing facilities or the transmission of petroleum substances as security in favor of any other Person conducting the exploration, development, operation or transmission of the property to which such Liens relate, for US Borrower's or any of its Restricted Subsidiaries' portion of the costs and expenses of such exploration, development, operation or transmission, provided that such costs or expenses are not due or delinquent or, if due or delinquent, which US Borrower or such Restricted Subsidiary shall be contesting in good faith; provided US Borrower or such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (f) overriding royalty interests, net profit interests, reversionary interests and carried interests or other similar burdens on production in respect of US Borrower's or any of its Restricted Subsidiaries' oil and gas properties that are entered into with or granted to arm's length third parties in the ordinary course of business and in accordance with sound oil and gas industry practice in the area of operation; (g) Liens for penalties arising under non-participation provisions of operating agreements in respect of US Borrower's or any of its Restricted Subsidiaries' oil and gas properties if such Liens do not materially detract from the value of any material part of the property of US Borrower and its Subsidiaries taken as a whole; (h) easements, rights-of-way, servitudes, zoning or other similar rights or restrictions in respect of land held by US Borrower or any Restricted Subsidiary (including, without limitation, rights-of-way and servitudes for railways, sewers, drains, pipe lines, gas and water mains, electric light and power and telephone or telegraph or cable television conduits, poles, wires and cables) which, either alone or in the aggregate, do not materially detract from the value of such land or materially impair its use in the operation of the business of US Borrower and its Restricted Subsidiaries taken as a whole; 20 92 (i) security given by US Borrower or any Restricted Subsidiary to a public utility or any Governmental Authority when required by such public utility or Governmental Authority in the ordinary course of the business of US Borrower or any Restricted Subsidiary in connection with operations of US Borrower or any Restricted Subsidiary if such security does not, either alone or in the aggregate, materially detract from the value of any material part of the property of US Borrower and its Restricted Subsidiaries taken as a whole; (j) the right reserved to or vested in any Governmental Authority by the terms of any lease, license, grant or permit or by any statutory or regulatory provision to terminate any such lease, license, grant or permit or to require annual or other periodic payments as a condition of the continuance thereof; (k) all reservations in the original grant of any lands and premises or any interests therein and all statutory exceptions, qualifications and reservations in respect of title; (l) any Lien from time to time disclosed by US Borrower or any Restricted Subsidiary to the US Agent or the Canadian Agent and which is consented to by the Majority Lenders; (m) any right of first refusal in favor of any Person granted in the ordinary course of business with respect to all or any of the oil and gas properties of US Borrower or any Restricted Subsidiary; (n) Liens on cash or marketable securities of US Borrower or any Restricted Subsidiary granted in connection with any Hedging Contract permitted under the US Agreement; (o) Liens in respect of Indebtedness permitted by Sections 7.1(b), 7.1(g) and 7.1(k); (p) Liens in favor of the US Agent or the Canadian Agent for the benefit of the Lender Parties; (q) Liens to collateralize moneys held in a cash collateral account by a lender in respect of the prepayment of bankers' acceptances, letters of credit or similar obligations accepted or issued by such lender but only if at the time of such prepayment no default or event of default has occurred and is continuing under the credit facility pursuant to which the bankers' acceptances or letters of credit have been accepted or issued; (r) purchase money Liens upon or in any tangible personal property and fixtures (including real property surface rights upon which such fixtures are located and contractual rights and receivables relating to such property) acquired by US Borrower or a Restricted Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of such property, including any Liens existing on such property at the time of its acquisition (other than any such Lien created in contemplation of any such acquisition); 21 93 (s) the rights of buyers under production sale contracts related to US Borrower's or a Restricted Subsidiary's share of petroleum substances entered into in the ordinary course of business, provided that the contracts create no rights (including any Lien) in favor of the buyer or any other Person in, to or over any reserves of petroleum substances or other assets of US Borrower or a Restricted Subsidiary, other than a dedication of reserves (not by way of Lien or absolute assignment) on usual industry terms; (t) Liens arising in respect of operating leases of personal property under which Canadian Borrowers or any of their Subsidiaries are lessees; (u) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary, is merged into or consolidated with US Borrower or any of its Subsidiaries; provided, such Liens were in existence prior to the contemplation of such stock acquisition, merger or consolidation and do not extend to any assets other than those of the Person so acquired or merged into or consolidated with US Borrower or any of its Subsidiaries. (v) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the preceding paragraphs (a) to (u) inclusive of this definition, so long as any such extension, renewal or replacement of such Lien is limited to all or any part of the same property that secured the Lien extended, renewed or replaced (plus improvements on such property), the indebtedness or obligation secured thereby is not increased and such Lien is otherwise permitted by the applicable section above; (w) in addition to Liens permitted by clauses (a) through (v) above, Liens on property or assets if the aggregate Indebtedness secured thereby does not exceed US $25,000,000. provided that nothing in this definition shall in and of itself constitute or be deemed to constitute an agreement or acknowledgment by the US Agent or the Canadian Agent or any Lender that the Indebtedness subject to or secured by any such Permitted Lien ranks (apart from the effect of any Lien included in or inherent in any such Permitted Liens) in priority to the Obligations; "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, Tribunal, or any other legally recognizable entity. "Rating Agency" means any of S & P or Moody's, or their respective successors. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect. "Request for an Offer of Extension" means (a) with respect to the Canadian Agreement, a written request made by Canadian Borrowers to the Lenders to have Required Lenders issue an offer to Canadian Borrowers extending the Canadian Revolving Period for a further 364 days, and (b) with respect to the US Agreement, a written request made by US Borrower to the Lenders 22 94 to have Required Lenders issue an offer to US Borrower extending the Tranche B Revolving Period for a further 364 days. "Required Lenders" means Lenders whose aggregate Percentage Shares equal or exceed fifty percent (50%). "Reserve Requirement" means, at any time, the maximum rate at which reserves (including any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System of the United States of America (or any successor) by member banks of such Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the Adjusted US Dollar Eurodollar Rate or the Adjusted Canadian Dollar Eurodollar Rate is to be determined, or (b) any category of extensions of credit or other assets which include US Dollar Eurodollar Loans or Canadian Dollar Eurodollar Loans. "Restricted Distribution" means any Distribution that is not a Permitted Distribution. "Restricted Investment" means any Investment that is not a Permitted Investment. "Restricted Payments" has the meaning given to such term in Section 7.5 of the US Agreement. "Restricted Person" means any of US Borrower and each Restricted Subsidiary. "Restricted Subsidiary" means each Canadian Borrower and any other Subsidiary of US Borrower that is not an Unrestricted Subsidiary; provided, the following Subsidiaries of US Borrower shall be deemed not to be Restricted Subsidiaries: (a) BN Co. A Limited Partnership, a New Mexico limited partnership; (b) BN Coal, L.L.C., a New Mexico limited liability company; (c) BN Non-Coal, L.L.C., a New Mexico limited liability company; (d) Blackwood & Nicholls Co., a New Mexico limited partnership; (e) Devon-Blanco Company, an Oklahoma general partnership; (f) 172173 Canada Inc.; (g) 410760 Alberta Ltd.; (h) 653087 Alberta Ltd.; (i) 661151 Alberta Ltd.; (j) 728097 Alberta Ltd.; (k) Foothills Partnership; (l) Morrison Administration Corporation; (m) Morrison Capital Inc.; (n) Morrison Gas Gathering Inc.; (o) Morrison Operating Company Ltd.; 23 95 (p) Morrison Petroleums (Alberta) Ltd.; (q) Polar Energy Marketing Corporation; and (r) Saratoga Processing Company, Ltd. "S & P" means Standard & Poor's Ratings Services (a division of McGraw Hill Companies, Inc.), or its successor. "Schedule I BA Reference Banks" means the Lenders listed in Schedule I to the Bank Act (Canada) as are, at such time, designated by Canadian Agent, with the prior consent of Canadian Borrowers (acting reasonably), as the Schedule I BA reference Banks. "Schedule II BA Reference Banks" means the Lenders listed in Schedule II to the Bank Act (Canada) as are, at such time, designated by Canadian Agent, with the prior consent of Canadian Borrowers (acting reasonably), as the Schedule II BA Reference Banks. "Stamping Fee Rate" means with respect to any Bankers' Acceptance accepted by any Canadian Resident Lender at any time, the Applicable Margin then in effect; provided that if an Event of Default has occurred and is continuing, the Stamping Fee Rate shall be increased by two hundred (200) Basis Points. "Subordinated US Borrower Debentures" means those certain Convertible Junior Subordinated Debentures issued by US Borrower to Devon Trust pursuant to the Subordinated US Borrower Indenture and subordinated to the Obligations, in the aggregate principal amount of approximately US $154,500,000. "Subordinated US Borrower Guarantee" means that certain Guarantee dated July 1, 1996, by US Borrower in favor of the holders of the Devon Trust Securities pursuant to the Subordinated US Borrower Indenture and subordinated to the Obligations, guaranteeing certain payments to be made by Devon Trust pursuant to the Devon Trust Securities. "Subordinated US Borrower Indenture" means that certain Trust Indenture dated July 1, 1996, between US Borrower and The Bank of New York, as indenture trustee. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled by or owned fifty percent or more by such Person, provided that (a) associations, joint ventures or other relationships (i) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (ii) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state Law, and (iii) whose businesses are limited to the exploration, development and operation of oil, gas or mineral properties, transportation and related facilities and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries" of such Person and (b) associations, joint ventures or other relationships (i) which are not corporations or partnerships under applicable provincial Law, and (ii) whose businesses are limited to the exploration, development and operation of oil, gas or 24 96 mineral properties, transportation and related facilities and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries" of such Person. "Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA or (ii) any other reportable event described in Section 4043(b) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) 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 ERISA Plan. "Total Capitalization" means the sum (without duplication) of (i) US Borrower's Consolidated Total Funded Debt plus (ii) US Borrower's Consolidated shareholder's equity plus (iii) 70% of the outstanding balance of the Devon Trust Securities. "Total Funded Debt" means (i) Liabilities referred to in clauses (a), (b), (c), (d), and (e) of the definition of "Indebtedness", plus (ii) 30% of the outstanding balance of the Devon Trust Securities. "Tranche A Facility Usage" means, at the time in question, the aggregate amount of Tranche A Loans and existing US LC Obligations outstanding at such time under the US Agreement. "Tranche A Loan" has the meaning given it in Section 1.1(a) of the US Agreement. "Tranche A Maximum Credit Amount" means $130,000,000. "Tranche A Note" has the meaning given it in Section 1.1(a) of the US Agreement. "Tranche B Conversion Date" means the date which is 364 days after the Closing Date, or such later day to which the Tranche B Conversion Date is extended pursuant to Section 1.1 of the US Agreement. "Tranche B Facility Fee Rate" means, on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date: 25 97
============================================= Applicable Applicable Tranche B Rating Level Facility Fee Rate --------------------------------------------- Level I 7.0 --------------------------------------------- Level II 9.0 --------------------------------------------- Level III 10.0 --------------------------------------------- Level IV 15.0 --------------------------------------------- Level V 22.5 =============================================
"Tranche B Facility Usage" means, at the time in question, the aggregate amount of Tranche B Loans outstanding at such time under the US Agreement. "Tranche B Loan" has the meaning given it in Section 1.1(b) of the US Agreement. "Tranche B Maturity Date" means the date which is two years after the Tranche B Conversion Date. "Tranche B Maximum Credit Amount" means $75,000,000. "Tranche B Note" has the meaning given it in Section 1.1(b) of the US Agreement. "Tranche B Revolving Period" means the period from the Closing Date until the Tranche B Conversion Date. "Tribunal" means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency or instrumentality of the United States of America or Canada or any state, province, commonwealth, nation, territory, possession, county, parish, town, township, village or municipality, whether now or hereafter constituted or existing. "Type" means (i) with respect to any US Loans, the characterization of such US Loans as either US Base Rate Loans or US Dollar Eurodollar Loans and (ii) with respect to any Canadian Advances, the characterization of such Canadian Advances as Canadian Base Rate Loans, Canadian Prime Rate Loans, US Dollar Eurodollar Loans, Canadian Dollar Eurodollar Loans or Bankers' Acceptances. "Unrestricted Subsidiary" means any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization in which US Borrower does not presently own an interest (directly or indirectly) which hereafter becomes a Subsidiary of US Borrower and which, within 90 days thereafter, is designated as an Unrestricted Subsidiary by US Borrower to US Agent, provided that US Borrower may not designate as an Unrestricted Subsidiary any Subsidiary in which it has made an Investment of more than US $25,000,000 (directly or indirectly) by any means other than newly issued stock or 26 98 treasury stock of US Borrower, which may be used to make an Investment in Unrestricted Subsidiaries without limit and provided further that in the event the book value of the assets of any Unrestricted Subsidiary at any time exceeds US $25,000,000, such Subsidiary shall cease to be an Unrestricted Subsidiary and shall automatically become a Restricted Person. "US Account" means an account established by Canadian Agent in New York into which funds to be advanced to Canadian Borrowers by Lenders in US Dollars and funds to be paid by Canadian Borrowers to Lenders in US Dollars will be deposited. "US Agent" means NationsBank, N.A., as administrative agent, under the US Agreement and its successors and assigns in such capacity. "US Agreement" means that certain Credit Agreement of even date herewith among US Borrower, Agent and the Lenders, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "US Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (b) the US Reference Rate for such day. Any change in the US Base Rate due to a change in the US Reference Rate or the Federal Funds Rate shall be effective on the effective date of such change in the US Reference Rate or Federal Funds Rate. No US Base Rate charged by any Person shall ever exceed the Highest Lawful Rate. "US Base Rate Loan" means a US Loan made in US Dollars which bears interest at the US Base Rate. "US Borrower" means Devon Energy Corporation, an Oklahoma corporation. "US Dollar" or "US $" means the lawful currency of the United States of America. "US Dollar Equivalent" means, with respect to an amount denominated in Canadian Dollars, the amount of US Dollars required to purchase the relevant stated amount of Canadian Dollars on the date of determination. "US Dollar Eurodollar Loan" means a US Loan or a Canadian Loan, in each case, which bears interest at the Adjusted US Dollar Eurodollar Rate. "US Dollar Eurodollar Rate" means, for any US Dollar Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Dow Jones Market Service (formerly Telerate Access Service) Page 3750 (or any successor page) as the London interbank offered rate for deposits in US Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "US Dollar Eurodollar Rate" shall mean, for any US Dollar Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) 27 99 appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits of US Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "US Facility Commitment Period" means the period from and including the Closing Date until the US Facility Maturity Date (or, if earlier, the day on which the obligations of Lenders to make US Loans hereunder or the obligations of US LC Issuer to issue Letters of Credit hereunder have been terminated or the US Notes first become due and payable in full). "US Facility Maturity Date" means December 10, 2003. "US Facility Usage" means, at the time in question, the aggregate amount of US Loans and existing US LC Obligations outstanding at such time under the US Agreement. "US GAAP" means those generally accepted accounting principles and practices which are recognized as such from time to time by the Financial Accounting Standards Board (or any generally recognized successor) and which, in the case of US Borrower and its Consolidated Subsidiaries, are applied for all periods after the Closing Date in a manner consistent with the manner in which such principles and practices were applied to the Initial Financial Statements. "US LC Issuer" means NationsBank, N.A. in its capacity as the issuer of Letters of Credit under the US Agreement, and its successors in such capacity. "US LC Obligations" means, at the time in question, with respect to the US Agreement, the sum of all Matured US LC Obligations plus the maximum amounts which US LC Issuer might then or thereafter be called upon to advance under all Letters of Credit then outstanding. "US LC Sublimit" means US $25,000,000. "US Loans" means the Tranche A Loans, the Tranche B Loans and Competitive Bid Loans made under the US Agreement. "US Loan Documents" means the US Agreement, the US Notes issued under the US Agreement, the Letters of Credit issued under the US Agreement, the LC Applications related thereto, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters). "US Maximum Credit Amount" means the amount of US $205,000,000. "US Notes" means the Tranche A Notes, the Tranche B Notes and the Competitive Bid Notes issued under the US Agreement. 28 100 "US Obligations" means all Liabilities from time to time owing by any Restricted Person to any Lender Party under or pursuant to any of the US Loan Documents, including all US LC Obligations owing thereunder. "US Obligation" means any part of the US Obligations. "US Reference Rate" means the per annum rate of interest established from time to time by NationsBank, N.A. as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank, N.A. to its customers. "Withholding Tax" has the meaning given it in Section 3.2(d) of the Canadian Agreement. 29 EX-10.2 7 CANADIAN CREDIT AGREEMENT 1 EXHIBIT 10.2 [EXECUTION] ================================================================================ CANADIAN CREDIT AGREEMENT ------------------------------------------------------- NORTHSTAR ENERGY CORPORATION and DEVON ENERGY CANADA CORPORATION as Canadian Borrowers BANK OF AMERICA CANADA as Administrative Agent NATIONSBANC MONTGOMERY SECURITIES, L.L.C. as Arranger FIRST CHICAGO CAPITAL MARKETS, INC. as Syndication Agent BANK OF MONTREAL as Documentation Agent FIRST UNION as Co-Documentation Agent and CERTAIN FINANCIAL INSTITUTIONS as Lenders ------------------------------------------------------- US $195,000,000 December 11, 1998 ================================================================================ 2 TABLE OF CONTENTS
Page ---- CREDIT AGREEMENT..................................................................................................1 Section 1.1. Commitments to Make Advances; Canadian Notes...........................................1 Section 1.2. Requests for New Canadian Advances.....................................................1 Section 1.3. Continuations and Conversions of Existing Canadian Advances............................3 Section 1.4. Repayments.............................................................................4 Section 1.5. Interest Rates and Fees................................................................7 Section 1.6. Extension of Conversion Date...........................................................8 Section 1.7. Conversion to Canadian Term Loan.......................................................9 Section 1.8. Non-Accepting Lender...................................................................9 Section 1.9. Competitive Bid Loans.................................................................10 Section 1.10. Use of Proceeds.......................................................................12 ARTICLE II - Bankers' Acceptances and Letters of Credit..........................................................13 Section 2.1. Creation of Bankers' Acceptances......................................................13 Section 2.2. Terms of Acceptance by the Canadian Resident Lenders..................................13 Section 2.3. General Procedures for Bankers' Acceptances...........................................15 Section 2.4. Execution of Bankers' Acceptances.....................................................17 Section 2.5. Escrowed Funds........................................................................17 Section 2.6. Letters of Credit.....................................................................17 Section 2.7. Requesting Letters of Credit..........................................................18 Section 2.8. Reimbursement and Participations......................................................19 Section 2.9. Letter of Credit Fees.................................................................19 Section 2.10. No Duty to Inquire....................................................................19 Section 2.11. LC Collateral.........................................................................20 ARTICLE III - Payments to Lenders................................................................................21 Section 3.1. General Procedures....................................................................21 Section 3.2. Change in Law; Gross Up; Increased Cost and Reduced Return............................23 Section 3.3. Limitation on Types of Canadian Loans.................................................25 Section 3.4. Illegality............................................................................25 Section 3.5. Treatment of Affected Loans...........................................................25 Section 3.6. Compensation..........................................................................26 Section 3.7. Change of Applicable Lending Office...................................................27 Section 3.8. Replacement of Lenders................................................................27 Section 3.9. Other Taxes...........................................................................27 Section 3.10. Currency Conversion and Currency Indemnity............................................28 ARTICLE IV - Conditions Precedent to Advances....................................................................29 Section 4.1. Documents to be Delivered.............................................................29 Section 4.2. Additional Conditions Precedent to First Canadian Loan or First Letter of Credit.............................................................................30
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Section 4.3. Additional Conditions Precedent to all Canadian Loans and Letters of Credit.............................................................................31 ARTICLE V - Representations and Warranties.......................................................................31 Section 5.1. No Default............................................................................31 Section 5.2. Organization and Good Standing........................................................31 Section 5.3. Authorization.........................................................................32 Section 5.4. No Conflicts or Consents..............................................................32 Section 5.5. Enforceable Obligations...............................................................32 Section 5.6. Full Disclosure.......................................................................32 Section 5.7. Litigation............................................................................33 Section 5.8. Environmental and Other Laws..........................................................33 Section 5.9. Names and Places of Business..........................................................33 Section 5.10. Canadian Borrowers' Subsidiaries......................................................34 Section 5.11. Title to Properties; Licenses.........................................................34 Section 5.12. Solvency..............................................................................34 Section 5.13. Year 2000 Compliance..................................................................34 ARTICLE VI - Affirmative Covenants of Canadian Borrowers.........................................................35 Section 6.1. Payment and Performance...............................................................35 Section 6.2. Books, Financial Statements and Reports...............................................35 Section 6.3. Other Information and Inspections.....................................................36 Section 6.4. Notice of Material Events and Change of Address.......................................37 Section 6.5. Maintenance of Properties.............................................................37 Section 6.6. Maintenance of Existence and Qualifications...........................................37 Section 6.7. Payment of Trade Liabilities, Taxes, etc..............................................38 Section 6.8. Insurance.............................................................................38 Section 6.9. Performance on Canadian Borrowers' Behalf.............................................38 Section 6.10. Interest..............................................................................38 Section 6.11. Compliance with Law...................................................................38 Section 6.12. Environmental Matters.................................................................38 Section 6.13. Bank Accounts; Offset.................................................................39 Section 6.14. Year 2000 Compliance..................................................................39 ARTICLE VII - Negative Covenants of Canadian Borrowers...........................................................39 Section 7.1. Indebtedness..........................................................................40 Section 7.2. Limitation on Liens...................................................................41 Section 7.3. Limitation on Mergers.................................................................41 Section 7.4. Limitation on Issuance of Securities by Subsidiaries of US Borrower...................42 Section 7.5. Limitation on Restricted Payments.....................................................42 Section 7.6. Transactions with Affiliates..........................................................42 Section 7.7. Funded Debt to Total Capitalization...................................................42 Section 7.8. Funded Debt to EBITDA.................................................................42 Section 7.9. Hedging Contracts.....................................................................42
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ARTICLE VIII - Events of Default and Remedies....................................................................43 Section 8.1. Events of Default.....................................................................43 Section 8.2. Remedies..............................................................................46 ARTICLE IX - Canadian Agent......................................................................................46 Section 9.1. Appointment, Powers, and Immunities...................................................46 Section 9.2. Reliance by Canadian Agent............................................................47 Section 9.3. Defaults..............................................................................47 Section 9.4. Rights as Lender......................................................................47 Section 9.5. Indemnification.......................................................................48 Section 9.6. Non-Reliance on Canadian Agent and Other Lenders......................................48 Section 9.7. Rights as Lender......................................................................48 Section 9.8. Sharing of Set-Offs and Other Payments................................................48 Section 9.9. Investments...........................................................................49 Section 9.10. Benefit of Article IX.................................................................49 Section 9.11. Resignation...........................................................................49 Section 9.12. Lenders to Remain Pro Rata............................................................50 ARTICLE X - Miscellaneous........................................................................................50 Section 10.1. Waivers and Amendments; Acknowledgments...............................................50 Section 10.2. Survival of Agreements; Cumulative Nature.............................................52 Section 10.3. Notices...............................................................................52 Section 10.4. Payment of Expenses; Indemnity........................................................53 Section 10.5. Parties in Interest...................................................................54 Section 10.6. Assignments and Participations........................................................54 Section 10.7. Confidentiality.......................................................................56 Section 10.8. Governing Law; Submission to Process..................................................56 Section 10.9. Waiver of Judgment Interest Act (Alberta).............................................57 Section 10.10. Deemed Reinvestment Not Applicable....................................................57 Section 10.11. Limitation on Interest................................................................57 Section 10.12. Termination; Limited Survival.........................................................58 Section 10.13. Severability..........................................................................58 Section 10.14. Counterparts; Fax.....................................................................58 Section 10.15. Waiver of Jury Trial, Punitive Damages, etc...........................................59 Section 10.16. Defined Terms.........................................................................59 Section 10.17. Annex I, Exhibits and Schedules; Additional Definitions...............................59 Section 10.18. Amendment of Defined Instruments......................................................59 Section 10.19. References and Titles.................................................................59 Section 10.20. Calculations and Determinations.......................................................60 Section 10.21. Construction of Indemnities and Releases..............................................60 Section 10.22. Separate Obligations..................................................................60
iii 5 Schedules and Exhibits: Annex I - Defined Terms Annex II - Lenders Schedule Schedule 1 - Disclosure Schedule Exhibit A - Promissory Note Exhibit B - Borrowing Notice Exhibit C - Continuation/Conversion Notice Exhibit D - Certificate Accompanying Financial Statements Exhibit E - Opinion of Counsel for Restricted Persons Exhibit F - Assignment and Acceptance Agreement Exhibit G - Reserved Exhibit H - Power of Attorney for BAs Exhibit I - Competitive Bid Request Exhibit J - Invitation to Bid Exhibit K - Competitive Bid Exhibit L - Competitive Bid Accept/Reject Letter Exhibit M - Competitive Bid Note
iv 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT is made as of December 11, 1998, by and among Northstar Energy Corporation, an Alberta corporation, and Devon Energy Canada Corporation, an Alberta corporation (herein collectively, called "Canadian Borrowers"), Bank of America Canada, individually and as administrative agent (herein called "Canadian Agent") and the undersigned Lenders. In consideration of the mutual covenants and agreements contained herein the parties hereto agree as follows: ARTICLE I - Canadian Advances Section 1.1. Commitments to Make Advances; Canadian Notes. Subject to the terms and conditions hereof, each Lender agrees to extend credit to each Canadian Borrower by advancing funds to the applicable Canadian Borrower specified in a Borrowing Notice (herein called such Lender's "Canadian Revolving Loans" and, with reference to Canadian Resident Lenders only, accepting or purchasing drafts of Bankers' Acceptances issued under this Agreement by the applicable Canadian Borrower specified in a Borrowing Notice (herein called such Lender's "Bankers' Acceptances"; each Lender's Canadian Revolving Loans, Canadian Term Loans, and Bankers' Acceptances are herein collectively called such Lender's "Canadian Advances") upon Canadian Borrower's request from time to time during the Canadian Revolving Period, provided that (i) subject to Sections 2.1, 2.2., 3.3, 3.4 and 3.5, all Lenders are requested to make Canadian Advances of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing and (ii) such Lender's Percentage Share of the Canadian Facility Usage shall never exceed such Lender's Percentage Share of the Canadian Maximum Credit Amount. The aggregate amount of all Canadian Loans in any Borrowing must be an integral multiple of $100,000 in the Applicable Currency which equals or exceeds $1,000,000 in the Applicable Currency or must equal the unadvanced portion of the Canadian Maximum Credit Amount. Each Canadian Borrower may have no more than ten Borrowings of Eurodollar Loans outstanding at any time. The obligation of each Canadian Borrower to repay to each Lender the aggregate amount of all Canadian Advances made by such Lender to such Borrower, together with interest accruing in connection therewith, shall be evidenced by a separate promissory note (herein called such Lender's "Canadian Note") made, by each Canadian Borrower payable to the order of such Lender in the form of Exhibit A with appropriate insertions. The amount of principal owing on any Lender's Canadian Note at any given time shall be the aggregate amount of all Canadian Advances theretofore made by such Lender minus all payments of principal theretofore received by such Lender on such Canadian Note. Interest on each Canadian Note shall accrue and be due and payable as provided herein and therein. Each Canadian Note shall be due and payable as provided herein and therein and shall be due and payable in full on the Canadian Facility Maturity Date. Section 1.2. Requests for New Canadian Advances. The applicable Canadian Borrower must give to Canadian Agent written notice (or telephonic notice promptly confirmed in writing) of any requested Borrowing of new Canadian Loans and any requested Borrowing by 7 way of new Bankers' Acceptances. Each such notice constitutes a "Borrowing Notice" hereunder and must: (a) specify (i) the aggregate amount of any such Borrowing of new Canadian Base Rate Loans and the date on which such Canadian Base Rate Loans are to be advanced, (ii) the aggregate amount of any such Borrowing of Canadian Prime Rate Loans and the date on which such Canadian Prime Rate Loans are to be advanced, (iii) the aggregate amount of any such Borrowing of new US Dollar Eurodollar Loans, the date on which such US Dollar Eurodollar Loans are to be advanced (which shall be the first day of the Eurodollar Interest Period which is to apply thereto), and the length of the applicable Eurodollar Interest Period, (iv) the aggregate amount of any such Borrowing of new Canadian Dollar Eurodollar Loans, the date on which such Canadian Dollar Eurodollar Loans are to be advanced (which shall be the first day of the Eurodollar Interest Period which is to apply thereto), and the length of the applicable Eurodollar Interest Period, or (v) the aggregate amount of any such Borrowing by way of Bankers' Acceptances (subject to Section 2.2(f)), and the date on which such Bankers' Acceptances are to be accepted and the maturity of such Bankers' Acceptances; and (b) be received by Canadian Agent not later than 11:00 a.m., Toronto, Ontario time, on (i) on the Business Day preceding the day on which any such Canadian Base Rate Loans or Canadian Prime Rate Loans are to be made, (ii) the third Business Day preceding the day on which any such Eurodollar Loans are to be made or (iii) the third Business Day before such Bankers' Acceptances are to be issued. Each such written request or confirmation must be made in the form and substance of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each such telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by the applicable Canadian Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Borrowing Notice, Canadian Agent shall give each Lender prompt notice of the terms thereof not later than 5:00 p.m. Toronto, Ontario time on the day it receives such Borrowing Notice from the applicable Canadian Borrower if it receives such Borrowing Notice by 11:00 a.m., Toronto, Ontario time, otherwise on the next Business Day. If all conditions precedent to such new Canadian Advances have been met, (i) each Lender will on the date requested promptly remit to Canadian Agent by 1:00 p.m. Toronto, Ontario time its Canadian Advances made in Canadian Dollars to Canadian Agent's office in Toronto, Canada and its Canadian Advances made in United States Dollars to the US Account in New York, New York) in immediately available funds, and upon receipt of such funds, unless to its actual knowledge any conditions precedent to such Canadian Advances have been neither met nor waived as provided herein, Canadian Agent shall promptly make such Canadian Advances available to the applicable Canadian Borrower or (ii) each Canadian Resident Lender will accept drafts of Bankers' Acceptances on the date requested in accordance with Sections 2.1 through 2.3. Unless Canadian Agent shall have received prompt notice from a Lender that such Lender will not make available to Canadian Agent such Lender's new Canadian Advance, Canadian Agent may in its discretion assume that such Lender has made such Canadian Advance available to Canadian Agent in accordance with this section and Canadian Agent may if it chooses, in reliance upon such assumption, make such Canadian Advance available to the applicable Canadian Borrower. If and to the extent such Lender shall not so make its new Canadian Advance available to Canadian Agent, such Lender and the applicable 2 8 Canadian Borrower severally agree to pay or repay to Canadian Agent within three days after demand the amount of such Canadian Advance together with interest thereon, for each day from the date such amount was made available to the applicable Canadian Borrower until the date such amount is paid or repaid to Canadian Agent, with interest at (1) the Canadian Prime Rate, if such Lender is making such payment and (2) the interest rate applicable at the time to the other new Canadian Advances made on such date, if a Canadian Borrower is making such repayment; provided that Canadian Agent gave notice of the terms of the Borrowing Notice to such Lender in accordance with the terms of this Section 1.2. If neither such Lender nor such Canadian Borrower pays or repays to Canadian Agent such amount within such three-day period, Canadian Agent shall in addition to such amount be entitled to recover from such Lender and from the applicable Canadian Borrower, on demand, interest on such Canadian Advance at the Default Rate applicable thereto, calculated from the date such amount was made available to such Canadian Borrower. The failure of any Lender to make any new Canadian Advance to be made by it hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its new Canadian Advance, but no Lender shall be responsible for the failure of any other Lender to make any new Canadian Advance to be made by such other Lender. Section 1.3. Continuations and Conversions of Existing Canadian Advances. Subject to the terms of Section 2.3 with respect to Bankers' Acceptances, the applicable Canadian Borrower may make the following elections with respect to Canadian Advances already outstanding under this Agreement: to convert any Type of Canadian Advance to any other Type of Canadian Advance, provided that any such Conversion of any Eurodollar Loan must be made on the last day of the Eurodollar Interest Period applicable thereto and any such Conversion of a Bankers' Acceptance must be made on the date of maturity thereof; and to continue Eurodollar Loans beyond the expiration of such Eurodollar Interest Period by designating a new Eurodollar Interest Period to take effect at the time of such expiration, and to rollover any existing Bankers' Acceptance by designating the new maturity date applicable thereto. In making such elections, the applicable Canadian Borrower may combine existing Canadian Advances made pursuant to separate Borrowings into one new Borrowing or divide existing Canadian Advances made pursuant to one Borrowing into separate new Borrowings, provided that Canadian Borrowers may have no more than ten Borrowings of US Dollar Eurodollar Loans outstanding at any time and no more than ten Borrowings of Canadian Dollar Eurodollar Loans outstanding at any time. To make any such election, the applicable Canadian Borrower must give to Canadian Agent written notice (or telephonic notice promptly confirmed in writing) of any such Conversion or Continuation of existing Canadian Advances, with a separate notice given for each new Borrowing. Each such notice constitutes a "Continuation/Conversion Notice" hereunder and must: (a) specify the existing Canadian Advances made under this Agreement which are to be continued or converted; (b) specify (i) the aggregate amount of any Borrowing of Canadian Base Rate Loans or Canadian Prime Rate Loans into which such existing Canadian Advances are to be continued 3 9 or converted and the date on which such Continuation or Conversion is to occur, or (ii) the aggregate amount of any Borrowing of Eurodollar Loans into which such existing Canadian Advances are to be continued or converted, the date on which such Continuation or Conversion is to occur (which shall be the first day of the Eurodollar Interest Period which is to apply to such Eurodollar Loans), and the length of the applicable Eurodollar Interest Period, or (iii) the amount of any Borrowing of Bankers' Acceptances into which such existing Canadian Advances are to be continued or converted, the date on which such Continuation or Conversion is to occur, and the maturity of such Bankers' Acceptances; and (c) be received by Canadian Agent not later than 11:00 a.m., Toronto, Ontario time, on (i) the first Business Day preceding the day on which any such Continuation or Conversion to Canadian Base Rate Loans or Canadian Prime Rate Loans is to occur, or (ii) the third Business Day preceding the day on which any such Continuation or Conversion to Eurodollar Loans is to occur, or (iii) on the third Business Day preceding the day on which any such Continuation or Conversion to Bankers' Acceptances is to occur. Each such written request or confirmation must be made in the form and substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly completed. Each such telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by the applicable Canadian Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Continuation/Conversion Notice, Canadian Agent shall give each Lender prompt notice of the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and binding on the applicable Canadian Borrower. During the continuance of any Default, Canadian Borrowers may not make any election to convert existing Canadian Advances made under this Agreement into Eurodollar Loans or Bankers' Acceptances or continue existing Eurodollar Loans made under this Agreement as Eurodollar Loans or to rollover existing Bankers' Acceptances into new Bankers' Acceptances. If (due to the existence of a Default or for any other reason) the applicable Canadian Borrower fails to timely and properly give or are prevented hereunder from giving any Continuation/Conversion Notice with respect to a Borrowing of existing Eurodollar Loans at least three days prior to the end of the Eurodollar Interest Period applicable thereto, such Eurodollar Loans shall automatically be converted into Canadian Base Rate Loans (in the case of US Dollar Eurodollar Loans) or Canadian Prime Rate Loans (in the case of Canadian Dollar Eurodollar Loans) at the end of such Eurodollar Interest Period. No new funds shall be repaid by the applicable Canadian Borrower or advanced by any Lender in connection with any Continuation or Conversion of existing Canadian Advances pursuant to this section, and no such Continuation or Conversion shall be deemed to be a new advance of funds for any purpose; such Continuations and Conversions merely constitute a change in terms of already outstanding Advances and the interest rate applicable thereto. Section 1.4. Repayments. (a) During Canadian Revolving Period. Subject to the terms and conditions hereof, either Canadian Borrower may borrow, repay, and reborrow hereunder during the Canadian Revolving Period, so long as (i) the applicable Canadian Borrower gives notice to Canadian 4 10 Agent by 2:00 p.m., Toronto, Ontario time on the Business Day immediately preceding the date of prepayment (and Canadian Agent shall give each Lender notice thereof by 4:30 p.m. Toronto, Ontario time on the date such notice is received from the applicable Borrower if it receives such Borrowing Notice by 11:00 a.m., Toronto, Ontario time, otherwise on the next Business Day) all partial prepayments of principal concurrently paid on the Canadian Loans are increments of $100,000 in the Applicable Currency and in an aggregate amount greater than or equal to $1,000,000 in the Applicable Currency and (ii) the applicable Canadian Borrower pays all amounts owing in connection with the prepayment of any Eurodollar Loan owing under Section 3.6. (b) During Canadian Term Period. (i) Optional Prepayments. Either Canadian Borrower may, upon giving notice to Canadian Agent by 2:00 p.m., Toronto, Ontario time on the Business Day immediately preceding the date of prepayment (and Canadian Agent shall give each Lender notice thereof by 5:00 p.m. Toronto, Ontario time on the date such notice is received from the applicable Canadian Borrower if it receives such notice by 11:00 a.m., Toronto, Ontario time, otherwise on the next Business Day), from time to time during the Term Period and without premium or penalty, prepay the Canadian Loans including Competitive Bid Notes, in whole or in part, so long as all partial prepayments of principal concurrently paid on the Canadian Loans are in increments of $100,000 in the Applicable Currency and in an aggregate amount greater than or equal to $1,000,000 in the Applicable Currency and so long as Canadian Borrowers pay all amounts owing in connection with the prepayment of any Eurodollar Loan owing under Section 3.6. Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid, shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Canadian Loan Documents at the time of such prepayment, and shall first reduce the semi-annual scheduled installments (other than the final installment) during the Term Period in respect of Canadian Loans that are not Competitive Bid Loans, then reduce the final installment in respect of Canadian Loans that are not Competitive Bid Loans, and then, unless otherwise designated by Canadian Borrowers, reduce the outstanding Competitive Bid Loans in order of shortest maturity. (ii) Scheduled Repayments of Principal. Subject to Section 1.4(b)(iii) during the Term Period, Borrower shall repay the principal of the Canadian Loans that are not Competitive Bid Loans in equal semi-annual installments, each in an amount equal to two and one-half percent (2.5%) of the outstanding principal balance of the Canadian Advances on the Conversion Date. Such installments shall be due and payable on each June 30 and December 31 each year and in a final installment due and payable on the Canadian Facility Maturity Date in an amount equal to the entire unpaid principal balance of such Loans outstanding on the Canadian Facility Maturity Date. (iii) Income Tax Act (Canada). In no event shall either Canadian Borrower be required to repay more than 25% of the principal amount (as defined in the Income Tax 5 11 Act (Canada)) of the Canadian Advances made to it prior to five years and a day after the Conversion Date, including, but not limited to payments under Section 1.4(b)(ii), 1.4(c) and 1.4(d). (c) Mandatory Prepayments. Except to the extent permitted by Section 1.4(d) if the aggregate principal amount of the outstanding Canadian Obligations ever exceeds the Canadian Maximum Credit Amount, Canadian Borrowers shall immediately prepay the principal of the Canadian Loans outstanding under the Canadian Agreement in an amount at least equal to such excess; provided that in no event shall a Canadian Borrower ever be required to make any mandatory prepayments or repayments in respect of a loan in an aggregate amount of more than 25% of the principal amount of the loan prior to five years and a day after the Conversion Date. Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Canadian Loan Documents at the time of such prepayment. Any mandatory prepayment of any principal amount (for the purposes of this Section, as defined in the Income Tax Act (Canada)) of the Canadian Loans made by a Canadian Borrower pursuant to Sections 1.4(c) and 1.4(d) or otherwise, shall first reduce the semi-annual scheduled installments (other than the final installment) during the Term Period in respect of Canadian Loans that are not Competitive Bid Loans, then reduce the final installment in respect of Canadian Loans that are not Competitive Bid Loans, and then, unless otherwise designated by Canadian Borrowers, reduce the outstanding Competitive Bid Loans in order of shortest maturity. If such prepayment of Canadian Loans does not eliminate such mandatory prepayment obligation, the further repayment shall apply to an escrow fund maintained in accordance with Section 2.5. (d) Currency Fluctuations. Notwithstanding any other provision of this Agreement, if any Canadian Loan outstanding is denominated in C$, Canadian Agent shall have the right to calculate the outstanding Canadian Obligations for all purposes including making a determination from time to time of the available undrawn portion of the Canadian Maximum Credit Amount. If following such calculation, Canadian Agent determines that the outstanding Canadian Obligations are greater than 105% of the Canadian Advances permitted hereby to be outstanding at such time, then Canadian Agent shall so advise Canadian Borrowers and Canadian Borrowers shall repay, on the later of five Business Days after such advice and the next applicable Interest Payment Date immediately following such date of calculation, an amount sufficient to eliminate the excess over and above the aggregate amount of the Canadian Loans permitted hereby to be outstanding at such time, together with all accrued interest on the amount so paid. Any mandatory prepayment of any principal amount (for the purposes of this Section, as defined in the Income Tax Act (Canada)) made by a Canadian Borrower pursuant to Sections 1.4(c) and 1.4(d) or otherwise in respect of a particular loan, shall reduce the semi-annual scheduled installments (other than the final installment) during the Term Period in respect of that loan in inverse order of maturity. Such mandatory prepayments shall be applied to the Canadian Loans (other than Bankers' Acceptances and Competitive Bid Loans) pro rata based on outstanding principal; provided that if such prepayment of Canadian Loans does not eliminate 6 12 such mandatory prepayment obligation, the further repayments shall apply first to Competitive Bid Loans in order of shortest maturity, and second to an escrow fund maintained in accordance with Section 2.5. Section 1.5. Interest Rates and Fees. (a) Interest Rates. The Canadian Loans shall bear interest payable by the applicable Canadian Borrower as follows and all accrued and unpaid interest on the Canadian Loans shall be due and payable on the applicable Interest Payment Date at the place set forth in the Canadian Notes: (i) Each Canadian Base Rate Loan shall bear interest on each day outstanding at the Canadian US Dollar Base Rate in effect on such day. (ii) Each Canadian Prime Rate Loan shall bear interest on each day outstanding at the Canadian Prime Rate in effect on such day. (iii) Each US Dollar Eurodollar Loan shall bear interest on each day during the related Eurodollar Interest Period at the related Adjusted US Dollar Eurodollar Rate in effect on such day. (iv) Each Canadian Dollar Eurodollar Loan shall bear interest on each day during the related Eurodollar Interest Period at the related Adjusted Canadian Dollar Eurodollar Rate in effect on such day. (v) Notwithstanding the foregoing, if an Event of Default has occurred and is continuing, each Canadian Loan shall bear interest on each day outstanding at the applicable Default Rate. Past due payments of principal and interest shall bear interest at the rates and in the manner set forth in the Canadian Notes. (b) Facility Fees. In consideration of each Lender's commitment to make Canadian Advances under this Agreement, Canadian Borrowers will pay to Canadian Agent for the account of each Lender a facility fee determined on a daily basis by applying the Facility Fee Rate to such Lender's Percentage Share of the Canadian Maximum Credit Amount on each day during the Canadian Revolving Period. This facility fee shall be due and payable in arrears on the last day of each Fiscal Quarter and at the end of the Canadian Revolving Period. (c) Utilization Fees. In consideration of each Lender's commitment to make Canadian Advances under this Agreement, Canadian Borrowers will pay to Canadian Agent for the account of each Lender a utilization fee determined on a daily basis by applying a rate of 15 Basis Points per annum to such Lender's Percentage Share of the Canadian Facility Usage on each day during the Canadian Revolving Period on which the Canadian Facility Usage exceeds fifty percent (50%) of the Canadian Maximum Credit Amount. This utilization fee shall be due and payable in arrears on each Interest Payment Date for Canadian US Dollar Base Rate Loans and at the end of the Canadian Revolving Period. 7 13 (d) Stamping Fees. In consideration of each Canadian Resident Lender's commitment to accept or participate in Bankers' Acceptances under this Agreement, the applicable Canadian Borrower will pay to Canadian Agent for the account of such Lender the Stamping Fee Rate multiplied by the face amount of each Bankers' Acceptance accepted by such Lender under this Agreement calculated for the number of days in the term of such Bankers' Acceptance. Such fee shall be due and payable on the date on which such Bankers' Acceptances are accepted and if such Canadian Resident Lender is purchasing such Bankers' Acceptance, such fee shall be deducted from the Discount Proceeds paid to the applicable Canadian Borrower (e) Canadian Agent's Fees. In addition to all other amounts due to Canadian Agent under the Canadian Loan Documents, Canadian Borrowers will pay fees to Canadian Agent as described in a letter agreement of even date herewith between Canadian Agent and Canadian Borrowers. Section 1.6. Extension of Conversion Date. (a) Canadian Borrowers may, at their option and from time to time during the Canadian Revolving Period, request an offer to extend the Canadian Revolving Period by delivering to Canadian Agent a Request for an Offer of Extension not more than ninety days prior to the then current Conversion Date. Canadian Agent shall forthwith provide a copy of the Request for an Offer of Extension to each of the Lenders. Upon receipt by Canadian Agent from Canadian Borrowers of an executed Request for an Offer of Extension, each Lender shall, within thirty days after the date Canadian Agent receives such request from Canadian Borrowers, either: (i) notify Canadian Agent of its acceptance of the Request for an Offer of Extension, and the terms and conditions, if any, upon which such Lender is prepared to extend the Conversion Date; or (ii) notify Canadian Agent that the Request for an Offer of Extension has been denied, such notice to forthwith be forwarded by Canadian Agent to Canadian Borrowers to allow Canadian Borrowers to seek a replacement lender pursuant to Section 1.8 (any Lender giving notice of such denial is herein called a "Non-Accepting Lender"). The failure of a Lender to so notify Canadian Agent within such thirty day period shall be deemed to be notification by such Lender to Canadian Agent that such Lender has denied Canadian Borrowers' Request for an Offer of Extension. (b) Provided that all Lenders provide notice to Canadian Agent under Section 1.6(a) that they accept the Request for an Offer of Extension, or if there are Non-Accepting Lenders, such Lenders shall have been repaid pursuant to Section 1.8 or replacement lenders shall have become parties hereto pursuant to Section 1.8 and shall have accepted the Request for an Offer of Extension, such acceptance having common terms and conditions, Canadian Agent shall deliver to Canadian Borrowers an Offer of Extension incorporating the said terms and conditions. Such offer shall be open for acceptance by Canadian Borrowers until the fifth Business Day immediately preceding the then current Conversion Date. Upon written notice by Canadian Borrowers to Canadian Agent accepting an outstanding Offer of Extension and agreeing to the 8 14 terms and conditions, if any, specified therein (the date of such notice of acceptance in Section 1.6 and 1.8 being called the "Extension Date"), the Conversion Date shall be extended to the date 364 days from the Extension Date and the terms and conditions specified in such Offer of Extension shall be immediately effective. (c) Canadian Borrowers understand that the consideration of any Request for an Offer of Extension constitutes an independent credit decision which each Lender retains the absolute and unfettered discretion to make and that no commitment in this regard is hereby given by a Lender and that any offer to extend the Conversion Date may be on such terms and conditions in addition to those set out herein as the extending Lenders stipulate. Section 1.7. Conversion to Canadian Term Loan. Unless there is an extension of the Canadian Revolving Period in accordance with Section 1.6, effective at 11:59 p.m. Toronto, Ontario time on the day immediately preceding the Conversion Date, and provided that no Event of Default shall have occurred and be continuing, (i) each Lender's obligation to make new Canadian Advances and Canadian LC Issuer's obligation to issue Letters of Credit hereunder shall be canceled automatically, and (ii) each Lender's Canadian Loans shall become term Canadian Loans ("Canadian Term Loans") maturing on the Canadian Facility Maturity Date. Section 1.8. Non-Accepting Lender. Provided that Lenders whose Percentage Shares represent more than 50% but less than 100% of the Canadian Maximum Credit Amount provide notice to Agent under Section 1.6(a) that they accept the Request for an Offer of Extension, on notice of Canadian Borrowers to Agent, Canadian Borrowers shall be entitled to choose any of the following in respect of each Non-Accepting Lender prior to the expiration of the Canadian Revolving Period, provided that if Canadian Borrowers do not make an election prior to the expiration of the Canadian Revolving Period, Canadian Borrowers shall be deemed to have irrevocably elected to exercise the provisions of Section 1.8(b): (a) (i) the Non-Accepting Lender's obligations to make Canadian Advances shall be canceled as of the Extension Date, the Canadian Maximum Credit Amount shall be reduced by the amount so canceled, and on or prior to the Extension Date the Canadian Borrowers shall repay in full all Obligations then outstanding to the Non-Accepting Lender (as defined in Section 1.6(a)(ii)) , or (ii) replace the Non-Accepting Lender by reaching satisfactory arrangements with one or more existing Lenders or new Lenders, for the purchase, assignment and assumption of all Canadian Obligations and US Obligations of the Non-Accepting Lender, provided that any new Lender, with, if necessary, any Affiliate, shall take a pro rata assignment of both Canadian Obligations and US Obligations, and such Non-Accepting Lender shall be obligated to sell such Obligations in accordance with such satisfactory arrangements; or (b) Canadian Borrowers may elect to revoke and cancel the Request for an Offer of Extension by giving notice of such revocation and cancellation to Agent (which shall promptly notify the Lenders thereof), and concurrently therewith, shall have the option to (i) cancel the obligations of Lenders under the Canadian Agreement and, subject to the notice requirements set forth in Section 1.6(a) and to the provisions of Article III, repay in full all Canadian Obligations, 9 15 or (ii) have the outstanding Canadian Loans that are not Competitive Bid Loans on the Conversion Date become term loans as provided in Section 1.7. In connection with any such replacement of a Lender Party pursuant to this Section 1.8, the applicable Canadian Borrower shall pay all costs that would have been due to such Lender Party pursuant to Section 3.6 if such Lender Party's Canadian Advances had been prepaid at the time of such replacement. Section 1.9. Competitive Bid Loans. (a) Either Canadian Borrower may request that each Canadian Resident Lender submit Competitive Bids (on a several basis) to the applicable Canadian Borrower on any Business Day during the Canadian Revolving Period, provided that all Canadian Resident Lenders are requested to make a Competitive Bid on the same basis at the same time. In order to request Competitive Bids, the applicable Canadian Borrower shall deliver by hand or facsimile to Canadian Agent a Competitive Bid Request, to be received by Canadian Agent not later than 9:00 a.m., Toronto, Ontario time one Business Day before the date specified for a proposed Competitive Bid Loan. A Competitive Bid Request that does not conform substantially to the format of Exhibit I may be rejected in Canadian Agent's sole discretion, and Canadian Agent shall promptly notify the applicable Canadian Borrower of such rejection by facsimile. After receiving an acceptable Competitive Bid Request, Canadian Agent shall no later than 12:00 noon, Toronto, Ontario time on the date such Competitive Bid Request is received by Canadian Agent, by facsimile deliver to Canadian Resident Lenders an Invitation to Bid substantially in the form of Exhibit J with respect thereto. (b) Each Canadian Resident Lender may, in its sole discretion, make one or more Competitive Bids to Canadian Agent responsive to each Competitive Bid Request given by the applicable Canadian Borrower. Each Competitive Bid by a Canadian Resident Lender must be received by Canadian Agent by facsimile not later than 9:00 a.m., Toronto, Ontario time on the date specified for a proposed Competitive Bid Loan. Multiple bids may be accepted by Canadian Agent. Competitive Bids that do not conform substantially to the format of Exhibit K may be rejected by Canadian Agent after conferring with, and upon the instruction of, the applicable Canadian Borrower, and Canadian Agent shall notify the bidding Canadian Resident Lender of such rejection as soon as practicable. If any Canadian Resident Lender shall elect not to make a Competitive Bid, such Canadian Resident Lender shall so notify Canadian Agent by facsimile not later than 9:00 a.m., Toronto, Canada time, on the date specified for a Competitive Bid Loan; provided, however, that failure by any Canadian Resident Lender to give such notice shall not cause such Canadian Resident Lender to be obligated to make any Competitive Bid Loan and by such failure such Lender shall be deemed to have rejected such Competitive Bid. A Competitive Bid submitted by a Canadian Resident Lender shall be irrevocable. (c) Promptly, and in no event later than 9:30 a.m., Toronto, Ontario time, on the date specified for a proposed Competitive Bid Loan, Canadian Agent shall notify the applicable Canadian Borrower by facsimile of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Bid Loan in respect of which a Competitive Bid was 10 16 made, and the identity of each Canadian Resident Lender that made each Competitive Bid. Canadian Agent shall send a copy of all Competitive Bids to the applicable Canadian Borrower for its records as soon as practicable after completion of the bidding process. (d) The applicable Canadian Borrower may, subject only to the provisions hereof, accept or reject any Competitive Bid. The applicable Canadian Borrower shall notify Canadian Agent by facsimile pursuant to a Competitive Bid Accept/Reject Letter whether and to what extent the applicable Canadian Borrower has decided to accept or reject any or all of the Competitive Bids, not later than 10:00 a.m., Toronto, Ontario time, on the date specified for a proposed Competitive Bid Loan; provided, however, that: (i) the failure by the applicable Canadian Borrower to accept or reject any Competitive Bid within the time period specified herein shall be deemed to be a rejection of such Competitive Bid, (ii) the aggregate amount of the Competitive Bids accepted by the applicable Canadian Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iii) the aggregate amount of all outstanding Canadian Loans and Canadian LC Obligations shall never exceed the Canadian Maximum Credit Amount, (iv) if the applicable Canadian Borrower shall accept a Competitive Bid or Competitive Bids made at a particular Competitive Bid Rate, but the amount of such Competitive Bid or Competitive Bids shall cause the total amount of Competitive Bids to be accepted by the applicable Canadian Borrower to exceed the amount specified in the Competitive Bid Request, then the applicable Canadian Borrower shall accept a portion of such Competitive Bid or Competitive Bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate, and (v) no Competitive Bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of C $ 5,000,000 or a higher integral multiple thereof; provided, however, that if a Competitive Bid Loan must be in an amount less than C $5,000,000 because of the provisions of clause (iv) above, such Competitive Bid Loan may be for a minimum of C $1,000,000 or any higher integral multiple thereof, and in calculating the pro rata allocation of acceptances or portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv), the amounts shall be rounded to integral multiples of C $1,000,000 in a manner which shall be in the sole and absolute discretion of the applicable Canadian Borrower. 11 17 (e) Promptly on each date the applicable Canadian Borrower accepts a Competitive Bid, Canadian Agent shall notify each Canadian Resident Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by facsimile transmission sent by Canadian Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Bid Loan in respect of which its Competitive Bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, Canadian Agent shall notify each Canadian Resident Lender of the aggregate principal amount of all Competitive Bids accepted. Each Canadian Resident Lender which is to make a Competitive Bid Loan shall, before 11:00 a.m., Toronto, Ontario time, on the borrowing date specified in the Competitive Bid Request applicable thereto, make available to Canadian Agent in immediately available funds the amount of each Competitive Bid Loan to be made by such Canadian Resident Lender, and Canadian Agent shall promptly deposit such funds to an account designated by the applicable Canadian Borrower. As soon as practicable thereafter, Canadian Agent shall notify each Canadian Resident Lender of the aggregate amount of Competitive Bid Loans advanced, the respective Competitive Bid Interest Periods thereof and Competitive Bid Rate applicable thereto. (f) The obligation of the applicable Canadian Borrower to repay to each Canadian Resident Lender the aggregate amount of all Competitive Bid Loans made by such Canadian Resident Lender, together with interest accruing in connection therewith, shall be evidenced by promissory notes (respectively, such Canadian Resident Lender's "Competitive Bid Note") made by the applicable Canadian Borrower payable to the order of such Canadian Resident Lender in the form of Exhibit M, with appropriate insertions. The amount of principal owing on any Canadian Resident Lender's Competitive Bid Note at any given time shall be the aggregate amount of all Competitive Bid Loans theretofore made by such Canadian Resident Lender thereunder minus all payments of principal theretofore received by such Canadian Resident Lender thereon. Interest on each Competitive Bid Note shall accrue and be due and payable as provided herein and therein. The applicable Canadian Borrower shall repay on the final day of the Competitive Bid Interest Period of each Competitive Bid Loan (such date being that specified by the applicable Canadian Borrower for repayment of such Competitive Bid Loan in the related Competitive Bid Request and such date being no later than six months after the date of the Competitive Bid Loan) the then unpaid principal amount of such Competitive Bid Loan. Subject to Section 1.4(b) and the payment of amounts described in Section 3.6, the applicable Canadian Borrower shall have the right to prepay any principal amount of any Competitive Bid Loan. (g) No Competitive Bid Loan shall be made within five Business Days after the date of any other Competitive Bid Loan, unless the applicable Canadian Borrower and Canadian Agent shall mutually agree otherwise. If Canadian Agent shall at any time elect to submit a Competitive Bid in its capacity as a Canadian Resident Lender, it shall submit such bid directly to the applicable Canadian Borrower requesting such Competitive Bid one quarter of an hour earlier than the latest time at which the other Canadian Resident Lenders are required to submit their bids to Canadian Agent. Section 1.10. Use of Proceeds. Canadian Borrowers shall use all Canadian Advances (i) to first, pay in full the Indebtedness of Northstar Energy to Canadian Imperial Bank of Commerce pursuant to two Credit Agreements both dated April 15, 1997, and thereafter (ii) to finance capital expenditures, (iii) to refinance Matured Canadian LC Obligations outstanding 12 18 under this Agreement, and (iv) provide working capital for its operations and for other general business purposes. Canadian Borrowers shall use all Letters of Credit for its general corporate purposes. In no event shall the funds from any Canadian Loan or any Letter of Credit be used directly or indirectly by any Person for personal, family, household or agricultural purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock. Each Canadian Borrower represents and warrants that such Canadian Borrower is not engaged principally, or as one of such Canadian Borrower's important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock. ARTICLE II - Bankers' Acceptances and Letters of Credit Section 2.1. Creation of Bankers' Acceptances. Upon receipt of a Borrowing Notice and subject to the provisions of this Agreement, each Canadian Resident Lender shall accept, in accordance with its Percentage Share of the requested Borrowing from time to time such Bankers' Acceptances as Canadian Borrowers shall request provided that: (a) Bankers' Acceptances shall be issued on a Business Day; (b) each Bankers' Acceptance shall have a term of 30, 60, 90 or 180 days (excluding days of grace), as selected by Canadian Borrowers in the relevant Borrowing Notice provided that each Bankers' Acceptance shall mature on a Business Day; (c) the face amount of each Bankers' Acceptance shall be not less than C$100,000 and in multiples of C$100,000 for any amounts in excess thereof; and (d) each Bankers' Acceptance shall be in a form acceptable to the Canadian Resident Lenders. Section 2.2. Terms of Acceptance by the Canadian Resident Lenders. (a) Delivery and Payment. Subject to Sections 2.3 and 2.4, Canadian Borrowers shall pre-sign and deliver to each Canadian Resident Lender bankers' acceptance drafts in sufficient quantity to meet Canadian Borrowers' requirements for anticipated Borrowings by way of Bankers' Acceptances. The applicable Canadian Borrower shall, at its option, provide for payment to Canadian Agent for the benefit of Canadian Resident Lenders of each Bankers' Acceptance on the date on which a Bankers' Acceptance matures, either by payment of the full face amount thereof or through utilization of a Conversion to another Type of Borrowing in accordance with this Agreement, or through a combination thereof. Each Canadian Borrower waives presentment for payment of Bankers' Acceptances by Canadian Resident Lenders and shall not claim from Canadian Resident Lenders any days of grace for the payment at maturity of Bankers' Acceptances. Any amount owing by Canadian Borrowers in respect of any Bankers' 13 19 Acceptance which is not paid in accordance with the foregoing, shall, as and from the date on which such Bankers' Acceptance matures, be deemed to be outstanding hereunder as a Canadian Prime Rate Loan. (b) No Liability. Canadian Agent and Canadian Resident Lenders shall not be liable for any damage, loss or improper use of any bankers' acceptance draft endorsed in blank except for any loss arising by reason of Canadian Agent or a Canadian Resident Lender failing to use the same standard of care in the custody of such bankers' acceptance drafts as Canadian Agent or such Canadian Resident Lender use in the custody of their own property of a similar nature. (c) Bankers' Acceptances Purchased by Canadian Resident Lenders. Where the applicable Canadian Borrower so elects in the Borrowing Notice or Continuation/Conversion Notice, a Canadian Resident Lender shall purchase Bankers' Acceptances accepted by it for an amount equal to the Discount Proceeds. (d) Marketing. Where the applicable Canadian Borrower so elects in the Borrowing Notice or Continuation/Conversion Notice, it shall be responsible for, and shall make its own arrangements with respect to, the marketing of Bankers' Acceptances. (e) Power of Attorney. At the request of Canadian Borrowers, the Canadian Resident Lenders and Canadian Borrowers shall enter into a Power of Attorney, substantially in the form of Exhibit "H", to facilitate the execution and sale of Bankers' Acceptances. (f) Non-resident Lenders Participation in Borrowing of Bankers' Acceptances by Making Canadian Dollar Eurodollar Loans. As part of each Borrowing by way of Bankers' Acceptances from Canadian Resident Lenders, each Non-resident Lender shall, with respect to its obligations to fund such Borrowing, make a Canadian Dollar Eurodollar Loan by advancing Canadian Dollars in the amount of its Percentage Share of such Borrowing having a Eurodollar Interest Period that is substantially the same as the period to maturity of the Bankers' Acceptances that are accepted in such Borrowing by Canadian Resident Lenders in order that all Borrowings other than Competitive Bid Loans shall remain pro rata during the term of this Agreement. Such Canadian Dollar Eurodollar Loan shall otherwise be made on the terms set forth in Article I with respect to such Type of Loan. (g) Pro-Rata Treatment of Canadian Advances. (i) Each Canadian Advance shall be made available by each Canadian Lender and all repayments and reductions in respect thereof shall be made and applied in a manner so that the Canadian Advances outstanding hereunder to each Canadian Lender will, to the extent possible, thereafter be pro rata in accordance with such Lender's Percentage Share. The Canadian Agent is authorized by each Canadian Borrower and each Lender to determine, in its sole and unfettered discretion, the portion of each Canadian Advance and each Type of Canadian Advance to be made available by each Canadian Lender and the application of repayments and reductions of Canadian Advances to give effect to the provisions of this Section, provided that no Lender shall, as a result 14 20 of any such determination, have a Percentage Share of the Canadian Advances which is in excess of its Percentage Share of the Canadian Maximum Credit Amount. (ii) In the event it is not practicable to allocate Bankers' Acceptances to each Canadian Lender such that the aggregate amount of Bankers' Acceptances required to be purchased by such Canadian Lender hereunder is in a whole multiple of C $100,000, the Canadian Agent is authorized by each Canadian Borrower and each Lender to make such allocation as the Canadian Agent determines in its sole and unfettered discretion may be equitable in the circumstances and, if the aggregate amount of such Bankers' Acceptances is not a whole multiple of C $100,000, then the Canadian Agent may allocate (on a basis considered by it to be equitable) the excess of such Canadian Advance over the next lowest whole multiple of C $100,000 to one Canadian Lender, which shall purchase a Bankers' Acceptance with a face amount equal to the excess and having the same term as the corresponding Bankers' Acceptances. In no event shall the portion of the outstanding Borrowings by way of Bankers' Acceptances of a Lender exceed such Lenders' Percentage Share of the Aggregate Borrowings by way of Bankers' Acceptances by more than C $100,000 as a result of such exercise of discretion by the Canadian Agent. (h) If during the term of any Bankers' Acceptance accepted by a Lender hereunder the Applicable Margin changes or an Event of Default occurs and is continuing, the fee paid to such Lender by the applicable Borrower pursuant to Section 1.5(d) (in this paragraph called the "Initial Fee") with respect to such Bankers' Acceptance shall be recalculated based upon such change in the Applicable Margin or the existence of such Event of Default for the number of days during the term of such Bankers' Acceptance that such change is applicable or such Event of Default exists. If such recalculated amount is in excess of the Initial Fee then such Canadian Borrower shall pay to such Lender the amount of such excess, and if such recalculated amount is less than the Initial Fee, then the amount of such reduction shall be credited to other amounts payable by such Canadian Borrower to such Lender. Section 2.3. General Procedures for Bankers' Acceptances. (a) Notice. Canadian Borrowers may in the Borrowing Notice or in a Continuation/Conversion Notice request a Borrowing by way of Bankers' Acceptances and, if the Canadian Borrower is responsible for marketing of such Bankers' Acceptances under Section 2.2(d), by subsequent notice to Canadian Agent provide Canadian Agent, which shall in turn notify each Canadian Resident Lender, with information as to the discount proceeds payable by the purchasers of the Bankers' Acceptances and the party to whom delivery of the Bankers' Acceptances by each Canadian Resident Lender is to be made against delivery to each Canadian Resident Lender of the applicable discount proceeds, but if it does not do so, Canadian Borrowers shall initiate a telephone call to Canadian Agent by 10:00 a.m. Toronto, Ontario time on the date of advance, or the date of the Continuation or Conversion, as applicable, and provide such information to Canadian Agent. Such discount proceeds less the fee calculated in accordance with Section 1.5(d) shall promptly be delivered to the Canadian Agent. Any such telephone advice shall be subject to Section 1.2 and shall be confirmed by a written notice of 15 21 Canadian Borrowers to Canadian Agent prior to 2:00 p.m. Toronto, Ontario time on the same day. (b) Continuations. In the case of a Continuation of maturing Bankers' Acceptances, issued by a Canadian Resident Lender, such Canadian Resident Lender, in order to satisfy the continuing liability of Canadian Borrowers to the Canadian Resident Lender for the face amount of the maturing Bankers' Acceptances, shall retain for its own account the Net Proceeds of each new Bankers' Acceptance issued by it in connection with such Continuation; and Canadian Borrowers shall, on the maturity date of the maturing Bankers' Acceptances, pay to Canadian Agent for the benefit of Canadian Resident Lenders an amount equal to the difference between the face amount of the maturing Bankers' Acceptances and the aggregate Net Proceeds of the new Bankers' Acceptances. (c) Conversion from Canadian Prime Rate Loans and Canadian Dollar Eurodollar Loans. In the case of a Conversion from a Borrowing of Canadian Prime Rate Loans or Canadian Dollar Eurodollar Loans into a Borrowing by way of Bankers' Acceptances to be accepted by a Canadian Resident Lender pursuant to Sections 2.1, 2.2 and 2.3, such Canadian Resident Lender, in order to satisfy the continuing liability of Canadian Borrowers to it for the principal amount of the Canadian Prime Rate Loans or Canadian Dollar Eurodollar Loans being converted, shall retain for its own account the Discount Proceeds of each new Bankers' Acceptance issued by it in connection with such Conversion; and Canadian Borrowers shall, on the date of issuance of the Bankers' Acceptances, pay to Canadian Agent for the benefit of Canadian Resident Lenders an amount equal to the difference between the aggregate principal amount of the Canadian Prime Rate Loans or Canadian Dollar Eurodollar Loans being converted owing to the Canadian Resident Lenders and the aggregate Discount Proceeds of such Bankers' Acceptances. (d) Conversions to Canadian Loans in Canadian Dollars. In the case of a Conversion of a Borrowing by way of Bankers' Acceptances into Canadian Loans, each Canadian Resident Lender, in order to satisfy the liability of the applicable Canadian Borrower to it for the face amount of the maturing Bankers' Acceptances, shall record the obligation of the applicable Canadian Borrower to it as a Canadian Prime Rate Loan, unless the applicable Canadian Borrower provide for payment to Canadian Agent for the benefit of Canadian Resident Lenders of the face amount of the maturing Bankers' Acceptance in some other manner acceptable to Canadian Resident Lenders, including Conversion to another Type of Canadian Loan pursuant to a Continuation/Conversion Notice. (e) Conversion from or to Canadian Loans in U.S. Dollars. In the case of a conversion of Bankers' Acceptances from or to a Canadian Base Rate Loans or US Dollar Eurodollar Loans, the parties to which this Section applies shall follow the notice procedures set out in Section 1.3 and the funding procedures set out in Section 2.3 (c) and (d) without netting of funds. (f) Authorization. Canadian Borrowers hereby authorize each Canadian Resident Lender to complete, stamp, hold, sell, rediscount or otherwise dispose of all Bankers' 16 22 Acceptances accepted by it pursuant to this Section in accordance with the instructions provided by Canadian Borrowers pursuant to Section 1.3, as applicable. (g) Depository Notes. The parties agree that in the administering of Bankers' Acceptances, each Lender may avail itself of the debt clearing services offered by a clearing house for depository notes pursuant to the Depository Bills and Notes Act (Canada) and that the procedures set forth in Article II be deemed amended to the extent necessary to comply with the requirements of such debt clearing services. Section 2.4. Execution of Bankers' Acceptances. The signatures of any authorized signatory on Bankers' Acceptances may, at the option of Canadian Borrowers, be reproduced in facsimile and such Bankers' Acceptances bearing such facsimile signatures shall be binding on Canadian Borrowers as if they had been manually signed by such authorized signatory. Notwithstanding that any person whose signature appears on any Bankers' Acceptance as a signatory may no longer be an authorized signatory of Canadian Borrowers at the date of issuance of a Bankers' Acceptance, and notwithstanding that the signature affixed may be a reproduction only, 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 as if such signature had been manually applied, and any such Bankers' Acceptance so signed shall be binding on Canadian Borrowers. Section 2.5. Escrowed Funds. Upon the occurrence of an Event of Default and an acceleration of the Canadian Obligations under Section 8.1 or upon a prepayment permitted under Section 1.4, Canadian Borrowers shall forthwith pay to Canadian Agent for deposit into an escrow account maintained by and in the name of Canadian Agent for the benefit of Canadian Resident Lenders in accordance with their Percentage Shares an amount equal to the Canadian Resident Lenders' maximum potential liability (as determined by Canadian Agent) under then outstanding Bankers' Acceptances (the "Escrow Funds"). The Escrow Funds shall be held by Canadian Agent for set-off against future Canadian Obligations of Canadian Borrowers and pending such application shall bear interest at the rate declared by Canadian Agent from time to time as that payable by it in respect of deposits for such amount and for such period relative to the maturity date of the Bankers' Acceptances, as applicable. If such Event of Default is either waived or cured in compliance with the terms of this Agreement, then the Escrow Funds, together with any accrued interest to the date of release, shall be forthwith released to Canadian Borrowers. Section 2.6. Letters of Credit. Subject to the terms and conditions hereof, any Canadian Borrower may during the Canadian Revolving Period request Canadian LC Issuer to issue one or more Letters of Credit denominated in either Canadian Dollars or US Dollars, provided that, after taking such Letter of Credit into account: (a) the Canadian Facility Usage does not exceed the Canadian Maximum Credit Amount at such time; 17 23 (b) the aggregate amount of Canadian LC Obligations arising from Letters of Credit issued under this Agreement at such time does not exceed the Canadian LC Sublimit; (c) the expiration date of such Letter of Credit is prior to the end of the Canadian Revolving Period; (d) such Letter of Credit is to be used for general corporate purposes of such Canadian Borrower; (e) such Letter of Credit is not directly or indirectly used to assure payment of or otherwise support any Indebtedness of any Person other than Indebtedness of any Restricted Person permitted by this Agreement; (f) the issuance of such Letter of Credit will be in compliance with all applicable governmental restrictions, policies, and guidelines and will not subject Canadian LC Issuer to any cost which is not reimbursable under Article III; (g) the form and terms of such Letter of Credit are acceptable to Canadian LC Issuer in its reasonable discretion; and (h) all other conditions in this Agreement to the issuance of such Letter of Credit have been satisfied. Canadian LC Issuer will honor any such request if the foregoing conditions (a) through (h) (in this Section 2.6 called the "LC Conditions") have been met as of the date of issuance of such Letter of Credit. Canadian LC Issuer may choose to honor any such request for any other Letter of Credit but has no obligation to do so and may refuse to issue any other requested Letter of Credit for any reason which Canadian LC Issuer in its sole discretion deems relevant. Section 2.7. Requesting Letters of Credit. The applicable Canadian Borrower must make written application for any Letter of Credit at least three Business Days before the date on which the applicable Canadian Borrower desires for Canadian LC Issuer to issue such Letter of Credit. By making any such written application the applicable Canadian Borrower shall be deemed to have represented and warranted that the LC Conditions described in Section 2.6 will be met as of the date of issuance of such Letter of Credit. Each such written application for a Letter of Credit must be made in writing on Canadian LC Issuer's standard form of Letter of Credit Application, the terms and provisions of which are hereby incorporated herein by reference (or in such other form as may mutually be agreed upon by Canadian LC Issuer and the applicable Canadian Borrower). Three Business Days after the LC Conditions for a Letter of Credit have been met as described in Section 2.6 (or if Canadian LC Issuer otherwise desires to issue such Letter of Credit), Canadian LC Issuer will issue such Letter of Credit at Canadian LC Issuer's office in Toronto, Ontario. If any provisions of any LC Application conflict with any provisions of this Agreement, the provisions of this Agreement shall govern and control. 18 24 Section 2.8. Reimbursement and Participations. (a) Reimbursement by Canadian Borrowers. Each Matured Canadian LC Obligation arising from a Letter of Credit issued under the Canadian Agreement shall constitute Canadian Prime Rate Loans made by Canadian LC Issuer to the applicable Canadian Borrower even if any condition precedent to the making of such a Loan shall not have been satisfied. Each Lender shall (in all circumstances and without set-off or counterclaim) purchase from Canadian LC Issuer its Percentage Share of such Canadian Prime Rate Loans and pay to Canadian LC Issuer on demand on the date on which such Matured LC Obligation arises, in immediately available funds at Canadian LC Issuer's address for notices hereunder, such Lender's Percentage Share of such Matured Canadian LC Obligation. Each Lender's obligation to pay Canadian LC Issuer pursuant to the terms of this subsection is irrevocable and unconditional. If any amount required to be paid by any Lender to Canadian LC Issuer pursuant to this subsection is paid by such Lender to Canadian LC Issuer within three Business Days after the date such payment is due, Canadian LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Canadian Prime Rate. If any amount required to be paid by any Lender to Canadian LC Issuer pursuant to this subsection is not paid by such Lender to Canadian LC Issuer within three Business Days after the date such payment is due, Canadian LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Default Rate. (b) Calculations. A written advice setting forth in reasonable detail the amounts owing under this section, submitted by Canadian LC Issuer to Canadian Borrowers or any Lender from time to time, shall be conclusive, absent manifest error, as to the amounts thereof. Section 2.9. Letter of Credit Fees. In consideration of Canadian LC Issuer's issuance of any Letter of Credit, the applicable Canadian Borrower agrees to pay (a) to Canadian LC Issuer for its own account, a letter of credit fronting fee at a rate equal to 12.5 Basis Points multiplied by the face amount of such Letter of Credit, payable on the date of issuance, and (b) to Canadian Agent, for the account of all Lenders in accordance with their respective Percentage Shares, a letter of credit issuance fee calculated by applying the Applicable Margin to the face amount of all Letters of Credit outstanding on each day, payable in arrears on the last day of each Fiscal Quarter. In addition, the applicable Canadian Borrower will pay to LC Issuer its standard drawing and other processing fees upon any drawing under a Letter of Credit. Section 2.10. No Duty to Inquire. (a) Drafts and Demands. Canadian LC Issuer is authorized and instructed to accept and pay drafts and demands for payment under any Letter of Credit without requiring, and without responsibility for, any determination as to the existence of any event giving rise to said draft, either at the time of acceptance or payment or thereafter. Canadian LC Issuer is under no duty to determine the proper identity of anyone presenting such a draft or making such a demand (whether by tested telex or otherwise) as the officer, representative or agent of any beneficiary under any Letter of Credit, and payment by Canadian LC Issuer to any such beneficiary when requested by any such purported officer, representative or agent is hereby authorized and 19 25 approved. CANADIAN BORROWERS RELEASE EACH LENDER PARTY FROM, AND AGREE TO HOLD EACH LENDER PARTY HARMLESS AND INDEMNIFIED AGAINST, ANY LIABILITY OR CLAIM IN CONNECTION WITH OR ARISING OUT OF THE SUBJECT MATTER OF THIS SECTIOn, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. (b) Extension of Maturity. If the maturity of any Letter of Credit is extended by its terms or by Law or governmental action, if any extension of the maturity or time for presentation of drafts or any other modification of the terms of any Letter of Credit is made at the request of any Restricted Person, or if the amount of any Letter of Credit is increased at the request of any Restricted Person, this Agreement shall be binding upon all Restricted Persons with respect to such Letter of Credit as so extended, increased or otherwise modified, with respect to drafts and property covered thereby, and with respect to any action taken by Canadian LC Issuer, Canadian LC Issuer's correspondents, or any Lender Party in accordance with such extension, increase or other modification. (c) Transferees of Letters of Credit. If any Letter of Credit provides that it is transferable, Canadian LC Issuer shall have no duty to determine the proper identity of anyone appearing as transferee of such Letter of Credit, nor shall Canadian LC Issuer be charged with responsibility of any nature or character for the validity or correctness of any transfer or successive transfers, and payment by Canadian LC Issuer to any purported transferee or transferees as determined by Canadian LC Issuer is hereby authorized and approved, and CANADIAN BORROWERS RELEASE EACH LENDER PARTY FROM, AND AGREE TO HOLD EACH LENDER PARTY HARMLESS AND INDEMNIFIED AGAINST, ANY LIABILITY OR CLAIM IN CONNECTION WITH OR ARISING OUT OF THE FOREGOING, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. Section 2.11. LC Collateral. (a) Canadian LC Obligations in Excess of Canadian Maximum Credit Amount. If, after the making of all mandatory prepayments required under Section 1.4(c), the outstanding Canadian LC Obligations will exceed Canadian Maximum Credit Amount, then in addition to prepayment of the entire principal balance of the Canadian Loans, Canadian Borrowers will immediately pay to Canadian LC Issuer an amount equal to such excess. Canadian LC Issuer will hold such amount to apply against the remaining Canadian LC Obligations outstanding 20 26 under the Canadian Agreement (all such amounts held for Canadian LC Obligations being herein collectively called "LC Collateral") and the other Canadian Obligations, and such collateral may be applied from time to time to any Matured Canadian LC Obligations or other Canadian Obligations which are due and payable. Neither this subsection nor the following subsection shall, however, limit or impair any rights which Canadian LC Issuer may have under any other document or agreement relating to any Letter of Credit, LC Collateral or Canadian LC Obligation, including any LC Application, or any rights which any Lender Party may have to otherwise apply any payments by Canadian Borrowers and any LC Collateral under Section 3.1. (b) Acceleration of Canadian LC Obligations. If the Canadian Obligations or any part thereof become immediately due and payable pursuant to Section 8.1 then, unless Required Lenders otherwise specifically elect to the contrary (which election may thereafter be retracted by Required Lenders at any time), all Canadian LC Obligations shall become immediately due and payable without regard to whether or not actual drawings or payments on the Letters of Credit have occurred, and the applicable Canadian Borrower in respect of such Canadian LC Obligations shall be obligated to pay to Canadian LC Issuer immediately an amount equal to the aggregate Canadian LC Obligations which are then outstanding. (c) Investment of LC Collateral. Pending application thereof, all LC Collateral shall be invested by Canadian LC Issuer in such Investments as Canadian LC Issuer may choose in its sole discretion. All interest on (and other proceeds of) such Investments shall be reinvested or applied to Matured Canadian LC Obligations or other Canadian Obligations which are due and payable. When all Canadian Obligations have been satisfied in full, including all Canadian LC Obligations, all Letters of Credit have expired or been terminated, and all of Canadian Borrowers's reimbursement obligations in connection therewith have been satisfied in full, Canadian LC Issuer shall release any remaining LC Collateral. Canadian Borrowers hereby assign and grant to Canadian LC Issuer a continuing security interest in all LC Collateral paid by it to Canadian LC Issuer, all Investments purchased with such LC Collateral, and all proceeds thereof to secure its Matured Canadian LC Obligations and the other Canadian Obligations hereunder, each Canadian Note, and the other US Loan Documents. Canadian Borrowers further agree that Canadian LC Issuer shall have all of the rights and remedies of a secured party under the Personal Property Security Act (Alberta) with respect to such security interest and that an Event of Default under this Agreement shall constitute a default for purposes of such security interest. When Canadian Borrowers are required to provide LC Collateral for any reason and fail to do so on the day when required, Canadian LC Issuer may without notice to Canadian Borrowers or any other Restricted Person provide such LC Collateral (whether by transfers from other accounts maintained with Canadian LC Issuer, or otherwise) using any available funds of Canadian Borrowers or any other Person also liable to make such payments. ARTICLE III - Payments to Lenders Section 3.1. General Procedures. Each Canadian Borrower will make each payment which it owes under the Canadian Loan Documents to Canadian Agent in Toronto, Canada, if such payment is being 21 27 made in Canadian Dollars, or to the US Account, if such payment is being made in US Dollars, in each case for the account of the Lender Party to whom such payment is owed, without set-off, deduction or counterclaim, and in immediately available funds, provided that any such payment may be made net of any deduction or withholding for or on account of any withholding tax which such Canadian Borrower is required at Law to withhold or deduct except as otherwise provided in Section 3.2(d). Each such payment must be received by Canadian Agent not later than 11:00 a.m., Toronto, Ontario time, on the date such payment becomes due and payable. Any payment received by Canadian Agent after such time will be deemed to have been made on the next following Business Day. Should any such payment become due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue and be payable thereon for the period of such extension as provided in the Canadian Loan Document under which such payment is due. Each payment under a Canadian Loan Document shall be due and payable at the place provided therein and, if no specific place of payment is provided, shall be due and payable at the place of payment of Canadian Agent's Canadian Note. When Canadian Agent collects or receives money on account of the Canadian Obligations, Canadian Agent shall distribute all money so collected or received by 2:00 p.m. Toronto, Ontario time on the Business Day received, if received by 11:00 a.m. Toronto, Ontario time, otherwise on the day of deemed receipt, and each Lender Party shall apply all such money so distributed, as follows: (a) first, for the payment of all Canadian Obligations which are then due (and if such money is insufficient to pay all such Canadian Obligations, first to any reimbursements due Canadian Agent under Section 6.9 or 10.4, then to any reimbursement due any other Lender Party under Section 10.4, and then to the partial payment of all other Canadian Obligations then due in proportion to the amounts thereof, or as Lender Parties shall otherwise agree); (b) then for the prepayment of amounts owing under the Canadian Loan Documents (other than principal on the Canadian Notes) if so specified by Canadian Borrowers; (c) then for the prepayment of principal on the Canadian Notes that are not Competitive Bid Notes, together with accrued and unpaid interest on the principal so prepaid; and (d) last, for the payment or prepayment of any other Canadian Obligations. All payments applied to principal or interest on any Canadian Note shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and interest in compliance with Sections 1.4 and 2.6. All distributions of amounts described in any of subsections (b), (c) or (d) above shall be made by Canadian Agent pro rata to each Lender Party then owed Canadian Obligations described in such subsection in proportion to all amounts owed to all Lender Parties which are described in such subsection; provided that if any Lender then owes payments to Canadian LC Issuer for the purchase of a participation under Section 2.8(a) or to Canadian Agent under Section 9.9, any amounts otherwise distributable under this section to such Lender shall be deemed to belong to Canadian LC Issuer, or Canadian 22 28 Agent, respectively, to the extent of such unpaid payments, and Canadian Agent shall apply such amounts to make such unpaid payments rather than distribute such amounts to such Lender. Section 3.2. Change in Law; Gross Up; Increased Cost and Reduced Return. (a) If, after the date hereof, the adoption of any applicable Law, rule, or regulation, or any change in any applicable Law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender Party (or its Applicable Lending Office) with any request or directive (whether or not having the force of Law) of any such Governmental Authority, central bank, or comparable agency (the occurrence of any of the foregoing events being herein referred to as a "Change in Law"): (i) shall subject such Lender Party (or its Applicable Lending Office) to any tax, duty, deduction or any other charge (other than with respect to Withholding Tax as defined in Section 3.2(d)) with respect to any Eurodollar Loans, Bankers' Acceptances or Competitive Bid Loans, or its obligation to make Eurodollar Loans, accept Bankers' Acceptances or issue Letters of Credit, or change the basis of taxation of any amounts payable to such Lender Party (or its Applicable Lending Office) under this Agreement or its Canadian Note in respect of any Eurodollar Loans, Bankers' Acceptances or Competitive Bid Loans other than taxes (including franchise taxes) imposed on the overall net income or capital of such Lender Party by the jurisdiction under the Laws of which such Lender Party (or its Applicable Lending Office) is organized or is a resident for tax purposes or any political subdivision thereof; (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted US Dollar Eurodollar Rate and Adjusted Canadian Dollar Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender Party (or its Applicable Lending Office), including the commitment of such Lender Party hereunder; or (iii) shall impose on such Lender Party (or its Applicable Lending Office) or the London interbank market any other condition affecting this Agreement or its Canadian Notes or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender Party (or its Applicable Lending Office) of making, converting into, continuing, or maintaining any Eurodollar Loans, Bankers' Acceptances or Competitive Bid Loans or to reduce any sum received or receivable by such Lender Party (or its Applicable Lending Office) under this Agreement or its Canadian Notes with respect to any Eurodollar Loans, Bankers' Acceptances or Competitive Bid Loans, then the applicable Canadian Borrower shall pay to such Lender Party on demand such amount or amounts as will compensate such Lender Party for such increased cost or reduction. If any Lender Party requests compensation by Canadian Borrowers under this Section 3.2(a), Canadian Borrowers may, by notice to such Lender Party (with a copy to Canadian Agent), 23 29 suspend the obligation of such Lender Party to make or continue Canadian Advances of the Type with respect to which such compensation is requested, or to convert Canadian Advances of any other Type into Canadian Advances of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.5 shall be applicable); provided that such suspension shall not affect the right of such Lender Party to receive the compensation so requested. (b) If, after the date hereof, Canadian LC Issuer or any Lender Party shall have determined that the adoption of any applicable Law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of Law) of any such Governmental Authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender Party or any corporation controlling such Lender Party as a consequence of the obligations of such Lender Party hereunder to a level below that which such Lender Party or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the applicable Canadian Borrower shall pay to such Lender Party such additional amount or amounts as will compensate such Lender Party for such reduction, but only to the extent that such Lender Party has not been compensated therefor by any increase in the Adjusted US Dollar Eurodollar Rate or the Adjusted Canadian Dollar Eurodollar Rate; provided that if such Lender Party fails to give notice to Canadian Borrowers of any additional costs within ninety (90) days after it has actual knowledge thereof, such Lender Party shall not be entitled to compensation for such additional costs incurred more than ninety (90) days prior to the date on which notice is given by such Lender Party. (c) Each Lender Party shall promptly notify Canadian Borrowers and Canadian Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender Party to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender Party, be otherwise disadvantageous to it. Any Lender Party claiming compensation under this Section shall furnish to Canadian Borrowers and Canadian Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender Party shall act in good faith and may use any reasonable averaging and attribution methods. (d) If by reason of a Change in Law, Canadian Borrowers shall be required to withhold and remit withholding taxes in respect of any principal, interest, or other amount paid or payable by it to or for the account of any Lender Party hereunder or under any other Canadian Loan Document (a "Withholding Tax"), (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.2) such Lender Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) the applicable Canadian Borrower shall 24 30 make such deductions, and (iii) the applicable Canadian Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law. (e) Except as provided in paragraph (d) of this Section 3.2, no Canadian Borrower shall be required to compensate any Lender Party for any Withholding Taxes which such Canadian Borrower is required to withhold and remit in respect of any principal, interest, or other amount paid or payable by it to or for the account of any Lender Party hereunder or under any other Canadian Loan Document. Section 3.3. Limitation on Types of Canadian Loans. If on or prior to the first day of any Eurodollar Interest Period for any Eurodollar Loan: (a) Canadian Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the US Dollar Eurodollar Rate or the Canadian Dollar Eurodollar Rate, as applicable, for such Eurodollar Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify Canadian Agent that the Adjusted US Dollar Eurodollar Rate or the Adjusted Canadian Dollar Eurodollar Rate, as applicable, will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Loans or for such Eurodollar Interest Period; then Canadian Agent shall give Canadian Borrowers prompt notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lender Parties shall be under no obligation to make additional Canadian Loans, continue Eurodollar Loans or convert Canadian Base Rate Loans or Canadian Dollar Prime Rate Loans into Eurodollar Loans, and Canadian Borrowers shall, on the last day(s) of the then current Eurodollar Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Canadian Loans or convert such Canadian Loans into Canadian Base Rate Loans, Canadian Prime Rate Loans, or Bankers' Acceptances in accordance with the terms of this Agreement. Section 3.4. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender Party or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then such Lender Party shall promptly notify Canadian Borrowers thereof and such Lender Party's obligation to make or continue Eurodollar Loans and to convert BA's, Canadian Base Rate Loans, Canadian Prime Rate Loans, or Bankers' Acceptances into Eurodollar Loans shall be suspended until such time as such Lender Party may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 3.5 shall be applicable). Section 3.5. Treatment of Affected Loans. If the obligation of any Lender Party to make a particular Type of Loan or to continue, or to convert Canadian Loans of any other Type into, Canadian Loans of a particular Type shall be suspended pursuant to Sections 3.2 and 3.4 hereof (Canadian Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Lender Party's Affected Loans shall be automatically 25 31 converted into Canadian Base Rate Loans with respect to US $ Loans or to Canadian Prime Rate Loans with respect to C $ Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 3.4 hereof, on such earlier date as such Lender Party may specify to Canadian Borrowers with a copy to Canadian Agent) and, unless and until such Lender Party gives notice as provided below that the circumstances specified in Sections 3.2 or 3.4 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender Party's Affected Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Lender Party's Affected Loans shall be applied instead to its Canadian Base Rate Loans or Canadian Prime Rate Loans, as applicable; and (b) all Canadian Loans that would otherwise be made or continued by such Lender Party as Canadian Loans of the Affected Type shall be made or continued instead as Canadian Base Rate Loans or Canadian Prime Rate Loans, as applicable, and all Canadian Loans of such Lender Party that would otherwise be converted into Canadian Loans of the Affected Type shall be converted instead into (or shall remain as) Canadian Base Rate Loans or Canadian Prime Rate Loans, as applicable. If such Lender Party gives notice to Canadian Borrowers (with a copy to Canadian Agent) that the circumstances specified in Section 3.2 or 3.4 hereof that gave rise to the Conversion of such Lender Party's Affected Loans pursuant to this Section no longer exist (which such Lender Party agrees to do promptly upon such circumstances ceasing to exist) at a time when Canadian Loans of the Affected Type made by other Lender Parties are outstanding, such Lender Party's Canadian Base Rate Loans or Canadian Prime Rate Loans, as applicable, shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Canadian Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Canadian Loans held by the Lender Parties holding Canadian Loans of the Affected Type and by such Lender Party are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their Percentage Shares of the Canadian Maximum Credit Amount. Section 3.6. Compensation. Upon the request of any Lender Party, Canadian Borrowers shall pay to such Lender Party such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender Party) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (i) any payment, prepayment, or Conversion of a Eurodollar Loan or Competitive Bid Loan for any reason (including, without limitation, the acceleration of the Canadian Loans pursuant to Section 8.1) on a date other than the last day of the Interest Period for such Loan; or (ii) any failure by Canadian Borrowers for any reason (including, without limitation, the failure of any condition precedent specified in Article IV to be satisfied) to borrow, convert, continue, or prepay a Eurodollar Loan on the date for such borrowing, 26 32 Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. Section 3.7. Change of Applicable Lending Office. Each Lender Party agrees that, upon the occurrence of any event giving rise to the operation of Sections 3.2 through 3.5 with respect to such Lender Party, it will, if requested by Canadian Borrowers, use reasonable efforts (subject to overall policy considerations of such Lender Party) to designate another Applicable Lending Office, provided that such designation is made on such terms that such Lender Party and its Applicable Lending Office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such section. Nothing in this section shall affect or postpone any of the obligations of Canadian Borrowers or the rights of any Lender Party provided in Sections 3.2 through 3.5. Section 3.8. Replacement of Lenders. If any Lender Party seeks reimbursement for increased costs under Sections 3.2 through 3.5, or if a Canadian Borrower is required to increase any sum payable under Section 3.2(d), then within ninety (90) days thereafter -- provided no Event of Default then exists -- Canadian Borrowers shall have the right (unless such Lender Party withdraws its request for additional compensation) to replace such Lender Party by requiring such Lender Party to assign its Canadian Advances, Canadian Notes, Canadian LC Obligations, US Loans, US Notes, US LC Obligations and its commitments hereunder and under the US Agreement to an Eligible Transferee reasonably acceptable to all Borrowers, provided that: all Obligations of Borrowers owing to such Lender Party being replaced (including such increased costs, but excluding principal and accrued interest on the Canadian Notes and the US Notes being assigned) shall be paid in full to such Lender Party concurrently with such assignment, and the replacement Eligible Transferee shall purchase the foregoing by paying to such Lender Party a price equal to the principal amount thereof plus accrued and unpaid interest thereon. In connection with any such assignment Canadian Borrowers, Canadian Agent, US Borrower, US Agent, such Lender Party and the replacement Eligible Transferee shall otherwise comply with Section 10.6. Notwithstanding the foregoing rights of Canadian Borrowers under this section, however, Canadian Borrowers may not replace any Lender Party which seeks reimbursement for increased costs under Section 3.2 through 3.5, or to which Canadian Borrowers are required to increase any sums payable under Section 3.2(d), unless Canadian Borrowers are at the same time replacing all Lender Parties which are then seeking such compensation or to which such sums payable must be increased. In connection with any such replacement of a Lender Party, the applicable Canadian Borrower shall pay all costs that would have been due to such Lender Party pursuant to Section 3.6 if such Lender Party's Canadian Advances had been prepaid at the time of such replacement. Section 3.9. Other Taxes. (a) Canadian Borrowers agree to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other Canadian Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Canadian Loan Document (hereinafter referred to as "Other Taxes"). 27 33 (b) Canadian Borrowers agree to indemnify each Lender Party for the full amount of Other Taxes (including, without limitation, any Other Taxes imposed or asserted by any jurisdiction on amounts payable under this section) paid by such Lender Party or Canadian Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (c) If Canadian Borrowers are required to pay additional amounts to or for the account of any Lender Party pursuant to this Section 3.9, then such Lender Party will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender Party, is not otherwise disadvantageous to such Lender Party. (d) If a Lender Party is reimbursed for an amount paid by Canadian Borrowers pursuant to this Section 3.9, it shall promptly return such amount to Canadian Borrowers. (e) Within thirty (30) days after the date of any payment of Other Taxes, Canadian Borrowers shall furnish to Canadian Agent the original or a certified copy of a receipt evidencing such payment. (f) Without prejudice to the survival of any other agreement of Canadian Borrowers hereunder, the agreements and obligations of Canadian Borrowers contained in this section shall survive the termination of this Agreement and the payment in full of the Canadian Notes. Section 3.10. Currency Conversion and Currency Indemnity. (a) Canadian Borrowers and Canadian Guarantor (collectively, for purposes of this Section 3.10 herein referred to as "Obligors") shall make payment relative to any Obligation in the currency (the "Agreed Currency") in which the Obligation was incurred. If any payment is received on account of any Obligation in any currency (the "Other Currency") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any security or the liquidation of such Obligor or otherwise howsoever), such payment shall constitute a discharge of the liability of an Obligor hereunder and under the other Canadian Loan Documents in respect of such Obligation only to the extent of the amount of the Agreed Currency which the relevant Lender Parties are able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. (b) If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the "Judgment Currency") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the next Business Day following the date such judgment is given and in any event each Obligor shall be obligated to pay the Lender Parties any deficiency in accordance with Section 3.10(c). For the foregoing purposes "rate of exchange" means the rate at which the relevant Lender Parties, as applicable, in accordance with their normal banking 28 34 procedures are able on the relevant date to purchase the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. (c) If any Lender Party receives any payment or payments on account of the liability of an Obligor hereunder pursuant to any judgment or order in any Other Currency, and the amount of the Agreed Currency which the relevant Lender Party is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such Obligations immediately prior to such judgment or order, then Canadian Borrowers on demand shall, and Canadian Borrowers hereby agree to, indemnify and save such Lender Party harmless from and against any loss, cost or expense arising out of or in connection with such deficiency. The agreement of indemnity provided for in this Section 3.10(c) shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Lender Parties or any of them 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 hereunder or under any judgment or order. ARTICLE IV - Conditions Precedent to Advances Section 4.1. Documents to be Delivered. No Lender has any obligation to make its first Canadian Loan, and Canadian LC Issuer has no obligation to issue the first Letter of Credit, unless Canadian Agent shall have received all of the following, duly executed and delivered and in form, substance and date satisfactory to Canadian Agent: (a) This Agreement and any other documents that Lenders are to execute in connection herewith. (b) Each Canadian Note. (c) The Guaranty of Canadian Guarantor. (d) Certain certificates of Canadian Borrowers including: (i) An "Omnibus Certificate" of the Secretary or Assistant Secretary and of the Chairman of the Board, President, or Vice President - Finance of each Canadian Borrower, which shall contain the names and signatures of the officers of such Canadian Borrower authorized to execute Canadian Loan Documents and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (1) a copy of resolutions duly adopted by the Board of Directors of such Canadian Borrower and in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other Canadian Loan Documents delivered or to be delivered in connection herewith and the consummation of the transactions contemplated herein 29 35 and therein, (2) a copy of the charter documents of such Canadian Borrower and all amendments thereto, certified by the appropriate official of its jurisdiction of organization, and (3) a copy of any bylaws of such Canadian Borrower; and (ii) A "Compliance Certificate" of the Chairman of the Board or President and of the Vice President - Finance of each Canadian Borrower, of even date with such Canadian Loan or such Letter of Credit, in which such officers certify to the satisfaction of the conditions set out in subsections (a), (b) and (c) of Section 4.3. (e) certificate (or certificates) of the due formation, valid existence and good standing of each Canadian Borrower in its jurisdiction of organization, issued by the appropriate official of such jurisdiction. (f) A favorable opinion of Bennett Jones, counsel for Restricted Persons, substantially in the form set forth in Exhibit E and a favorable opinion of Blake, Cassels & Graydon covering the matters requested by Canadian Agent.. (g) The Initial Financial Statements. (h) A copy of each Acquisition Document. Section 4.2. Additional Conditions Precedent to First Canadian Loan or First Letter of Credit. No Lender has any obligation to make its first Canadian Loan, and Canadian LC Issuer has no obligation to issue the first Letter of Credit, unless on the date thereof: (a) US Borrower shall have consummated the transactions contemplated under the Acquisition Documents, and acquired, directly or indirectly, one hundred percent (100%) of the outstanding common shares of Northstar Energy; (b) All approvals, if any, required under the Hart-Scott Rodino Antitrust Improvement Act of 1976, as amended, in connection with the transactions contemplated by the Acquisition Documents, shall have been obtained. (c) All commitment, facility, agency, legal and other fees required to be paid or reimbursed to any Lender pursuant to any Canadian Loan Documents or any commitment agreement heretofore entered into shall have been paid. (d) No event which would reasonably be expected to have a Material Adverse Effect shall have occurred since September 30, 1998. (e) US Borrower shall have certified to Canadian Agent and Lenders that the Initial Financial Statements fairly present US Borrower's Consolidated financial position at the respective dates thereof and the Consolidated results of US Borrower's operations and US Borrower's Consolidated cash flows for the respective periods thereof. 30 36 (f) US Borrower shall have certified to Canadian Agent and Lenders that no Restricted Person has any outstanding Liabilities of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments) which are, in the aggregate, material to US Borrower or material with respect to US Borrower's Consolidated financial condition and not shown in the Initial Financial Statements or disclosed in the Disclosure Schedule. (g) All legal matters relating to the Canadian Loan Documents and the consummation of the transactions contemplated thereby shall be satisfactory to Thompson & Knight, a Professional Corporation, US counsel to Canadian Agent, and Blake, Cassels & Graydon, Canadian counsel to Canadian Agent. Section 4.3. Additional Conditions Precedent to all Canadian Loans and Letters of Credit. No Lender has any obligation to make any Canadian Loan (including its first), and Canadian LC Issuer has no obligation to issue any Letter of Credit (including its first), unless the following conditions precedent have been satisfied: (a) All representations and warranties made by any Restricted Person in any Canadian Loan Document shall be true on and as of the date of such Canadian Loan or the date of issuance of such Letter of Credit (except to the extent that the facts upon which such representations are based have been changed by the extension of credit hereunder) as if such representations and warranties had been made as of the date of such Canadian Loan or the date of issuance of such Letter of Credit. (b) No Default shall exist at the date of such Canadian Loan or the date of issuance of such Letter of Credit. (c) The making of such Canadian Loan or the issuance of such Letter of Credit shall not be prohibited by any Law and shall not subject any Lender or any LC Issuer to any material penalty under or pursuant to any such Law. ARTICLE V - Representations and Warranties To confirm each Lender's understanding concerning Restricted Persons and Restricted Persons' businesses, properties and obligations and to induce each Lender to enter into this Agreement and to extend credit hereunder, each Canadian Borrower represents and warrants to each Lender that: Section 5.1. No Default. No event has occurred and is continuing which constitutes a Default. Section 5.2. Organization and Good Standing. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization, having all powers 31 37 required to carry on its business and enter into and carry out the transactions contemplated hereby. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person is duly qualified, in good standing, and authorized to do business in all other jurisdictions within Canada wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary except where failure to so qualify would not have a Material Adverse Effect. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person has taken all actions and procedures customarily taken in order to enter, for the purpose of conducting business or owning property, each jurisdiction outside Canada wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such actions and procedures desirable except where failure to so qualify would not have a Material Adverse Effect. Section 5.3. Authorization. Each Canadian Borrower has duly taken all action necessary to authorize the execution and delivery by it of the Canadian Loan Documents to which it is a party and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder. Each Canadian Borrower is duly authorized to borrow funds hereunder. Section 5.4. No Conflicts or Consents. The execution and delivery by each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person of the Canadian Loan Documents to which each is a party, the performance by each of its obligations under such Canadian Loan Documents, and the consummation of the transactions contemplated by the various Canadian Loan Documents, do not and will not (i) conflict with any provision of (A) any Law, (B) the organizational documents or any unanimous shareholders agreement of any Restricted Person, or (C) any agreement, judgment, license, order or permit applicable to or binding upon any Restricted Person unless such conflict would not reasonably be expected to have a Material Adverse Effect, or (ii) result in the acceleration of any Indebtedness owed by any Restricted Person which would reasonably be expected to have a Material Adverse Effect, or (iii) result in or require the creation of any Lien upon any assets or properties of any Restricted Person which would reasonably be expected to have a Material Adverse Effect, except as expressly contemplated or permitted in the Canadian Loan Documents. Except as expressly contemplated in the Canadian Loan Documents no consent, approval, authorization or order of, and no notice to or filing with, any Tribunal or third party is required in connection with the execution, delivery or performance by any Restricted Person of any Canadian Loan Document or to consummate any transactions contemplated by the Canadian Loan Documents, unless failure to obtain such consent would not reasonably be expected to have a Material Adverse Effect. Section 5.5. Enforceable Obligations. This Agreement is, and the other Canadian Loan Documents when duly executed and delivered will be, legal, valid and binding obligations of each Restricted Person which is a party hereto or thereto, enforceable in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency or similar Laws of general application relating to the enforcement of creditors' rights. Section 5.6. Full Disclosure. No certificate, statement or other information delivered herewith or heretofore by any Canadian Borrower or any Subsidiary of a Canadian Borrower that 32 38 is a Restricted Person to any Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact known to any such Person (other than industry-wide risks normally associated with the types of businesses conducted by Restricted Persons) necessary to make the statements contained herein or therein not misleading as of the date made or deemed made. There is no fact known to any such Person (other than industry-wide risks normally associated with the types of businesses conducted by Restricted Persons) that has not been disclosed to each Lender in writing which would reasonably be expected to have a Material Adverse Effect. Section 5.7. Litigation. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule: (a) there are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the knowledge of any Canadian Borrower threatened, against any Canadian Borrower or any Subsidiary of a Canadian Borrower that is a Restricted Person before any Tribunal which would reasonably be expected to have a Material Adverse Effect, and (b) there are no outstanding judgments, injunctions, writs, rulings or orders by any such Tribunal against any Canadian Borrower which would reasonably be expected to have a Material Adverse Effect. Section 5.8. Environmental and Other Laws. Except as disclosed in the Disclosure Schedule: (a) Canadian Borrowers and each Subsidiary of a Canadian Borrower that is a Restricted Person are conducting their businesses in material compliance with all applicable Laws, including Environmental Laws, and have and are in compliance with all licenses and permits required under any such Laws, unless failure to so comply would not reasonably be expected to have a Material Adverse Effect; (b) none of the operations or properties of any Canadian Borrowers and each Subsidiary of a Canadian Borrower that is a Restricted Person is the subject of federal, provincial or local investigation evaluating whether any material remedial action is needed to respond to a release of any Hazardous Materials into the environment or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Materials, unless such remedial action would not reasonably be expected to have a Material Adverse Effect; and (c) neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person (and to the best knowledge of Canadian Borrowers, no other Person) has filed any notice under any Law indicating that any such Person is responsible for the improper release into the environment, or the improper storage or disposal, of any material amount of any Hazardous Materials or that any Hazardous Materials have been improperly released, or are improperly stored or disposed of, upon any property of any such Person, unless such failure to so comply would not reasonably be expected to have a Material Adverse Effect. Section 5.9. Names and Places of Business. Neither Canadian Borrower has, during the preceding five years, had, been known by, or used any other trade or fictitious name, except as disclosed in the Disclosure Schedule. Except as otherwise indicated in the Disclosure Schedule, the chief executive office and principal place of business of each Canadian Borrower is (and for the preceding five years have been) located at the address of such Canadian 33 39 Borrower set out on the signature pages hereto. Except as indicated in the Disclosure Schedule, no Canadian Borrower or any Subsidiary of a Canadian Borrower that is a Restricted Person has any other office or place of business. Section 5.10. Canadian Borrowers' Subsidiaries. No Canadian Borrower presently has any Subsidiary or owns any stock in any other corporation or association except those listed in the Disclosure Schedule. Neither any Canadian Borrower nor any of its Restricted Subsidiaries is a member of any general or limited partnership, limited liability company, joint venture or association of any type whatsoever except (a) those listed in the Disclosure Schedule, (b) associations, joint ventures or other relationships (i) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (ii) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state Law, and (iii) whose businesses are limited to the exploration, development and operation of oil, gas or mineral properties, pipelines or gathering systems, transportation and related facilities and interests owned directly by the parties in such associations, joint ventures or relationships, and (c) associations, joint ventures or other relationships (i) which are not corporations or partnerships under applicable provincial Law, and (ii) whose businesses are limited to the exploration, development and operation of oil, gas or mineral properties, pipelines or gathering systems, transportation and related facilities and interests owned directly by the parties in such associations, joint ventures or relationships. Each Canadian Borrower owns, directly or indirectly, the equity interest in each of its Subsidiaries which is indicated in the Disclosure Schedule. Section 5.11. Title to Properties; Licenses. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person has good and defensible title to all of its material properties and assets, free and clear of all Liens other than Permitted Liens and of all impediments to the use of such properties and assets in such Person's business except to the extent failure to have such title would not have a Material Adverse Effect. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, and other intellectual property (or otherwise possesses the right to use such intellectual property without violation of the rights of any other Person) which are necessary to carry out its business as presently conducted and as presently proposed to be conducted hereafter, and no such Person is in violation in any material respect of the terms under which it possesses such intellectual property or the right to use such intellectual property except to the extent failure to possess such licenses, permits, franchises, and intellectual property would not have a Material Adverse Effect. Section 5.12. Solvency. Upon giving effect to the issuance of the Canadian Notes, the execution of the Canadian Loan Documents by Canadian Borrowers and the consummation of the transactions contemplated hereby, each Canadian Borrower will be solvent (as such term is used in applicable bankruptcy, liquidation, receivership, insolvency or similar Laws). Section 5.13. Year 2000 Compliance. Each Canadian Borrower has (a) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by such Canadian Borrower and 34 40 its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (b) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (c) to date, implemented that plan in accordance with that timetable. Each Canadian Borrower reasonably believes that all computer applications (including those of its suppliers and vendors) that are material to its or any of its Subsidiaries' business and operations will on a timely basis be able to perform properly date- sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so would not reasonably be expected to have a Material Adverse Effect. ARTICLE VI - Affirmative Covenants of Canadian Borrowers To conform with the terms and conditions under which each Lender is willing to have credit outstanding to each Canadian Borrower, and to induce each Lender to enter into this Agreement and extend credit hereunder, each Canadian Borrower warrants, covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Required Lenders have previously agreed otherwise: Section 6.1. Payment and Performance. Each Canadian Borrower will pay all amounts due by it under the Canadian Loan Documents in accordance with the terms thereof and will observe, perform and comply with every covenant, term and condition expressed or implied in the Canadian Loan Documents to be binding upon it. Each Canadian Borrower will cause each of its Subsidiaries which is a Restricted Person to observe, perform and comply with every such term, covenant and condition in any Loan Document. Section 6.2. Books, Financial Statements and Reports. Each Canadian Borrower will at all times maintain full and accurate books of account and records. Each Canadian Borrower will maintain and will cause its Subsidiaries to maintain a standard system of accounting, will maintain its Fiscal Year, and will furnish (or will cause to be furnished) the following statements and reports to each Lender Party at Canadian Borrowers' expense: (a) As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, complete Consolidated financial statements of US Borrower together with all notes thereto, prepared in reasonable detail in accordance with US GAAP, together with an unqualified opinion, based on an audit using generally accepted auditing standards, by KPMG Peat Marwick L.L.P., or other independent certified public accountants selected by US Borrower and acceptable to US Agent, stating that such Consolidated financial statements have been so prepared. These financial statements shall contain a Consolidated balance sheet as of the end of such Fiscal Year and Consolidated statements of earnings, of cash flows, and of changes in owners' equity for such Fiscal Year, each setting forth in comparative form the corresponding figures for the preceding Fiscal Year. In addition, within ninety (90) days after the end of each Fiscal Year each Canadian Borrower will furnish to Canadian Agent and each Lender a certificate in the form of Exhibit D signed by the President, Vice President - Finance or Controller of US Borrower, stating that such financial statements are accurate and complete, 35 41 stating that such Person has reviewed the Canadian Loan Documents, containing all calculations required to be made to show compliance or non-compliance with the provisions of Sections 7.7 and 7.8, and further stating that there is no condition or event at the end of such Fiscal Year or at the time of such certificate which constitutes a Default and specifying the nature and period of existence of any such condition or event. (b) As soon as available, and in any event within forty-five (45) days after the end of each Fiscal Quarter, US Borrower's Consolidated and consolidating balance sheet and income statement as of the end of such Fiscal Quarter and a Consolidated statement of cash flows for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and prepared in accordance with US GAAP, subject to changes resulting from normal year-end adjustments. In addition each Canadian Borrower will, together with each such set of financial statements, furnish a certificate in the form of Exhibit D signed by the President, Vice President - Finance or Controller of such US Borrower stating that such financial statements are accurate and complete (subject to normal year-end adjustments), stating that such Person has reviewed the Canadian Loan Documents, containing all calculations required to be made to show compliance or non-compliance with the provisions of Sections 7.7 and 7.8 and further stating that there is no condition or event at the end of such Fiscal Quarter or at the time of such certificate which constitutes a Default and specifying the nature and period of existence of any such condition or event. (c) Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by US Borrower or any of its Subsidiaries that is a Restricted Person to its shareholders and all registration statements, prospectuses, periodic reports and other statements and schedules filed by any such Person with any exchange, any securities commission or any similar Governmental Authority, including any information or estimates with respect to US Borrower's oil and gas business (including its exploration, development and production activities) which are required to be furnished in such Canadian Borrower's annual report pursuant to securities legislation or the rules, policies and requirements of any Governmental Authority. Section 6.3. Other Information and Inspections. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will furnish to each Lender any information which Canadian Agent may from time to time reasonably request concerning any covenant, provision or condition of the Loan Documents or any matter in connection with such Persons' businesses and operations. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will permit representatives appointed by Canadian Agent (including independent accountants, auditors, agents, lawyers, appraisers and any other Persons) to visit and inspect upon prior written notice during normal business hours any of such Restricted Person's property, including its books of account, other books and records, and any facilities or other business assets, and to make extra copies therefrom and photocopies and photographs thereof, and to write down and record any information such representatives obtain, and each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person shall permit Canadian Agent or its representatives to investigate and verify the accuracy of the 36 42 information furnished to Canadian Agent or any Lender in connection with the Loan Documents and to discuss all such matters with its officers, employees and representatives. Section 6.4. Notice of Material Events and Change of Address. Canadian Borrowers will promptly notify each Lender in writing, stating that such notice is being given pursuant to this Agreement, of: (a) the occurrence of any event which would have a Material Adverse Effect, (b) the occurrence of any Default, (c) the acceleration of the maturity of any Indebtedness owed by any of Canadian Borrowers or any of their Subsidiaries that are Restricted Persons having a principal balance of more than US $25,000,000, or of any default by any such Person under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such default would have a Material Adverse Effect, (d) the occurrence of any Termination Event, (e) any claim of US $25,000,000 or more, any notice of potential liability under any Environmental Laws which might exceed such amount, or any other material adverse claim asserted against any of Canadian Borrowers or any of their Subsidiaries that are Restricted Persons or with respect to any such Person's properties, and (f) the filing of any suit or proceeding against any Canadian Borrowers or any of their Subsidiaries that are Restricted Person in which an adverse decision would have a Material Adverse Effect. Canadian Borrowers will also notify Canadian Agent and Canadian Agent's counsel in writing promptly in the event that any Canadian Borrower or any of their Subsidiaries that is a Restricted Person changes its name or the location of its chief executive office. Section 6.5. Maintenance of Properties. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will maintain, preserve, protect, and keep all property used or useful in the conduct of its business in good condition, and will from time to time make all repairs, renewals and replacements needed to enable the business and operations carried on in connection therewith to be promptly and advantageously conducted at all times. Section 6.6. Maintenance of Existence and Qualifications. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will maintain and preserve its existence and its rights and franchises in full force and effect and will qualify to do business in all states or jurisdictions where required by applicable Law, except where the failure so to qualify will not have a Material Adverse Effect. 37 43 Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will (a) timely file all required tax returns; (b) timely pay all taxes, assessments, and other governmental charges or levies imposed upon it or upon its income, profits or property; and (c) maintain appropriate accruals and reserves for all of the foregoing in accordance with US GAAP. Such Restricted Person may, however, delay paying or discharging any of the foregoing so long as it is in good faith contesting the validity thereof by appropriate proceedings and has set aside on its books adequate reserves therefor. Section 6.8. Insurance. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will keep or cause to be kept insured in accordance with industry standards by financially sound and reputable insurers, its surface equipment and other property of a character usually insured by similar Persons engaged in the same or similar businesses. Section 6.9. Performance on Canadian Borrowers' Behalf. If either Canadian Borrower or any Subsidiary of a Canadian Borrower that is a Restricted Person fails to pay any taxes, insurance premiums, expenses, lawyers' fees or other amounts it is required to pay under any Canadian Loan Document, Canadian Agent may pay the same, and shall use its best efforts to give at least five (5) Business Days notice to Canadian Borrowers prior to making any such payment; provided, however, that any failure by Canadian Agent to so notify Canadian Borrowers shall not limit or otherwise impair Canadian Agent's ability to make any such payment. Northstar Energy shall immediately reimburse Canadian Agent for any such payments and each amount paid by Canadian Agent shall constitute a Canadian Obligation owed hereunder which is due and payable on the date such amount is paid by Canadian Agent. Section 6.10. Interest. Each Canadian Borrower hereby promises to each Lender Party to pay interest at the Default Rate applicable to Canadian Base Rate Loans on all Canadian Obligations (including Canadian Obligations to pay fees or to reimburse or indemnify any Lender) which such Canadian Borrower has in this Agreement promised to pay to such Lender Party and which are not paid when due. Such interest shall accrue from the date such Canadian Obligations become due until they are paid. Section 6.11. Compliance with Law. Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will conduct its business and affairs in compliance with all Laws applicable thereto except to the extent failure to do so would not reasonably be expected to have a Material Adverse Effect. Section 6.12. Environmental Matters. (a) Each Canadian Borrower and each Subsidiary of a Canadian Borrower that is a Restricted Person will comply in all material respects with all Environmental Laws now or hereafter applicable to such Restricted Person, as well as all contractual obligations and agreements with respect to environmental remediation or other environmental matters, and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, 38 44 health and safety permits, licenses and other authorizations necessary for its operations and will maintain such authorizations in full force and effect, unless such failure to so comply would not reasonably be expected to have a Material Adverse Effect. (b) will promptly furnish to Canadian Agent all written notices of violation, orders, claims, citations, complaints, penalty assessments, suits or other proceedings received by such Canadian Borrower, or of which it has notice, pending or threatened against such Canadian Borrower, by any Governmental Authority with respect to any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations in connection with its ownership or use of its properties or the operation of its business which involve a potential liability or claim in excess of US $25,000,000. Section 6.13. Bank Accounts; Offset. To secure the repayment of the Obligations each Canadian Borrower hereby grants to each Lender a right of offset, each of which shall be in addition to all other interests, liens, and rights of any Lender at common Law, under the Loan Documents, or otherwise, and each of which shall be upon and against (a) any and all moneys, securities or other property (and the proceeds therefrom) of such Canadian Borrower now or hereafter held or received by or in transit to any Lender from or for the account of such Canadian Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or special, time or demand, provisional or final) of such Canadian Borrower with any Lender, and (c) any other credits and claims of such Canadian Borrower at any time existing against any Lender, including claims under certificates of deposit. At any time and from time to time after the occurrence of any Default, each Lender is hereby authorized to offset against the Obligations then due and payable (in either case without notice to such Canadian Borrower), any and all items hereinabove referred to. To the extent that such Canadian Borrower has accounts designated as royalty or joint interest owner accounts, the foregoing right of offset shall not extend to funds in such accounts which belong to, or otherwise arise from payments to such Canadian Borrower for the account of, third party royalty or joint interest owners. Section 6.14. Year 2000 Compliance. Each Canadian Borrower will promptly notify Canadian Agent in the event such Canadian Borrower discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its or any of its Subsidiaries' business and operations that will not be Year 2000 compliant on a timely basis, except to the extent that such failure would not reasonably be expected to have a Material Adverse Effect. ARTICLE VII - Negative Covenants of Canadian Borrowers To conform with the terms and conditions under which each Lender is willing to have credit outstanding to each Canadian Borrower, and to induce each Lender to enter into this Agreement and make the Canadian Loans, each Canadian Borrower warrants, covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Required Lenders have previously agreed otherwise: 39 45 Section 7.1. Indebtedness. Neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person (other than US Borrower) will in any manner owe or be liable for Indebtedness except: (a) the US Obligations and the Canadian Obligations. (b) capital lease obligations (excluding oil, gas or mineral leases) entered into in the ordinary course of such Restricted Person's business in arm's length transactions at competitive market rates under competitive terms and conditions in all respects, provided that the obligations required to be paid in any Fiscal Year under any such capital leases do not in the aggregate exceed US $25,000,000 for all Restricted Persons. (c) unsecured Liabilities owed among Restricted Persons. (d) guaranties by one Restricted Person of Liabilities owed by another Restricted Person, if such Liabilities either (i) are not Indebtedness, or (ii) are allowed under subsections (a), (b) or (c) of this Section 7.1. (e) Indebtedness of the Restricted Persons for plugging and abandonment bonds or for letters of credit issued by any Lender in place thereof which are required by regulatory authorities in the area of operations, and Indebtedness of the Restricted Persons for other bonds or letters of credit issued by any Lender which are required by such regulatory authorities with respect to other normal oil and gas operations. (f) obligations under the Subordinated US Borrower Indenture, the Subordinated US Borrower Debentures and the Subordinated US Borrower Guarantee; (g) non-recourse Indebtedness as to which no Restricted Person (i) provides any guaranty or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (ii) is directly or indirectly liable (as a guarantor or otherwise); provided, that after giving effect to such Indebtedness outstanding from time to time, US Borrower is not in violation of Sections 7.7 and 7.8. (h) the following long-term institutional Indebtedness of Northstar Energy: (i) US $150,000,000 indebtedness to The Prudential Insurance Company of America pursuant to a Note Agreement dated as of March 2, 1998 including the following guarantees of such indebtedness: (1) guarantees both dated March 2, 1998 made by Northstar Energy Partnership and David Limited Partnership; (2) guarantee dated as of July 31, 1998 made by 728098 Alberta Ltd.; and (3) any other guarantees of Subsidiaries of Northstar Energy executed after the date hereof pursuant to the terms of such Note Agreement. (ii) US $75,000,000 indebtedness to certain institutional investors pursuant to a Note Agreement dated as of July 19, 1995, as amended from time to time, including the 40 46 following guarantees of such indebtedness: (1) guarantee dated as of July 31, 1998 made by Northstar Energy Partnership; (2) guarantee dated as of July 31, 1998 made by 728098 Alberta Ltd.; and (3) any other guarantee of Subsidiaries of Northstar Energy executed after the date hereof pursuant to the terms of such Note Agreement. including any refinancing of the above institutional indebtedness on similar terms taking into account current market conditions. (i) Indebtedness that is subordinated to the US Obligations and the Canadian Obligations on terms acceptable to Required Lenders. (j) Indebtedness in the amount of C $36,323,766 owing to The Toronto-Dominion Bank due January 1, 1999 relating to the West Windsor Cogeneration Plant sale. (k) Indebtedness in the approximate amount of C $6,000,000 owed to Indeck Gas Supply Corporation by Northstar Energy pursuant to a Gas Sales and Purchase Agreement dated as of March 9, 1989, as heretofore or hereafter amended from time to time. (l) Acquired Debt. (m) Indebtedness under Hedging Contracts permitted under Section 7.9. (n) Indebtedness in the amount of US $15,000,000 to Bank of America Canada payable on demand by Northstar Energy and guaranteed by Canadian Guarantor. (o) miscellaneous items of Indebtedness of all Restricted Persons (other than US Borrower) not described in subsections (a) through (n) which do not in the aggregate exceed US $50,000,000 (with Canadian Borrowers and their Subsidiaries which are Restricted Persons having no more than US $20,000,000) in principal amount at any one time outstanding. Section 7.2. Limitation on Liens. Except for Permitted Liens, neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person will create, assume or permit to exist any Lien upon any of the properties or assets which it now owns or hereafter acquires. Neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person will allow the filing or continued existence of any financing statement describing as collateral any assets or property of such Restricted Person, other than financing statements which describe only collateral subject to a Lien permitted under this section and which name as secured party or lessor only the holder of such Lien. Section 7.3. Limitation on Mergers. Neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person will merge or consolidate with or into any other Person except that any Subsidiary of US Borrower may be merged into or consolidated with (a) another Subsidiary of US Borrower, or (b) US Borrower, so long as US Borrower is the surviving business entity. 41 47 Section 7.4. Limitation on Issuance of Securities by Subsidiaries of US Borrower. Neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person will issue any additional shares of its capital stock, additional partnership interests or other securities or any options, warrants or other rights to acquire such additional shares, partnership interests or other securities except to another Restricted Person of which such issuer is already directly or indirectly a Subsidiary of US Borrower unless such securities are being issued to acquire a business, directly or indirectly through the use of the proceeds of such issuance, and such securities are convertible into the common shares or similar securities of US Borrower, including the issuance of the exchangeable shares of Northstar Energy issued pursuant to the Acquisition Documents. Northstar Energy may also issue stock options to its employees from time to time in the form of exchangeable shares of Northstar Energy, provided that such shares are convertible into common shares or similar securities of US Borrower and provided further that such options are granted under a stock option plan of Northstar Energy and/or US Borrower. Section 7.5. Limitation on Restricted Payments. Except as permitted below in this section, neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person shall directly or indirectly (i) make any Restricted Distribution, or (ii) any Restricted Investment (the above being herein collectively referred to as "Restricted Payments"), unless the aggregate amount of Restricted Payments made during any Fiscal Year never exceeds ten percent (10%) of the book value of the Consolidated Assets of US Borrower. Section 7.6. Transactions with Affiliates. Neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person will engage in any material transaction with any of its Affiliates on terms which are less favorable in any material respect to it than those which would have been obtainable at the time in arm's-length dealing with Persons other than such Affiliates, provided that such restriction shall not apply to transactions among such Restricted Persons that are wholly-owned, directly or indirectly, by US Borrower. Section 7.7. Funded Debt to Total Capitalization. At the end of each Fiscal Quarter, the ratio of US Borrower's Consolidated Total Funded Debt to US Borrower's Total Capitalization will never exceed sixty percent (60%). Section 7.8. Funded Debt to EBITDA. At the end of each Fiscal Quarter, the ratio of US Borrower's Consolidated Total Funded Debt to EBITDA, calculated for the four consecutive Fiscal Quarters then ended, will never exceed 3.75 to 1. Section 7.9. Hedging Contracts. Neither any Canadian Borrower nor any Subsidiary of a Canadian Borrower that is a Restricted Person will be a party to or in any manner be liable on any Hedging Contract, unless such contracts qualify under US GAAP as a hedge of oil and gas production, floating rate Indebtedness or foreign currency needs (and not as a speculative investment), such contracts are entered into in the ordinary course of the Restricted Persons' businesses, and 42 48 (i) if such contracts are entered into with the purpose and effect of fixing prices on oil or gas expected to be produced by Restricted Persons: (A) such contracts for any single month (determined, in the case of contracts that are not settled on a monthly basis, by a monthly proration acceptable to US Agent) do not, in the aggregate, cover amounts greater than seventy-five percent (75%) of the Restricted Persons' aggregate Projected Oil and Gas Production anticipated to be sold in the ordinary course of the Restricted Persons' businesses for such month; (B) such contracts do not require any Restricted Person to provide any Lien to secure US Borrower's obligations thereunder, other than Liens on cash or cash equivalents in an aggregate amount not more than US $50,000,000; and (C) each such contract is with a counterparty or has a guarantor of the obligation of the counterparty who (unless such counterparty is US Agent, any Lender or any of their Affiliates) at the time the contract is made has long-term obligations rated AA or better by S&P, Aa2 or better by Moody's, A+ or better by CBRS, or AA or better by DBRS or is an investment grade-rated industry participant. As used in this subsection (i), the term "Projected Oil and Gas Production" means the projected production of oil or gas (measured by volume unit or BTU equivalent, not sales price) for the term of the contracts or a particular month, as applicable, from properties and interests owned by any Restricted Person which have attributable to them proved oil or gas reserves. (ii) if such contracts are entered into with the purpose and effect of fixing interest rates on a principal amount of indebtedness of such Restricted Person that is accruing interest at a variable rate, the aggregate notional amount of such contracts never exceeds the anticipated outstanding principal balance of the indebtedness to be hedged by such contracts or an average of such principal balances calculated using a generally accepted method of matching interest swap contracts to declining principal balances, and the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness to be hedged by such contract. ARTICLE VIII - Events of Default and Remedies Section 8.1. Events of Default. Each of the following events constitutes an Event of Default under this Agreement: (a) Any Restricted Person fails to pay any principal component of any Canadian Obligation when due and payable or fails to pay any other Canadian Obligation within three (3) 43 49 days after the date when due and payable, whether at a date for the payment of a fixed installment or as a contingent or other payment becomes due and payable or as a result of acceleration or otherwise; (b) Any "default" or "event of default" occurs under any Canadian Loan Document which defines either such term, and the same is not remedied within the applicable period of grace (if any) provided in such Loan Document; (c) Any Restricted Person fails (other than as referred to in subsections (a) or (b) above) to duly observe, perform or comply with any covenant, agreement, condition or provision of any Canadian Loan Document, and such failure remains unremedied for a period of thirty (30) days after notice of such failure is given by Canadian Agent to Canadian Borrower; (d) Any representation or warranty previously, presently or hereafter made in writing by or on behalf of any Restricted Person in connection with any Canadian Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made; provided, that if such falsity or lack of correctness is capable of being remedied or cured within a 30-day period, Canadian Borrowers shall (subject to the other provisions of this Section 8.1) have a period of 30 days after written notice thereof has been given to Canadian Borrowers by Canadian Agent within which to remedy or cure such lack of correctness, or this Agreement, any Canadian Note, or the Guaranty executed by Canadian Guarantor is asserted to be or at any time ceases to be valid, binding and enforceable in any material respect as warranted in Section 5.5 for any reason other than its release or subordination by Canadian Agent; (e) Any Restricted Person (i) fails to duly pay any Indebtedness in excess of US $25,000,000 constituting principal or interest owed by it with respect to borrowed money or money otherwise owed under any note, bond, or similar instrument, including without limitation the Subordinated US Borrower Debentures, the Subordinated US Borrower Indenture, the Subordinated US Borrower Guarantee and the Devon Trust Securities, or (ii) breaches or defaults in the performance of any agreement or instrument by which any such Indebtedness is issued, evidenced, governed, or secured, other than a breach or default described in clause (i) above, and any such failure, breach or default results in the acceleration of such Indebtedness; (f) Any Change in Control occurs; (g) Any "Event of Default" occurs under the US Agreement; and (h) Any Canadian Borrower or any other Restricted Person having assets with a book value of at least US $25,000,000: (i) suffers the entry against it of a judgment, decree or order for relief by a Tribunal of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar Law of any jurisdiction now or hereafter in effect, including the Bankruptcy and Insolvency Act (Canada) and the Companies' Creditors Arrangement Act (Canada), as each are from time to time amended, 44 50 or has any such proceeding commenced against it which remains undismissed for a period of thirty days; or (ii) commences a voluntary case under any applicable bankruptcy, insolvency or similar Law now or hereafter in effect, including the Bankruptcy and Insolvency Act (Canada) and the Companies' Creditors Arrangement Act (Canada), as each are from time to time amended; or applies for or consents to the entry of an order for relief in an involuntary case under any such Law; or makes a general assignment for the benefit of creditors; or fails generally to pay (or admits in writing its inability to pay) its debts as such debts become due; or takes corporate or other action to authorize any of the foregoing; or (iii) suffers the appointment of or taking possession by a receiver, receiver- manager, liquidator, assignee, custodian, trustee, sequestrator or similar official of all or a substantial part of its property in a proceeding brought against or initiated by it, and such appointment or taking possession is neither made ineffective nor discharged within thirty days after the making thereof, or such appointment or taking possession is at any time consented to, requested by, or acquiesced to by it; or (iv) suffers the entry against it of a final judgment for the payment of money in an amount that exceeds (x) the valid and collectible insurance in respect thereof or (y) the amount of an indemnity with respect thereto reasonably acceptable to the Required Lenders by US $25,000,000 or more, unless the same is discharged within thirty days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such period and a stay of execution pending such appeal is obtained; or (v) suffers a levy of distress or execution or possession, or a writ or warrant of attachment or any similar process to be issued by any Tribunal against all or any part of its property having a book value of at least US $25,000,000, and such writ or warrant of attachment or any similar process is not stayed or released within thirty days after the entry or levy thereof or after any stay is vacated or set aside. Upon the occurrence of an Event of Default described in subsection (h)(i), (h)(ii) or (h)(iii) of this section with respect to Canadian Borrowers, all of the Canadian Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Canadian Borrowers and each Restricted Person who at any time ratifies or approves this Agreement. Upon any such acceleration, any obligation of any Lender to make any further Canadian Advances and any obligation of Canadian LC Issuer to issue Letters of Credit hereunder shall be permanently terminated. During the continuance of any other Event of Default, Canadian Agent at any time and from time to time may (and upon written instructions from Required Lenders, Canadian Agent shall), without notice to Canadian Borrowers or any other Restricted Person, do either or both of the following: (1) terminate any obligation of Lenders to make Canadian Advances hereunder, and any obligation of Canadian LC Issuer to 45 51 issue Letters of Credit hereunder, and (2) declare any or all of the Canadian Obligations immediately due and payable, and all such Canadian Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Canadian Borrowers and each Restricted Person who at any time ratifies or approves this Agreement. Section 8.2. Remedies. If any Default shall occur and be continuing, each Lender Party may protect and enforce its rights under the Canadian Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Canadian Loan Document, and each Lender Party may enforce the payment of any Canadian Obligations due it or enforce any other legal or equitable right which it may have. All rights, remedies and powers conferred upon Lender Parties under the Canadian Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the Canadian Loan Documents or at Law or in equity. ARTICLE IX - Canadian Agent Section 9.1. Appointment, Powers, and Immunities. Each Lender hereby irrevocably appoints and authorizes Canadian Agent to act as its agent under this Agreement and the other Canadian Loan Documents with such powers and discretion as are specifically delegated to Canadian Agent by the terms of this Agreement and the other Canadian Loan Documents, together with such other powers as are reasonably incidental thereto. Canadian Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall include its Affiliates and its own and its Affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Canadian Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Canadian Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Canadian Loan Document, or any other document referred to or provided for therein or for any failure by any Restricted Person or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Restricted Person or the satisfaction of any condition or to inspect the property (including the books and records) of any Restricted Person or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Canadian Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Canadian Loan Document, except for its own gross negligence or willful misconduct. Canadian Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 46 52 Section 9.2. Reliance by Canadian Agent. Canadian Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Restricted Person), independent accountants, and other experts selected by Canadian Agent. Canadian Agent may deem and treat the payee of any Canadian Note as the holder thereof for all purposes hereof unless and until Canadian Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 10.6 hereof. As to any matters not expressly provided for by this Agreement, Canadian 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 indemnified and protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that Canadian Agent shall not be required to take any action that exposes Canadian Agent to personal liability or that is contrary to any Canadian Loan Document or applicable Law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. Section 9.3. Defaults. Canadian Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless Canadian Agent has received written notice from a Lender or Canadian Borrowers specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that Canadian Agent receives such a notice of the occurrence of a Default or Event of Default, Canadian Agent shall give prompt notice thereof to the Lenders. Canadian Agent shall (subject to Section 9.1 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders. Notwithstanding the foregoing, unless and until Canadian Agent shall have received such directions, Canadian Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. Section 9.4. Rights as Lender. With respect to its Percentage Share of the Canadian Maximum Credit Amount and the Canadian Loans made by it, Canadian Agent (and any successor acting as Canadian Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Canadian Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Canadian Agent in its individual capacity. Canadian Agent (and any successor acting as Canadian Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make Investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Restricted Person or any of its Subsidiaries or Affiliates as if it were not acting as Canadian Agent, and Canadian Agent (and any successor acting as Canadian Agent) and its Affiliates may accept fees and other consideration from any Restricted Person or any of its Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 47 53 SECTION 9.5. INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY CANADIAN AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 10.4 HEREOF, BUT WITHOUT LIMITING THE OBLIGATIONS OF CANADIAN BORROWERS UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE PERCENTAGE SHARES, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING LEGAL FEES), OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST CANADIAN AGENT (INCLUDING BY ANY LENDER) IN ANY WAY RELATING TO OR ARISING OUT OF ANY CANADIAN LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY CANADIAN AGENT UNDER ANY CANADIAN LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF CANADIAN AGENT); provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse Canadian Agent promptly upon demand for its ratable share of any costs or expenses payable by Canadian Borrower under Section 10.4, to the extent that Canadian Agent is not promptly reimbursed for such costs and expenses by Canadian Borrowers. The agreements contained in this section shall survive payment in full of the Canadian Loans and all other amounts payable under this Agreement. Section 9.6. Non-Reliance on Canadian Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on Canadian Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Canadian Borrowers and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon Canadian 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 analysis and decisions in taking or not taking action under the Canadian Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by Canadian Agent hereunder, Canadian Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Restricted Person or any of its Subsidiaries or Affiliates that may come into the possession of Canadian Agent or any of its Affiliates. Section 9.7. Rights as Lender. In its capacity as a Lender, Canadian Agent shall have the same rights and obligations as any Lender and may exercise such rights as though it were not Canadian Agent. Canadian Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with any Restricted Person or their Affiliates, all as if it were not Canadian Agent hereunder and without any duty to account therefor to any other Lender. Section 9.8. Sharing of Set-Offs and Other Payments. Each Lender Party agrees that if it shall, whether through the exercise of rights under Canadian Loan Documents or rights of banker's lien, set off, or counterclaim against Canadian Borrowers or otherwise, obtain payment of a portion of the aggregate Obligations owed to it which, taking into account all distributions made by Canadian Agent under Section 3.1, causes such Lender Party to have received more than it would have received had such payment been received by Canadian Agent and distributed pursuant to Section 3.1, then (a) it shall be deemed to have simultaneously purchased and shall 48 54 be obligated to purchase interests in the Obligations as necessary to cause all Lender Parties to share all payments as provided for in Section 3.1, and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that Canadian Agent and all Lender Parties share all payments of Obligations as provided in Section 3.1; provided, however, that nothing herein contained shall in any way affect the right of any Lender Party to obtain payment (whether by exercise of rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness other than the Obligations. Canadian Borrowers expressly consent to the foregoing arrangements and agree that any holder of any such interest or other participation in the Obligations, whether or not acquired pursuant to the foregoing arrangements, may to the fullest extent permitted by Law exercise any and all rights of banker's lien, set-off, or counterclaim as fully as if such holder were a holder of the Obligations in the amount of such interest or other participation. If all or any part of any funds transferred pursuant to this section is thereafter recovered from the seller under this section which received the same, the purchase provided for in this section shall be deemed to have been rescinded to the extent of such recovery, together with interest, if any, if interest is required pursuant to the order of a Tribunal order to be paid on account of the possession of such funds prior to such recovery. Section 9.9. Investments. Whenever Canadian Agent in good faith determines that it is uncertain about how to distribute to Lender Parties any funds which it has received, or whenever Canadian Agent in good faith determines that there is any dispute among Lender Parties about how such funds should be distributed, Canadian Agent may choose to defer distribution of the funds which are the subject of such uncertainty or dispute. If Canadian Agent in good faith believes that the uncertainty or dispute will not be promptly resolved, or if Canadian Agent is otherwise required to invest funds pending distribution to Lender Parties, Canadian Agent shall invest such funds pending distribution; all interest on any such Investment shall be distributed upon the distribution of such Investment and in the same proportion and to the same Persons as such Investment. All moneys received by Canadian Agent for distribution to Lender Parties (other than to the Person who is Canadian Agent in its separate capacity as a Lender Party) shall be held by Canadian Agent pending such distribution solely as Canadian Agent for such Lender Parties, and Canadian Agent shall have no equitable title to any portion thereof. Section 9.10. Benefit of Article IX. The provisions of this Article (other than the following Section 9.11) are intended solely for the benefit of Lender Parties, and no Restricted Person shall be entitled to rely on any such provision or assert any such provision in a claim or defense against any Lender. Lender Parties may waive or amend such provisions as they desire without any notice to or consent of Canadian Borrower or any Restricted Person. Section 9.11. Resignation. Canadian Agent may resign at any time by giving written notice thereof to Lenders and Canadian Borrowers. Each such notice shall set forth the date of such resignation. Upon any such resignation, Required Lenders shall have the right to appoint a successor Canadian Agent. A successor must be appointed for any retiring Canadian Agent, and such Canadian Agent's resignation shall become effective when such successor accepts such appointment. If, within thirty days after the date of the retiring Canadian Agent's resignation, no successor Canadian Agent has been appointed and has accepted such appointment, then the retiring Canadian Agent may appoint a successor Canadian Agent, which shall be a commercial 49 55 bank organized or licensed to conduct a banking or trust business under the Laws of Canada or of any province thereof and if no Default or Event of Default has occurred and is continuing, retiring Canadian Agent shall obtain the consent of Canadian Borrowers. Upon the acceptance of any appointment as Canadian Agent hereunder by a successor Canadian Agent, the retiring Canadian Agent shall be discharged from its duties and obligations under this Agreement and the other Canadian Loan Documents. After any retiring Canadian Agent's resignation hereunder the provisions of this Article IX shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Canadian Agent under the Canadian Loan Documents. Section 9.12. Lenders to Remain Pro Rata. It is the intent of all parties hereto that, except for Competitive Bid Loans and matters related thereto, the pro rata share of each Lender in the US Obligations and the Canadian Obligations shall be substantially the same at all times during the term of this Agreement. Accordingly, the initial Percentage Share of each Lender in the US Maximum Credit Amount will be the same as the initial Percentage Share of such Lender in the Canadian Maximum Credit Amount. All subsequent assignments and adjustments of the interests of the Lenders in the US Obligations and the Canadian Obligations will be made so as to maintain such a pro rata arrangement; provided that for the purposes of determining these pro rata shares, any Percentage Share held by any Lender's Affiliates shall be included in determining the interests of such Lender. ARTICLE X - Miscellaneous Section 10.1. Waivers and Amendments; Acknowledgments. (a) Waivers and Amendments. No failure or delay (whether by course of conduct or otherwise) by any Lender Party in exercising any right, power or remedy which such Lender Party may have under any of the Canadian Loan Documents shall operate as a waiver thereof or of any other right, power or remedy, nor shall any single or partial exercise by any Lender Party of any such right, power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No waiver of any provision of any Canadian Loan Document and no consent to any departure therefrom shall ever be effective unless it is in writing and signed as provided below in this section, and then such waiver or consent shall be effective only in the specific instances and for the purposes for which given and to the extent specified in such writing. No notice to or demand on any Restricted Person shall in any case of itself entitle any Restricted Person to any other or further notice or demand in similar or other circumstances. This Agreement and the other Canadian Loan Documents set forth the entire understanding between the parties hereto with respect to the transactions contemplated herein and therein and supersede all prior discussions and understandings with respect to the subject matter hereof and thereof, and no waiver, consent, release, modification or amendment of or supplement to this Agreement or the other Canadian Loan Documents shall be valid or effective against any party hereto unless the same is in writing and signed by (i) if such party is Canadian Borrowers, by Canadian Borrowers, (ii) if such party is Canadian Agent or Canadian LC Issuer, by such party, and (iii) if such party is a Lender, by such Lender or by Canadian Agent on behalf of Lenders with the written consent of Required Lenders (which consent has already been given as to the 50 56 termination of the Canadian Loan Documents as provided in Section 10.10). Notwithstanding the foregoing or anything to the contrary herein, Canadian Agent shall not, without the prior consent of Majority Lenders, execute and deliver on behalf of such Lender any waiver or amendment which would increase the Canadian Maximum Credit Amount hereunder. Notwithstanding the foregoing or anything to the contrary herein, Canadian Agent shall not, without the prior consent of each individual Lender, execute and deliver on behalf of such Lender any waiver or amendment which would: (1) waive any of the conditions specified in Article IV, (2) increase the maximum amount which such Lender is committed hereunder to lend, (3) reduce any fees payable to such Lender hereunder, or the principal of, or interest on, such Lender's Note, (4) postpone any date fixed for any payment of any such fees, principal or interest, (5) amend the definition herein of "Required Lenders", "Majority Lenders", or otherwise change the aggregate amount of Percentage Shares which is required for Canadian Agent, Lenders or any of them to take any particular action under the Canadian Loan Documents, (6) release Canadian Borrowers from their obligation to pay such Lender's Note, or (7) amend this Section 10.1(a). (b) Acknowledgments and Admissions. Canadian Borrower hereby represents, warrants, acknowledges and admits that (i) it has been advised by counsel in the negotiation, execution and delivery of the Canadian Loan Documents to which it is a party, (ii) it has made an independent decision to enter into this Agreement and the other Canadian Loan Documents to which it is a party, without reliance on any representation, warranty, covenant or undertaking by Canadian Agent or any Lender, whether written, oral or implicit, other than as expressly set out in this Agreement or in another Canadian Loan Document delivered on or after the date hereof, (iii) there are no representations, warranties, covenants, undertakings or agreements by any Lender as to the Canadian Loan Documents except as expressly set out in this Agreement or in another Canadian Loan Document delivered on or after the date hereof, (iv) no Lender has any fiduciary obligation toward such Canadian Borrower with respect to any Canadian Loan Document or the transactions contemplated thereby, (v) the relationship pursuant to the Canadian Loan Documents between such Canadian Borrower and the other Restricted Persons, on one hand, and each Lender, on the other hand, is and shall be solely that of debtor and creditor, respectively, (vi) no partnership or joint venture exists with respect to the Canadian Loan Documents between any Restricted Person and any Lender, (vii) Canadian Agent is not such Canadian Borrower's Canadian Agent, but Canadian Agent for Lenders, (viii) without limiting any of the foregoing, Canadian Borrower is not relying upon any representation or covenant by any Lender, or any representative thereof, and no such representation or covenant has been made, that any Lender will, at the time of an Event of Default or Default, or at any other time, waive, negotiate, discuss, or take or refrain from taking any action permitted under the Canadian Loan Documents with respect to any such Event of Default or Default or any other provision of the Canadian Loan Documents, and (ix) all Lender Parties have relied upon the truthfulness of the acknowledgments in this section in deciding to execute and deliver this Agreement and to become obligated hereunder. (c) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER CANADIAN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. 51 57 (d) Annual Rates of Interest. For the purposes of the Interest Act (Canada), whenever interest payable pursuant to this Agreement is calculated on the basis of a period other than a calendar year (the "Interest Period"), each rate of interest determined pursuant to such calculation expressed as an annual rate is equivalent to such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by the number of days in the Interest Period. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 10.2. Survival of Agreements; Cumulative Nature. All of Restricted Persons' various representations, warranties, covenants and agreements in the Canadian Loan Documents shall survive the execution and delivery of this Agreement and the other Canadian Loan Documents and the performance hereof and thereof, including the making or granting of the Canadian Loans and the delivery of the Canadian Notes and the other Canadian Loan Documents, and shall further survive until all of the Canadian Obligations are paid in full to each Lender Party and all of Lender Parties' obligations to Canadian Borrowers are terminated. All statements and agreements contained in any certificate or other instrument delivered by any Restricted Person to any Lender Party under any Canadian Loan Document shall be deemed representations and warranties by each Canadian Borrower or agreements and covenants of Canadian Borrower under this Agreement. The representations, warranties, indemnities, and covenants made by Restricted Persons in the Canadian Loan Documents, and the rights, powers, and privileges granted to Lender Parties in the Canadian Loan Documents, are cumulative, and, except for expressly specified waivers and consents, no Canadian Loan Document shall be construed in the context of another to diminish, nullify, or otherwise reduce the benefit to any Lender Party of any such representation, warranty, indemnity, covenant, right, power or privilege. In particular and without limitation, no exception set out in this Agreement to any representation, warranty, indemnity, or covenant herein contained shall apply to any similar representation, warranty, indemnity, or covenant contained in any other Canadian Loan Document, and each such similar representation, warranty, indemnity, or covenant shall be subject only to those exceptions which are expressly made applicable to it by the terms of the various Canadian Loan Documents. Section 10.3. Notices. All notices, requests, consents, demands and other communications required or permitted under any Canadian Loan Document shall be in writing, unless otherwise specifically provided in such Canadian Loan Document (provided that Canadian Agent may give telephonic notices to the other Lender Parties), and shall be deemed sufficiently given or furnished if delivered by personal delivery, by facsimile or other electronic transmission, by delivery service with proof of delivery, or by registered Canadian mail, postage prepaid, to each Canadian Borrower and Restricted Persons at the address of each Canadian Borrower specified on the signature pages hereto and to Canadian Agent at its address specified on the signature pages hereto and to each Lender Party at the address specified on Annex II (unless 52 58 changed by similar notice in writing given by the particular Person whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery during normal business hours at the address provided herein, (b) in the case of facsimile or other electronic transmission, upon receipt, or (c) in the case of registered Canadian mail, five Business Days after deposit in the mail; provided, however, that no Borrowing Notice shall become effective until actually received by Canadian Agent. Section 10.4. Payment of Expenses; Indemnity. (a) Payment of Expenses. Whether or not the transactions contemplated by this Agreement are consummated, Northstar Energy will promptly (and in any event, within 30 days after any invoice or other statement or notice) pay: (i) all reasonable costs and expenses incurred by or on behalf of Canadian Agent (including without limitation, legal fees) in connection with (1) the negotiation, preparation, execution and delivery of the Canadian Loan Documents, and any and all consents, waivers or other documents or instruments relating thereto, (2) the filing, recording, refiling and re-recording of any Canadian Loan Documents and any other documents or instruments or further assurances required to be filed or recorded or refiled or re-recorded by the terms of any Canadian Loan Document, (3) the borrowings hereunder and other action reasonably required in the course of administration hereof, (4) monitoring or confirming (or preparation or negotiation of any document related to) Canadian Borrowers' compliance with any covenants or conditions contained in this Agreement or in any Canadian Loan Document, and (ii) all reasonable costs and expenses incurred by or on behalf of any Lender Party (including without limitation, legal fees, consultants' fees and accounting fees) in connection with the defense or enforcement of any of the Canadian Loan Documents (including this section) or the defense of any Lender Party's exercise of its rights thereunder. (B) INDEMNITY. NORTHSTAR ENERGY AGREES TO INDEMNIFY EACH LENDER PARTY, UPON DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS, EXCLUDING PRINCIPAL AND INTEREST OWING BY DEVON CANADA WITH RESPECT TO CANADIAN ADVANCES MADE TO DEVON CANADA, BUT INCLUDING REASONABLE FEES OF LEGAL COUNSEL, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH LENDER PARTY GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH THE CANADIAN LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR IN TORT OR OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY LENDER PARTY OR ANY OTHER PERSON OR ANY LIABILITIES OR DUTIES OF ANY LENDER PARTY OR ANY OTHER PERSON WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY 53 59 OR CAUSED, IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any Person (including Canadian Borrowers or any of their Affiliates) ever alleges such gross negligence or willful misconduct by any Lender Party, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the term "Lender Party" shall refer not only to each Person designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Person. Section 10.5. Parties in Interest. All grants, covenants and agreements contained in the Canadian Loan Documents shall bind and inure to the benefit of the parties thereto and their respective successors and assigns; provided, however, that no Restricted Person may assign or transfer any of its rights or delegate any of its duties or obligations under any Canadian Loan Document without the prior consent of Required Lenders. No Canadian Borrower nor any Affiliates of any Canadian Borrower shall directly or indirectly purchase or otherwise retire any Obligations owed to any Lender nor will any Lender accept any offer to do so, unless each Lender shall have received substantially the same offer with respect to the same Percentage Share of the Obligations owed to it. If Canadian Borrower or any Affiliate of any Canadian Borrower at any time purchases some but less than all of the Obligations owed to all Lender Parties, such purchaser shall not be entitled to any rights of any Lender under the Canadian Loan Documents unless and until Canadian Borrowers or their Affiliates have purchased all of the Obligations. Section 10.6. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Transferees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Canadian Loans, its Note, and its Percentage Share of the Canadian Maximum Credit Amount); provided, however, that (i) each such assignment shall be to an Eligible Transferee; (ii) together with each such assignment of its rights and obligations under this Agreement, such Lender shall assign the same Percentage Share of its rights and obligations under the US Agreement to the same Eligible Transferee or an Affiliate of such Eligible Transferee; (iii) except in the case of such an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any partial assignment of such Lender's rights and obligations under this Agreement and under the 54 60 US Agreement shall be in a collective amount at least equal to US $20,000,000 or an integral multiple of US $5,000,000 in excess thereof; (iv) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under the Canadian Loan Documents; and (v) the parties to such assignment shall execute and deliver to Canadian Agent for its acceptance an Assignment and Acceptance in the form of Exhibit F hereto, together with any Canadian Note subject to such assignment and a processing fee of US$3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this section, the assignor, Canadian Agent and Canadian Borrowers shall make appropriate arrangements so that, if required, new Canadian Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the Laws of Canada or a province thereof, it shall deliver to Canadian Borrowers and Canadian Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 3.9 of the US Agreement. (b) Canadian Agent shall maintain at its address referred to in Section 10.3 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and their Percentage Share of the Canadian Maximum Credit Amount of, and principal amount of the Canadian Loans 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 Canadian Borrowers, Canadian 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 Canadian Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Canadian Note subject to such assignment and payment of the processing fee, Canadian Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons that are Eligible Transferees in all or a portion of its rights and obligations under this Agreement (including all or a portion of the Canadian Maximum Credit Amount and its Canadian Loans); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of 55 61 such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article III and the right of offset contained in Section 6.13, and (iv) Canadian Borrowers shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of Canadian Borrowers relating to its Canadian Loans and its Canadian Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Canadian Loans or Canadian Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Canadian Loans or Canadian Note, or extending its Canadian Maximum Credit Amount). (e) Notwithstanding any other provision set forth in this Agreement, any Lender residing in the United States may at any time assign and pledge all or any portion of its Canadian Advances and its Canadian Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning Canadian Borrowers or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 10.7 hereof. Section 10.7. Confidentiality. Canadian Agent and each Lender (each, a "Lending Party") agrees to keep confidential any information furnished or made available to it by Canadian Borrowers pursuant to this Agreement that is marked confidential; provided that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any Affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or Affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any Law, rule, or regulation, (d) upon the order of any Tribunal, (e) upon the request or demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its Affiliates may be a party, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Canadian Loan Document, and (i) subject to provisions substantially similar to those contained in this section, to any actual or proposed participant or assignee. Section 10.8. Governing Law; Submission to Process. EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A CANADIAN LOAN DOCUMENT, THE CANADIAN LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE PROVINCE OF ALBERTA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE PROVINCE OF ALBERTA AND THE LAWS OF CANADA APPLICABLE THERETO, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HEREBY AGREES 56 62 THAT ANY LEGAL ACTION OR PROCEEDING AGAINST SUCH CANADIAN BORROWER WITH RESPECT TO THIS AGREEMENT, THE CANADIAN NOTES OR ANY OF THE CANADIAN LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE PROVINCE OF ALBERTA AND EACH PARTY SUBMITS AND ATTORNS TO, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER PARTIES TO BRING PROCEEDINGS AGAINST CANADIAN BORROWERS IN THE COURTS OF ANY OTHER JURISDICTION. Section 10.9. Waiver of Judgment Interest Act (Alberta). To the extent permitted by Law, the provisions of the Judgment Interest Act (Alberta) shall not apply to the Canadian Loan Documents and are hereby expressly waived by Canadian Borrowers. Section 10.10. Deemed Reinvestment Not Applicable. For the purposes of the Interest Act (Canada), the principle of deemed reinvestment of interest shall not apply to any interest calculation under the Canadian Loan Documents, and the rates of interest stipulated in this Agreement are intended to be nominal rates and not effective rates or yields. Section 10.11. Limitation on Interest. Lender Parties, Restricted Persons and any other parties to the Canadian Loan Documents intend to contract in strict compliance with applicable usury Law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Canadian Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable Law from time to time in effect. Neither any Restricted Person nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable Law from time to time in effect, and the provisions of this section shall control over all other provisions of the Canadian Loan Documents which may be in conflict or apparent conflict herewith. Lender Parties expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) any Lender or any other holder of any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by applicable Law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at such Lender's or holder's option, promptly returned to Canadian Borrowers or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable Law, Lender Parties and Restricted Persons (and any other payors thereof) shall to the greatest extent permitted under applicable Law, and in accordance with generally accepted actuarial practices and principles, (i) characterize any non-principal payment as an expense, fee 57 63 or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable Law in order to lawfully charge the maximum amount of interest permitted under applicable Law. In no event shall the aggregate "interest" (as defined in section 347 of the Criminal Code (Canada)) payable under the Canadian Loan Documents exceed the maximum effective annual rate of interest on the "credit advanced" (as defined in that section) permitted under that section and, if any payment, collection or demand pursuant to this Agreement in respect of "interest" (as defined in that section) is determined to be contrary to the provisions of that section, such payment, collection or demand shall be deemed to have been made by mutual mistake of Canadian Borrowers, Canadian Agent and Lenders and the amount of such excess payment or collection shall be refunded to Canadian Borrowers. For purposes of the Canadian Loan Documents, the effective annual rate of interest shall be determined in accordance with generally accepted actuarial practices and principles over the term applicable to the Canadian Obligations on the basis of annual compounding of the lawfully permitted rate of interest and, in the event of dispute, a certificate of a Fellow of the Canadian Institute of Actuaries appointed by Canadian Agent shall be prima facie evidence, for the purposes of such determination. Section 10.12. Termination; Limited Survival. In their sole and absolute discretion, Canadian Borrowers may at any time that no Obligations are owing elect in a written notice delivered to Canadian Agent to terminate this Agreement. Upon receipt by Canadian Agent of such a notice, if no Obligations are then owing this Agreement and all other Canadian Loan Documents shall thereupon be terminated and the parties thereto released from all prospective obligations thereunder. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by any Restricted Person in any Canadian Loan Document, any Obligations under Sections 3.2 through 3.6, and any obligations which any Person may have to indemnify or compensate any Lender Party shall survive any termination of this Agreement or any other Canadian Loan Document. At the request and expense of Canadian Borrowers, Canadian Agent shall prepare and execute all necessary instruments to reflect and effect such termination of the Canadian Loan Documents. Canadian Agent is hereby authorized to execute all such instruments on behalf of all Lenders, without the joinder of or further action by any Lender. Section 10.13. Severability. If any term or provision of any Canadian Loan Document shall be determined to be illegal or unenforceable all other terms and provisions of the Canadian Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable Law. Section 10.14. Counterparts; Fax. This Agreement may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. This Agreement and the Canadian Loan Documents may be validly executed and delivered by facsimile or other electronic transmission. 58 64 Section 10.15. Waiver of Jury Trial, Punitive Damages, etc. EACH CANADIAN BORROWER AND EACH LENDER PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (a) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE CANADIAN LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (c) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER CANADIAN LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO. Section 10.16. Defined Terms. Capitalized terms and phrases used and not otherwise defined herein shall for all purposes of this Agreement have the meaning given to such terms and phrases in Annex I hereto. Section 10.17. Annex I, Exhibits and Schedules; Additional Definitions. Annex I and all Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Section 10.18. Amendment of Defined Instruments. Unless the context otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document, provided that nothing contained in this section shall be construed to authorize any such renewal, extension, modification, amendment or restatement. Section 10.19. References and Titles. All references in this Agreement to Exhibits, Schedules, articles, sections, subsections and other subdivisions refer to the Exhibits, Schedules, articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation". Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. 59 65 Section 10.20. Calculations and Determinations. All calculations under the Canadian Loan Documents of interest chargeable with respect to Eurodollar Loans and of fees shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days. All other calculations of interest made under the Canadian Loan Documents shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 365 or 366 days, as appropriate. Each determination by a Lender Party of amounts to be paid under Article III or any other matters which are to be determined hereunder by a Lender Party (such as any US Dollar Eurodollar Rate, Canadian Dollar Eurodollar Rate, Adjusted US Dollar Eurodollar Rate, Adjusted Canadian Dollar Eurodollar Rate, Business Day, Interest Period, or Reserve Requirement) shall, in the absence of manifest error, be conclusive and binding. Unless otherwise expressly provided herein or unless Required Lenders otherwise consent all financial statements and reports furnished to any Lender Party hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with US GAAP. Section 10.21. Construction of Indemnities and Releases. All indemnification and release provisions of this Agreement shall be construed broadly (and not narrowly) in favor of the Persons receiving indemnification from or being released. Section 10.22. Separate Obligations. All obligations of Northstar Energy and Devon Canada under this Agreement and the other Canadian Loan Documents are separate and individual obligations of Northstar Energy and Devon Canada, respectively, and Northstar Energy shall not have any liabilities in respect of Canadian Advances made by the Lenders to Devon Canada nor shall Devon Canada have any liabilities in respect of Canadian Advances made to Northstar Energy. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 60 66 IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. NORTHSTAR ENERGY CORPORATION Canadian Borrower By: /s/ PAUL BRERETON ---------------------------------------------- Name: Paul Brereton Title: Vice President, Finance Address: 3000, 400-3 Avenue SW Calgary, AB T2P 4H2 Attention: Vice President - Finance Telephone: (403) ------------------------ Fax: (403) ------------------------------ DEVON ENERGY CANADA CORPORATION Canadian Borrower By: /s/ PAUL BRERETON ----------------------------------------------- Name: Paul Brereton Title: Vice President, Finance Address: ----------------------------------------- ----------------------------------------- Attention: Vice President - Finance Telephone: ------------------------------- Fax: ------------------------------------- 67 BANK OF AMERICA CANADA Administrative Agent, Canadian LC Issuer and Lender By: /s/ RICHARD J. HALL ----------------------------------------------- Name: Richard J. Hall Title: Vice President Address: 200 Front Street West, Suite 2700 Toronto, Canada M5V 3L2 Attention: Telephone: Fax: 68 FIRST CHICAGO NBD BANK, CANADA Lender By: /s/ JEREMIAH A. HYNES, III ----------------------------------------------- Name: Jeremiah A. Hynes, III Title: First Vice President 69 BANK OF MONTREAL Lender By: /s/ MICHAEL P. STUCKEY -------------------------------------------------- Name: Michael P. Stuckey Title: Managing Director, U.S. Corporate Banking 70 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION Lender By: /s/ DONNA J. GERMAN ----------------------------------------------- Name: Donna J. German Title: Managing Director 71 UMB OKLAHOMA BANK Lender By: /s/ RICHARD J. LEHRTER ----------------------------------------------- Name: Richard J. Lehrter Title: Executive Vice President 72 FIRST UNION NATIONAL BANK Lender By: /s/ ROBERT R. WETTEROFF ------------------------------------------------ Name: Robert R. Wetteroff Title: Senior Vice President 73 TORONTO-DOMINION BANK Lender By: /s/ CAROL BRANDT ------------------------------------------------ Name: Carol Brandt Title: Vice President 74 BANK OF OKLAHOMA, N.A. Lender By: /s/ JOHN N. HUFF ------------------------------------------------ Name: John N. Huff Title: Vice President 75 WESTDEUTSCHE LANDESBANK GIROZENTRALE Lender By: /s/ KHEIL A. MCINTYRE ------------------------------------------------ Name: Kheil A. McIntyre Title: Vice President By: /s/ ANTHONY J. ALESSANDRO ------------------------------------------------ Name: Anthony J. Alessandro Title: 76 THE BANK OF NEW YORK Lender By: /s/ RAYMOND J. PALMER ------------------------------------------------ Name: Raymond J. Palmer Title: Vice President 77 ROYAL BANK OF CANADA Lender By: /s/ IAN G. WILD ------------------------------------------------ Name: Ian G. Wild Title: Senior Account Manager 78 SUNTRUST BANK, ATLANTA Lender By: /s/ TODD C. DAVIS ------------------------------------------------ Name: Todd C. Davis Title: Assistant Vice President By: /s/ DAVID J. EDGE ------------------------------------------------ Name: David J. Edge Title: Vice President 79 [EXECUTION] ANNEX I DEFINED TERMS "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any assets acquired by such specified Person, and any refinancing of the foregoing indebtedness on similar terms, taking into account current market conditions. "Acquisition Documents" means (a) the Amended and Restated Combination Agreement dated as of June 29, 1998 and all schedules and exhibits thereto pursuant to which US Borrower is acquiring all of the outstanding common shares of Northstar Energy and (b) all other material agreements or instruments delivered in connection therewith to consummate the acquisition contemplated thereby. "Adjusted Canadian Dollar Eurodollar Rate" means, for any Canadian Dollar Eurodollar Loan for any Eurodollar Interest Period therefor, the per annum rate equal to the sum of (a) the Applicable Margin plus (b) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Canadian Agent to be equal to the quotient obtained by dividing (i) the Canadian Dollar Eurodollar Rate for such Canadian Dollar Eurodollar Loan for such Eurodollar Interest Period by (ii) 1 minus the Reserve Requirement for such Canadian Dollar Eurodollar Loan for such Interest Period. The Adjusted Canadian Dollar Eurodollar Rate for any Canadian Dollar Eurodollar Loan shall change whenever the Applicable Margin or the Reserve Requirement changes. No Adjusted Canadian Dollar Eurodollar Rate charged by any Person shall ever exceed the Highest Lawful Rate. "Adjusted US Dollar Eurodollar Rate" means, for any US Dollar Eurodollar Loan for any Eurodollar Interest Period therefor, the per annum rate equal to the sum of (a) the Applicable Margin plus (b) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Agent to be equal to the quotient obtained by dividing (i) the US Dollar Eurodollar Rate for such US Dollar Eurodollar Loan for such Eurodollar Interest Period by (ii) 1 minus the Reserve Requirement for such US Dollar Eurodollar Loan for such Interest Period. The Adjusted US Dollar Eurodollar Rate for any US Dollar Eurodollar Loan shall change whenever the Applicable Margin or the Reserve Requirement changes. No Adjusted US Dollar Eurodollar Rate charged by any Person shall ever exceed the Highest Lawful Rate. "Affiliate" means, as to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control 80 with, such Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 20% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Applicable Currency" means (i) when used with respect to any US Loan or US LC Obligations, US Dollars, and (ii) when used with respect to any Canadian Prime Rate Loan, any Canadian Dollar Eurodollar Loan or any Bankers' Acceptance, Canadian Dollars, and (iii) when used with respect to any Canadian Base Rate Loan or an US Dollar Eurodollar Loan made under the Canadian Agreement, US Dollars. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to US Agent, Canadian Agent, and Borrowers by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means (a) except with respect to any Tranche B Loan, when used in the Canadian Agreement and when used in the US Agreement on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date:
====================================== Applicable Applicable Rating Level Margin ====================================== Level I 27.0 -------------------------------------- Level II 30.0 -------------------------------------- Level III 40.0 -------------------------------------- Level IV 42.5 -------------------------------------- Level V 60.0 ======================================
2 81 (b) when used with respect to any Tranche B Loan on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date:
====================================== Applicable Applicable Rating Level Margin ====================================== Level I 28.0 -------------------------------------- Level II 31.0 -------------------------------------- Level III 42.5 -------------------------------------- Level IV 45.0 -------------------------------------- Level V 62.5 ======================================
Changes in the Applicable Margin will occur automatically without prior notice as changes in the Applicable Rating Level occur. US Agent will give notice promptly to Borrowers and the Lenders of changes in the Applicable Margin. "Applicable Rating Level" means for any day, the highest Rating Level (as such term is defined below in this paragraph) issued by S&P, Duff & Phelps, or Moody's, if Moody's shall have issued such a rating with respect to US Borrower (collectively, in this definition called the "Designated Rating Agencies"); provided that if at any time three Designated Rating Agencies have ratings in effect with respect to US Borrower's Long-Term Debt and the Rating Levels (as such terms are defined below in this paragraph) of at least two of the three Designated Rating Agencies are not the same, "Applicable Rating Level" shall mean the higher of the two lowest Rating Levels of the Designated Rating Agencies. As used in this definition, (i) the term "Rating Level" means for any day with respect to any of the Designated Rating Agencies, the rating level described below (or its then equivalent) applicable on such day, issued by such Designated Rating Agency, from time to time, with respect to US Borrower's Long-Term Debt or if such rating is unavailable, equivalents thereof, including counterparty ratings, implied ratings and corporate ratings; (ii) "US Borrower's Long-Term Debt" means senior, unsecured, non-credit enhanced long-term indebtedness for borrowed money of US Borrower, and (iii) ">" means a rating equal to or more favorable than and "<" means a rating less favorable than. 3 82
====================================================================== Duff & Rating Level S&P Phelps Moody's* ---------------------------------------------------------------------- Level I >=A- >=A- >=A3 ---------------------------------------------------------------------- Level II BBB+ BBB+ Baa1 ---------------------------------------------------------------------- Level III BBB BBB Baa2 ---------------------------------------------------------------------- Level IV BBB- BBB- Baa3 ---------------------------------------------------------------------- Level V *A Moody's rating is not currently available for US Borrower. If any two of the Designated Rating Agencies shall not have in effect a rating for US Borrower's Long-Term Debt or if the rating system of any of the Designated Rating Agencies shall change, or if any of such Designated Rating Agencies shall cease to be in the business of rating corporate debt obligations, US Borrower and Required Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such Designated Rating Agency, but until such an agreement shall be reached, the Applicable Rating Level shall be based only upon the rating by the remaining Designated Rating Agency. "BA Discount Rate" means, in respect of a BA being accepted by a Lender on any date, (i) for a Lender that is listed in Schedule I to the Bank Act (Canada), the average bankers' acceptance rate as quoted on Reuters CDOR page (or such other page as may, from time to time, replace such page on that service for the purpose of displaying quotations for bankers' acceptances accepted by leading Canadian financial institutions) at approximately 10:00 a.m. (Toronto time) on such drawdown date for bankers' acceptances having a comparable maturity date as the maturity date of such BA (the "CDOR Rate"); or, if such rate is not available at or about such time, the average of the bankers' acceptance rates (expressed to five decimal places) as quoted to the Agent by the Schedule I BA Reference Banks as of 10:00 a.m. (Toronto time) on such drawdown date for bankers' acceptances having a comparable maturity date as the maturity date of such BA; and (ii) for a Lender that is listed in Schedule II to the Bank Act (Canada), the rate established by the Canadian Agent to be the lesser of (A) the CDOR Rate plus 10 Basis Points; and (B) the average of the bankers' acceptance rates (expressed to five decimal places) as quoted to the Canadian Agent by the Schedule II BA Reference Banks as of 10:00 a.m. (Toronto time) on such drawdown date for bankers' acceptances having a comparable maturity date as the maturity date of such BA; "Bankers' Acceptance" or "BA" means a Canadian Dollar draft of either Canadian Borrower, for a term selected by such Canadian Borrower of either 30, 60, 90 or 180 days (as reduced or extended by the Lender, acting reasonably, to allow the maturity thereof to fall on a Business Day) payable in Canada. 4 83 "Bankruptcy and Insolvency Act (Canada)" means the Bankruptcy and Insolvency Act, S.C. 1992, c. 27, including the regulations made and, from time to time, in force under that Act. "Basis Point" means one one-hundredth of one percent (0.01%). "Borrower" means any of US Borrower and Canadian Borrowers. "Borrowing" means a borrowing of new Loans of a single Type pursuant to Section 1.2 or a Continuation or Conversion of existing Loans into a single Type (and, in the case of Eurodollar Loans, with the same Interest Period) pursuant to Section 1.3 of the US Agreement or the Canadian Agreement or the acceptance or purchase of Bankers' Acceptances issued by Canadian Borrowers under the Canadian Agreement or the Continuation or Conversion of existing Banker's Acceptances into Canadian Loans of a single Type in the case of Eurodollar Loans with the same Interest Period pursuant to Section 1.3 of the Canadian Agreement. "Borrowing Notice" means a written or telephonic request, or a written confirmation, made by any Borrower which meets the requirements of Section 1.2 of the US Agreement or Section 1.2 of the Canadian Agreement. "Business Day" means (a) with respect to the Canadian Agreement, a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Dallas, Texas and Toronto, Ontario and (b) with respect to the US Agreement, a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Dallas, Texas. Any Business Day in any way relating to Eurodollar Loans (such as the day on which an Interest Period begins or ends) must also be a day on which, in the judgment of US Agent or Canadian Agent, as applicable, significant transactions in dollars are carried out in the interbank eurocurrency market. "Canadian Advances" has the meaning given to such term in Section 1.1 of the Canadian Agreement. "Canadian Agent" means Bank of America Canada, as administrative agent under the Canadian Agreement, and its successors and assigns in such capacity. "Canadian Agreement" means that certain Credit Agreement dated the Closing Date among Canadian Borrowers, Canadian Agent and Lenders, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "Canadian Base Rate Loan" means a Canadian Loan which bears interest at the Canadian US Dollar Base Rate. "Canadian Borrowers" means Northstar Energy and Devon Energy Canada. "Canadian Dollar" or "C$" means the lawful currency of Canada. 5 84 "Canadian Dollar Eurodollar Loan" means a Canadian Loan that bears interest at the Adjusted Canadian Dollar Eurodollar Rate. "Canadian Dollar Eurodollar Rate" means, for any Canadian Dollar Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Dow Jones Market Service (formerly Telerate Access Service) Page 3740 (or any successor page) as the London interbank offered rate for deposits in Canadian Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, then such offered rate shall be otherwise independently determined by Canadian Agent from an alternate, substantially similar independent source available to Canadian Agent or shall be calculated by Canadian Agent by a substantially similar methodology as that theretofore used to determine such offered rate on Dow Jones Market Service, in the London interbank eurodollar market for a period of time equal or comparable to the related Interest Period and in an amount equal to or comparable to the principal amount of the eurodollar portion to which such Interest Period relates. "Canadian Facility Maturity Date" means the date which is five years and one day after the Conversion Date. "Canadian Facility Usage" means, at the time in question, the US Dollar Exchange Equivalent of the aggregate amount of Canadian Loans, Canadian LC Obligations, and BA's outstanding at such time. "Canadian Guarantor" means US Borrower. "Canadian LC Issuer" means Bank of America Canada in its capacity as the issuer of Letters of Credit under the Canadian Agreement, and its successors in such capacity. Canadian Agent may, with the consent of Canadian Borrowers and the Lender in question, appoint any Canadian Resident Lender hereunder as a Canadian LC Issuer in place of or in addition to Bank of America Canada. "Canadian LC Obligations" means, at the time in question, the sum of all Matured Canadian LC Obligations plus the maximum amounts which Canadian LC Issuer might then or thereafter be called upon to advance under all Letters of Credit then outstanding under the Canadian Agreement. "Canadian LC Sublimit" means US $25,000,000. "Canadian Loan Documents" means the Canadian Agreement, the Canadian Notes, the Letters of Credit issued under the Canadian Agreement, the LC Applications related thereto, the BA's, the Guaranty executed by Canadian Guarantor, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters). 6 85 "Canadian Loans" means the Canadian Revolver Loans, the Canadian Term Loans into which such Revolving Loans may be converted and the Competitive Bid Loans made under the Canadian Agreement. "Canadian Maximum Credit Amount" means US $195,000,000 or the Canadian Dollar Exchange Equivalent. "Canadian Notes" means each Lender's "Canadian Note", as defined in Section 1.1 of the Canadian Agreement, and the Competitive Bid Notes issued under the Canadian Agreement. "Canadian Obligations" means all Liabilities from time to time owing by Canadian Borrowers to any Lender Party under or pursuant to any of the Canadian Loan Documents, including all Canadian LC Obligations owing thereunder. "Canadian Obligation" means any part of the Canadian Obligations. "Canadian Prime Rate" means on any day a fluctuating rate of interest per annum equal to the higher of (i) the rate of interest per annum most recently announced by Bank of America Canada as its reference rate for Canadian Dollar commercial loans made to a Person in Canada; and (ii) Bank of America Canada's Discount Rate for Bankers' Acceptances having a maturity of thirty days plus the Applicable Margin. No Canadian Prime Rate charged by any Person shall ever exceed the Highest Lawful Rate "Canadian Prime Rate Loan" means a Canadian Loan that bears interest at the Canadian Prime Rate. "Canadian Resident Lender" means each Lender identified as such on the signature pages to the Canadian Agreement or any Assignment and Acceptance executed by a new Lender, each being a Person that is not a non-resident of Canada for the purposes of the Income Tax Act (Canada). "Canadian Revolving Loans" has the meaning given it in Section 1.1 of the Canadian Agreement. "Canadian Revolving Period" means the period from and including the Closing Date until the Conversion Date (or, if earlier, the day on which the obligations of Lenders to make Canadian Loans or the obligations of Canadian LC Issuer to issue Letters of Credit under the Canadian Agreement have been terminated or the Canadian Notes first become due and payable in full). "Canadian Term Loan" has the meaning given it in Section 1.7 of the Canadian Agreement. "Canadian Term Period" means the period from and including the day immediately following the Conversion Date until and including the Canadian Facility Maturity Date. "Canadian US Dollar Base Rate" means for a day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (b) the rate of 7 86 interest per annum most recently established by Bank of America Canada as its reference rate for US Dollar commercial loans made to a Person in Canada. Any change in the Canadian US Dollar Base Rate due to a change in the Bank of America Canada's reference rate shall be effective on the effective date of such change. No Canadian US Dollar Base Rate charged by any Person shall ever exceed the Highest Lawful Rate. "Cash Equivalents" means Investments in: (a) marketable obligations, maturing within twelve months after acquisition thereof, issued or unconditionally guaranteed by Canada or the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of Canada or the United States of America, as applicable; (b) demand deposits, and time deposits (including certificates of deposit) maturing within twelve months from the date of deposit thereof, with a domestic office (1) of US Agent or Canadian Agent or any Lender, or (2) of any bank or trust company organized under the laws of Canada or the United States of America or any Province or State therein, provided that (x) the full amount of each such deposit in such bank or trust company is insured by the Federal Deposit Insurance Corporation if applicable, or (y) such bank or trust company has capital, surplus and undivided profits aggregating at least US $50,000,000, and (c) (1) publicly traded debt securities with an original term of 270 days or less or (2) interest bearing securities issued to the public by banks, associated entities or similar institutions, which can be put to the issuer at the investor's unconditional option within one month after acquisition, so long as in each case such securities have a credit rating of at least A-1 from S&P or P-1 from Moody's or A-1 [low] from CBRS or R-1 [low] from DBRS. "CBRS" means CBRS Inc., or its successor. "Change of Control" means the occurrence of either of the following events: any Person (or syndicate or group of Persons which is deemed a "person" for the purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) acquires more than thirty percent (30%) of the outstanding stock of US Borrower having ordinary voting power (disregarding changes in voting power based on the occurrence of contingencies) for the election of directors, or during any period of twelve successive months a majority of the Persons who were directors of US Borrower at the beginning of such period cease to be directors of US Borrower. "Closing Date" means December 11, 1998. "Companies' Creditors Arrangement Act (Canada)" means the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, including the regulations made and from time to time in force under that Act. "Competitive Bid" means (i) with respect to the US Agreement, a response from any Lender to an Invitation to Bid, substantially in the form of Exhibit J to the US Agreement and 8 87 (ii) with respect to the Canadian Agreement, a response from any Canadian Resident Lender to an Invitation to Bid, substantially in the form of Exhibit K to the Canadian Agreement. "Competitive Bid Accept/Reject Letter" means (i) with respect to the US Agreement, a notice sent by US Borrower to US Agent, substantially in the form of Exhibit K to the US Agreement, indicating its acceptance or rejection of Competitive Bids from various Lenders and (ii) with respect to the Canadian Agreement, a notice sent by the applicable Canadian Borrower to Canadian Agent, substantially in the form of Exhibit L to the Canadian Agreement, indicating its acceptance or rejection of Competitive Bids from various Lenders. "Competitive Bid Interest Period" means, with respect to any Competitive Bid Loan, a period from one day to one hundred eighty days as specified in the Competitive Bid applicable thereto. "Competitive Bid Loan" means (i) with respect to the US Agreement, a loan from a Lender to US Borrower pursuant to the bidding procedure described in Section 1.7 of the US Agreement and (ii) with respect to the Canadian Agreement, a loan from a Canadian Resident Lender to the applicable Canadian Borrower pursuant to the bidding procedure described in Section 1.9 of the Canadian Agreement. "Competitive Bid Note" (i) with respect to the US Agreement, a "Competitive Bid Note" as defined in Section 1.7 of the US Agreement and (ii) with respect to the Canadian Agreement, a "Competitive Bid Note" as defined in Section 1.9 of the Canadian Agreement. "Competitive Bid Rate" means, for any Competitive Bid Loan, the fixed rate at which such Lender is willing to make such Competitive Bid Loan indicated in its Competitive Bid. The Competitive Bid Rate shall in no event, however, exceed the Highest Lawful Rate. "Competitive Bid Request" means (i) with respect to the US Agreement, a request by US Borrower in the form of Exhibit H to the US Agreement for Lenders to submit Competitive Bids and (ii) with respect to the Canadian Agreement, a request by the applicable Canadian Borrower in the form of Exhibit I to the Canadian Agreement for Canadian Resident Lenders to submit Competitive Bids. "Consolidated" refers to the consolidation of any Person, in accordance with US GAAP, with its properly consolidated subsidiaries. References herein to a Person's Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries. "Consolidated Assets" means the total assets of US Borrower and its Restricted Subsidiaries which would be shown as assets on a Consolidated balance sheet of US Borrower and its Restricted Subsidiaries prepared in accordance with US GAAP, after eliminating all amounts properly attributable to minority interest, if any, in the stock and surplus of the Restricted Subsidiaries. 9 88 "Consolidated Interest Expense" means, for any period, total interest expense (including distributions on the Devon Trust Securities treated as interest expense), whether paid or accrued, including without limitation all commissions, discounts and other fees and charges owed with respect to Letters of Credit. "Continuation" (i) as used in the US Agreement shall refer to the continuation pursuant to Section 1.3 thereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the next Interest Period and (ii) as used in the Canadian Agreement shall refer to the continuation pursuant to Section 1.3 thereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the next Interest Period or a rollover of a Banker's Acceptance at maturity. "Continuation/Conversion Notice" means (i) with respect to the US Agreement, a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 1.3 of the US Agreement, and (ii) with respect to the Canadian Agreement, a written or telephonic request, or a written confirmation, made by the applicable Canadian Borrower which meets the requirements of Section 1.3 of the Canadian Agreement. "Conversion" (i) as used in the US Agreement shall refer to a conversion pursuant to Section 1.3 or Article III of one Type of US Loan into another Type of US Loan and (ii) as used in the Canadian Agreement shall refer to a conversion pursuant to Section 1.3 or Article III of one Type of Canadian Advance into another Type of Canadian Advance. "Conversion Date" means the date which is 364 days after the Closing Date, or such later day to which the Conversion Date is extended pursuant to Section 1.6 of the Canadian Agreement. "DBC" means DBC, Inc., an Oklahoma corporation. "DBRS" means Dominion Bond Rating Service Limited, or its successor. "Default" means any Event of Default and any default, event or condition which would, with the giving of any requisite notices and the passage of any requisite periods of time, constitute an Event of Default. "Default Rate" means at the time in question (i) with respect to any US Base Rate Loan, the rate two percent (2.0%) above the US Base Rate then in effect, (ii) with respect to any US Dollar Eurodollar Loan, the rate two percent (2%) above the Adjusted US Dollar Eurodollar Rate then in effect for such Loan, (iii) with respect to any Canadian Prime Rate Loan, the rate two percent (2.0%) above the Canadian Prime Rate then in effect for such Loan, (iv) with respect to any Canadian Base Rate Loan, the rate two percent (2%) above the Canadian US Dollar Base Rate then in effect for such Loan, (v) with respect to any Canadian Dollar Eurodollar Loan, the rate two percent (2%) above the Adjusted Canadian Dollar Eurodollar Rate then in effect for such Loan; and (vi) with respect to any Competitive Bid Loan, the rate two percent (2%) above the Competitive Bid Rate then in effect for such Loan. No Default Rate charged by any Person shall ever exceed the Highest Lawful Rate. 10 89 "Depository Bills and Notes Act (Canada)" means the Depository Bills and Notes Act (Canada), R.S.C. 1998, c. 13, including the regulations made and, from time to time, in force under that Act. "Devon Energy Canada" means Devon Energy Canada Corporation, a Canadian corporation organized under the laws of Alberta. "Devon Nevada" means Devon Energy Corporation (Nevada), a Nevada corporation. "Devon Trust" means Devon Financing Trust, a statutory business trust formed under the laws of the State of Delaware. "Devon Trust Securities" means those certain Trust Convertible Preferred Securities, issued by Devon Trust in an amount of 2,990,000. "Disclosure Schedule" means (i) with respect to the US Agreement, Schedule 1 thereto, and (ii) with respect to the Canadian Agreement, Schedule 1 thereto. "Discount Proceeds" means, in respect of each Bankers' Acceptance, funds in an amount which is equal to: Face Amount --------------- 1 + (Rate x Term) ----------- 365 (where "Face Amount" is the principal amount of the Bankers' Acceptance being purchased, "Rate" is the BA Discount Rate divided by 100 and "Term" is the number of days in the term of the Bankers' Acceptance.) "Distribution" means (a) any dividend or other distribution made by a Restricted Person on or in respect of any stock, partnership interest, or other equity interest in such Restricted Person (including any option or warrant to buy such an equity interest), or (b) any payment made by a Restricted Person to purchase, redeem, acquire or retire any stock, partnership interest, or other equity interest in such Restricted Person (including any such option or warrant). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" below its name on its signature page to the Canadian Agreement or the US Agreement, or such other office as such Lender may from time to time specify to any Borrower and Agent; with respect to LC Issuer, the office, branch, or agency through which it issues Letters of Credit; and, with respect to Agent, the office, branch, or agency through which it administers this Agreement. "Duff & Phelps" means Duff & Phelps Credit Rating Co., or its successor. "EBITDA" means, for any period, calculated on a Consolidated basis, the sum of the amount for such period of Consolidated net income, Consolidated Interest Expense, depreciation 11 90 expense, depletion expense, amortization expense, federal, state, and provincial income taxes, exploitation and abandonment expense and other non-cash charges and expenses. "Eligible Transferee" means a Person which either (a) is a Lender or an Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by US Agent or Canadian Agent, as applicable, and, so long as no Default or Event of Default is continuing, by the Borrowers, in each case which consent will not be unreasonably withheld; provided that the Borrowers' consent shall not be required for a Person to be an "Eligible Transferee" for purposes of Section 10.6(d) of the US Agreement and Section 10.6(d) of the Canadian Agreement. "Environmental Laws" means any and all Laws relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Affiliate" means US Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with US Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. "ERISA Plan" means any employee pension benefit plan subject to Title IV of ERISA maintained by any ERISA Affiliate with respect to which any Restricted Person has a fixed or contingent liability. "Eurodollar Interest Period" means, with respect to each particular Eurodollar Loan in a Borrowing, the period specified in the Borrowing Notice or Continuation/Conversion Notice applicable thereto, beginning on and including the date specified in such Borrowing Notice or Continuation/Conversion Notice (which must be a Business Day), and ending one, two, three, or six months thereafter, as the applicable Borrower may elect in such notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day in 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 end on the last Business Day in a calendar month; and (c) notwithstanding the foregoing, any Interest Period which would otherwise end after the last day of the US Facility Commitment Period or the Canadian Revolving Period shall end on the last day of the US Facility Commitment Period or the Canadian Revolving Period (or, if the last day of such period is not a Business Day, on the next preceding Business Day). 12 91 "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" below its name on the signature page hereto (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 Borrowers, Canadian Agent, and US Agent. "Eurodollar Loan" means any Canadian Dollar Eurodollar Loan and any US Dollar Eurodollar Loan. "Event of Default" means (i) with respect to the US Agreement the meaning given to such term in Section 8.1 thereof and (ii) with respect to the Canadian Agreement the meaning given to such term in Section 8.1 thereof. "Exchange Equivalent" in respect of one currency (the "Original Currency"), being Canadian Dollars or U.S. Dollars, as the case may be, means, at the date of determination, the amount of currency expressed in the other such currency necessary to purchase, based on the Noon Rate on such date, the specified amount of the Original Currency on such date. "Existing Agreement" means that certain Credit Agreement dated as of May 15, 1998 among US Borrower, Devon Nevada, US Agent, and certain lenders named therein. "Facility Fee Rate" means, on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date:
============================================ Applicable Applicable Rating Level Facility Fee Rate -------------------------------------------- Level I 8.0 -------------------------------------------- Level II 10.0 -------------------------------------------- Level III 12.5 -------------------------------------------- Level IV 17.5 -------------------------------------------- Level V 25.0 ============================================
"Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of Dallas, Texas on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate quoted to US Agent on such day on such transactions as determined by US Agent. 13 92 "Fiscal Quarter" means a three-month period ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means a twelve-month period ending on December 31 of any year. "Governmental Authority" means any domestic or foreign, national, federal, provincial, state, municipal or other local government or body and any division, agency, ministry, commission, board or authority or any quasi-governmental or private body exercising any statutory, regulatory, expropriation or taxing authority under the authority of any of the foregoing, and any domestic, foreign or international judicial, quasi-judicial, arbitration or administrative court, tribunal, commission, board or panel acting under the authority of any of the foregoing. "Hazardous Materials" means any substances regulated under any Environmental Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise. "Hedging Contract" means (a) any agreement providing for options, swaps, floors, caps, collars, forward sales or forward purchases involving interest rates, commodities or commodity prices, equities, currencies, bonds, or indexes based on any of the foregoing, (b) any option, futures or forward contract traded on an exchange, and (c) any other derivative agreement or other similar agreement or arrangement. "Highest Lawful Rate" means, with respect to each Lender Party to whom Obligations are owed, the maximum nonusurious rate of interest that such Lender Party is permitted under applicable Law to contract for, take, charge, or receive with respect to such Obligations. All determinations herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest Lawful Rate, shall be made separately for each Lender Party as appropriate to assure that the Loan Documents are not construed to obligate any Person to pay interest to any Lender Party at a rate in excess of the Highest Lawful Rate applicable to such Lender Party. "Income Tax Act (Canada)" means the Income Tax Act, S.C. 1970-71-72, c. 63, including the regulations made and, from time to time, in force under that Act. "Indebtedness" of any Person means Liabilities in any of the following categories: (a) Liabilities for borrowed money, (b) Liabilities constituting an obligation to pay the deferred purchase price of property or services, other than customary payment terms taken in the ordinary course of such Person's business, (c) Liabilities evidenced by a bond, debenture, note or similar instrument, 14 93 (d) Liabilities arising under conditional sales or other title retention agreements or under leases capitalized in accordance with US GAAP, but excluding customary oil, gas or mineral leases, (e) Liabilities with respect to payments received in consideration of oil, gas, or other minerals yet to be acquired or produced at the time of payment (including obligations under "take-or-pay" contracts to deliver gas in return for payments already received and the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment); (f) Liabilities under Hedging Contracts, (g) Liabilities with respect to letters of credit or applications or reimbursement agreements therefor, or (h) Liabilities under direct or indirect guaranties of Liabilities of any Person or constituting obligations to purchase or acquire or to otherwise protect or insure a creditor against loss in respect of Indebtedness of the types described in paragraphs (a) through (g) above of any Person (such as obligations under working capital maintenance agreements, agreements to keep-well, or agreements to purchase debt, assets, goods, securities or services, but excluding endorsements in the ordinary course of business of negotiable instruments in the course of collection), provided, however, that the "Indebtedness" of any Person shall not include Liabilities that were incurred by such Person on ordinary trade terms to vendors, suppliers, or other Persons providing goods and services for use by such Person in the ordinary course of its business, unless and until such Liabilities are outstanding more than 90 days past the original invoice or billing date therefor. Any Indebtedness owed by a partnership shall be deemed Indebtedness of any partner in such partnership to the extent such partner has any liability of any kind therefor. "Initial Financial Statements" means (i) the audited annual Consolidated financial statements of US Borrower dated as of December 31, 1997, and (ii) the unaudited quarterly Consolidated financial statements of US Borrower dated as of September 30, 1998. "Interest Act (Canada)" means the Interest Act, R.S.C. 1985, c. I-15, including the regulations made and, from time to time, in force under that Act. "Interest Payment Date" means (a) with respect to each US Base Rate Loan, Canadian US Dollar Base Rate Loan, and Canadian Prime Rate Loan, the last day of each March, June, September and December beginning December 31, 1998, and (b) with respect to each Eurodollar Loan, the last day of the Eurodollar Interest Period that is applicable thereto and, if such Eurodollar Interest Period is six months in length, the date specified by Agent which is approximately three months after such Eurodollar Interest Period begins; provided that the last day of each calendar month shall also be an Interest Payment Date for each such Loan so long as any Event of Default exists under Section 8.1 (a) or (b). 15 94 "Interest Period" means (i) with respect to any Eurodollar Loan, the related Eurodollar Interest Period and (ii) with respect to any Competitive Bid Loan, the related Competitive Bid Interest Period. "Internal Revenue Code" means the United States Internal Revenue Code of 1986, as amended from time to time and any successor statute or statutes. "Investment" means any investment made directly or indirectly, in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise and whether made in cash, by the transfer of property, or by any other means. "Invitation to Bid" means (i) with respect to the US Agreement, an invitation by US Agent to each Lender, substantially in the form of Exhibit I thereto, inviting such Lender to submit Competitive Bids in response to a Competitive Bid Request under the US Agreement, and (ii) with respect to the Canadian Agreement, an invitation by Canadian Agent to each Lender, substantially in the form of Exhibit J thereto, inviting such Lender to submit Competitive Bids in response to a Competitive Bid Request under the Canadian Agreement. "Judgment Interest Act (Alberta)" means the Judgment Interest Act, S.A. 1984 c. J-O.5, including the regulations made and, from time to time, in force under that Act. "Law" means any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree, permit, concession, franchise, license, agreement or other governmental restriction of the United States or Canada or any state, province or political subdivision thereof or of any foreign country or any department, province or other political subdivision thereof. "LC Application" means any application for a Letter of Credit hereafter made by any Borrower to US LC Issuer or Canadian LC Issuer. "LC Collateral" (i) as used in the US Agreement, has the meaning given to such term in Section 2.6 of the US Agreement and (ii) as used in the Canadian Agreement, has the meaning given such term in Section 2.11 of the Canadian Agreement. "Lender Parties" means Agent, US LC Issuer, Canadian LC Issuer, and all Lenders. "Lenders" means each signatory to the US Agreement and the Canadian Agreement (other than any Borrower), including NationsBank, N.A. and Bank of America Canada in their capacity as a Lender hereunder rather than as US Agent or Canadian Agent and US LC Issuer or Canadian LC Issuer, respectively, and the successors of each such party as holder of a US Note or a Canadian Note. "Lenders Schedule" means Annex II to the US Agreement and Annex II to the Canadian Agreement which are the same. 16 95 "Letter of Credit" means any letter of credit issued by US LC Issuer under the US Agreement or by Canadian LC Issuer under the Canadian Agreement at the application of any Borrower. "Liabilities" means, as to any Person, all indebtedness, liabilities and obligations of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent, and whether or not required to be considered pursuant to US GAAP. "Lien" means, with respect to any property or assets, any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's or materialman's lien, or any other charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but excluding any right of offset. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of uncertificated securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists. "Loan Documents" means, collectively, the Canadian Loan Documents and the US Loan Documents. "Loans" means, collectively, the Canadian Loans and the US Loans. "Majority Lenders" means Lenders whose aggregate Percentage Shares exceed sixty-six and two thirds percent (66 2/3%). "Material Adverse Effect" means any event which would reasonably be expected to have a material and adverse effect upon (a) US Borrower's Consolidated financial condition, (b) US Borrower's Consolidated operations, properties or prospects, considered as a whole, (c) US Borrower's ability to timely pay the Obligations, or (d) the enforceability of the material terms of any Loan Documents. "Matured Canadian LC Obligations" means all amounts paid by Canadian LC Issuer on drafts or demands for payment drawn or made under or purported to be under any Letter of Credit issued under the Canadian Agreement and all other amounts due and owing to Canadian LC Issuer under any LC Application for any such Letter of Credit, to the extent the same have not been repaid to Canadian LC Issuer (with the proceeds of Loans or otherwise). "Matured US LC Obligations" means all amounts paid by US LC Issuer on drafts or demands for payment drawn or made under or purported to be under any Letter of Credit issued under the US Agreement and all other amounts due and owing to US LC Issuer under any LC Application for any such Letter of Credit, to the extent the same have not been repaid to US LC Issuer (with the proceeds of Loans or otherwise). 17 96 "Maximum Canadian Drawing Amount" means at the time in question the sum of the maximum amounts which Canadian LC Issuer might then or thereafter be called upon to advance under all Letters of Credit issued pursuant to the Canadian Agreement which are then outstanding. "Maximum US Drawing Amount" means at the time in question the sum of the maximum amounts which US LC Issuer might then or thereafter be called upon to advance under all Letters of Credit issued pursuant to the US Agreement which are then outstanding. "Moody's" means Moody's Investor Service, Inc., or its successor. "Net Proceeds" means with respect to any Bankers' Acceptance, the Discount Proceeds less the amount equal to the applicable Stamping Fee Rate multiplied by the face amount of such Bankers' Acceptance.. "Non-resident Lender" means any Lender which is not a Canadian Resident Lender, and shall initially mean each Lender identified as such on the signature pages to the Canadian Agreement or thereafter on any Assignment and Acceptance. "Noon Rate" means, in relation to the conversion of one currency into another currency, the rate of exchange for such conversion as quoted by the Bank of Canada (or, if not so quoted, the spot rate of exchange quoted for wholesale transactions made by Canadian Agent at Toronto, Ontario at approximately noon (Toronto local time)). "Northstar Energy" means Northstar Energy Corporation, an Alberta corporation. "Notes" mean, collectively, the Canadian Notes and the US Notes. "Obligations" means, collectively, the US Obligations and the Canadian Obligations. "Offer of Extension" means (a) with respect to the Canadian Agreement, a written offer by Canadian Agent, for and on behalf of Required Lenders, to Canadian Borrowers to extend the Canadian Facility Revolving Period to a date 364 days from acceptance by Canadian Borrowers of such offer, and setting forth, if applicable, the terms and conditions on which such extension is offered by the Lenders and as may be accepted by Canadian Borrowers, and (b) with respect to the US Agreement, a written offer by US Agent, for and on behalf of Required Lenders, to US Borrower to extend the Tranche B Revolving Period to a date 364 days from acceptance by US Borrower of such offer, and setting forth, if applicable, the terms and conditions on which such extension is offered by the Lenders and as may be accepted by US Borrower. "Percentage Share" means (a) under the US Agreement with respect to any Lender (i) when used in Article I or Article II of the US Agreement, in any Borrowing Notice thereunder or when no US Loans are outstanding, the percentage set forth opposite such Lender's name on the Lenders Schedule as modified by assignments of a Lender's rights and obligations under the US Agreement made by 18 97 or to such Lender in accordance with the terms of the US Agreement, and (ii) when used otherwise, the percentage obtained by dividing (x) the sum of the unpaid principal balance of such Lender's US Loans and such Lender's Percentage Share of the US LC Obligations, by (y) the sum of the aggregate unpaid principal balance of all US Loans at such time plus the aggregate amount of all US LC Obligations outstanding at such time; and (b) under the Canadian Agreement with respect to any Lender (i) when used in Article I or Article II of the Canadian Agreement, in any Borrowing Notice thereunder or when no Canadian Advances are outstanding, the percentage set forth opposite such Lender's name on the Lenders Schedule as modified by assignments of a Lender's rights and obligations under the Canadian Agreement made by or to such Lender in accordance with the terms of the Canadian Agreement, and (ii) when used otherwise, the percentage obtained by dividing (x) the sum of the unpaid principal balance of such Lender's Canadian Advances and such Lender's Percentage Share of the Canadian LC Obligations, by (y) the sum of the aggregate unpaid principal balance of all Canadian Advances at such time plus the aggregate amount of all Canadian LC Obligations outstanding at such time. "Permitted Distribution" means (i) any Distribution made by any Restricted Person that is payable only in common stock of such Restricted Person, and (ii) any other Distribution made by any Restricted Person to US Borrower, Canadian Borrower or to any other Restricted Person that is a wholly-owned Subsidiary of US Borrower. "Permitted Investments" means (a) Cash Equivalents, (b) Investments in Restricted Subsidiaries that are wholly-owned by US Borrower and in Canadian Borrowers, and (c) US Borrower's Investments in Thunder Creek Gas Services L.L.C. and Sage Creek Gas Processors, L.L.C., which are limited liability companies involved in the methane gas and conventional gas production and development in the Powder River basin of central Wyoming and are owned by a Subsidiary of US Borrower and other industry partners (US Borrower will include its pro rata share of these entities in its Consolidated financial statements), (d) payments made for the purchase of oil and gas assets, leaseholds and associated facilities and/or the purchase of equity interests in entities involved in the oil and gas industry, all in accordance with US Borrower's normal business practices; provided that no Default shall exist before or after any such acquisition or Investment, and (e) Investments in any Person, so long as such Person becomes a Restricted Subsidiary of US Borrower within one year after the date such Investment is made. "Permitted Liens" means: (a) Liens for taxes, assessments or governmental charges which are not due or delinquent, or the validity of which US Borrower or any Restricted Subsidiary shall be contesting in good faith; provided US Borrower or such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (b) the Lien of any judgment rendered, or claim filed, against US Borrower or any Restricted Subsidiary which does not constitute an Event of Default and which US Borrower or any such Restricted Subsidiary shall be contesting in good faith; provided US Borrower or 19 98 such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (c) Liens, privileges or other charges imposed or permitted by law such as statutory liens and deemed trusts, carriers' liens, builders' liens, materialmens' liens and other liens, privileges or other charges of a similar nature which relate to obligations not due or delinquent, including any lien or trust arising in connection with workers' compensation, unemployment insurance, pension, employment and similar laws or regulations; (d) Liens arising in the ordinary course of and incidental to construction, maintenance or current operations which have not been filed pursuant to law against US Borrower or any Restricted Subsidiary or in respect of which no steps or proceedings to enforce such lien have been initiated or which relate to obligations which are not due or delinquent or if due or delinquent, which US Borrower or such Restricted Subsidiary shall be contesting in good faith; provided US Borrower or such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (e) Liens incurred or created in the ordinary course of business and in accordance with sound oil and gas industry practice in respect of the exploration, development or operation of oil and gas properties or related production or processing facilities or the transmission of petroleum substances as security in favor of any other Person conducting the exploration, development, operation or transmission of the property to which such Liens relate, for US Borrower's or any of its Restricted Subsidiaries' portion of the costs and expenses of such exploration, development, operation or transmission, provided that such costs or expenses are not due or delinquent or, if due or delinquent, which US Borrower or such Restricted Subsidiary shall be contesting in good faith; provided US Borrower or such Restricted Subsidiary shall have made adequate provision therefor in accordance with US GAAP; (f) overriding royalty interests, net profit interests, reversionary interests and carried interests or other similar burdens on production in respect of US Borrower's or any of its Restricted Subsidiaries' oil and gas properties that are entered into with or granted to arm's length third parties in the ordinary course of business and in accordance with sound oil and gas industry practice in the area of operation; (g) Liens for penalties arising under non-participation provisions of operating agreements in respect of US Borrower's or any of its Restricted Subsidiaries' oil and gas properties if such Liens do not materially detract from the value of any material part of the property of US Borrower and its Subsidiaries taken as a whole; (h) easements, rights-of-way, servitudes, zoning or other similar rights or restrictions in respect of land held by US Borrower or any Restricted Subsidiary (including, without limitation, rights-of-way and servitudes for railways, sewers, drains, pipe lines, gas and water mains, electric light and power and telephone or telegraph or cable television conduits, poles, wires and cables) which, either alone or in the aggregate, do not materially detract from the value of such land or materially impair its use in the operation of the business of US Borrower and its Restricted Subsidiaries taken as a whole; 20 99 (i) security given by US Borrower or any Restricted Subsidiary to a public utility or any Governmental Authority when required by such public utility or Governmental Authority in the ordinary course of the business of US Borrower or any Restricted Subsidiary in connection with operations of US Borrower or any Restricted Subsidiary if such security does not, either alone or in the aggregate, materially detract from the value of any material part of the property of US Borrower and its Restricted Subsidiaries taken as a whole; (j) the right reserved to or vested in any Governmental Authority by the terms of any lease, license, grant or permit or by any statutory or regulatory provision to terminate any such lease, license, grant or permit or to require annual or other periodic payments as a condition of the continuance thereof; (k) all reservations in the original grant of any lands and premises or any interests therein and all statutory exceptions, qualifications and reservations in respect of title; (l) any Lien from time to time disclosed by US Borrower or any Restricted Subsidiary to the US Agent or the Canadian Agent and which is consented to by the Majority Lenders; (m) any right of first refusal in favor of any Person granted in the ordinary course of business with respect to all or any of the oil and gas properties of US Borrower or any Restricted Subsidiary; (n) Liens on cash or marketable securities of US Borrower or any Restricted Subsidiary granted in connection with any Hedging Contract permitted under the US Agreement; (o) Liens in respect of Indebtedness permitted by Sections 7.1(b), 7.1(g) and 7.1(k); (p) Liens in favor of the US Agent or the Canadian Agent for the benefit of the Lender Parties; (q) Liens to collateralize moneys held in a cash collateral account by a lender in respect of the prepayment of bankers' acceptances, letters of credit or similar obligations accepted or issued by such lender but only if at the time of such prepayment no default or event of default has occurred and is continuing under the credit facility pursuant to which the bankers' acceptances or letters of credit have been accepted or issued; (r) purchase money Liens upon or in any tangible personal property and fixtures (including real property surface rights upon which such fixtures are located and contractual rights and receivables relating to such property) acquired by US Borrower or a Restricted Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of such property, including any Liens existing on such property at the time of its acquisition (other than any such Lien created in contemplation of any such acquisition); 21 100 (s) the rights of buyers under production sale contracts related to US Borrower's or a Restricted Subsidiary's share of petroleum substances entered into in the ordinary course of business, provided that the contracts create no rights (including any Lien) in favor of the buyer or any other Person in, to or over any reserves of petroleum substances or other assets of US Borrower or a Restricted Subsidiary, other than a dedication of reserves (not by way of Lien or absolute assignment) on usual industry terms; (t) Liens arising in respect of operating leases of personal property under which Canadian Borrowers or any of their Subsidiaries are lessees; (u) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary, is merged into or consolidated with US Borrower or any of its Subsidiaries; provided, such Liens were in existence prior to the contemplation of such stock acquisition, merger or consolidation and do not extend to any assets other than those of the Person so acquired or merged into or consolidated with US Borrower or any of its Subsidiaries. (v) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the preceding paragraphs (a) to (u) inclusive of this definition, so long as any such extension, renewal or replacement of such Lien is limited to all or any part of the same property that secured the Lien extended, renewed or replaced (plus improvements on such property), the indebtedness or obligation secured thereby is not increased and such Lien is otherwise permitted by the applicable section above; (w) in addition to Liens permitted by clauses (a) through (v) above, Liens on property or assets if the aggregate Indebtedness secured thereby does not exceed US $25,000,000. provided that nothing in this definition shall in and of itself constitute or be deemed to constitute an agreement or acknowledgment by the US Agent or the Canadian Agent or any Lender that the Indebtedness subject to or secured by any such Permitted Lien ranks (apart from the effect of any Lien included in or inherent in any such Permitted Liens) in priority to the Obligations; "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, Tribunal, or any other legally recognizable entity. "Rating Agency" means any of S & P or Moody's, or their respective successors. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect. "Request for an Offer of Extension" means (a) with respect to the Canadian Agreement, a written request made by Canadian Borrowers to the Lenders to have Required Lenders issue an offer to Canadian Borrowers extending the Canadian Revolving Period for a further 364 days, and (b) with respect to the US Agreement, a written request made by US Borrower to the Lenders 22 101 to have Required Lenders issue an offer to US Borrower extending the Tranche B Revolving Period for a further 364 days. "Required Lenders" means Lenders whose aggregate Percentage Shares equal or exceed fifty percent (50%). "Reserve Requirement" means, at any time, the maximum rate at which reserves (including any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System of the United States of America (or any successor) by member banks of such Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the Adjusted US Dollar Eurodollar Rate or the Adjusted Canadian Dollar Eurodollar Rate is to be determined, or (b) any category of extensions of credit or other assets which include US Dollar Eurodollar Loans or Canadian Dollar Eurodollar Loans. "Restricted Distribution" means any Distribution that is not a Permitted Distribution. "Restricted Investment" means any Investment that is not a Permitted Investment. "Restricted Payments" has the meaning given to such term in Section 7.5 of the US Agreement. "Restricted Person" means any of US Borrower and each Restricted Subsidiary. "Restricted Subsidiary" means each Canadian Borrower and any other Subsidiary of US Borrower that is not an Unrestricted Subsidiary; provided, the following Subsidiaries of US Borrower shall be deemed not to be Restricted Subsidiaries: (a) BN Co. A Limited Partnership, a New Mexico limited partnership; (b) BN Coal, L.L.C., a New Mexico limited liability company; (c) BN Non-Coal, L.L.C., a New Mexico limited liability company; (d) Blackwood & Nicholls Co., a New Mexico limited partnership; (e) Devon-Blanco Company, an Oklahoma general partnership; (f) 172173 Canada Inc.; (g) 410760 Alberta Ltd.; (h) 653087 Alberta Ltd.; (i) 661151 Alberta Ltd.; (j) 728097 Alberta Ltd.; (k) Foothills Partnership; (l) Morrison Administration Corporation; (m) Morrison Capital Inc.; (n) Morrison Gas Gathering Inc.; (o) Morrison Operating Company Ltd.; 23 102 (p) Morrison Petroleums (Alberta) Ltd.; (q) Polar Energy Marketing Corporation; and (r) Saratoga Processing Company, Ltd. "S & P" means Standard & Poor's Ratings Services (a division of McGraw Hill Companies, Inc.), or its successor. "Schedule I BA Reference Banks" means the Lenders listed in Schedule I to the Bank Act (Canada) as are, at such time, designated by Canadian Agent, with the prior consent of Canadian Borrowers (acting reasonably), as the Schedule I BA reference Banks. "Schedule II BA Reference Banks" means the Lenders listed in Schedule II to the Bank Act (Canada) as are, at such time, designated by Canadian Agent, with the prior consent of Canadian Borrowers (acting reasonably), as the Schedule II BA Reference Banks. "Stamping Fee Rate" means with respect to any Bankers' Acceptance accepted by any Canadian Resident Lender at any time, the Applicable Margin then in effect; provided that if an Event of Default has occurred and is continuing, the Stamping Fee Rate shall be increased by two hundred (200) Basis Points. "Subordinated US Borrower Debentures" means those certain Convertible Junior Subordinated Debentures issued by US Borrower to Devon Trust pursuant to the Subordinated US Borrower Indenture and subordinated to the Obligations, in the aggregate principal amount of approximately US $154,500,000. "Subordinated US Borrower Guarantee" means that certain Guarantee dated July 1, 1996, by US Borrower in favor of the holders of the Devon Trust Securities pursuant to the Subordinated US Borrower Indenture and subordinated to the Obligations, guaranteeing certain payments to be made by Devon Trust pursuant to the Devon Trust Securities. "Subordinated US Borrower Indenture" means that certain Trust Indenture dated July 1, 1996, between US Borrower and The Bank of New York, as indenture trustee. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled by or owned fifty percent or more by such Person, provided that (a) associations, joint ventures or other relationships (i) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (ii) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state Law, and (iii) whose businesses are limited to the exploration, development and operation of oil, gas or mineral properties, transportation and related facilities and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries" of such Person and (b) associations, joint ventures or other relationships (i) which are not corporations or partnerships under applicable provincial Law, and (ii) whose businesses are limited to the exploration, development and operation of oil, gas or 24 103 mineral properties, transportation and related facilities and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries" of such Person. "Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA or (ii) any other reportable event described in Section 4043(b) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) 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 ERISA Plan. "Total Capitalization" means the sum (without duplication) of (i) US Borrower's Consolidated Total Funded Debt plus (ii) US Borrower's Consolidated shareholder's equity plus (iii) 70% of the outstanding balance of the Devon Trust Securities. "Total Funded Debt" means (i) Liabilities referred to in clauses (a), (b), (c), (d), and (e) of the definition of "Indebtedness", plus (ii) 30% of the outstanding balance of the Devon Trust Securities. "Tranche A Facility Usage" means, at the time in question, the aggregate amount of Tranche A Loans and existing US LC Obligations outstanding at such time under the US Agreement. "Tranche A Loan" has the meaning given it in Section 1.1(a) of the US Agreement. "Tranche A Maximum Credit Amount" means $130,000,000. "Tranche A Note" has the meaning given it in Section 1.1(a) of the US Agreement. "Tranche B Conversion Date" means the date which is 364 days after the Closing Date, or such later day to which the Tranche B Conversion Date is extended pursuant to Section 1.1 of the US Agreement. "Tranche B Facility Fee Rate" means, on any date, the number of Basis Points per annum set forth below based on the Applicable Rating Level on such date: 25 104
============================================= Applicable Applicable Tranche B Rating Level Facility Fee Rate --------------------------------------------- Level I 7.0 --------------------------------------------- Level II 9.0 --------------------------------------------- Level III 10.0 --------------------------------------------- Level IV 15.0 --------------------------------------------- Level V 22.5 =============================================
"Tranche B Facility Usage" means, at the time in question, the aggregate amount of Tranche B Loans outstanding at such time under the US Agreement. "Tranche B Loan" has the meaning given it in Section 1.1(b) of the US Agreement. "Tranche B Maturity Date" means the date which is two years after the Tranche B Conversion Date. "Tranche B Maximum Credit Amount" means $75,000,000. "Tranche B Note" has the meaning given it in Section 1.1(b) of the US Agreement. "Tranche B Revolving Period" means the period from the Closing Date until the Tranche B Conversion Date. "Tribunal" means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency or instrumentality of the United States of America or Canada or any state, province, commonwealth, nation, territory, possession, county, parish, town, township, village or municipality, whether now or hereafter constituted or existing. "Type" means (i) with respect to any US Loans, the characterization of such US Loans as either US Base Rate Loans or US Dollar Eurodollar Loans and (ii) with respect to any Canadian Advances, the characterization of such Canadian Advances as Canadian Base Rate Loans, Canadian Prime Rate Loans, US Dollar Eurodollar Loans, Canadian Dollar Eurodollar Loans or Bankers' Acceptances. "Unrestricted Subsidiary" means any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization in which US Borrower does not presently own an interest (directly or indirectly) which hereafter becomes a Subsidiary of US Borrower and which, within 90 days thereafter, is designated as an Unrestricted Subsidiary by US Borrower to US Agent, provided that US Borrower may not designate as an Unrestricted Subsidiary any Subsidiary in which it has made an Investment of more than US $25,000,000 (directly or indirectly) by any means other than newly issued stock or 26 105 treasury stock of US Borrower, which may be used to make an Investment in Unrestricted Subsidiaries without limit and provided further that in the event the book value of the assets of any Unrestricted Subsidiary at any time exceeds US $25,000,000, such Subsidiary shall cease to be an Unrestricted Subsidiary and shall automatically become a Restricted Person. "US Account" means an account established by Canadian Agent in New York into which funds to be advanced to Canadian Borrowers by Lenders in US Dollars and funds to be paid by Canadian Borrowers to Lenders in US Dollars will be deposited. "US Agent" means NationsBank, N.A., as administrative agent, under the US Agreement and its successors and assigns in such capacity. "US Agreement" means that certain Credit Agreement of even date herewith among US Borrower, Agent and the Lenders, as it may be amended, supplemented, restated or otherwise modified and in effect from time to time. "US Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (b) the US Reference Rate for such day. Any change in the US Base Rate due to a change in the US Reference Rate or the Federal Funds Rate shall be effective on the effective date of such change in the US Reference Rate or Federal Funds Rate. No US Base Rate charged by any Person shall ever exceed the Highest Lawful Rate. "US Base Rate Loan" means a US Loan made in US Dollars which bears interest at the US Base Rate. "US Borrower" means Devon Energy Corporation, an Oklahoma corporation. "US Dollar" or "US $" means the lawful currency of the United States of America. "US Dollar Equivalent" means, with respect to an amount denominated in Canadian Dollars, the amount of US Dollars required to purchase the relevant stated amount of Canadian Dollars on the date of determination. "US Dollar Eurodollar Loan" means a US Loan or a Canadian Loan, in each case, which bears interest at the Adjusted US Dollar Eurodollar Rate. "US Dollar Eurodollar Rate" means, for any US Dollar Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Dow Jones Market Service (formerly Telerate Access Service) Page 3750 (or any successor page) as the London interbank offered rate for deposits in US Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "US Dollar Eurodollar Rate" shall mean, for any US Dollar Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) 27 106 appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits of US Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "US Facility Commitment Period" means the period from and including the Closing Date until the US Facility Maturity Date (or, if earlier, the day on which the obligations of Lenders to make US Loans hereunder or the obligations of US LC Issuer to issue Letters of Credit hereunder have been terminated or the US Notes first become due and payable in full). "US Facility Maturity Date" means December 10, 2003. "US Facility Usage" means, at the time in question, the aggregate amount of US Loans and existing US LC Obligations outstanding at such time under the US Agreement. "US GAAP" means those generally accepted accounting principles and practices which are recognized as such from time to time by the Financial Accounting Standards Board (or any generally recognized successor) and which, in the case of US Borrower and its Consolidated Subsidiaries, are applied for all periods after the Closing Date in a manner consistent with the manner in which such principles and practices were applied to the Initial Financial Statements. "US LC Issuer" means NationsBank, N.A. in its capacity as the issuer of Letters of Credit under the US Agreement, and its successors in such capacity. "US LC Obligations" means, at the time in question, with respect to the US Agreement, the sum of all Matured US LC Obligations plus the maximum amounts which US LC Issuer might then or thereafter be called upon to advance under all Letters of Credit then outstanding. "US LC Sublimit" means US $25,000,000. "US Loans" means the Tranche A Loans, the Tranche B Loans and Competitive Bid Loans made under the US Agreement. "US Loan Documents" means the US Agreement, the US Notes issued under the US Agreement, the Letters of Credit issued under the US Agreement, the LC Applications related thereto, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters). "US Maximum Credit Amount" means the amount of US $205,000,000. "US Notes" means the Tranche A Notes, the Tranche B Notes and the Competitive Bid Notes issued under the US Agreement. 28 107 "US Obligations" means all Liabilities from time to time owing by any Restricted Person to any Lender Party under or pursuant to any of the US Loan Documents, including all US LC Obligations owing thereunder. "US Obligation" means any part of the US Obligations. "US Reference Rate" means the per annum rate of interest established from time to time by NationsBank, N.A. as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank, N.A. to its customers. "Withholding Tax" has the meaning given it in Section 3.2(d) of the Canadian Agreement. 29 EX-23 8 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements (Nos. 33-32378, 33-67924, 333-48643 and 333-66873) on Form S-8 and Registration Statements (Nos. 333-00815 and 333-66899) on Form S-3 of Devon Energy Corporation of our report dated March 19, 1998 (except as to Note 12 which is as of December 10, 1998) to the shareholders of Northstar Energy Corporation, appearing in this Form 8-K. /s/ Deloitte & Touche LLP Chartered Accountants Calgary, Alberta Canada December 22, 1998 -----END PRIVACY-ENHANCED MESSAGE-----