-----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, E8AIsdCpBMW5Ujk0I528xjNrXjPwktdN5FvmqyW9lY8UMqYBfoShXCbq/FVzWL9t NzTJI7fT55n0NkpMK/xxlw== 0000950152-97-005828.txt : 19970813 0000950152-97-005828.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950152-97-005828 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELDEN & BLAKE CORP /OH/ CENTRAL INDEX KEY: 0000880114 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 341686642 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33407 FILM NUMBER: 97656930 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 2164991660 MAIL ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEAKE ENERGY INC CENTRAL INDEX KEY: 0000844488 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 941610907 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33407-01 FILM NUMBER: 97656931 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD POST OFFICE BOX 2500 CITY: N CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 3304991660 MAIL ADDRESS: STREET 1: 5200 STONEHAM RD PO BOX 2500 CITY: N CANTON STATE: OH ZIP: 44720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARD LAKE DRILLING INC CENTRAL INDEX KEY: 0001043377 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 382676911 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33407-02 FILM NUMBER: 97656932 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 3304991660 MAIL ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TARGET OILFIELD PIPE & SUPPLY CO CENTRAL INDEX KEY: 0001043378 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 341281709 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33407-03 FILM NUMBER: 97656933 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 2164991660 MAIL ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANTON OIL & GAS CO CENTRAL INDEX KEY: 0001043380 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 941710907 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33407-04 FILM NUMBER: 97656934 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 2164991660 MAIL ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 S-4 1 BELDEN & BLAKE FORM S-4 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BELDEN & BLAKE CORPORATION and Certain Subsidiaries Named in Footnote (1) Below (Exact name of registrant as specified in its charter) OHIO (State or other jurisdiction of incorporation or organization) 1311 (Primary Standard Industrial Classification Code Number) 34-1686642 (I.R.S. Employer Identification Number) 5200 STONEHAM ROAD NORTH CANTON, OHIO 44720 (330) 499-1660 (Address, including Zip Code, and telephone number, including area code, of registrant's principal executive office) JOSEPH M. VITALE, ESQ. 5200 STONEHAM ROAD NORTH CANTON, OHIO 44720 (330) 499-1660 (Name, address, including Zip Code, and telephone number, including area code, of agent for service) Copies to: ANTHONY E. EFREMOFF BLACK, MCCUSKEY, SOUERS & ARBAUGH 1000 UNITED BANK PLAZA 220 MARKET AVENUE SOUTH CANTON, OHIO 44702 (330) 456-8341 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] CALCULATION OF REGISTRATION FEE
======================================================================================================= Proposed Proposed Title of Each Class Amount Maximum Maximum of Securities to Be To Be Offering Price Aggregate Amount of Registered Registered Per Unit Offering Price(2) Registration Fee - ------------------------------------------------------------------------------------------------------- 9 7/8% Series B Senior Subordinated Notes Due 2007..................... $225,000,000 100% $225,000,000 $68,181.81 Senior Subordinated Guarantees(3) -- -- -- =======================================================================================================
(1) The following direct and indirect subsidiaries of Belden & Blake Corporation are Co-Registrants, each of which is incorporated in the jurisdiction and has the I.R.S. Employer Identification Number indicated: The Canton Oil & Gas Company, an Ohio corporation (34-1021371); Peake Energy, Inc., a Delaware corporation (94-1710907); Ward Lake Drilling, Inc., a Michigan corporation (38-2676911); and Target Oilfield Pipe & Supply Company, an Ohio corporation (34-1281709). (2) Estimated solely for the purpose of calculating the registration fee. (3) The 9 7/8% Series B Senior Subordinated Notes due 2007 are guaranteed by the Co-Registrants on a senior subordinated basis. No separate consideration will be paid in respect of such guarantees. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED AUGUST , 1997 PROSPECTUS [LOGO] BELDEN & BLAKE CORPORATION OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF 9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING 9 7/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 Belden & Blake Corporation, an Ohio corporation (the "Company"), hereby offers to exchange (the "Exchange Offer") up to $225,000,000 in aggregate principal amount of its 9 7/8% Series B Senior Subordinated Notes due 2007 (the "Exchange Notes") for up to $225,000,000 in aggregate principal amount of its outstanding 9 7/8% Series A Senior Subordinated Notes due 2007 that were issued and sold in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Senior Subordinated Notes" and, together with the Exchange Notes, the "Notes"). The terms of the Exchange Notes will be the same in all respects (including principal amount, interest rate, maturity and ranking) as the terms of the Senior Subordinated Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and therefore will not be subject to certain restrictions on transfer applicable to the Senior Subordinated Notes. The Exchange Notes will be issued under the Indenture (as defined) governing the Senior Subordinated Notes, and the Exchange Notes will not be entitled to registration rights except under certain limited circumstances. The Senior Subordinated Notes are, and the Exchange Notes will be, unsecured and will be subordinated to all existing and future Senior Indebtedness (as defined) of the Company. The Notes will rank pari passu with any future senior subordinated indebtedness of the Company and will rank senior to all other Subordinated Indebtedness (as defined) of the Company. The Senior Subordinated Notes are, and the Exchange Notes will be, guaranteed, jointly and severally and fully and unconditionally, on a senior subordinated basis, by each of the Company's direct and indirect subsidiaries on the issue date of the Senior Subordinated Notes, namely, The Canton Oil & Gas Company, Peake Energy, Inc., Ward Lake Drilling, Inc. and Target Oilfield Pipe & Supply Company, and by each direct and indirect subsidiary of the Company (excluding Unrestricted Subsidiaries (as defined)) formed or acquired thereafter (collectively, the "Guarantors"). The Indenture permits the Company to incur additional indebtedness, including Senior Indebtedness, subject to certain limitations. See "Description of the Notes." As of March 31, 1997, on a pro forma basis after giving effect to the Transaction (as defined) and to the Initial Offering (as defined) and the application of the net proceeds therefrom, the Company would have had outstanding in the aggregate $324.5 million of indebtedness, of which $99.3 million would have been Senior Indebtedness. As of July 31, 1997, the Company had outstanding aggregate indebtedness of $329.5 million, of which $104.0 million was Senior Indebtedness. For a description of the terms of the Exchange Notes, see "Description of the Notes." There will be no cash proceeds to the Company from the Exchange Offer. The Senior Subordinated Notes were originally issued and sold on June 27, 1997 in a transaction not registered under the Securities Act, in reliance upon the exemption provided in Section 4(2) of the Securities Act and Rule 144A of the Securities Act (the "Initial Offering"). Accordingly, the Senior Subordinated Notes may not be reoffered, resold or otherwise pledged, hypothecated or transferred in the United States unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. Based upon interpretations provided to third parties by the Staff (the "Staff") of the Securities and Exchange Commission (the "Commission"), the Company believes that the Exchange Notes issued pursuant (continued on next page) - -------------------------------------------------------------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1997. BELDEN & BLAKE LOGO 3 to the Exchange Offer in exchange for the Senior Subordinated Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Company within the meaning of the Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Senior Subordinated Notes directly from the Company or (iii) a broker-dealer who acquired Senior Subordinated Notes as a result of market-making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal that is filed as an exhibit to the Registration Statement of which this Prospectus is a part (the "Letter of Transmittal") states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Senior Subordinated Notes where such Senior Subordinated Notes were acquired by such broker-dealer as a result of market-making or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. See "Plan of Distribution." The Senior Subordinated Notes and the Exchange Notes constitute new issues of securities with no established public trading market. The Company does not intend to apply for listing of the Exchange Notes on any national securities exchange or for their quotation through the National Association of Securities Dealers Automated Quotation System. Therefore, there can be no assurance as to the development or liquidity of any trading market for the Exchange Notes. Any Senior Subordinated Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that Senior Subordinated Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered, and tendered but unaccepted, Senior Subordinated Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Senior Subordinated Notes will continue to be subject to the existing restrictions on transfer thereof and the Company will have no further obligation to register such Senior Subordinated Notes under the Securities Act except under certain limited circumstances. See "Description of the Notes--Senior Subordinated Notes Registration Rights." The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Senior Subordinated Notes being tendered or accepted for exchange. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997, unless extended (the "Expiration Date"). The first date of acceptance for exchange of the Senior Subordinated Notes (the "Exchange Date") will be the Expiration Date. Senior Subordinated Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Otherwise such tenders are irrevocable. 4 CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS, SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION." 2 5 AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (the "Registration Statement," which term shall include all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to in the Registration Statement are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in this entirety by such reference. Upon consummation of the Exchange Offer, the Company will become subject to the periodic reporting and to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy statements and other information filed by the Company with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies can be obtained by mail at prescribed rates. Requests for copies should be directed to the Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements regarding registrants that file electronically with the Commission. Copies of such material can be obtained from the Company upon request. The Company is required by the terms of the indenture dated as of June 27, 1997 between the Company, the Guarantors and LaSalle National Bank, as trustee (the "Trustee"), under which the Senior Subordinated Notes were issued and under which the Exchange Notes are to be issued (the "Indenture"), to furnish the Trustee and the holders of the Notes with annual reports containing consolidated financial statements audited by its independent certified public accountants, with quarterly reports containing unaudited condensed consolidated financial statements for each of the first three quarters of each fiscal year and with current reports on Form 8-K. NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. MARKET AND INDUSTRY DATA MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY AND CONDUCTED BY THIRD PARTIES AND FROM INDUSTRY OR GENERAL PUBLICATIONS. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY THIRD PARTIES OR INDUSTRY OR GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES. 3 6 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless the context otherwise requires, all references to "Belden & Blake" or the "Company" include Belden & Blake Corporation and its consolidated subsidiaries. Certain industry terms are defined in the Glossary. Pro forma information gives effect to the Transaction, as described in the notes to the Unaudited Pro Forma Consolidated Financial Statements. THE COMPANY Belden & Blake, an independent energy company, is primarily engaged in producing natural gas and oil, acquiring and enhancing the economic performance of producing gas and oil properties, exploring for and developing natural gas and oil reserves and gathering and marketing natural gas. Until 1995, the Company conducted business exclusively in the Appalachian Basin where it has operated since 1942 through several predecessor entities. It is now one of the largest exploration and production companies operating in the Appalachian Basin in terms of reserves, acreage held and wells operated. In early 1995, the Company commenced operations in the Michigan Basin and in September 1996, the Company commenced operations in the Illinois Basin. The Michigan and Illinois Basins have geologic and operational similarities to the Appalachian Basin and are in proximity to the Company's core operations. The operating environment in each of the basins in which the Company operates is highly fragmented, providing substantial acquisition opportunities. The Company currently operates approximately 7,600 wells with total net production of approximately 72 Mmcf per day of gas and 2,100 Bbls per day of oil. At December 31, 1996, the Company had proved reserves of 332.9 Bcfe with a Present Value of $356 million. On an Mcfe basis, the reserves were 79% proved developed and 87% natural gas, with a reserve life index of approximately 11 years. The Company holds leases on more than one million net acres. Since 1992, the Company has grown principally through the acquisition of producing properties and related gas gathering facilities and the exploration and development of its own acreage. The Company has built a significant gas gathering and marketing operation and owns and operates 2,760 miles of gas gathering systems in the basins in which the Company operates. As of March 31, 1997, the Company marketed 135 Mmcf per day, approximately 50% of which was purchased from third parties. The Company also operates a major regional oilfield service and supply business. BUSINESS STRENGTHS The Company believes it has certain strengths that provide it with significant competitive advantages, including the following: - Proven Growth Record. The Company has generated consistent growth through a balanced program of acquisitions and development and exploratory drilling. Over the last four years, on a compound annual basis, the Company has increased proved reserves by 34%, production by 50% and EBITDA by 56%. - Geographic Focus. The Company's operations are exclusively focused on the Appalachian, Michigan and Illinois Basins. The Company believes that its 54-year operating history has resulted in a specialized technical expertise that provides a competitive advantage in sourcing and evaluating acquisitions and drilling opportunities within these areas. Furthermore, the Company enjoys economies of scale in operating and developing its properties not experienced by many smaller competitors. - Leading Regional Consolidator. There are currently over 10,000 operators in the Appalachian and Michigan Basins. While Belden & Blake is one of the largest producers in these basins, it 4 7 will account for less than 6% of the projected gas production in these basins in 1997. The Company's significant technical and regional expertise, as well as its low cost structure, provides a distinct advantage in pursuing its acquisition strategy. The Company has a proven and highly disciplined approach to making acquisitions at attractive prices. Over the last five years, the Company has been a leading consolidator in these basins, acquiring 192.9 Bcfe of proved developed reserves in 33 transactions for a total of $129.4 million at an average cost of $0.67 per Mcfe. - Successful Drilling Record. The Company has achieved a very successful drilling record during the last five years. In highly developed or blanket formations the Company's success rate is 97%, while in less developed or deeper formations, the Company's success rate is 59%, for an overall success rate of 85%. During this period, the Company drilled 547 gross (409.9 net) wells, which added 82.2 Bcfe of proved developed reserves at an average cost of $1.03 per Mcfe. - Substantial Development Drilling Inventory. The Company has a substantial current acreage position of approximately 1,019,000 net acres, of which approximately 504,800 are classified as undeveloped. The Company believes that its current acreage holdings would support six years of drilling activities at current oil and gas prices without additions to its current acreage base. - Low Risk Nature of Reserves. The Company's producing reserves are characterized by low volume, low risk production that is subject to gradual decline rates over an expected 15 to 25 year economic life. As a result of the long-lived nature of its properties, Belden & Blake has lower reinvestment requirements to maintain reserve quantities, production levels and values than many of its competitors. - Premium Pricing. Due to the Company's proximity to the large commercial and industrial markets in the Northeast and its strong gas marketing capability, Belden & Blake has enjoyed relatively stable gas prices at premiums well above national spot market prices. Over the last five years, the Company has realized an average premium of $0.52 per Mcf over national average wellhead prices. For the first quarter of 1997, the Company received a $0.75 per Mcf premium over estimated national average wellhead prices. - Attractive Full Cycle Economics. The Company serves as the operator on substantially all of its properties, which provides the Company significant control over the amount and timing of capital and operating expenditures. Over the last five years the Company has reduced operating costs per Mcfe (defined as the sum of production expense, production taxes and general and administrative expense) from $1.53 per Mcfe in 1992 to $0.87 per Mcfe in 1996. The combination of low operating costs with the premium pricing received by the Company for its production has enabled the Company to achieve an average operating margin over the last three years (defined as revenue per Mcfe less the sum of production expenses and production taxes per Mcfe) of $1.81 Mcfe, which is significantly greater than the industry average operating margin for this period. The Company's full cycle economics of 2.75x, calculated by dividing its average operating margin for the last three years by its average replacement cost of $0.66 per Mcfe over this period, is among the highest in the industry. - Extensive Gathering and Marketing Operations. The Company owns and operates approximately 2,760 miles of gas gathering systems which interconnect with, and deliver gas to, the interstate pipelines in its six-state area of operations. The Company also markets approximately 63 Mmcf per day of gas purchased from third parties. The Company's gathering and marketing activities (i) increase the return on the Company's development activities, (ii) provide exposure to and increase the returns on acquisitions, (iii) strengthen the Company's relationships with higher-margin end users and (iv) provide markets for incremental production. The Company's gathering and marketing activities generated EBITDA of $7.0 million in 1996. 5 8 - Experienced Management. Eight senior officers have an average of 23 years of oil and gas industry experience, the vast majority of which was obtained in the core basins in which the Company currently operates. Additionally, the Company's technical staff, which includes 19 petroleum engineers, 11 geologists and two geophysicists, have an average of over 15 years experience in the oil and gas industry. BUSINESS STRATEGY The Company seeks to increase reserves, production and cash flow through a balanced program of exploration and development drilling and strategic acquisitions. The key elements of the Company's strategy are as follows: - Maintain a Balanced Drilling Program. It is the Company's intention to expand production and reserves through a balanced program of developmental and exploratory drilling. The Company believes that there are significant exploration and development opportunities in the less developed or deeper formations in the Appalachian Basin for those operators with the capital, technical expertise and ability to assemble the large acreage positions needed to justify the use of advanced exploration and production technologies. The Company has identified numerous development and exploratory drilling locations in the deeper formations of the Appalachian and Michigan Basins. More than 750,000 wells have been drilled in the Appalachian Basin, but fewer than 2,000 wells have been drilled to a depth greater than 7,500 feet, and fewer than 100 wells have been drilled to a depth greater than 12,500 feet. The Company's drilling budget in 1997 is approximately $38.7 million, which will fund the drilling of approximately 250 wells. - Utilize Advanced Technology. The combination of long-lived production and high drilling success rates at the shallow depths has resulted in a highly fragmented, extensively drilled, low technology operating environment in the Appalachian Basin. The Company has been applying more advanced technology, including 3-D seismic, horizontal drilling, advanced fracturing techniques and enhanced oil recovery methods. The Company is implementing these techniques to improve drilling success rates, the size of its average discovery, production rates, reserve recovery rates and total economics in its operating areas. - Pursue Consolidation Opportunities. There is a continuing trend toward consolidation in the energy industry in general. The basins in which the Company operates are highly fragmented. The Company believes this provides the basis for significant acquisition opportunities as capital constrained operators, the majority of which are privately held, seek liquidity or operating capital. The Company intends to capitalize on its geographic knowledge, technical expertise, low cost structure and decentralized organization to pursue additional strategic acquisitions in its area of operations. The Company's acquisition strategy focuses on acquiring producing properties that: (i) are properties in which the Company already owns an interest and operates or that are strategically located in relation to its existing operations, (ii) can be enhanced through operating cost reductions, advanced production technologies, mechanical improvements, recompleting or reworking wells and/or the use of enhanced and secondary recovery techniques, (iii) provide development and exploratory drilling opportunities or opportunities to improve the Company's acreage position, (iv) have the potential for increased revenues resulting from the Company's gas marketing capabilities, or (v) are of sufficient size to allow the Company to operate efficiently in new areas. - Expand Gas Gathering and Marketing. The Company's extensive gas gathering systems and regional natural gas marketing operation are integral to the Company's low cost structure and high revenues per unit of gas production. It is the Company's intention to expand its gas gathering systems to further improve the rate of return on the Company's drilling and development activities. The Company has excellent relationships with a large number of utilities and industrial end users located within the Company's operating areas. The Com- 6 9 pany's gas marketing operation provides a ready market for increased production, allowing the Company to shift sales from third-party gas to its own production. The Company maintains its corporate headquarters at 5200 Stoneham Road, North Canton, Ohio 44720, and its telephone number is (330) 499-1660. THE ACQUISITION Pursuant to an Agreement and Plan of Merger dated as of March 27, 1997 (the "Acquisition Agreement"), BB Merger Corp. ("BB Merger"), a newly organized company owned by TPG II, TPG Investors II, L.P., TPG Parallel II, L.P. and Johnson Rice & Company, L.L.C. (collectively, the "TPG Investors"), merged with and into the Company, with the Company being the surviving corporation (the "Acquisition"). As a result of the Acquisition, all of the stock of the Company is owned by the TPG Investors. Aggregate consideration of approximately $318.5 million was paid to shareholders and stock option holders of the Company in connection with the merger of the Company and BB Merger, with shareholders of the Company receiving $27.00 per share for each share of common stock of the Company owned by them and stock option holders receiving the net value of their options based on $27.00 per share for all options surrendered. The net proceeds of the sale of the Senior Subordinated Notes (the "Initial Offering"), together with borrowings of $104.0 million under the New Credit Agreement and an equity investment (the "Equity Investment") of $108.2 million by the TPG Investors, were used to fund this consideration, repay certain indebtedness of the Company in the amount of $94.0 million and pay certain related fees and expenses. The Acquisition, the Initial Offering, the Equity Investment, the execution of the New Credit Agreement and the application of the net proceeds therefrom to consummate the transactions contemplated by the Acquisition, the repayment of certain existing indebtedness and the payment of related fees and expenses are collectively referred to as the "Transaction." TEXAS PACIFIC GROUP Texas Pacific Group ("Texas Pacific") was founded by David Bonderman, James G. Coulter and William S. Price, III in 1993 to pursue private and public investment opportunities through a variety of methods, including leveraged buyouts, joint ventures, restructurings, bankruptcies and strategic public securities investments. The principals of Texas Pacific operate TPG Partners, L.P. and TPG II, both Delaware limited partnerships with aggregate committed capital of over $3.2 billion. Texas Pacific currently has twelve investments in its portfolio, including America West Airlines, Beringer Wine Estates, Del Monte Foods, Ducati Motor, Favorite Brands International, Paradyne and Virgin Cinemas. In addition, the principals of Texas Pacific led the $9 billion reorganization of Continental Airlines in 1993. The acquisition of the Company was TPG's second major investment in the oil and gas industry in the last two years. In December, 1995, Texas Pacific acquired approximately 42% of the voting equity of Denbury Resources, an oil and gas company operating in Mississippi and Louisiana. THE EXCHANGE OFFER THE EXCHANGE OFFER............ The Company is offering to exchange up to $225,000,000 aggregate principal amount of 9 7/8% Series B Senior Subordinated Notes due 2007 for up to $225,000,000 aggregate principal amount of its outstanding 9 7/8% Series A Senior Subordinated Notes due 2007 that were issued and sold on June 27, 1997 in reliance upon an exemption from registration under the Securities Act. The terms of the Exchange Notes will be substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the 7 10 terms of the Senior Subordinated Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer except as provided herein (see "The Exchange Offer -- Terms of the Exchange Offer") and will not be entitled to registration rights except under certain limited circumstances. Exchange Notes issued pursuant to the Exchange Offer in exchange for the Senior Subordinated Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an Affiliate, (ii) a broker-dealer who acquired Senior Subordinated Notes directly from the Company or (iii) a broker-dealer who acquired Senior Subordinated Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act except as provided herein and provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in a distribution of such Exchange Notes. MINIMUM CONDITION............. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Senior Subordinated Notes being tendered for exchange. EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997 unless extended (the "Expiration Date"). EXCHANGE DATE................. The first date of acceptance for exchange of the Senior Subordinated Notes will be the Expiration Date. CONDITIONS TO THE EXCHANGE OFFER......................... The obligation of the Company to consummate the Exchange Offer is subject to certain conditions. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." The Company reserves the right to terminate or amend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. WITHDRAWAL RIGHTS............. Tenders may be withdrawn at any time prior to the Expiration Date. Any Senior Subordinated Notes not accepted for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Exchange Offer. PROCEDURES FOR TENDERING SENIOR SUBORDINATED NOTES..... See "The Exchange Offer -- How to Tender." FEDERAL INCOME TAX CONSEQUENCES.................. The exchange of Senior Subordinated Notes for Exchange Notes by holders should not constitute an exchange for federal income tax purposes, and U.S. holders should not realize any gain or loss upon receipt of Exchange Notes. See 8 11 "The Exchange Offer -- Certain Federal Income Tax Considerations." EFFECT ON HOLDERS OF SENIOR SUBORDINATED NOTES............ As a result of the making of this Exchange Offer, and upon acceptance for exchange of all validly tendered Senior Subordinated Notes pursuant to the terms of this Exchange Offer, the Company will have fulfilled covenants contained in the terms of the Senior Subordinated Notes and the Exchange and Registration Rights Agreement (the "Registration Rights Agreement") dated June 27, 1997 between the Company, the Guarantors and Chase Securities Inc., BT Securities Corporation and NationsBanc Capital Markets, Inc., as initial purchasers (collectively, the "Initial Purchasers") and, accordingly, the holders of the Senior Subordinated Notes will have no further registration or other rights under the Registration Rights Agreement, except under certain limited circumstances. See "Description of the Notes -- Senior Subordinated Notes Registration Rights." Holders of the Senior Subordinated Notes who do not tender their Senior Subordinated Notes in the Exchange Offer will continue to hold such Senior Subordinated Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture. All untendered, and tendered but unaccepted, Senior Subordinated Notes will continue to be subject to the restrictions on transfer provided for in the Senior Subordinated Notes and the Indenture. To the extent that Senior Subordinated Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Senior Subordinated Notes could be adversely affected. See "Risk Factors -- Consequences of Exchange and Failure to Exchange." TERMS OF THE NOTES The Exchange Offer applies to $225,000,000 aggregate principal amount of the Senior Subordinated Notes. The form and terms of the Exchange Notes are the same as the form and terms of the Senior Subordinated Notes except that the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof. The Exchange Notes will evidence the same debt as the Senior Subordinated Notes and will be entitled to the benefit of the Indenture. See "Description of the Notes." ISSUER........................ Belden & Blake Corporation. SECURITIES OFFERED............ $225 million aggregate principal amount of 9 7/8% Series B Senior Subordinated Notes due 2007. MATURITY...................... June 15, 2007. INTEREST PAYMENT DATES........ June 15 and December 15 of each year, commencing on December 15, 1997. MANDATORY REDEMPTION.......... None. OPTIONAL REDEMPTION........... Except as otherwise described below, the Notes will not be redeemable at the Company's option prior to June 15, 2002. 9 12 Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest thereon to the applicable redemption date. In addition, prior to June 15, 2000, the Company may, at its option, on any one or more occasions, redeem up to 40% of the original principal amount of the Notes at a redemption price equal to 109.875% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date with all or a portion of the net proceeds of public sales of common stock of the Company; provided that at least 60% of the original aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption. See "Description of the Notes -- Optional Redemption." CHANGE OF CONTROL............. Upon the occurrence of a Change of Control, (i) the Company will have the option, at any time, on or prior to June 15, 2002 (but in no event more than 90 days after the occurrence of such Change of Control), to redeem the Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the date of redemption, and (ii) if the Company does not so redeem the Notes, the Company will be required to offer to repurchase all or a portion of each Holder's Notes, at an offer price in cash equal to 101% of the aggregate principal amount of such Notes plus accrued and unpaid interest, if any, to the date of repurchase, and to repurchase all Notes tendered pursuant to such offer. The New Credit Agreement prohibits the Company from repurchasing any Notes pursuant to a Change of Control offer prior to the repayment in full of the Senior Debt under the New Credit Agreement. If a Change of Control were to occur, the Company may not have sufficient available funds to purchase all Notes tendered pursuant to the Change of Control offer after first satisfying its obligations under the New Credit Agreement or other Senior Debt that may then be outstanding, if accelerated. The failure by the Company to purchase all Notes tendered pursuant to the Change of Control offer would constitute an Event of Default (as defined). If any Event of Default occurs, the Trustee (as defined) or holders of at least 25% in principal amount of the Notes then outstanding may declare the principal of and the accrued and unpaid interest on such Notes to be due and payable immediately. However, such repayment would be subject to certain subordination provisions in the Indenture (as defined). See "Risk Factors -- Risks Relating to a Change of Control" and "Description of the Notes -- Ranking and Subordination" and " -- Repurchase at the Option of Holders -- Change of Control," and " -- Events of Default and Remedies." RANKING....................... The Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Debt of the Company, which 10 13 includes borrowings under the New Credit Agreement. The Notes will rank pari passu in right of payment with all other senior subordinated debt of the Company and any other indebtedness which does not expressly provide that it is subordinated in right of payment to the Notes. As of March 31, 1997, on a pro forma basis after giving effect to the consummation of the Transaction, the aggregate principal amount of Senior Debt outstanding would have been approximately $99.3 million, all of which would have been borrowings under the New Credit Agreement, and there would have been no senior subordinated debt outstanding (exclusive of the Notes). The Notes will also be effectively subordinated to all secured indebtedness of the Company. In addition, the Notes may be structurally subordinated to all existing and future liabilities of the Company's subsidiaries. See "Capitalization," "Description of the Notes -- Ranking and Subordination" and "Description of Other Indebtedness." SUBSIDIARY GUARANTEES......... The Company's payment obligations under the Notes will be jointly, severally and unconditionally guaranteed on a senior subordinated basis by each Restricted Subsidiary of the Company and any future Restricted Subsidiary of the Company. The Guarantees will be subordinated to Senior Debt of the Subsidiary Guarantors substantially to the same extent and manner as the Notes are subordinated to Senior Debt. Each Guarantee will be effectively subordinated to all secured indebtedness of the relevant Subsidiary Guarantor. See "Description of the Notes -- Guarantees" and "Description of Other Indebtedness." CERTAIN COVENANTS............. The Indenture contains certain covenants that limit the ability of the Company and its Restricted Subsidiaries to incur additional indebtedness and issue Disqualified Capital Stock (as defined), pay dividends, make distributions, make investments, make certain other Restricted Payments (as defined), enter into certain transactions with Affiliates (as defined), dispose of certain assets, incur liens securing Indebtedness (as defined) of any kind other than Permitted Liens, (as defined) and engage in mergers and consolidations. See "Description of the Notes -- Certain Covenants." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered in connection with an investment in the Notes offered hereby, including information regarding the Company's highly leveraged capital structure, the uncertainty of oil and gas prices and certain risks associated with an investment in the Notes offered hereby. 11 14 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The following tables set forth certain (i) historical and pro forma financial data and (ii) reserve and operating data. The pro forma financial and operating information gives effect to the Transaction (principally the effects of purchase accounting and additional interest expense) as described in the notes to the Unaudited Pro Forma Consolidated Financial Statements. The historical data should be read in conjunction with the historical Consolidated Financial Statements and Notes thereto included herein. See also "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma information should be read in conjunction with the Unaudited Pro Forma Consolidated Financial Statements included herein. Neither the historical nor the pro forma results are necessarily indicative of future results.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ----------------------------------------------- ----------------------------------------- PRO FORMA PRO FORMA ----------- ----------- 1994 1995 1996 1996 1996 1997 1997 -------- -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT RATIOS) STATEMENT OF OPERATIONS DATA: Revenues Oil and gas sales.............. $ 32,574 $ 46,853 $ 79,491 $ 79,491 $ 19,678 $ 22,863 $ 22,863 Gas marketing and gathering.... 33,072 40,436 44,527 44,527 13,201 12,304 12,304 Oilfield sales and service..... 13,157 20,066 25,517 25,517 5,480 6,379 6,379 Interest and other............. 562 2,712 3,700 3,700 634 768 768 -------- -------- -------- --------- --------- --------- --------- 79,365 110,067 153,235 153,235 38,993 42,314 42,314 Expenses Production expense............. 7,827 11,756 18,098 17,792 4,081 4,760 4,699 Production taxes............... 1,357 2,060 3,168 3,168 794 878 878 Cost of gas and gathering expense...................... 28,878 33,831 37,556 37,556 11,186 10,836 10,836 Oilfield sales and service expense...................... 12,180 18,266 23,142 23,142 5,040 5,964 5,964 Exploration expense............ 2,803 4,924 6,064 6,064 1,525 1,879 1,879 General and administrative expense...................... 3,567 3,802 4,573 4,095 969 1,056 980 Interest expense............... 3,503 6,073 7,383 31,713 2,011 1,702 7,710 Depreciation, depletion and amortization................. 11,886 19,717 29,752 46,288 7,568 7,505 12,483 Franchise, property and other taxes........................ 854 1,228 1,739 1,489 450 445 383 -------- -------- -------- --------- --------- --------- --------- 72,855 101,657 131,475 171,307 33,624 35,025 45,812 -------- -------- -------- --------- --------- --------- --------- Income (loss) before income taxes.......................... 6,510 8,410 21,760 (18,072) 5,369 7,289 (3,498) Net income (loss) (a)............ $ 3,843 $ 5,121 $ 14,755 $ (11,914) $ 3,425 $ 4,847 $ (2,201) ======== ======== ======== ========= ========= ========= ========= OTHER FINANCIAL DATA: EBITDA (b)....................... $ 24,702 $ 39,124 $ 64,959 $ 65,993 $ 16,473 $ 18,375 $ 18,574 Net cash provided by operations..................... 15,709 21,949 46,531 N/A 5,453 16,648 N/A Net cash used in investing....... (37,286) (123,970) (40,095) N/A (3,303) (8,979) N/A Net cash provided by (used in) financing...................... 2,982 110,694 (10,152) N/A (4,063) (10,561) N/A Capital expenditures (c)......... 37,812 123,692 41,617 N/A 3,931 8,715 N/A RATIOS: EBITDA to interest expense....... 7.1x 6.4x 8.8x 2.1x 8.2x 10.8x 2.4x Earnings to fixed charges (d).... 2.7x 2.3x 3.7x N/A 3.5x 4.8x N/A Total debt to EBITDA............. 1.9x 2.8x 1.5x N/A N/A N/A N/A BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents........ $ 3,649 $ 12,322 $ 8,606 N/A $ 10,409 $ 5,714 $ 5,714 Total assets..................... 148,173 297,298 303,763 N/A 297,002 300,920 593,619 Long-term debt, including current portion........................ 46,696 110,671 99,796 N/A 106,748 91,772 324,482 Shareholders' equity............. 81,142 142,291 158,918 N/A 146,127 162,287 108,230
- --------------- (a) Includes loss from discontinued operations of $337,000, $1,139,000, $439,000 and $439,000 in the years 1994, 1995, 1996 and 1996 pro forma, respectively. No losses from discontinued operations were recorded in the quarters ended March 31, 1996 and 1997. (b) EBITDA represents income from continuing operations plus income taxes, exploration expense, interest expense and depletion, depreciation and amortization expense. EBITDA is not presented as an indicator of the Company's operating performance, an indicator of cash available for discretionary spending or as a measure of liquidity. EBITDA may not be comparable to other similarly titled measures of other companies. On a historical basis, EBITDA data has been substantially similar to "Consolidated Cash Flow" as used in the Indenture. See "Description of the Notes" for the detailed definition of "Consolidated Cash Flow." (c) Including acquisitions of properties and businesses, net of acquired cash, of $17,968,000, $99,837,000, and $4,543,000 in the years 1994, 1995 and 1996, respectively. No acquisitions were made in the quarters ended March 31, 1996 and 1997. (d) For the purpose of determining the ratio of earnings to fixed charges, earnings are defined as income from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense, interest portion of rent expense and amortization of debt issuance costs. Earnings for the pro forma periods in 1996 and 1997 are inadequate to cover fixed charges. The pro forma amount of the deficiency is $18,072,000 in 1996 and $3,498,000 in the first quarter of 1997. 12 15 SUMMARY RESERVE AND OPERATING DATA
YEAR ENDED DECEMBER 31, -------------------------------- 1994 1995 1996 -------- -------- -------- ESTIMATED PROVED RESERVES (A): Natural gas (Bcf).................................... 123.0 239.4 288.6 Oil (Mbbls).......................................... 4,113 6,283 7,389 Total (Bcfe)......................................... 147.7 277.1 332.9 Percent natural gas.................................. 83% 86% 87% Percent proved developed............................. 84% 87% 79% RESERVE LIFE INDEX (YEARS) (B):........................ 12 14 11 PRODUCT PRICES (AT DECEMBER 31) (A): Natural gas (per Mcf)................................ $ 2.55 $ 2.30 $ 3.02 Oil (per Bbl)........................................ 15.97 16.95 22.97 FUTURE NET CASH FLOWS ($000) (A): Undiscounted......................................... $229,844 $385,685 $668,493 Present Value........................................ 116,471 214,250 355,959 RESERVE ADDITIONS (MMCFE): Acquisitions......................................... 28,214 124,545 10,200 Extensions, discoveries and revisions................ 17,624 25,628 75,657 -------- -------- -------- Net additions........................................ 45,838 150,173 85,857 ======== ======== ======== COSTS INCURRED ($000): Acquisitions......................................... $ 22,018 $ 84,169 $ 6,595 Development and exploration.......................... 11,272 24,874 36,881 -------- -------- -------- Total costs incurred................................. $ 33,290 $109,043 $ 43,476 ======== ======== ======== RESERVE REPLACEMENT COST PER MCFE (C).................. $ 0.73 $ 0.73 $ 0.51 RESERVE REPLACEMENT (D)................................ 366% 740% 289% GAS MARKETING: Gross gas gathering and marketing margin ($000)...... $ 4,194 $ 6,605 $ 6,971
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------- -------------------------- 1994 1995 1996 1996 1997 -------- -------- -------- ----------- ----------- (UNAUDITED) (UNAUDITED) PRODUCTION: Natural gas (Mmcf)................................... 9,563 16,961 25,410 6,412 6,435 Oil (Mbbls).......................................... 496 556 719 171 187 Natural Gas Equivalents (Mmcfe)...................... 12,539 20,297 29,722 7,441 7,558 AVERAGE SALES PRICE: Natural gas (per Mcf)................................ $ 2.58 $ 2.21 $ 2.56 $ 2.59 $ 2.96 Oil (per Bbl)........................................ 15.98 16.78 20.24 17.74 20.54 Natural Gas Equivalents (per Mcfe)................... 2.60 2.31 2.67 2.64 3.03 PER MCFE DATA: Average production costs including production taxes.............................................. $ 0.74 $ 0.69 $ 0.72 $ 0.66 $ 0.75 Average operating margin (e)......................... 1.86 1.62 1.95 1.98 2.28 WELLS DRILLED: Productive Gross.............................................. 80 129 187 25 36 Net................................................ 58.3 104.0 148.5 23.0 30.7 Dry Gross.............................................. 12 26 20 3 5 Net................................................ 5.2 13.9 12.2 3.0 2.9 Success rate (net)................................... 92% 88% 92% 88% 91%
- --------------- (a) Proved reserves and future net cash flows (before taxes) were estimated in accordance with Commission guidelines. Prices and costs at December 31 for each of the years 1994 through 1996 were used in the calculation of proved reserves and future net cash flows and were held constant through the periods of estimated production, except as otherwise provided by contract, in accordance with the Commission's guidelines. (b) The reserve life index is calculated by dividing proved reserves by annual production, both on an Mcfe basis. (c) Reserve replacement costs are calculated by dividing costs incurred by net reserve additions. (d) Reserve replacement is calculated as net reserve additions divided by the Company's actual production for the period, both on an Mcfe basis. (e) Average sales price per Mcfe less average production costs including production taxes per Mcfe. 13 16 RISK FACTORS Prior to tendering their Senior Subordinated Notes for the Exchange Notes offered hereby, holders of Senior Subordinated Notes should carefully consider, together with the other information included in this Prospectus, the following risk factors which are generally applicable to the Senior Subordinated Notes as well as the Exchange Notes. EFFECTS OF LEVERAGE As a result of the Transaction, including the Initial Offering and the application of the proceeds therefrom, the Company is highly leveraged with outstanding indebtedness of $329.5 million as of July 31, 1997, consisting of $104.0 million of Senior Indebtedness, $225.0 million of Senior Subordinated Indebtedness and $0.5 million of other Indebtedness. Annual interest costs in 1996 on a pro forma basis would have totaled $31.7 million. The Company's level of indebtedness will have several important effects on its future operations, including: (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on its indebtedness and will not be available for other purposes; (ii) covenants contained in the Company's debt obligations will require the Company to meet certain financial tests, and other restrictions will limit its ability to borrow additional funds or to dispose of assets and may affect the Company's flexibility in planning for, and reacting to, changes in its business, including possible acquisition activities; and (iii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. The Company's ability to meet its debt service obligations and to reduce its total indebtedness will be dependent upon the Company's future performance, which will be subject to oil and gas prices, the Company's level of production, general economic conditions and to financial, business and other factors affecting the operations of the Company, many of which are beyond its control. See "Forward-Looking Information." In addition, all amounts owing under the New Credit Agreement will become due before any principal payments on the Notes are scheduled to become due and such amounts will need to be refinanced. Furthermore, to the extent that the Company is unable to repay the principal amount of the Notes at maturity out of cash on hand, it will need to refinance the Notes, or repay the Notes with the proceeds of an equity offering, at or prior to their maturity. There can be no assurance that the Company will be able to generate sufficient cash flow to service its interest payment obligations under its indebtedness or that future borrowings or equity financing will be available for the payment or refinancing of the Company's indebtedness. To the extent that the Company is not successful in negotiating renewals of its borrowings or in arranging new financing, it may have to sell significant assets, which would have a material adverse effect on the Company's business and results of operations. Among the factors that will affect the Company's ability to effect an offering of its capital stock or refinance the Notes are financial market conditions and the value and performance of the Company at the time of such offering or refinancing. There can be no assurance that any such offering or refinancing can be successfully completed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Description of Other Indebtedness." VOLATILITY OF OIL AND GAS PRICES The Company's financial condition, operating results and future growth and the carrying value of its oil and gas properties are substantially dependent on prevailing prices of, and demand for, oil and gas. The Company's ability to maintain or increase its borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent upon oil and gas prices. Historically the markets for oil and gas have been volatile and are likely to continue to be volatile in the future. Prices for oil and gas are subject to large fluctuations in response to relatively minor changes in the supply of, and demand for, oil and gas, market uncertainty and a variety of additional factors beyond the control of the Company. These factors include weather conditions in the United 14 17 States and elsewhere, economic conditions in the United States and elsewhere, actions of the Organization of Petroleum Exporting Countries ("OPEC"), governmental regulation, political stability in the Middle East and elsewhere, the supply of, and demand for, oil and gas, and the availability and prices of foreign imports and alternate fuel sources. Any substantial and extended decline in the price of oil or gas would have an adverse effect on the Company's carrying value of its proved reserves, borrowing capacity, the Company's ability to obtain additional capital, and its financial condition, revenues, profitability and cash flows from operations. Volatile oil and gas prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on such value. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploration projects. UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES This Prospectus contains estimates of the Company's oil and gas reserves and the future net revenues from those reserves which have been prepared by the Company and certain independent petroleum engineers. Reserve engineering is a subjective process of estimating the recovery from underground accumulations of oil and gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Estimates of economically recoverable oil and gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future oil and gas prices, future operating costs, severance and excise taxes, development costs and workover and remedial costs, all of which may in fact vary considerably from actual results. Because all reserve estimates are to some degree speculative, the quantities of oil and gas that are ultimately recovered, production and operation costs, the amount or timing of future development expenditures and future oil and gas sales prices may all vary from those assumed in these estimates and such variances may be material. In addition, different reserve engineers may make different estimates of reserve quantities and cash flows based upon the same available data. The present value of estimated future net cash flows referred to in this Prospectus should not be construed as the current market value of the estimated proved oil and gas reserves attributable to the Company's properties. The calculation of the present value of the future net revenues using a 10% discount as required by the Commission is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the Company's reserves or the oil and gas industry in general. Furthermore, the Company's reserves may be subject to downward or upward revision based upon actual production, results of future development, supply and demand for oil and gas, prevailing oil and gas prices and other factors. See "Business and Properties -- Reserves." In accordance with applicable requirements of the Commission, the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate, whereas actual future prices and costs may be materially higher or lower. The calculation of the Present Value of the Company's oil and gas reserves as of December 31, 1996, was based on prices in effect on that date. Average product prices at December 31, 1996 were $3.02 per Mcf of gas and $22.97 per Bbl of oil, which prices were substantially higher than historical prices used by the Company to calculate Present Value in recent years. For example, at December 31, 1995, the average prices for natural gas and oil were $2.30 per Mcf and $16.95 per Bbl, respectively. The closing price on the New York Mercantile Exchange ("NYMEX") for the prompt month natural gas contract delivered at Henry Hub on December 31, 1996 and April 30, 1997 was $2.757 per Mcf and $2.184 per Mcf, respectively, assuming one Mmbtu per Mcf. The closing price on NYMEX for the prompt month oil contract delivered at Cushing, Oklahoma on December 31, 1996 and April 30, 1997 was $25.92 per Bbl and $20.21 per Bbl, respectively. The proximity of the Appalachian and Michigan Basins to large commercial and industrial natural gas markets has 15 18 generally resulted in premium wellhead gas prices that since 1986 have ranged from $0.31 to $1.30 per Mcf above national wellhead prices. The Company's average wellhead gas price in the first quarter of 1997 was $0.75 per Mcf above the estimated average national wellhead price. FINDING AND ACQUIRING ADDITIONAL RESERVES The Company's future success depends upon its ability to find or acquire additional oil and gas reserves that are economically recoverable. Except to the extent the Company conducts successful exploration or development activities or acquires properties containing proved reserves, the proved reserves of the Company will generally decline as they are produced. There can be no assurance that the Company's planned exploration and development projects and acquisition activities will result in significant additional reserves or that the Company will have success drilling productive wells at economic returns. If prevailing oil and gas prices were to increase significantly, the Company's finding costs to add new reserves could increase as a result of rising costs of goods and services associated with its drilling activity. The drilling of oil and gas wells involves a high degree of risk, especially the risk of dry holes or of wells that are not sufficiently productive to provide an economic return on the capital expended to drill the wells. The cost of drilling, completing and operating wells is uncertain, and drilling or production may be curtailed or delayed as a result of many factors. Exploration drilling and, to a lesser extent, development drilling involve a high degree of risk that no commercial production will be obtained or that the production will be insufficient to recover drilling and completion costs. The costs of drilling, completing and operating wells is uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including title problems, weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment. Furthermore, completion of a well does not assure a profit on the investment or a recovery of drilling, completion and operating costs. See "Business and Properties -- Drilling Results." The Company's business is capital intensive. To maintain its base of proved oil and gas reserves, a significant amount of cash flow from operations must be reinvested in property acquisitions, development or exploration activities. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, the Company's ability to make the necessary capital investments to maintain or expand its asset base will be impaired. Without such investment, the Company's oil and gas reserves would decline. PROPERTY ACQUISITION RISKS The Company intends to continue acquiring oil and gas properties. Successful acquisition of producing properties generally requires accurate assessments of (i) recoverable reserves, (ii) future oil and gas prices and operating costs, (iii) potential environmental and other liabilities and (iv) other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. It generally is not feasible to review in detail every individual property involved in an acquisition. Ordinarily, review efforts are focused on the higher-valued properties. Nevertheless, even a detailed review of all properties and records may not reveal existing or potential problems nor will it permit the Company to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Inspections are not always performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. See "Business and Properties -- Acquisition of Producing Properties." CAPITAL AVAILABILITY The development and acquisition of oil and gas properties is dependent upon the Company's ability to finance such projects. The Company utilizes the New Credit Agreement among the Company and several banks (the "Banks") to borrow, as needed, the funds required for any given 16 19 transaction or project. If funds under the New Credit Agreement are not available to fund development projects and acquisitions, the Company would have to obtain such financing from other debt financing or other sources. There can be no assurance that any such other financing would be available on terms acceptable to the Company. Should sufficient capital not be available, the Company may not be able to continue to implement its strategy. The New Credit Agreement limits the amounts the Company may borrow to amounts determined by the Banks, in their sole discretion, based upon a variety of factors including the discounted Present Value of the Company's estimated future net cash flow from oil and gas production (the "Borrowing Base"). Currently, the Borrowing Base is $180 million, and the Company had borrowings of $104.0 million outstanding as of July 31, 1997. The Borrowing Base will be determined semi-annually if 75% or more of the Borrowing Base is utilized, or annually in the event that less than 75% of the Borrowing Base is utilized. In addition, the Company and certain Banks may request one additional re-determination per year. If oil and gas prices decline below their current levels, the availability of funds and the ability to pay outstanding amounts under the New Credit Agreement could be materially adversely affected. The Indenture also contains restrictions on the Company's ability to incur additional indebtedness. Other contractual arrangements to which the Company may become subject in the future could contain similar restrictions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." OPERATING HAZARDS AND UNINSURED RISKS; PRODUCTION CURTAILMENTS The oil and gas business involves a variety of operating risks, including, but not limited to, unexpected formations or pressures, uncontrollable flows of oil, gas, brine or well fluids into the environment (including groundwater contamination), blowouts, cratering, fires, explosions, pipeline ruptures or spills, pollution and other risks, any of which could result in personal injuries, loss of life, damage to properties, environmental pollution, suspension of operations and substantial losses. Although the Company carries insurance that it believes is reasonable, it is not fully insured against all risks. The Company does not carry business interruption insurance. Losses and liabilities arising from uninsured or under-insured events could have a material adverse effect on the financial condition and results of operations of the Company. From time to time, due primarily to contract terms, pipeline interruptions or weather conditions, the producing wells in which the Company owns an interest may be subject to production curtailments. The curtailments may vary from a few days to several months. In most cases the Company will be provided only limited notice as to when production will be curtailed and the duration of such curtailments. The Company is currently not curtailed on any of its production. HEDGING RISKS From time to time, the Company may hedge a portion of its physical oil and natural gas production by entering short positions through fixed price swaps or options. The Company may also sell futures contracts on the NYMEX. As of July 31, 1997, the Company had no hedge positions. The Company's Pricing Committee, composed of certain senior managers, has the responsibility for defining and implementing hedge strategies. The hedge program provides for oversight and reporting requirements, hedge goals and how strategies will be developed. In the past, hedges have involved only the sale of futures contracts on the NYMEX to fix the price on a portion of the Company's gas production. The Company may in the future enter into oil and natural gas futures contracts, options and swaps. The Company's hedging activities, while intended to reduce the Company's sensitivity to changes in market prices of oil and gas, are subject to a number of risks including instances in which: (i) production is less than expected; (ii) there is a widening of price differentials between delivery points required by fixed price delivery contracts to the extent they differ from those of the Company's production; or (iii) the Company's customers or the counterparties to its futures contracts fail to purchase or deliver the contracted quantities of oil 17 20 or natural gas. Additionally, the fixed price sales and hedging contracts limit the benefits the Company will realize if actual prices rise above the contract prices. GAS CONTRACT RISK A significant portion of the Company's production is subject to fixed price contracts. Approximately 47% of average gas production for March 1997 was sold subject to fixed price sales contracts. These fixed price contracts are at prices ranging from $1.91 to $3.69 per Mcf. The fixed price contracts with remaining terms of less than one year, between one and three years and greater than three years constitute approximately 76%, 21% and 3%, respectively, of the volume sold under fixed price contracts. At March 31, 1997, the weighted average price in each category of these contracts was $2.69, $3.61 and $2.46 per Mcf, respectively. The fixed price sales contracts limit the benefits the Company will realize if current market prices rise above the contract prices. GAS GATHERING AND MARKETING The Company's gas gathering and marketing operations depend in large part on the ability of the Company to contract with third party producers to purchase their gas, to obtain sufficient volumes of committed natural gas reserves, to replace production from declining wells, to assess and respond to changing market conditions in negotiating gas purchase and sale agreements and to obtain satisfactory margins between the purchase price of its natural gas supply and the sales price for such natural gas. In addition, the Company's operations are subject to changes in regulations relating to gathering and marketing of oil and gas. The inability of the Company to attract new sources of third party natural gas or to promptly respond to changing market conditions or regulations in connection with its gathering and marketing operations could have a material adverse effect on the Company's financial condition and results of operations. LAWS AND REGULATIONS The Company's operations are affected by extensive regulation pursuant to various federal, state and local laws and regulations relating to the exploration for and development, production, gathering, marketing, transportation and storage of oil and gas. The Company's operations are subject to numerous laws and regulations governing plugging and abandonment, the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and impose substantial liabilities for pollution which might result from the Company's operations. The Company may also be subject to substantial clean-up costs for any toxic or hazardous substance that may exist under any of its properties. Moreover, the recent trend toward stricter standards in environmental legislation and regulation is likely to continue. For instance, legislation has been proposed in Congress from time to time that would reclassify certain crude oil and natural gas exploration and production wastes as "hazardous wastes" which would make the reclassified wastes subject to much more stringent handling, disposal and clean-up requirements. If such legislation were to be enacted, it could have a significant impact on the operating costs of the Company, as well as the oil and gas industry in general. The Company could incur substantial costs to comply with environmental laws and regulations. COMPETITION The Company encounters substantial competition in acquiring properties, marketing oil and gas, purchasing gas to meet delivery requirements, securing equipment, hiring and retaining personnel and operating its properties. The Company's competitors in acquisitions, development, exploration and production include major oil companies, numerous independent oil and gas 18 21 companies, individual proprietors and others. Many of these competitors have financial and other resources which substantially exceed those of the Company and have been engaged in the energy business for a much longer time than the Company. Therefore, competitors may be able to pay more for desirable leases and to evaluate, bid for and purchase a greater number of properties or prospects than the financial or personnel resources of the Company will permit. DEPENDENCE ON KEY PERSONNEL The Company depends, and will continue to depend in the foreseeable future, on the services of its officers and key employees with extensive experience and expertise in evaluating and analyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas properties and marketing oil and gas production. The ability of the Company to retain its officers and key employees is important to the continued success and growth of the Company. The loss of key personnel could have a material adverse effect on the Company. Although the Company has entered into employment agreements with Ronald L. Clements and Ronald E. Huff, it has not entered into employment agreements with the other officers and key employees of the Company. The Company does not maintain key man life insurance on any of its officers or key employees. See "Management." SUBORDINATION OF NOTES AND GUARANTEES The Notes are subordinated in right of payment to all existing and future Senior Debt of the Company, including borrowings under the New Credit Agreement. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Notes only after all Senior Debt has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes outstanding. The aggregate principal amount of Senior Debt of the Company, as of July 31, 1997, was $104.0 million. The Guarantees are subordinated to Indebtedness of the Subsidiary Guarantors to the same extent and in the same manner as the Notes are subordinated to Senior Debt. Additional Senior Debt may be incurred by the Company from time to time, subject to certain restrictions. The maximum amount of Senior Debt the Company is permitted to incur under the Indenture is $300 million, including borrowings under the New Credit Agreement. In addition to being subordinated to all existing and future Senior Debt of the Company, the Notes are not secured by any of the Company's assets, unlike the borrowings under the New Credit Agreement. As a consequence, the Notes are effectively subordinated to all of the Company's secured debt. In addition, the Notes may be structurally subordinated to indebtedness of the Company's Subsidiaries. See "Description of the Notes -- Ranking and Subordination." ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY The Exchange Notes are new securities for which there is no market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes, the Initial Purchasers are not obligated to do so and any such market making may be discontinued at any time without notice. In addition, such market making activity may be limited during the pendency of the Exchange Offer. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. If a trading market does not develop or is not maintained, holders of the Exchange Notes may experience difficulty in reselling the Exchange Notes or may be unable to sell them at all. If a market for the Exchange Notes develops, any such market may be discontinued at any time. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation of the Exchange Notes through the National Association of Securities Dealers Automated Quotation System. The Exchange Notes generally will be permitted to be resold or otherwise transferred by each holder without the requirement of further registration. The Exchange Offer will not be conditioned upon any minimum or maximum aggregate principal amount of Senior Subordinated Notes being 19 22 tendered for exchange. In the case of non-exchanging holders of Senior Subordinated Notes, no assurance can be given as to the liquidity of the trading market for the Senior Subordinated Notes following the Exchange Offer. See "Plan of Distribution." The liquidity of, and trading market for, the Senior Subordinated Notes or the Exchange Notes also may be adversely affected by general declines in the market or by declines in the market for similar securities. Such declines may adversely affect such liquidity and trading markets independent of the financial performance of, and prospects for, the Company. CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE Holders of Senior Subordinated Notes who do not exchange their Senior Subordinated Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Senior Subordinated Notes as set forth in the legend thereon as a consequence of the issuance of the Senior Subordinated Notes pursuant to exemption from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Senior Subordinated Notes may not be offered or sold unless registered under the Securities Act and applicable state securities laws or pursuant to an exemption therefrom. Except under certain limited circumstances, the Company does not intend to register the Senior Subordinated Notes under the Securities Act. In addition, any holder of Senior Subordinated Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent Senior Subordinated Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Senior Subordinated Notes not tendered could be adversely affected. See "The Exchange Offer" and "Senior Subordinated Notes Registration Rights." RISKS RELATING TO A CHANGE OF CONTROL Upon a Change of Control, holders of the Notes will have the right to require the Company to repurchase all or any part of such holders' Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The events that constitute a Change of Control under the Notes would constitute a default under the New Credit Agreement, which prohibits the purchase of the Notes by the Company in the event of certain Change of Control events unless and until such time as the Company's indebtedness under the New Credit Agreement is repaid in full. There can be no assurance that the Company and the Subsidiary Guarantors would have sufficient financial resources available to satisfy all of its or their obligations under the New Credit Agreement and the Notes in the event of a Change of Control. The Company's failure to purchase the Notes would result in a default under the Indenture and under the New Credit Agreement, each of which could have adverse consequences for the Company and the holders of the Notes. See "Description of Other Indebtedness" and "Description of the Notes -- Repurchase at the Option of Holders -- Change of Control." The definition of "Change of Control" in the Indenture includes a sale, lease, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries, taken as a whole, to a person or group of persons. There is little case law interpreting the phrase "all or substantially all" in the context of an indenture. Because there is no precise established definition of this phrase, the ability of a holder of the Notes to require the Company to repurchase such Notes as a result of a sale, lease, conveyance or transfer of all or substantially all of the Company's assets to a person or group of persons may be uncertain. CONTROLLING SHAREHOLDERS All of the common stock of the Company is owned by the TPG Investors. As a result of this ownership, the TPG Investors are able to direct the election of the members of the Board of 20 23 Directors of the Company and, therefore, direct the management and policies of the Company and are able to unilaterally approve mergers and other fundamental corporate changes involving the Company which require shareholder approval. The interests of the TPG Investors as shareholders may differ from the interests of holders of the Notes. See "Principal Shareholders" and "Certain Relationships and Related Transactions." FRAUDULENT CONVEYANCE CONSIDERATIONS The incurrence by the Company of indebtedness such as the Notes to finance the Acquisition and the incurrence by the Guarantors of indebtedness such as the Guarantees may be subject to review under Federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of the Company or any of the Guarantors, as the case may be. Under these laws, if a court were to find that, after giving effect to the sale of the Notes and the application of the net proceeds therefrom and the issuance of the Guarantees by the Guarantors, either (a) the Company or any such Guarantor, as the case may be, incurred such indebtedness with the intent of hindering, delaying or defrauding creditors or (b) the Company or such Guarantor, as the case may be, received less than reasonably equivalent value or consideration for incurring such indebtedness and (i) was insolvent or was rendered insolvent by reason of such transactions, (ii) was engaged in a business or transaction for which the assets remaining with the Company or such Guarantor, as the case may be, constituted unreasonably small capital, or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay as they matured, such court might subordinate such indebtedness to presently existing and future indebtedness of the Company or such Guarantor, as the case may be, or void the issuance of such indebtedness and direct the repayment of any amounts paid thereunder to the creditors of the Company or such Guarantor, as the case may be, or take other action detrimental to the holders of such indebtedness. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction that is being applied. Generally, however, a debtor would be considered insolvent if the sum of all its debts, including contingent liabilities, was greater than the value of all its assets at a fair valuation or if the present fair saleable value of the debtor's assets was less than the amount required to repay its probable liability on its debts, including contingent liabilities, as they become absolute and mature. To the extent that proceeds from the Initial Offering were used to refinance the indebtedness of the Company, a court might find that the Company did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented by the Notes. In addition, if a court were to find that any of the components of the Acquisition constituted a fraudulent transfer, to the extent that proceeds from the Initial Offering were used to finance or refinance such components, a court might find that the Company did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented by the Notes. To the extent that a Guarantee of any Guarantor is avoided as a fraudulent conveyance or found unenforceable for any other reason, holders of the Notes would cease to have any claim in respect of such Guarantor. In such event, the claims of the holders of the Notes against such Guarantor would be subject to the prior payment of all liabilities and preferred stock claims of such Guarantor. There can be no assurance that, after providing for all prior claims and preferred stock interests, if any, there would be sufficient assets to satisfy the claims of the holders of the Notes relating to any voided portion of the Guarantee of such Guarantor. The Company believes that the Notes and the Guarantees were issued for proper purposes and in good faith. In addition, after giving effect to the consummation of the Acquisition and the Initial Offering and the application of the proceeds therefrom, the Company does not: (i) believe that it or any Guarantor was or is insolvent or rendered insolvent; (ii) believe that it or any Guarantor was or is engaged in a business or transaction for which its remaining assets constitute unreasonably small 21 24 capital; or (iii) intend for it or any Guarantor to incur, or believe that it or any Guarantor will incur, debts beyond its ability to pay as they mature. These beliefs are based on the Company's analysis of internal cash flow projections and estimated values of assets and liabilities of the Company and the Guarantors at the time of the Acquisition and the Initial Offering. There can be no assurance, however, that a court passing on these issues would make the same determination. FORWARD-LOOKING INFORMATION Information included in this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including projections, estimates and expectations. Those statements by their nature are subject to certain risks, uncertainties and assumptions and will be influenced by various factors. Should one or more of these statements or their underlying assumptions prove to be incorrect, actual results could vary materially. Although the Company believes that such projections, estimates and expectations are based on reasonable assumptions, it can give no assurance that such projections, estimates and expectations will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include political and economic developments in the United States and foreign countries, federal and state regulatory developments, the timing and extent of changes in commodity prices, the extent of success in acquiring oil and gas properties and in discovering, developing and producing reserves, the Company's future production and costs of operation, the market demand for, and prices of, oil and natural gas, the uncertainties of reserve estimates, environmental risks and conditions of the capital markets and equity markets during the periods covered by the forward-looking statements. See "Risk Factors" for further information with respect to certain of such factors. In addition, certain of such projections and expectations are based on historical results, which may not be indicative of future performance. See "Unaudited Pro Forma Consolidated Financial Statements." USE OF PROCEEDS There will be no net proceeds to the Company from the exchange pursuant to the Exchange Offer. The Company used the net proceeds from the sale of the Senior Subordinated Notes of $218.3 million, together with the $104.0 million borrowed from the Banks under the New Credit Agreement, to (i) pay a portion of the consideration for the Acquisition; (ii) repay all outstanding indebtedness under the Company's then existing credit facility in the amount of $94.0 million; and (iii) pay certain related fees and expenses. THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The sole purpose of the Exchange Offer is to fulfill the obligations of the Company with respect to the Registration Rights Agreement. The Senior Subordinated Notes were originally issued and sold on June 27, 1997 (the "Issue Date"). Such sales were not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 144A under the Securities Act. In connection with the sale of the Senior Subordinated Notes, the Company agreed to file with the Commission a registration statement relating to an exchange offer (the "Exchange Offer Registration Statement") pursuant to which Exchange Notes covered by such registration statement and containing the same terms as the Senior Subordinated Notes, except as set forth in this Prospectus, would be offered in exchange for Senior Subordinated Notes tendered at the option of the holders thereof. Each broker-dealer that receives Exchange Notes for its own account in exchange for Senior Subordinated Notes, where such Senior Subordinated Notes were acquired by such broker- 22 25 dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Senior Subordinated Notes Registration Rights." TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING SENIOR SUBORDINATED NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Senior Subordinated Notes that are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on , 1997; provided, however, that if the Company, in its sole discretion, has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer has been extended. As of the date of this Prospectus, $225 million aggregate principal amount of Senior Subordinated Notes is outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about the date of this Prospectus, to all Holders of Senior Subordinated Notes known to the Company. The Company's obligation to accept Senior Subordinated Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "--Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Senior Subordinated Notes, by giving oral or written notice of such extension to the Holders thereof as described below. During any such extension, all Senior Subordinated Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Senior Subordinated Notes not accepted for exchange for any reason will be returned without expense to the tendering Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Senior Subordinated Notes tendered in the Exchange Offer must be in denominations of principal amount of $1,000 or any integral multiple thereof. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Senior Subordinated Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "--Certain Conditions to the Exchange Offer." The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the Holders of the Senior Subordinated Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day following the previously scheduled Expiration Date. HOW TO TENDER The tender to the Company of Senior Subordinated Notes by a Holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering Holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a Holder who wishes to tender Senior Subordinated Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to LaSalle National Bank (the "Exchange Agent") at the address set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Senior Subordinated Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Senior Subordinated Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") 23 26 pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF SENIOR SUBORDINATED NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR SENIOR SUBORDINATED NOTES SHOULD BE SENT TO THE COMPANY. Any beneficial owner whose Senior Subordinated Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering Senior Subordinated Notes, either make appropriate arrangements to register ownership of the Senior Subordinated Notes in such beneficial owner's name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Senior Subordinated Notes surrendered for exchange are tendered (i) by a registered Holder of the Senior Subordinated Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a member of the Securities Agents Medallion Program, The New York Stock Exchanges Medallion Signature Program or The Stock Exchanges Medallion Program (collectively, "Eligible Institutions"). If Senior Subordinated Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Senior Subordinated Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered Holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Senior Subordinated Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Senior Subordinated Notes not properly tendered or to not accept any particular Senior Subordinated Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Senior Subordinated Notes either before or after the Expiration Date (including the right to waive the ineligibility of any Holder who seeks to tender Senior Subordinated Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Senior Subordinated Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Senior Subordinated Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Senior Subordinated Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered Holder or Holders of Senior Subordinated Notes, such Senior Subordinated Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered Holder or Holders appear on the Senior Subordinated Notes. 24 27 If the Letter of Transmittal or any Senior Subordinated Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each Holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the Holder, and that neither the Holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the Exchange Notes. In the case of a Holder that is not a broker-dealer, each such Holder, by tendering, will also represent to the Company that such Holder is not engaged in and does not intend to engage in, a distribution of the Exchange Notes. If any Holder or any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such Exchange Notes to be acquired pursuant to the Exchange Offer, such Holder or any such other person (i) cannot rely on the applicable interpretations of the Staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Senior Subordinated Notes, where such Senior Subordinated Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering such a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ACCEPTANCE OF SENIOR SUBORDINATED NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Senior Subordinated Notes properly tendered and will issue the Exchange Notes promptly after acceptance of the Senior Subordinated Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Senior Subordinated Notes for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent, with written confirmation of any oral notice to be given promptly thereafter. For each Senior Subordinated Note accepted for exchange, the Holder will receive an Exchange Note having a principal amount equal to that of the surrendered Senior Subordinated Note. The Exchange Notes will bear interest from the most recent date to which interest has been paid on the Senior Subordinated Notes or, if no interest has been paid on the Senior Subordinated Notes, from June 27, 1997. Accordingly, registered Holders of Exchange Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from June 27, 1997. Senior Subordinated Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Senior Subordinated Notes whose Senior Subordinated Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Senior Subordinated Notes otherwise payable on any interest payment date the record date for which occurs on or after the date of consummation of the Exchange Offer. In all cases, issuance of Exchange Notes for Senior Subordinated Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Senior Subordinated Notes (or a timely Book-Entry Confirmation of such Senior Subordinated Notes into the Exchange Agent's account at the Book-Entry Transfer 25 28 Facility), a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Senior Subordinated Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Senior Subordinated Notes are submitted for a greater principal amount than the Holder desires to exchange, such unaccepted or non-exchanged Senior Subordinated Notes will be returned without expense to the tendering Holder (or, in the case of Senior Subordinated Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry procedures described below, such non-exchanged Senior Subordinated Notes will be credited to an account maintained with such Book- Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Senior Subordinated Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Senior Subordinated Notes by causing the Book-Entry Transfer Facility to transfer such Senior Subordinated Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Senior Subordinated Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must have been complied with. GUARANTEED DELIVERY PROCEDURES If a registered Holder of the Senior Subordinated Notes desires to tender such Senior Subordinated Notes and the Senior Subordinated Notes are not immediately available, or time will not permit such Holder's Senior Subordinated Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of Senior Subordinated Notes and the amount of Senior Subordinated Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Senior Subordinated Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Senior Subordinated Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three NYSE trading days after the Expiration Date. WITHDRAWAL RIGHTS Tenders of Senior Subordinated Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address or, in the case of Eligible Institutions, at the facsimile number, set forth below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration 26 29 Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Senior Subordinated Notes to be withdrawn (the "Depositor"), (ii) identify the Senior Subordinated Notes to be withdrawn (including the certificate number or numbers and principal amount of such Senior Subordinated Notes), (iii) contain a statement that such person is withdrawing his election to have such Senior Subordinated Notes exchanged, (iv) be signed by the person in the same manner as the original signature on the Letter of Transmittal by which such Senior Subordinated Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Senior Subordinated Notes register the transfer of such Senior Subordinated Notes in the name of the person withdrawing the tender and (v) specify the name in which such Senior Subordinated Notes are registered, if different from that of the Depositor. If Senior Subordinated Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Senior Subordinated Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Senior Subordinated Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Senior Subordinated Notes so withdrawn are validly re-tendered. Any Senior Subordinated Notes that have been tendered for exchange but that are not exchanged for any reason will be returned to the tendering Holder without cost to such Holder (or, in the case of Senior Subordinated Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Senior Subordinated Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Senior Subordinated Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Senior Subordinated Notes may be re-tendered by following the procedures described under "--How to Tender" above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Senior Subordinated Notes and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Senior Subordinated Notes for exchange or the exchange of the Exchange Notes for such Senior Subordinated Notes, any of the following events shall occur: (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result thereof, or (ii) resulting in a material delay in the ability of the Company to accept for exchange or exchange some or all of the Senior Subordinated Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the reasonable judgment of the Company might directly or indirectly result in any of the consequences referred to in clauses (i) or (ii) above or, in the reasonable judgment of the Company, might result in the holders of Exchange Notes having obligations with respect to resales and transfers of Exchange Notes that are greater than those described in the interpretation of the Commission referred to on the 27 30 cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (b) there shall have occurred (i) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market, (ii) any limitation by a governmental agency or authority that may adversely affect the ability of the Company to complete the transactions contemplated by the Exchange Offer, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority that adversely affects the extension of credit or (iv) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; or (c) any change (or any development involving a prospective change) shall have occurred or be threatened in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Company and its subsidiaries taken as a whole that, in the reasonable judgment of the Company, is or may be adverse to the Company, or the Company shall have become aware of facts that, in the reasonable judgment of the Company, have or may have adverse significance with respect to the value of the Senior Subordinated Notes or the Exchange Notes; that in the reasonable judgment of the Company in any case, and regardless of the circumstances (including any action by the Company) giving rise to any such condition, makes it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such exchange. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The Company's failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Senior Subordinated Notes tendered, and no Exchange Notes will be issued in exchange for any such Senior Subordinated Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939. EXCHANGE AGENT LaSalle National Bank has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: LASALLE NATIONAL BANK, EXCHANGE AGENT By Mail or Hand Delivery: By Facsimile Transmission: LaSalle National Bank (for Eligible Institutions only): 135 South LaSalle Street (312) 904-2236 Suite 1860 Confirm by Telephone: Chicago, Illinois 60603 (312) 904-2970
28 31 DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. FEES AND EXPENSES The Company will not make any payment to brokers, dealers or others soliciting acceptances of the Exchange Offer. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be $240,000. TRANSFER TAXES Holders who tender their Senior Subordinated Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that Holders who instruct the Company to register Exchange Notes in the name of, or request that Senior Subordinated Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering Holder will be responsible for the payment of any applicable transfer tax. CONSEQUENCES OF EXCHANGING SENIOR SUBORDINATED NOTES Holders of Senior Subordinated Notes who do not exchange their Senior Subordinated Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Senior Subordinated Notes and the restrictions on transfer of such Senior Subordinated Notes as set forth in the legend thereon as a consequence of the issuance of the Senior Subordinated Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Senior Subordinated Notes may not be offered or sold unless registered under, pursuant to an exemption from or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Senior Subordinated Notes under the Securities Act. Based on interpretations by the Staff of the Commission, as set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Senior Subordinated Notes may be offered for resale, resold or otherwise transferred by Holders thereof (other than any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes were acquired in the ordinary course of such Holders' business and such Holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. However, the Staff of the Commission has not rendered a no- action letter with respect to the Exchange Offer, and there can be no assurance that the Staff would make a similar determination for the Exchange Offer as in such other circumstances. Each Holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes and has no arrangement or understanding to participate in a distribution of Exchange Notes. If any Holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such Holder (i) cannot rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Senior Subordinated Notes must acknowledge that such Senior Subordinated Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." 29 32 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain United States federal income tax consequences associated with the exchange of Senior Subordinated Notes for Exchange Notes and the ownership and disposition of the Exchange Notes by holders who acquired the Exchange Notes pursuant to the Exchange Offer. The summary is based upon current laws, regulations, rulings and judicial decisions, all of which are subject to change. The discussion below does not address all aspects of United States federal income taxation that may be relevant to particular holders in the context of their specific investment circumstances or certain types of holders subject to special treatment under such laws (for example, financial institutions, banks, tax-exempt organizations and insurance companies). In addition, the discussion does not address any aspect of state, local or foreign taxation and assumes that a holder of the Exchange Notes (i) will hold them as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) will not own, directly or indirectly, 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote. For purposes of the discussion, a "United States holder" is an individual who is a citizen or resident of the United States, a corporation, partnership or other entity created under the laws of the United States or any political subdivision thereof, or an estate or trust that is subject to United States federal income taxation without regard to the source of income and a "Non-United States holder" is any holder who is not a United States holder. PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE EXCHANGE NOTES AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. Exchange Offer. The exchange of Senior Subordinated Notes for Exchange Notes pursuant to the Exchange Offer should not be treated as an exchange or other taxable event for U.S. federal income tax purposes because under Treasury regulations, the Exchange Notes should not be considered to differ materially in kind or extent from the Senior Subordinated Notes. Rather, the Exchange Notes received by a holder should be treated as a continuation of the Senior Subordinated Notes in the hands of such holder. As a result, there should be no U.S. federal income tax consequences to holders who exchange Senior Subordinated Notes for Exchange Notes pursuant to the Exchange Offer and any such holder should have the same tax basis and holding period in the Exchange Notes as it had in the Senior Subordinated Notes immediately before the exchange. United States Holders. Interest payable on the Exchange Notes will be includible in the income of a United States holder in accordance with such holder's regular method of accounting. If an Exchange Note is redeemed, sold or otherwise disposed of, a United States holder generally will recognize gain or loss equal to the difference between the amount realized on the sale or other disposition of such Exchange Note (to the extent such amount does not represent accrued but unpaid interest) and such holder's tax basis in the Exchange Note. Subject to the market discount rules discussed below, such gain or loss will be capital gain or loss, assuming that the holder has held the Exchange Note as a capital asset, and will be long-term if the holder has held the Exchange Note for more than one year at the time of disposition (including the holding period of the Senior Subordinated Notes). Under the market discount rules of the Code, a holder (other than a holder who made the election described below) who purchased a Senior Subordinated Note with "market discount" (generally defined as the amount by which the stated redemption price at maturity exceeds the holder's purchase price) will be required to treat any gain recognized on the redemption, sale or other disposition of the Exchange Note received in the disposition as ordinary income to the extent of the market discount that accrued during the holding period of such Exchange Note (which would include the holding period of the Senior Subordinated Note). A holder who has elected under 30 33 applicable Code provisions to include market discount in income annually as such discount accrues will not, however, be required to treat any gain recognized as ordinary income under these rules. Holders should consult their tax advisors as to the portion of any gain that would be taxable as ordinary income under these provisions. Non-United States Holders. An investment in the Exchange Notes by a Non-United States holder generally will not give rise to any United States federal income tax consequences if the interest received or any gain recognized on the sale, redemption or other disposition of the Exchange Notes by such holder is not treated as effectively connected with the conduct by such holder of a trade or business in the United States, and in the case of gains derived by an individual, such individual is not present in the United States for 183 days or more and certain other requirements are met. Under current Treasury regulations, in order to avoid back-up withholding of 31% on payments of interest (i) a Non-United States holder of the Exchange Notes generally must certify to the issuer or its agent, under penalties of perjury, that it is not a United States person and complete and provide the payor with a U.S. Treasury Form W-8 (or a suitable substitute form), which includes its name and address, or (ii) a securities clearing organization, bank or other financial organization that holds customers' securities in the ordinary course of business (a "financial institution") and holds the Exchange Notes, must certify under penalties of perjury that such a Form W-8 (or suitable substitute form) has been received from the beneficial owner of the Exchange Notes by it or by a financial institution between it and the beneficial owner, and must furnish the payor with a copy thereof. On April 22, 1996, the Internal Revenue Service proposed regulations (the "Proposed Regulations") that, if enacted in their current form, could affect the procedures to be followed by a Non-United States holder in establishing such holder's status as a Non-United States holder for purposes of the backup withholding rules discussed above. The Proposed Regulations, if adopted in their current form, generally would be effective for payments made after December 31, 1997. Prospective investors should consult their tax advisors concerning the potential adoption of the Proposed Regulations and the potential effect of such regulations on an investment in the Exchange Notes. CAPITALIZATION The following table sets forth as of March 31, 1997, (i) the historical cash and capitalization of the Company and (ii)the pro forma cash and capitalization of the Company giving effect to the Transaction, including the application of the proceeds of the offering of the Senior Subordinated Notes as described under "Use of Proceeds." The information was derived from, and is qualified by reference to, the unaudited consolidated financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus. This information should be read in conjunction with 31 34 such financial statements, including the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
AS OF MARCH 31, 1997 ----------------------- HISTORICAL PRO FORMA ---------- --------- (IN THOUSANDS) Cash and cash equivalents............................................. $ 5,714 $ 5,714 ========== ========== Long-term debt (including current portion) Existing Credit Facility............................................ $ 51,000 $ 0 New Credit Agreement................................................ 0 99,279 7% Senior Notes..................................................... 35,000 0 Senior Subordinated Notes due 2007.................................. 0 225,000 Convertible Subordinated Debentures................................. 5,550 0 Other............................................................... 203 203 ---------- ---------- Total long-term debt................................................ 91,753 324,482 Total shareholders' equity............................................ 162,287 108,230 ---------- ---------- Total capitalization.................................................. $ 254,040 $ 432,712 ========== ==========
32 35 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The accompanying Unaudited Pro Forma Consolidated Financial Statements give effect to, among other things: (i) the offering of the Senior Subordinated Notes and initial borrowings of $99.3 million under the New Credit Agreement; (ii) the Acquisition of the Company by the TPG Investors and related purchase accounting; and (iii) the surrender for cash of certain outstanding stock options. The unaudited pro forma consolidated statements of operations for the year ended December 31, 1996 and the three months ended March 31, 1997 were prepared as if the items above had occurred on January 1, 1996 and January 1, 1997, respectively. The unaudited pro forma consolidated balance sheet as of March 31, 1997 was prepared as if the items above had occurred on that date. The unaudited pro forma consolidated statements of operations exclude $15.9 million of non-recurring transaction related expenses, which were recorded as an expense at the time of the consummation of the Transaction. This information is not necessarily indicative of future results of operations and it should be read in conjunction with the separate historical financial statements and related notes of the Company included in this Prospectus. 33 36 BELDEN & BLAKE CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ---------------------------------------- ---------------------------------------- HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA 1996 ADJUSTMENTS 1996 1997 ADJUSTMENTS 1997 ---------- ----------- --------- ---------- ----------- --------- REVENUES Oil and gas sales.......... $ 79,491 $ 79,491 $ 22,863 $ 22,863 Gas marketing and gathering................ 44,527 44,527 12,304 12,304 Oilfield sales and service.................. 25,517 25,517 6,379 6,379 Interest and other......... 3,700 3,700 768 768 ---------- -------- -------- -------- 153,235 153,235 42,314 42,314 EXPENSES Production expense......... 18,098 $ (306)(a) 17,792 4,760 $ (61)(a) 4,699 Production taxes........... 3,168 3,168 878 878 Cost of gas and gathering expense.................. 37,556 37,556 10,836 10,836 Oilfield sales and service expense.................. 23,142 23,142 5,964 5,964 Exploration expense........ 6,064 6,064 1,879 1,879 General and administrative expense.................. 4,573 (478)(a) 4,095 1,056 (76)(a) 980 Interest expense........... 7,383 24,330(b) 31,713 1,702 6,008(b) 7,710 Depreciation, depletion and amortization............. 29,752 16,536(c) 46,288 7,505 4,978(c) 12,483 Franchise and other taxes.................... 1,739 (250)(d) 1,489 445 (62)(d) 383 ---------- --------- -------- -------- --------- -------- 131,475 39,832 171,307 35,025 10,787 45,812 ---------- --------- -------- -------- --------- -------- Income (loss) from continuing operations before income taxes...................... 21,760 (39,832) (18,072) 7,289 (10,787) (3,498) Provision (benefit) for income taxes: Current.................... 2,228 (2,228)(e) 802 (802)(e) Deferred................... 4,338 (10,935)(e) (6,597) 1,640 (2,937)(e) (1,297) ---------- --------- -------- -------- --------- -------- 6,566 (13,163) (6,597) 2,442 (3,739) (1,297) ---------- --------- -------- -------- --------- -------- Income (loss) from continuing operations................. 15,194 (26,669) (11,475) 4,847 (7,048) (2,201) Loss from discontinued operations................. (439) (439) ---------- --------- -------- -------- --------- -------- NET INCOME (LOSS)............ $ 14,755 $ (26,669) $(11,914) $ 4,847 $ (7,048) $ (2,201) ========== ========= ======== ======== ========= ========
See notes to pro forma consolidated financial statements. 34 37 BELDEN & BLAKE CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1997 (IN THOUSANDS) (UNAUDITED)
PRO FORMA HISTORICAL ADJUSTMENTS(F) PRO FORMA ---------- -------------- --------- ASSETS Current assets Cash and cash equivalents......................... $ 5,714 $ 5,714 Accounts receivable, net.......................... 30,726 30,726 Inventories....................................... 9,500 9,500 Deferred income taxes............................. 3,147 3,147 Other current assets.............................. 3,113 $ 2,332 5,445 --------- -------- --------- Total current assets......................... 52,200 2,332 54,532 Property and equipment, at cost Oil and gas properties (successful efforts method)........................................ 274,524 150,353 424,877 Gas gathering systems............................. 26,048 6,194 32,242 Land, buildings, machinery and equipment.......... 31,860 (186) 31,674 --------- -------- --------- 332,432 156,361 488,793 Less accumulated depreciation, depletion and amortization................................... 93,827 (93,827) -- --------- -------- --------- Property and equipment, net.................. 238,605 250,188 488,793 Other assets........................................ 10,115 40,179 50,294 --------- -------- --------- $ 300,920 $292,699 $ 593,619 ========= ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable.................................. $ 8,691 $ 8,691 Accrued expenses.................................. 21,759 21,759 Current portion of long-term liabilities.......... 4,147 $ (3,889)(g) 258 --------- -------- --------- Total current liabilities.................... 34,597 (3,889) 30,708 Long-term liabilities Bank and other long-term debt..................... 51,203 (51,203)(g) -- New Credit Agreement.............................. -- 99,279(g) 99,279 7% Senior notes................................... 31,111 (31,111)(g) -- Senior subordinated notes due 2007................ -- 225,000(g) 225,000 Convertible subordinated debentures............... 5,550 (5,550)(h) -- Other............................................. 1,714 3,103(i) 4,817 --------- -------- --------- 89,578 239,518 329,096 Deferred income taxes............................... 14,458 111,127 125,585 Shareholders' equity Common stock without par value; $.10 stated value.......................................... 1,127 27 1,154 Paid in capital................................... 128,981 (21,905) 107,076 Retained earnings................................. 32,197 (32,197) -- Unearned portion of restricted stock.............. (18) 18 -- --------- -------- --------- Total shareholders' equity................... 162,287 (54,057) 108,230 --------- -------- --------- $ 300,920 $292,699 $ 593,619 ========= ======== =========
See notes to pro forma consolidated financial statements. 35 38 BELDEN & BLAKE CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The accompanying Unaudited Pro Forma Consolidated Financial Statements reflect the following adjustments: a) To adjust compensation expense and fringe benefit expense due to the retirement of Henry S. Belden, IV ("Belden") and Max L. Mardick ("Mardick") and the Employment Agreements signed by Messrs. Clements and Huff. One officer was included in the historical information in "Production expense" and one officer was included in "General and administrative expense." b) To adjust interest expense associated with the additional debt borrowed under the Initial Offering and the New Credit Agreement. c) To adjust depreciation, depletion and amortization as a result of purchase accounting. d) To adjust franchise taxes based on the pro forma reduction in equity. e) To adjust the provision for income taxes as a result of the other pro forma adjustments. f) To record the purchase price allocation as a result of the Acquisition, borrowings under the Offering and the New Credit Agreement and the surrender for cash of certain outstanding stock options aggregating $6.8 million. Pro forma adjustments to "Other assets" include the following items:
PRO FORMA ADJUSTMENTS -------------- (IN THOUSANDS) Intangible assets............................................. $ 20,859 Financing costs............................................... 10,489 Non-Competition Agreements (present value).................... 3,000 Notes and amounts receivable.................................. 6,000 Other......................................................... (169) -------- $ 40,179 ========
g) To record the repayment of existing debt and record the Initial Offering and the borrowings under the New Credit Agreement. h) To record the conversion of the convertible subordinated debentures into 275,434 shares of the Company's common stock. i) To record the obligations for the present value of the Non-Competition Agreements (as defined) ($3 million) and adjust other liabilities ($103,000). 36 39 SELECTED CONSOLIDATED FINANCIAL DATA The following tables present selected consolidated financial data covering the five years ended December 31, 1996 and the three months ended March 31, 1996 and 1997. Such data has been derived from, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) STATEMENT OF OPERATIONS DATA: Revenues Oil and gas sales................................... $ 15,046 $ 26,631 $ 32,574 $ 46,853 $ 79,491 Gas marketing and gathering......................... 26,494 34,709 33,072 40,436 44,527 Oilfield sales and service.......................... 9,496 10,887 13,157 20,066 25,517 Interest and other.................................. 1,517 651 562 2,712 3,700 -------- -------- -------- -------- -------- 52,553 72,878 79,365 110,067 153,235 Expenses Production expense.................................. 5,140 5,875 7,827 11,756 18,098 Production taxes.................................... 222 1,244 1,357 2,060 3,168 Cost of gas and gathering expense................... 24,922 30,646 28,878 33,831 37,556 Oilfield sales and service expense.................. 7,508 10,319 12,180 18,266 23,142 Exploration expense................................. 2,381 2,538 2,803 4,924 6,064 General and administrative expense.................. 3,637 3,459 3,567 3,802 4,573 Interest expense.................................... 2,200 3,187 3,503 6,073 7,383 Depreciation, depletion and amortization............ 4,853 9,693 11,886 19,717 29,752 Franchise, property and other taxes................. 105 655 854 1,228 1,739 -------- -------- -------- -------- -------- 50,968 67,616 72,855 101,657 131,475 -------- -------- -------- -------- -------- Income from continuing operations before income taxes............................................... 1,585 5,262 6,510 8,410 21,760 Provision for income taxes -- Current............... 618 435 644 1,214 2,228 Provision for income taxes -- Deferred.............. (172) 1,562 1,686 936 4,338 -------- -------- -------- -------- -------- 446 1,997 2,330 2,150 6,566 -------- -------- -------- -------- -------- Income from continuing operations..................... 1,139 3,265 4,180 6,260 15,194 Loss from discontinued operations..................... -- (45) (337) (1,139) (439) -------- -------- -------- -------- -------- Net income............................................ $ 1,139 $ 3,220 $ 3,843 $ 5,121 $ 14,755 ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: EBITDA (a)............................................ $ 11,019 $ 20,680 $ 24,702 $ 39,124 $ 64,959 Net cash provided by operations....................... 6,663 9,386 15,709 21,949 46,531 Net cash used in investing............................ (10,077) (13,608) (37,286) (123,970) (40,095) Net cash provided by (used in) financing.............. 6,210 23,156 2,982 110,694 (10,152) Capital expenditures(b)............................... 10,060 14,025 37,812 123,692 41,617 RATIOS: EBITDA to interest expense............................ 5.0x 6.5x 7.1x 6.4x 8.8x Earnings to fixed charges (c)......................... 1.6x 2.5x 2.7x 2.3x 3.7x Total debt to EBITDA.................................. 5.6x 2.1x 1.9x 2.8x 1.5x BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents............................. $ 3,311 $ 22,244 $ 3,649 $ 12,322 $ 8,606 Total assets.......................................... 102,253 135,174 148,173 297,298 303,763 Long-term debt, including current portion............. 61,936 42,844 46,696 110,671 99,796 Shareholders' equity.................................. 29,023 76,857 81,142 142,291 158,918 THREE MONTHS ENDED MARCH 31, --------------------------- 1996 1997 ----------- ----------- (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues Oil and gas sales................................... $ 19,678 $ 22,863 Gas marketing and gathering......................... 13,201 12,304 Oilfield sales and service.......................... 5,480 6,379 Interest and other.................................. 634 768 --------- --------- 38,993 42,314 Expenses Production expense.................................. 4,081 4,760 Production taxes.................................... 794 878 Cost of gas and gathering expense................... 11,186 10,836 Oilfield sales and service expense.................. 5,040 5,964 Exploration expense................................. 1,525 1,879 General and administrative expense.................. 969 1,056 Interest expense.................................... 2,011 1,702 Depreciation, depletion and amortization............ 7,568 7,505 Franchise, property and other taxes................. 450 445 --------- --------- 33,624 35,025 --------- --------- Income from continuing operations before income taxes............................................... 5,369 7,289 Provision for income taxes -- Current............... 712 802 Provision for income taxes -- Deferred.............. 1,232 1,640 --------- --------- 1,944 2,442 --------- --------- Income from continuing operations..................... 3,425 4,847 Loss from discontinued operations..................... -- -- --------- --------- Net income............................................ $ 3,425 $ 4,847 ========= ========= OTHER FINANCIAL DATA: EBITDA (a)............................................ $ 16,473 $ 18,375 Net cash provided by operations....................... 5,453 16,648 Net cash used in investing............................ (3,303) (8,979) Net cash provided by (used in) financing.............. (4,063) (10,561) Capital expenditures(b)............................... 3,931 8,715 RATIOS: EBITDA to interest expense............................ 8.2x 10.8x Earnings to fixed charges (c)......................... 3.5x 4.8x Total debt to EBITDA.................................. N/A N/A BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents............................. $ 10,409 $ 5,714 Total assets.......................................... 297,002 300,920 Long-term debt, including current portion............. 106,748 91,772 Shareholders' equity.................................. 146,127 162,287
- --------------- (a) EBITDA represents income from continuing operations plus income taxes, exploration expense, interest expense and depletion, depreciation and amortization expense. EBITDA is not presented as an indicator of the Company's operating performance, an indicator of cash available for discretionary spending or as a measure of liquidity. EBITDA may not be comparable to other similarly titled measures of other companies. On a historical basis, EBITDA data has been substantially similar to "Consolidated Cash Flow" as used in the Indenture. See "Description of the Notes" for the detailed definition of "Consolidated Cash Flow." (b) Including acquisitions of properties and businesses, net of acquired cash, of $4,994,000, $560,000, $17,968,000, $99,837,000, and $4,543,000 in the years 1992, 1993, 1994, 1995 and 1996, respectively. No acquisitions were made in the quarters ended March 31, 1996 and 1997. (c) For the purpose of determining the ratio of earnings to fixed charges, earnings are defined as income from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense, interest portion of rent expense and amortization of debt issuance costs. 37 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and the Selected Consolidated Financial Data included elsewhere herein. GENERAL The Company is an independent oil and gas producer operating in the Appalachian, Michigan and Illinois Basins. At March 31, 1997, the Company's net production was approximately 72 Mmcf of natural gas and 2,100 Bbl per day. The Company owns and operates approximately 2,760 miles of gas gathering systems with access to the commercial and industrial gas markets of the northeastern United States. At March 31, 1997 the Company was marketing approximately 135 Mmcf of gas per day, approximately one-half of which consisted of its own production, with the balance purchased from third parties. The Company has sustained its substantial growth rate through a balanced program of development and exploratory drilling and strategic acquisitions. From March 1992 through December 1996 the Company drilled 547 gross wells (409.9 net) adding 82.2 Bcfe in net proved developed reserves. During the same period, the Company acquired 192.9 Bcfe of proved developed reserves in 33 separate transactions. In the five years ended December 31, 1996, the Company has added 3.5 Mcfe through drilling and acquisitions for every Mcfe it has produced. The Company generates revenues from the sale of gas and oil, from gas gathering and marketing operations and from oilfield sales and service. Gas production is sold pursuant to a combination of fixed price and market sensitive contracts and on the spot market. During 1996, approximately 47% of the Company's gas sales were made pursuant to fixed price contracts, and 46% pursuant to market sensitive contracts, with the balance sold on the spot market. The Company's fixed price gas contracts had a weighed average price of $2.88 per Mcf. The fixed price contracts with remaining terms of less than one year, between one and three years and greater than three years constitute approximately 76%, 21% and 3%, respectively, of the volumes sold under fixed price contracts. The Company's oil production is sold to refineries at prevailing market prices. The Company's gas gathering and marketing operations consist of purchasing gas at the wellhead and from interstate pipelines and selling gas to industrial customers and local gas distribution companies. The cost of gas purchased from the Company is the wellhead price stipulated by the well operating agreements and is included in "Cost of Gas and Gathering Expense" below. The Company provides oilfield sales and services to its own operations and to third parties. Oilfield sales and service provided to the Company's own operations are provided at cost and all intercompany revenues and expenses are eliminated in consolidation. The Company utilizes the "successful efforts" method of accounting for its oil and gas properties. Under this method, property acquisition and development costs and productive exploration costs are capitalized while non-productive exploration costs, which include dry holes, expired leases and delay rentals, are expensed as incurred. Capitalized costs related to proved properties are depleted using the unit-of-production method. No gains or losses are recognized upon the disposition of oil and gas properties except in extraordinary transactions. Sales proceeds are credited to the carrying value of the properties. Maintenance and repairs are expensed, and expenditures which enhance the value of properties are capitalized. 38 41 RESULTS OF OPERATIONS The following table sets forth certain selected financial and operating information for the periods indicated:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------- ----------------------- 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PRICE DATA) Revenues......................... $ 79,365 $ 110,067 $ 153,235 $ 38,993 $ 42,314 Expenses......................... 72,855 101,657 131,475 33,624 35,025 Net Income....................... 3,843 5,121 14,755 3,425 4,847 EBITDA(1)........................ 24,702 39,124 64,959 16,473 18,375 Production Volumes: Natural Gas (Bcf).............. 9.6 17.0 25.4 6.4 6.4 Oil (Mbbl)..................... 496 556 719 171 187 Natural Gas Equivalents (Bcfe)...................... 12.5 20.3 29.7 7.4 7.6 Average Prices: Natural Gas (per Mcf).......... $ 2.58 $ 2.21 $ 2.56 $ 2.59 $ 2.96 Oil (per Bbl).................. 15.98 16.78 20.24 17.74 20.54 Natural Gas Equivalents (Mcfe)...................... 2.60 2.31 2.67 2.64 3.03
PERCENTAGE CHANGE FROM PRIOR PERIOD ---------------------------------- YEAR ENDED DECEMBER 31, THREE MONTHS -------------- ENDED 1995 1996 MARCH 31, 1997 ---- ---- -------------- Revenues...................................................... 39% 39% 9% Expenses...................................................... 40 29 4 Net Income.................................................... 33 188 42 EBITDA(1)..................................................... 58 66 12 Production Volumes: Natural Gas................................................. 77 50 -- Oil......................................................... 12 29 9 Natural Gas Equivalents..................................... 62 46 1 Average Prices: Natural Gas................................................. (14) 16 14 Oil......................................................... 5 21 16 Natural Gas Equivalents..................................... (11) 16 15
- --------------- (1) EBITDA represents income from continuing operations plus income taxes, exploration expense, interest expense and depletion, depreciation and amortization expense (as defined in the Indenture). See "Description of the Notes -- Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock." EBITDA is not presented as an indicator of the Company's operating performance, an indicator of cash availability for discretionary spending or as a measure of liquidity. EBITDA may not be comparable to other similarly titled measures of other companies. On a historical basis, EBITDA data has been substantially similar to "Consolidated Cash Flow" as used in the Indenture. See "Description of the Notes" for the detailed definition of "Consolidated Cash Flow." First Quarter 1997 Compared to First Quarter 1996 Oil and Gas Sales. Oil and gas sales increased $3.2 million (16%) in the first quarter of 1997 compared to the same period of 1996 due to a higher average price paid for the Company's oil and gas and an increase in oil volume sold. 39 42 Oil volumes increased 16,000 Bbls (9%) from 171,000 Bbls in the first quarter of 1996 to 187,000 Bbls in the first quarter of 1997 resulting in an increase in oil sales of approximately $280,000. Natural gas volumes in the first quarter of 1997 were consistent with the first quarter of 1996. The oil volume increase was primarily due to production from wells drilled and properties acquired in 1996. The average price paid for the Company's oil increased from $17.74 per barrel in the first quarter of 1996 to $20.54 per barrel in the first quarter of 1997 which increased oil sales by approximately $520,000. The average price paid for the Company's natural gas increased $.37 per Mcf to $2.96 per Mcf in the first quarter of 1997 compared to the first quarter of 1996 which increased gas sales in the first quarter of 1997 by approximately $2.4 million. Gas Marketing and Gathering Revenue. Gas marketing and gathering revenue decreased $897,000 (7%) from $13.2 million in the first quarter of 1996 to $12.3 million in the first quarter of 1997 due to a decrease in the volume of natural gas purchased from third parties and resold partially offset by an increase in the average selling price of natural gas. Oilfield Sales and Service Revenue. Oilfield sales and service revenue increased $899,000 (16%) from $5.5 million in the first quarter of 1996 to $6.4 million in the first quarter of 1997. This increase was primarily due to increased third party oilfield sales revenue. Interest and Other Revenue. Interest and other revenue increased $134,000 (21%) from $634,000 in the first quarter of 1996 to $768,000 in the first quarter of 1997 primarily due to income from incentive production payments associated with certain properties operated by Ward Lake Drilling, Inc. ("Ward Lake") received for the full period in 1997. Production Expense. Production expense increased $679,000 (17%) from $4.1 million in the first quarter of 1996 to $4.8 million in the first quarter of 1997. The average production cost increased from $.55 per Mcfe in the first quarter of 1996 to $.63 per Mcfe in the first quarter of 1997. These increases were primarily due to lower expenses in the first quarter of 1996 due to severe weather in Michigan and a reduction in operating fees received from third parties primarily due to the purchase of certain third party working interests by the Company. Such fees are recorded as a reduction of production expense. Production Taxes. Production taxes increased $84,000 (11%) from $794,000 in the first quarter of 1996 to $878,000 in the first quarter of 1997. Cost of Gas and Gathering Expense. Cost of gas and gathering expense decreased $350,000 (3%) from $11.2 million in the first quarter of 1996 to $10.8 million the first quarter of 1997 due to a decrease in the volume of gas purchased partially offset by an increase in the cost of gas. Oilfield Sales and Service Expense. Oilfield sales and service expense increased $924,000 (18%) from $5.0 million in the first quarter of 1996 to $6.0 million in the first quarter of 1997 primarily as a result of the increased cost of goods sold associated with increased sales described above. Exploration Expense. Exploration expense increased $354,000 (23%) from $1.5 million in the first quarter of 1996 to $1.9 million in the first quarter of 1997 primarily due to higher levels of geological, geophysical and leasing activity and $75,000 in dry hole expense in the first quarter of 1997. General and Administrative Expense. General and administrative expense increased $87,000 (9%) from $969,000 in the first quarter of 1996 to $1.1 million in the first quarter of 1997 primarily due to an increase in estimated profit sharing and bonuses for 1997. Interest Expense. Interest expense decreased $309,000 (15%) from $2.0 million in the first quarter of 1996 to $1.7 million in the first quarter of 1997. This decrease was primarily due to lower average debt balances as the Company used its excess cash flow to reduce its bank debt from $67 million at December 31, 1995 to $51 million at March 31, 1997. 40 43 Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased by $63,000 (1%) from $7.6 million in the first quarter of 1996 to $7.5 million in the first quarter of 1997. Depletion expense decreased $189,000 (3%) from $6.0 million in the first quarter of 1996 to $5.8 million in in the first quarter of 1997. Production volumes on a Mcfe basis in the first quarter of 1997 were consistent with volumes in the first quarter of 1996. Depletion per Mcfe decreased from $.80 per Mcfe in the first quarter of 1996 to $.77 per Mcfe in the first quarter of 1997. Income Before Income Taxes. Income before income taxes increased $1.9 million (36%) from $5.4 million in the first quarter of 1996 to $7.3 million in the first quarter of 1997. The operating income from the oil and gas operations segment increased $1.5 million (23%) from $6.7 million in the first quarter of 1996 to $8.2 million in the first quarter of 1997. The increase was attributable to the items discussed above. The operating income from the oilfield sales and service segment decreased $31,000 from $93,000 in the first quarter of 1996 to $62,000 in the first quarter of 1997. Net Income. Net income increased $1.4 million (42%) from $3.4 million in the first quarter of 1996 to $4.8 million in the first quarter of 1997. This increase in net income was primarily the result of the items discussed above. Provision for income taxes increased $498,000 (26%) from $1.9 million in the first quarter of 1996 to $2.4 million in the first quarter of 1997. This increase was attributable to an increase in income before income taxes partially offset by a decrease in the effective tax rate. Net income on a per share basis increased from $.30 per share in the first quarter of 1996 to $.43 per share in the first quarter of 1997. This increase was primarily the result of the factors discussed above. 1996 Compared to 1995 Oil and Gas Sales. Oil and gas sales increased $32.6 million (70%) in 1996 compared to 1995 due to an increase in oil and gas volumes sold and a higher average price paid for the Company's oil and gas. Oil volumes increased 163,000 Bbls (29%) from 556,000 Bbls in 1995 to 719,000 Bbls in 1996 resulting in an increase in oil sales of approximately $2.7 million. Gas volumes increased 8.4 Bcf (50%) from 17.0 Bcf in 1995 to 25.4 Bcf in 1996 resulting in an increase in gas sales of approximately $18.7 million. These volume increases were primarily due to production from properties acquired in 1995 and wells drilled in 1995 and 1996. The average price paid for the Company's oil increased from $16.78 per barrel in 1995 to $20.24 per barrel in 1996 which increased oil sales by approximately $2.5 million. The average price paid for the Company's natural gas increased $.35 per Mcf to $2.56 per Mcf in 1996 compared to 1995 resulting in increased gas sales of approximately $8.9 million. Gas Marketing and Gathering Revenue. Gas marketing and gathering revenue increased $4.1 million (10%) from $40.4 million in 1995 to $44.5 million in 1996 primarily due to an increase in the volume of gas purchased from third parties and resold and an increase in the average selling price of gas. Oilfield Sales and Service Revenue. Oilfield sales and service revenue increased $5.4 million (27%) from $20.1 million in 1995 to $25.5 million in 1996. This increase was primarily due to the sales generated by the three oilfield sales and service companies acquired by the Company in 1995 and increased third party oilfield sales and service revenue. Interest and Other Revenue. Interest and other revenue increased $1.0 million (36%) from $2.7 million in 1995 to $3.7 million in 1996 primarily due to the recognition of income in 1996 from incentive production payments associated with certain properties operated by Ward Lake, partially offset by the recognition in 1995 of anticipated proceeds from contract rejection claims that were filed in the bankruptcy proceedings of Columbia Gas Transmission Corporation. Amounts included in income related to the Columbia claims were $1.3 million in 1995 and $276,000 in 1996. Payment of these claims was received by the Company in January 1997. 41 44 Production Expense. Production expense increased $6.3 million (54%) from $11.8 million in 1995 to $18.1 million in 1996. This increase was primarily due to the increased production volumes discussed above and a reduction in operating fees charged to third parties. Such fees are recorded as a reduction of production expense. The average production cost per equivalent Mcf of natural gas excluding taxes increased from $.58 per Mcfe in 1995 to $.61 per Mcfe in 1996. Production Taxes. Production taxes increased $1.1 million (54%) from $2.1 million in 1995 to $3.2 million in 1996. This increase was primarily due to the increased production volumes discussed above. Cost of Gas and Gathering Expense. Cost of gas and gathering expense increased $3.8 million (11%) from $33.8 million in 1995 to $37.6 million in 1996 due to an increase in volumes of gas purchased and an increase in the cost of gas. Oilfield Sales and Service Expense. Oilfield sales and service expense increased $4.8 million (27%) from $18.3 million in 1995 to $23.1 million in 1996 primarily as a result of the increased cost of goods sold associated with the increased sales described above. Exploration Expense. Exploration expense increased $1.2 million (23%) from $4.9 million in 1995 to $6.1 million in 1996 primarily due to higher levels of geological, geophysical and leasing activity and increases in the size of the technical staff in conjunction with increased drilling activity. General and Administrative Expense. General and administrative expense increased $771,000 (20%) from $3.8 million in 1995 to $4.6 million in 1996 due to increases in employee compensation and benefits, an increase in profit sharing and bonuses and investment banking and other professional fees. Interest Expense. Interest expense increased $1.3 million (22%) from $6.1 million in 1995 to $7.4 million in 1996. This increase was primarily due to higher average debt balances incurred to finance the 1995 acquisitions. See "Notes to Audited Consolidated Financial Statements -- Note 3 -- Acquisitions." Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased by $10.1 million (51%) from $19.7 million in 1995 to $29.8 million in 1996. Depletion expense increased $7.9 million (53%) from $15.1 million in 1995 to $23.0 million in 1996. This increase was primarily due to additional depletion expense associated with the increased production volumes described above. Depletion per Mcfe increased from $.74 per Mcfe in 1995 to $.77 per Mcfe in 1996. This increase was primarily the result of proved reserves added through acquisitions and drilling at a higher cost per Mcfe. Franchise, Property and Other Taxes. Franchise, property and other taxes increased by $511,000 (42%) from $1.2 million in 1995 to $1.7 million in 1996. Franchise taxes increased approximately $350,000 due to the increase in shareholders' equity as a result of the common stock issued in 1995 and the increase in net income retained in the business. Income From Continuing Operations Before Income Taxes. Income from continuing operations before income taxes increased $13.4 million (159%) from $8.4 million in 1995 to $21.8 million in 1996. The oil and gas operations segment increased operating income $12.4 million (99%) from $12.4 million in 1995 to $24.8 million in 1996. The increase was attributable to the items discussed above. The oilfield sales and service segment operating income increased $290,000 (43%) from $673,000 in 1995 to $963,000 in 1996. Income From Continuing Operations. Income from continuing operations increased $8.9 million (143%) from $6.3 million in 1995 to $15.2 million in 1996. This increase in income from continuing operations was primarily the result of the items discussed above. Provision for income taxes from continuing operations increased $4.4 million (205%) from $2.2 million in 1995 to $6.6 million in 1996. This increase was attributable to the increase in income from continuing operations before income taxes and an increase in the effective tax rate. The increase in the effective tax rate was primarily due to the decrease of nonconventional fuel source tax credits as a percentage of income from continuing operations. Earnings from continuing operations on a per common share basis increased 42 45 from $.69 per share in 1995 to $1.34 per share in 1996. This increase was primarily the result of the factors discussed above. Loss From Discontinued Operations. Loss from discontinued operations was $675,000 ($439,000 net of tax benefit or $.04 per share) in 1996 compared to $1,761,000 ($1,139,000 net of tax benefit or $.13 per share) in 1995. The losses in 1996 and 1995 include losses on assets sold, the write-down of various assets and inventories to estimated realizable value and a provision for estimated costs of asset disposals and future losses. 1995 Compared to 1994 Oil and Gas Sales. Oil and gas sales increased $14.3 million (44%) in 1995 compared to 1994 due primarily to an increase in oil and gas volumes sold and a higher average price paid for the Company's oil. These increases more than offset a lower average price paid for the Company's natural gas. Oil volumes increased 60,000 Bbls (12%) from 496,000 Bbls in 1994 to 556,000 Bbls in 1995 resulting in an increase in oil sales of approximately $1.0 million. Gas volumes increased 7.4 Bcf (77%) from 9.6 Bcf in 1994 to 17.0 Bcf in 1995 resulting in an increase in gas sales of approximately $19.1 million. These volume increases were primarily due to production from the Company's 1995 acquisitions and from wells drilled in 1994 and 1995. Gas volumes produced in 1995 were less than the Company's full production potential as a result of the Company's decision to curtail gas production due to low spot market gas prices. Interstate pipeline repairs and construction in Michigan and West Virginia also reduced potential production volumes. The average price paid for the Company's oil increased from $15.98 per barrel in 1994 to $16.78 per barrel in 1995 which increased oil sales by approximately $450,000. The average price paid for the Company's natural gas decreased $.37 per Mcf to $2.21 per Mcf in 1995 compared to 1994 resulting in decreased gas sales of approximately $6.3 million. Gas Marketing and Gathering Revenue. Gas marketing and gathering revenue increased $7.3 million (22%) from $33.1 million in 1994 to $40.4 million in 1995 primarily due to the Company's 1995 acquisitions. Increased volumes of gas purchased from third parties and resold were offset by a lower average selling price. Oilfield Sales and Service Revenue. Oilfield sales and service revenue increased $6.9 million (53%) from $13.2 million in 1994 to $20.1 million in 1995. This increase was primarily due to the sales generated by the three oilfield service companies acquired by the Company in September and October of 1994 and three oilfield sales and service companies acquired in 1995. Interest and Other Revenue. Interest and other revenue increased $2.1 million (383%) from $562,000 in 1994 to $2.7 million in 1995 primarily due to the recognition of $1.3 million in anticipated proceeds from contract rejection claims that have been filed in the bankruptcy proceedings of Columbia Gas Transmission Corporation and the recognition of income in 1995 from an incentive production payment associated with certain properties operated by Ward Lake. Production Expense. Production expense increased $4.0 million (50%) from $7.8 million in 1994 to $11.8 million in 1995. This increase was primarily due to the increased production volumes discussed above. The average production cost per equivalent Mcf of natural gas excluding taxes decreased from $.62 per Mcfe in 1994 to $.58 per Mcfe in 1995. Production Taxes. Production taxes increased $703,000 (52%) from $1.4 million in 1994 to $2.1 million in 1995. This increase was primarily due to the increased production volumes discussed above. Cost of Gas and Gathering Expense. Cost of gas and gathering expense increased $4.9 million (17%) from $28.9 million in 1994 to $33.8 million in 1995 primarily due to the Company's 1995 43 46 acquisitions. Increased volumes of gas purchased from third parties and resold were offset by a lower average purchase price. Oilfield Sales and Service Expense. Oilfield sales and service expense increased $6.1 million (50%) from $12.2 million in 1994 to $18.3 million in 1995 primarily as a result of the increased cost of goods sold associated with increased sales resulting from the acquisitions described above. Exploration Expense. Exploration expense increased $2.1 million (76%) from $2.8 million in 1994 to $4.9 million in 1995 primarily due to higher levels of geological and geophysical activity and increases in the size of the technical staff. General and Administrative Expense. General and administrative expense increased $235,000 (7%) from $3.6 million in 1994 to $3.8 million in 1995 primarily due to increases in employee compensation and benefits. Interest Expense. Interest expense increased $2.6 million (73%) from $3.5 million in 1994 to $6.1 million in 1995. This increase was primarily due to higher average debt balances incurred to finance the 1995 acquisitions. See "Notes to Audited Consolidated Financial Statements -- Note 3 -- Acquisitions." Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased by $7.8 million (66%) from $11.9 million in 1994 to $19.7 million in 1995. Depletion expense increased $6.0 million (66%) from $9.1 million in 1994 to $15.1 million in 1995. This increase was primarily due to additional depletion expense associated with the increased production volumes described above. Depletion per Mcfe increased from $.72 per Mcfe in 1994 to $.74 per Mcfe in 1995. Franchise, Property and Other Taxes. Franchise, property and other taxes increased by $374,000 (44%) from $854,000 in 1994 to $1.2 million in 1995 primarily due to the acquisitions made in 1995 and the increase in shareholders' equity as a result of the common stock issued in 1995. Income From Continuing Operations Before Income Taxes. Income from continuing operations before income taxes increased $1.9 million (29%) from $6.5 million in 1994 to $8.4 million in 1995. The operating income from the oil and gas operations segment increased $3.3 million (37%) from $9.1 million in 1994 to $12.4 million in 1995. The increase was attributable to the items discussed above. The operating income from the oilfield sales and service segment increased $323,000 (92%) from $350,000 in 1994 to $673,000 in 1995. Income From Continuing Operations. Income from continuing operations increased $2.1 million (50%) from $4.2 million in 1994 to $6.3 million in 1995. This increase in income from continuing operations was primarily the result of the items discussed above. Provision for income taxes from continuing operations decreased $180,000 (8%) from $2.3 million in 1994 to $2.2 million in 1995. This decrease was attributable to a decrease in the effective tax rate partially offset by an increase in income from continuing operations before income taxes. The effective tax rate decreased primarily due to the utilization of nonconventional fuel source tax credits. Earnings from continuing operations on a per common share basis increased from $.57 per share in 1994 to $.69 per share in 1995. This increase was primarily the result of the factors discussed above. Loss From Discontinued Operations. Loss from discontinued operations was $1,761,000 ($1,139,000 net of tax benefit or $.13 per share) in 1995 compared to $509,000 ($337,000 net of tax benefit or $.05 per share) in 1994. The loss in 1995 includes the write-down of various assets and inventories to estimated realizable value and a provision for estimated costs of asset disposals and future losses. LIQUIDITY AND CAPITAL RESOURCES General. The Company's liquidity and capital resources are closely related to and dependent on the current prices paid for its oil and gas. The net proceeds of the Initial Offering, together with borrowings under the New Credit Agreement, were used in part to repay certain existing outstand- 44 47 ing indebtedness of the Company, including all amounts outstanding under the Existing Credit Facility and the 7% Senior Notes. See "Use of Proceeds." Management believes that cash flow from operations, the net proceeds of the Initial Offering, and borrowing capacity under the New Credit Agreement will be adequate to meet future liquidity needs through 1998, including satisfying the Company's financial obligations and funding its capital program, excluding significant acquisitions. Nevertheless, should revenues decrease as a result of lower oil or gas prices or operating difficulties, reevaluation of the Company's capital spending plans would be required (currently estimated at $40 million, not including acquisitions, for 1997). Cash Flows. The Company's current ratio at March 31, 1997 was 1.51 to 1.00. The Company's net cash provided by operations for the years ended December 31, 1995 and 1996 was $21.9 million and $46.5 million, respectively. During the first quarter of 1997, working capital decreased $4.5 million from $22.1 million to $17.6 million. The decrease was primarily due to a decrease in accounts receivable ($2.8 million) and a decrease in cash ($2.9 million). The Company's operating activities provided cash flow of $16.6 million during the first quarter of 1997. The level of the Company's cash flow in the future will depend on a number of factors including the demand and price levels for oil and gas, its ability to acquire additional producing properties and the scope and success of its drilling activities. The Company intends to finance such activities principally through its available cash flow and through additional borrowings. Capital Expenditures. The Company currently expects to make capital expenditures of approximately $33 million during 1997 for its drilling activities and spend approximately $7 million for other capital expenditures. The Company's acquisition program is expected to be financed with available cash flow and with borrowings under the New Credit Agreement. New Credit Agreement. The New Credit Agreement provides the Company with a $200 million revolving credit loan facility subject to availability under the Borrowing Base. Currently, the borrowing base is set at $180 million. See "Description of Other Indebtedness." The Company believes that its existing sources of working capital are sufficient to satisfy all currently anticipated working capital requirements. Effects of Inflation. Although certain of the Company's costs and expenses may be affected by inflation, inflationary costs have not had a significant impact on the Company's results of operations. 45 48 BUSINESS AND PROPERTIES GENERAL Belden & Blake, an independent energy company, is primarily engaged in producing natural gas and oil, acquiring and enhancing the economic performance of producing gas and oil properties, exploring for and developing natural gas and oil reserves and gathering and marketing natural gas. Until 1995, the Company conducted business exclusively in the Appalachian Basin where it has operated since 1942 through several predecessor entities. It is now one of the largest exploration and production companies operating in the Appalachian Basin in terms of reserves, acreage held and wells operated. In early 1995, the Company commenced operations in the Michigan Basin and in September 1996, the Company commenced operations in the Illinois Basin. The Michigan and Illinois Basins have geologic and operational similarities to the Appalachian Basin and are in proximity to the Company's core operations. The operating environment in each of the basins in which the Company operates is highly fragmented, providing substantial acquisition opportunities. The Company currently operates approximately 7,600 wells with total net production of approximately 72 Mmcf per day of gas and 2,100 Bbls per day of oil. At December 31, 1996, the Company had proved reserves of 332.9 Bcfe with a Present Value of $356 million. On an Mcfe basis, the reserves were 79% proved developed and 87% natural gas, with a reserve life index of approximately 11 years. The Company holds leases on more than one million net acres. Since 1992, the Company has grown principally through the acquisition of producing properties and related gas gathering facilities and the exploration and development of its own acreage. The Company has built a significant gas gathering and marketing operation and owns and operates 2,760 miles of gas gathering systems in the basins in which the Company operates. As of March 31, 1997, the Company marketed 135 Mmcf per day, approximately 50% of which was purchased from third parties. The Company also operates a major regional oilfield service and supply business. BUSINESS STRENGTHS The Company believes it has certain strengths that provide it with significant competitive advantages, including the following: - Proven Growth Record. The Company has generated consistent growth through a balanced program of acquisitions and development and exploratory drilling. Over the last four years on a compound annual basis, the Company has increased proved reserves by 34%, production by 50% and EBITDA by 56%. - Geographic Focus. The Company's operations are exclusively focused on the Appalachian, Michigan and Illinois Basins. The Company believes that its 54-year operating history has resulted in a specialized technical expertise that provides a competitive advantage in sourcing and evaluating acquisitions and drilling opportunities within these areas. Furthermore, the Company enjoys economies of scale in operating and developing its properties not experienced by many smaller, regional competitors. - Leading Regional Consolidator. There are currently over 10,000 operators in the Appalachian and Michigan Basins. While Belden & Blake is one of the largest producers in these basins, it will account for less than 6% of the projected gas production in these basins in 1997. The Company's significant technical and regional expertise, as well as its low cost structure, provides a distinct advantage in pursuing its acquisition strategy. The Company has a proven and highly disciplined approach to making acquisitions at attractive prices. Over the last five years, the Company has been a leading consolidator in these basins, acquiring 192.9 Bcfe of proved developed reserves in 33 transactions for a total of $129.4 million at an average cost of $0.67 per Mcfe. 46 49 - Successful Drilling Record. The Company has achieved a very successful drilling record during the last five years. In highly developed or blanket formations the Company's success rate is 97%, while in less developed or deeper formations, the Company's success rate is 59%, for an overall success rate of 85%. During this period, the Company drilled 547 gross (409.9 net) wells, which added 82.2 Bcfe of proved developed reserves at an average cost of $1.03 per Mcfe. - Substantial Development Drilling Inventory. The Company has a substantial current acreage position of approximately 1,019,000 net acres, of which approximately 504,800 are classified as undeveloped. The Company believes that its current acreage holdings would support six years of drilling activities at current oil and gas prices without additions to its current acreage base. - Low Risk Nature of Reserves. The Company's producing reserves are characterized by low volume, low risk production that is subject to gradual decline rates over an expected 15 to 25 year economic life. As a result of the long-lived nature of its properties, Belden & Blake has lower reinvestment requirements to maintain reserve quantities, production levels and reserve values than many of its competitors. - Premium Pricing. Due to the Company's proximity to the large commercial and industrial markets in the Northeast and its strong gas marketing capability, Belden & Blake has enjoyed relatively stable gas prices at premiums well above national spot market prices. Over the last five years, the Company has realized an average premium of $0.52 per Mcf over national average wellhead prices. For the first quarter of 1997, the Company received a $0.75 per Mcf premium over estimated national average wellhead prices. - Attractive Full Cycle Economics. The Company serves as the operator on substantially all of its properties, which provides the Company significant control over the amount and timing of capital and operating expenditures. Over the last five years the Company has reduced operating costs per Mcfe (defined as the sum of production expense, production taxes and general and administrative expense) from $1.53 per Mcfe in 1992 to $0.87 per Mcfe in 1996. The combination of low operating costs with the premium pricing received by the Company for its production has enabled the Company to achieve an average operating margin over the last three years (defined as revenue per Mcfe less the sum of production expenses and production taxes per Mcfe) of $1.81 Mcfe, which is significantly greater than the industry average operating margin for this period. The Company's full cycle economics of 2.75x, calculated by dividing its average operating margin for the last three years by its average replacement cost of $0.66 per Mcfe over this period, is among the highest in the industry. - Extensive Gathering and Marketing Operations. The Company owns and operates approximately 2,760 miles of gas gathering systems which interconnect with, and deliver gas to, the interstate pipelines in its six-state area of operations. The Company also markets approximately 63 Mmcf per day of gas purchased from third parties. The Company's gathering and marketing activities (i) increase the return on the Company's development activities, (ii) provide exposure to and increase the returns on acquisitions, (iii) strengthen the Company's relationships with higher-margin end users and (iv) provide markets for incremental production. The Company's gathering and marketing activities generated EBITDA of $7.0 million in 1996. - Experienced Management. Eight senior officers have an average of 23 years of oil and gas industry experience, the vast majority of which was obtained in the core basins in which the Company currently operates. Additionally, the Company's technical staff, which includes 19 petroleum engineers, 11 geologists and two geophysicists, have an average of over 15 years experience in the oil and gas industry. 47 50 BUSINESS STRATEGY The Company seeks to increase reserves, production and cash flow through a balanced program of exploration and development drilling and strategic acquisitions. The key elements of the Company's strategy are as follows: - Maintain a Balanced Drilling Program. It is the Company's intention to expand production and reserves through a balanced program of developmental and exploratory drilling. The Company believes that there are significant exploration and development opportunities in the less developed or deeper formations in the Appalachian Basin for those operators with the capital, technical expertise and ability to assemble the large acreage positions needed to justify the use of advanced exploration and production technologies. The Company has identified numerous development and exploratory drilling locations in the deeper formations of the Appalachian and Michigan Basins. More than 750,000 wells have been drilled in the Appalachian Basin, but fewer than 2,000 wells have been drilled to a depth greater than 7,500 feet, and fewer than 100 wells have been drilled to a depth greater than 12,500 feet. The Company's drilling budget in 1997 is approximately $38.7 million, which will fund the drilling of approximately 250 wells. - Utilize Advanced Technology. The combination of long-lived production and high drilling success rates at the shallow depths has resulted in a highly fragmented, extensively drilled, low technology operating environment in the Appalachian Basin. The Company has been applying more advanced technology, including 3-D seismic, horizontal drilling, advanced fracturing techniques and enhanced oil recovery methods. The Company is implementing these techniques to improve drilling success rates, the size of average discovery, production rates, reserve recovery rates and total economics in its operating areas. - Pursue Consolidation Opportunities.There is a continuing trend toward consolidation in the energy industry in general. The basins in which the Company operates are highly fragmented. The Company believes this provides the basis for significant acquisition opportunities as capital constrained operators, the majority of which are privately held, seek liquidity or operating capital. The Company intends to capitalize on its geographic knowledge, technical expertise, low cost structure and decentralized organization to pursue additional strategic acquisitions in its area of operations. The Company's acquisition strategy focuses on acquiring producing properties that: (i) are properties in which the Company already owns an interest and operates or that are strategically located in relation to its existing operations, (ii) can be enhanced through operating cost reductions, advanced production technologies, mechanical improvements, recompleting or reworking wells and/or the use of enhanced and secondary recovery techniques, (iii) provide development and exploratory drilling opportunities or opportunities to improve the Company's acreage position, (iv) have the potential for increased revenues resulting from the Company's gas marketing capabilities, or (v) are of sufficient size to allow the Company to operate efficiently in new areas. - Expand Gas Gathering and Marketing. The Company's extensive gas gathering systems and regional natural gas marketing operation are integral to the Company's low cost structure and high revenues per unit of gas production. It is the Company's intention to expand its gas gathering systems to further improve the rate of return on the Company's drilling and development activities. The Company has excellent relationships with a large number of utilities and industrial end users located within the Company's operating areas. The Company's gas marketing operation provides a ready market for increased production, allowing the Company to shift sales from third-party gas to its own production. SIGNIFICANT PROPERTIES At December 31, 1996, the Company's properties included working interests in 7,721 gross (6,462 net) productive oil and gas wells. The Company also held interests in 565,900 gross 48 51 (504,800 net) undeveloped acres. At March 31, 1997, 99% of the Company's reserves were located in the Appalachian and Michigan Basins. Appalachian Basin. The Appalachian Basin is the oldest and geographically one of the largest oil and gas producing regions in the United States. Fewer than 2,000 wells have been drilled to a depth greater than 7,500 feet and less than 100 wells have been drilled to a depth greater than 12,500 feet in the entire Appalachian Basin. The Company's reserves in this basin represent 72% of total Present Value. Appalachian Basin proved reserves total 241 Bcfe, of which approximately 87% are developed. On an Mcfe basis, 83% of the reserves are natural gas. Combined net daily production from these properties currently averages 2,000 Bbls and 55 Mmcf of natural gas. Gross wells total 7,037 (6,158 net), of which 6,958 are Company operated. Although the Appalachian Basin has sedimentary formations indicating the potential for oil and gas reserves to depths of 30,000 feet or more, oil and gas is currently produced primarily from shallow highly developed blanket formations at depths of 1,000 to 5,500 feet. It is estimated that 40% to 50% of recoverable reserves are produced in the first three years, with gradual declines in subsequent years. Average well lives range from 15 years to 25 years or more, and drilling success rates of the Company and other drillers in these formations historically have exceeded 90%. Gas production generally is transported through Company owned gas gathering systems and is sold primarily to commercial and industrial customers. Michigan Basin. Geologically, the Michigan Basin resembles the Appalachian Basin with shallow blanket formations and deeper formations with greater reserve potential. The Michigan Basin represents 27% of the total Present Value of the Company's reserves. Michigan Basin proved reserves total 89 Bcfe, of which approximately 59% are developed. On an Mcfe basis, 97% of the reserves are natural gas. Combined net daily production from these properties currently averages 100 Bbls and 16 Mmcf of natural gas. Gross wells total 583 (205 net), of which 561 are Company operated. Most of the Company's production in the Michigan Basin is derived from the shallow blanket Antrim Shale formation at depths of 700 to 1,700 feet. This formation is characterized by high formation water production in the early years of a well's productive life, with water production decreasing over time. Antrim Shale wells typically produce at rates of 100 Mcf to 125 Mcf per day for several years, with modest declines thereafter. Gas production often increases in the early years as the producing formation becomes less water saturated. The operating environment in the Antrim Shale formation is more capital intensive because of the low natural reservoir pressures and the high initial water content of the formation. Average well lives are 20 years of more, and drilling success rates of the Company and other drillers in these formations historically have exceeded 90%. Illinois Basin. Geologically, the Illinois Basin is similar to the Appalachian and Michigan Basins in that it has shallow blanket formations and deeper formations with greater reserve potential. The Illinois Basin represents 1% of the Company's total Present Value of its reserves. Illinois Basin proved reserves total 3 Bcfe, of which 75% are developed. All of the reserves are natural gas. Net daily production from the Company's properties currently averages one Mmcf per day. The Company holds interests in 97 gross (83.9 net) wells, all of which are operated by the Company. The Company's production in the Illinois Basin is primarily from the New Albany Shale formation, which is the stratigraphic equivalent of the Antrim Shale formation. The New Albany Shale has similar operating characteristics to shale formations in the adjacent Appalachian and Michigan Basins from which the Company is currently producing. Production characteristics of the New Albany Shale are very similar to the Devonian Shale from which the Company produces in West Virginia. 49 52 RESERVES The following table sets forth the Company's proved oil and gas reserves as of December 31, 1994, 1995 and 1996 determined in accordance with the rules and regulations of the Commission.
DECEMBER 31, ----------------------------- 1994 1995 1996 ----- ----- ----- Estimated proved reserves Natural gas (Bcf)................................ 123.0 239.4 288.6 Oil (Mbbl)....................................... 4,113 6,283 7,389 Natural Gas Equivalents (Bcfe)................... 147.7 277.1 332.9
John G. Redic, Inc. ("Redic"), an independent petroleum engineering firm, prepared estimates of the Company's proved developed reserves and the future net cash flow (and Present Value thereof) attributable to such proved developed reserves. The estimates of the Company's proved undeveloped reserves and the future net cash flow (and Present Value thereof) attributable to such proved undeveloped reserves were prepared by the Company's petroleum engineers. Estimates of proved developed reserves and future net revenues attributable to such proved developed reserves shown in Redic's report for Antrim Shale wells and projects in Manistee County, Michigan were taken directly from a special report prepared by Ryder Scott Company ("Ryder Scott"), an independent petroleum engineering firm. Because of time constraints, Redic did not review either the basic data or methodology used by Ryder Scott. As part of its due diligence analysis of the Company's assets, TPG II retained Ryder Scott to review Redic's and the Company's reserve estimates. Ryder Scott reviewed estimates which constituted approximately 50% of the Company's total proved producing reserves and approximately 89% of the Company's proved undeveloped reserves. Ryder Scott found that the estimates by Redic and the Company were prepared using accepted industry principles of engineering and evaluation. Ryder Scott's review indicated that differences between its estimates and those of Redic and the Company were greater in proved undeveloped reserves than in proved producing reserves. Although in substantial agreement with Redic's and the Company's reserve estimates, based on its initial review, Ryder Scott recommended downward adjustments of approximately 7% of total Present Value of proved reserves. The Company filed reserve estimates with the Energy Information Administration for the year ended December 31, 1996. The difference between the reserve estimates in such report and the reserve estimates in this Prospectus does not exceed five percent. The following table sets forth the estimated future net cash flows from and the Present Value of the proved reserves of the Company as of December 31, 1996. Future net cash flow represents future gross cash flow from the production and sale of proved reserves, net of production costs (including production taxes, ad valorem taxes and operating expenses) and future development costs. Such calculations, which are prepared in accordance with the Statement of Financial Accounting Standards No. 69 "Disclosure about Oil and Gas Producing Activities" are based on constant cost and price factors. Prices for natural gas and oil at December 31, 1996 were $3.02 per Mcf and $22.97 per Bbl, respectively. These prices were substantially higher than historical prices used by the Company to calculate Present Value in recent years. For example, at December 31, 1995, natural gas and oil prices were $2.30 per Mcf and $16.95 per Bbl, respectively. A decline in prices relative to year-end 1996 would cause a substantial decline in Present Value. For example, a $0.10 decline in gas prices, holding all other variables constant, would decrease Present Value by 4.0% or $14.2 million, and a $1.00 decline in oil prices would decrease Present Value by 1.0% or $3.8 million. Furthermore, there can be no assurance that the proved undeveloped reserves will be developed within the periods indicated and it is likely that actual prices received in the future will vary from those used in determining this information. All estimates of oil and gas reserves are subject to 50 53 significant uncertainty. See "Risk Factors -- Uncertainty of Estimates of Reserves and Future Net Revenues." Estimated future net cash flows (before income taxes) attributable to estimated production........................................... $ 668,492,000 Present value before income taxes (discounted at 10% per annum)..... $ 355,959,000
PRODUCTION The following table sets forth certain information regarding oil and gas production from the Company's properties:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- Production Gas (Bcf).................... 3.7 7.4 9.6 17.0 25.4 Oil (Mbbl)................... 351 453 496 556 719 Average sales price Gas (per Mcf)................ $ 2.22 $ 2.55 $ 2.58 $ 2.21 $ 2.56 Oil (per Bbl)................ 19.27 17.15 15.98 16.78 20.24 Average production costs per Mcfe (including production taxes).... $ 0.92 $ 0.71 $ 0.74 $ 0.69 $ 0.72 Total oil and gas revenues (in thousands)...................... $ 15,046 $ 26,631 $ 32,574 $ 46,853 $ 79,491 Total production expenses (in thousands)...................... $ 5,362 $ 7,190 $ 9,292 $ 13,979 $ 21,469
DRILLING RESULTS The following tables set forth drilling results with respect to wells drilled during the past five years:
HIGHLY DEVELOPED OR BLANKET FORMATIONS(1) -------------------------------------------------------- 1992 1993 1994 1995 1996 ------ ------- ------- -------- -------- Productive Gross............................. 4 42 58 106 153 Net............................... 4.0 31.4 45.6 92.5 126.3 Dry Gross............................. 0 2 2 4 2 Net............................... 0.0 0.7 0.4 3.2 2.0 Success Rate Gross............................. 100% 95% 97% 96% 99% Net............................... 100% 98% 99% 97% 98% Reserves discovered--net (Mmcfe).... 97 3,019 4,813 18,474 32,664 Approximate cost (in thousands)..... $ 170 $ 4,847 $ 5,762 $ 15,079 $ 22,198 Cost per Mcfe....................... $ 1.75 $ 1.61 $ 1.20 $ 0.82 $ 0.68
- --------------- (1) Consists of wells drilled to the Berea and Clinton Sandstone formations in Ohio, the Berea Sandstone, Devonian Brown Shale, Ravencliff Sandstone and Big Lime Limestone formations in West Virginia, the Clarendon, Coalbed Methane and Medina formations in Pennsylvania, the Medina Sandstone formation in New York and the New Albany Shale formation in Kentucky. 51 54
LESS DEVELOPED OR DEEPER FORMATIONS(1) ------------------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- Productive Gross.............................. 8(3) 16(2) 22(3) 23(4) 34 Net................................ 6.4 8.8 12.7 11.5 22.2 Dry Gross.............................. 7 14 10 22 18 Net................................ 5.1 11.4 4.8 10.7 10.2 Success Rate Gross.............................. 53% 53% 69% 51% 65% Net................................ 56% 44% 73% 52% 69% Reserves discovered--net (Mmcfe)..... 1,821 3,173 5,196 5,194 7,740 Approximate cost (in thousands)...... $ 3,343 $ 3,413 $ 5,509 $ 5,284 $ 9,029 Cost per Mcfe........................ $ 1.84 $ 1.08 $ 1.06 $ 1.02 $ 1.17
- --------------- (1) Consists of wells drilled to the Trenton Limestone and Knox formations in Ohio, the Niagaran and Dundee Carbonates in Michigan and the Oriskany Sandstone and Onondaga Limestone formations in Pennsylvania and the Oriskany Sandstone, Onondaga Limestone and Knox formations in New York. (2) Two additional wells which were dry in the Knox formations were subsequently completed in the shallower Clinton formation. (3) One additional well which was dry in the Knox formations was subsequently completed in the shallower Clinton formation. (4) Two additional wells which were dry in the Knox formations were subsequently completed in the shallower Clinton formation. One additional well which was dry in the Oriskany formation was subsequently completed in the shallower Berea/Shale formations. PRODUCING WELLS The following table summarizes by state the Company's productive wells at December 31, 1996:
STATE GROSS NET ------------------------------------------------------ ------ ------ Ohio.................................................. 3,908 3,513 West Virginia......................................... 1,254 1,010 Pennsylvania.......................................... 817 630 New York.............................................. 1,058 1,005 Michigan.............................................. 583 205 Kentucky.............................................. 101 99 ----- ----- 7,721 6,462 ===== =====
ACQUISITION OF PRODUCING PROPERTIES The Company's acquisition strategy focuses on producing properties that: (i) the Company already owns an interest in and operates or that are strategically located in relation to its existing operations; (ii) can be increased in value through operating cost reductions, advanced production technology, mechanical improvements, recompleting or reworking wells and/or the use of enhanced and secondary recovery techniques; (iii) provide development drilling opportunities or enhance the Company's acreage position; (iv) have the potential for increased revenues from gas production through the Company's gas marketing capabilities; or (v) are of sufficient size to allow the Company to operate efficiently in new areas. Using these criteria, the Company employs a disciplined approach to acquisition analysis that requires input and approval from all key areas of 52 55 the Company. These areas include field operations, exploration and production, finance, gas marketing, land management and environmental compliance. Although the Company often reviews in excess of 50 acquisition opportunities per year, this disciplined approach can result in uneven annual spending on acquisitions. The following table sets forth information pertaining to acquisitions completed during the period 1992 through 1996.
PROVED DEVELOPED RESERVES ACQUIRED -------------------------------------------- NATURAL GAS NUMBER OF NATURAL GAS OIL EQUIVALENTS PERIOD TRANSACTIONS (MMCF) (MBBL) (MMCFE) -------------- ------------ PURCHASE ----------- ------ ----------- PRICE(1) -------------- (IN THOUSANDS) 1992.......... 5 $ 23,733 41,477 466 44,241 1993.......... 8 3,883 4,121 119 4,835 1994.......... 11 20,274 26,877 223 28,215 1995.......... 6 77,388 97,314 1,850 108,416 1996.......... 3 4,103 6,000 205 7,230 -- -------- ------- ----- ------- Total......... 33 $129,381 175,789 2,863 192,937 == ======== ======= ===== =======
- --------------- (1) Represents the portion of the purchase price allocated to proved developed reserves. During 1996, the Company acquired for approximately $4.1 million working interests in 323 oil and gas wells in Ohio and Kentucky. Estimated proved developed reserves associated with the wells total 6.0 Bcf of natural gas and 205,000 Bbls of oil net to the Company's interest at July 1, 1996. Ward Lake Acquisition. In January 1995, the Company made its initial entry into the Michigan Basin by acquiring Ward Lake, a privately-held exploration and production company, for $15.1 million. Ward Lake operated and held production payments and working interests averaging 13.6% in approximately 500 Antrim Shale gas wells in Michigan's lower peninsula and approximately 5,500 undeveloped leasehold acres in the proximity of the wells. The acquired wells had estimated proved developed gas reserves of 98 Bcf (14 Bcf net to the Company's interest) at December 31, 1994. Through March 31, 1997, the Company had purchased additional working interests averaging 24% in the wells operated by Ward Lake for approximately $12 million. The interests acquired had estimated proved developed reserves of 16 Bcf at December 31, 1994. The interests acquired also qualify for nonconventional fuel source tax credits through 2002, which the Company sold in early 1996. Quaker State Properties Acquisition. In July 1995, the Company purchased from Quaker State Corporation most of its oil and gas properties and related assets in the Appalachian Basin for approximately $50 million. These properties included approximately 1,460 gross (1,100 net) wells with estimated proved reserves of 46.8 Bcf of gas and 2.2 Mmbbl of oil at December 31, 1994, including proved undeveloped reserves of approximately 5.6 Bcf of gas and 0.4 Mmbbl of oil at December 31, 1994, approximately 250 miles of gas gathering systems in Pennsylvania, New York, Ohio and West Virginia, undeveloped oil and gas leases and fee mineral interests covering approximately 250,000 acres, an extensive geologic and geophysical database and other assets. 53 56 ACREAGE DATA The following table summarizes by state the Company's gross and net developed and undeveloped leasehold acreage at December 31, 1996:
DECEMBER 31, 1996 ------------------------------------------------------------------------------- DEVELOPED ACREAGE UNDEVELOPED ACREAGE TOTAL ACREAGE ----------------------- ----------------------- ----------------------- STATE GROSS NET GROSS NET GROSS NET - ------------------- --------- --------- --------- --------- --------- --------- Ohio............... 317,300 285,400 255,800 214,400 573,100 499,800 West Virginia...... 55,800 39,300 23,400 19,400 79,200 58,700 Pennsylvania....... 41,900 31,300 209,700 199,500 251,600 230,800 New York........... 130,800 118,100 28,900 26,200 159,700 144,300 Michigan........... 31,000 29,400 47,300 44,500 78,300 73,900 Kentucky........... 11,100 10,800 800 800 11,900 11,600 ------- ------- ------- ------- --------- ---------- 587,900 514,300 565,900 504,800 1,153,800 1,019,100 ======= ======= ======= ======= ========= ==========
PRESENT ACTIVITIES From January 1, 1997 through March 31, 1997, the Company drilled 41 gross (33.6 net) wells at a cost of approximately $5.3 million. Net reserves discovered as a result of this drilling activity are estimated at 7.2 Bcfe, or approximately 95% of the Company's production during the period. The Company plans to drill approximately 250 gross (206 net) wells in 1997 at an estimated cost of $33 million. In April 1997, the Company acquired interests in 290 gross (166.5 net) wells in West Virginia for $3.7 million. The Company operates 287 of these wells. Net proved developed reserves associated with these wells are estimated to total 5.8 Bcf. The Company is currently purchasing additional working interest in these wells from other working interest owners. GAS GATHERING The Company operates approximately 2,760 miles of natural gas gathering systems in Ohio, West Virginia, Pennsylvania, New York, Michigan and Kentucky which are tied directly to various interstate natural gas transmission systems. The interconnections with these interstate pipelines afford the Company potential marketing access to numerous major gas markets. The Company earned gathering revenues of $6.3 million in 1996. Direct costs associated with gas gathering in 1996 totaled approximately $1.7 million. GAS MARKETING The major industrial centers of Akron, Buffalo, Canton, Chicago, Cleveland, Detroit and Pittsburgh are all located in close proximity to the Company's operations and provide a large potential market for direct natural gas sales. The Company focuses its gas marketing efforts on small to mid-sized industrial customers that require more service and have the potential to generate higher margins per Mcf than large industrial users. The Company earned gas marketing revenues of $38.2 million in 1996. Direct costs associated with gas marketing in 1996 totaled approximately $35.9 million. The Company sells the gas it produces to its commercial and industrial customers, local distribution companies and on the spot market. In addition to its own production, the Company buys substantial amounts of gas from other producers and third parties and resells it. At March 31, 1997, the Company marketed approximately 135 Mmcf of gas per day of which approximately 50% consisted of its own production and 50% consisted of gas purchased from third parties. Approximately 82% of this third party gas was produced from Company operated wells. Gas sold by the Company to end users and local distribution companies is usually sold pursuant to contracts which 54 57 extend for periods of one or more years at either fixed prices or market sensitive prices. Gas sold on the spot market is generally priced on the basis of a regional index. Since late 1995, the Company has attempted to maintain a balance between gas volumes sold under fixed price contracts and volumes sold under market sensitive contracts. These market sensitive contracts allow the Company to select the price at which future months' deliveries will be sold, based on a regional index or a negotiated positive basis above the relevant NYMEX price. These "triggering" contracts allow the Company to effectively hedge contract prices without selling futures contracts and take advantage of periodic price spikes on the NYMEX. This contract strategy is intended to reduce price volatility and place a partial floor under the price received while still maintaining the potential for gains from upward movement in market sensitive prices. Additionally, the Company has a policy which governs its trading in the financial futures markets. The Company may, from time to time, partially hedge its contract prices by selling futures contracts on the NYMEX. At March 31, 1997, the Company did not have any open futures contracts. See "Risk Factors--Hedging Risks." The following table shows the type of contract and category of buyer for gas marketed by the Company at March 31, 1997:
NO. OF CONTRACTS MMCF PER DAY ---------------- ------------ Fixed Price Contracts End Users...................................... 183 46 Local Distribution Companies................... 12 17 Spot Markets................................... -- -- --- --- Total..................................... 195 63 === === Market Sensitive Contracts End Users...................................... 9 5 Local Distribution Companies................... 2 34 Spot Markets................................... 9 33 --- --- Total..................................... 20 72 === ===
OILFIELD SALES AND SERVICE The Company has provided its own oilfield services for more than 30 years in order to ensure quality control and operational and administrative support to its exploration and production operations. In 1992, Arrow Oilfield Service Company ("Arrow"), a separate service division, was organized as a profit center. Arrow provides the Company and third party customers with necessary oilfield services such as well workovers, well completions, brine hauling and disposal and oil trucking. Arrow currently has approximately 400 third party customers in its five-state service area. In 1996, approximately 55% of Arrow's revenues were generated by sales to third parties. Target Oilfield Pipe & Supply Company ("TOPS"), a wholly-owned subsidiary of the Company, operates retail sales outlets in the Appalachian and Michigan Basins from which it sells a broad range of equipment, including pipe, tanks, fittings, valves and pumping units. The Company originally entered the oilfield supply business to ensure the quality and availability of supplies for its own operations. TOPS currently has approximately 1,000 third party customers in its five-state market area. In 1996, approximately 67% of TOPS' revenues were generated by sales to third parties. CUSTOMERS During the year ended December 31, 1996 there was no customer which accounted for 10% or more of the Company's consolidated revenues. The only customer which accounted for 10% or more of the Company's consolidated revenues during the year ended December 31, 1995 was The East Ohio Gas Company with purchases of $11.1 million. The only customer which accounted for 55 58 10% or more of the Company's consolidated revenues during the year ended December 31, 1994 was Ravenswood Aluminum Company ("RAC"), sales to which totaled $9.6 million. The Company's contract with RAC, its principal gas purchaser in West Virginia, requires it to deliver 10 billion Btus (approximately 8.9 Mmcf) of gas per day through 1998. At present, the Company is supplying this contract requirement by delivering approximately 6.1 billion Btus of its own gas production, 3.1 billion Btus of production from royalty and joint working interest owners in wells in which the Company holds an interest and 0.8 billion Btus of gas purchased from third parties. COMPETITION The oil and gas industry is highly competitive. Competition is particularly intense with respect to the acquisition of producing properties and the sale of oil and gas production. There is competition among oil and gas producers as well as with other industries in supplying energy and fuel to users. The competitors of the Company in oil and gas exploration, development, production and marketing include major integrated oil and gas companies as well as numerous independent oil and gas companies, individual proprietors, natural gas pipelines and their affiliates and natural gas marketers and brokers. Many of these competitors possess and employ financial and personnel resources substantially in excess of those available to the Company. Such competitors may be able to pay more for desirable prospects or producing properties and to evaluate, bid for and purchase a greater number of properties or prospects than the financial or personnel resources of the Company will permit. The ability of the Company to add to its reserves in the future will be dependent on its ability to exploit its current developed and undeveloped lease holdings and its ability to select and acquire suitable producing properties and prospects for future exploration and development. TITLE TO PROPERTIES The Company believes that the title to its oil and gas properties is good and defensible in accordance with standards generally accepted in the oil and gas industry, subject to exceptions that, in the opinion of the Company, are not so material as to detract substantially from the use or value of such properties. The Company's properties are typically subject, in one degree or another, to one or more of the following: (i) royalties and other burdens and obligations, express or implied, under oil and gas leases; (ii) overriding royalties, production payments and other burdens created by the Company or its predecessors in title; (iii) a variety of contractual obligations (including, in some cases, development obligations) arising under operating agreements, farmout agreements, production sales contracts and other agreements that may affect the properties or their titles; (iv) liens that arise in the normal course of operations, such as those for unpaid taxes, statutory liens securing obligations to unpaid suppliers and contractors and contractual liens under operating agreements; (v) pooling, unitization and communitization agreements, declarations and orders; and (vi) easements, restrictions, rights-of-way and other matters that commonly affect property. To the extent that such burdens and obligations affect the Company's rights to production revenues, they have been taken into account in calculating the Company's net revenue interests and in estimating the quantity and value of the Company's reserves. The Company believes that the burdens and obligations affecting its properties are conventional in the industry for properties of the kind owned by the Company. EMPLOYEES As of March 31, 1997, the Company had 610 full-time employees, including 240 oilfield sales and service employees, 289 oil and gas production employees, 19 petroleum engineers, 11 geologists and two geophysicists. None of the Company's employees is represented by a union. The Company considers its relations with its employees to be good. 56 59 REGULATORY MATTERS The Company's operations are affected by extensive regulation pursuant to various federal, state and local laws and regulations. These laws and regulations, among other things, may affect the rate of oil and gas production. The Company's operations are subject to numerous laws and regulations governing plugging and abandonment, the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and impose substantial liabilities for pollution which might result from the Company's operations. See "Risk Factors -- Laws and Regulations." ENVIRONMENTAL REGULATION Activities on the Company's oil and gas producing properties are subject to existing federal, state and local laws and regulations governing health, safety, environmental quality and pollution control. Failure to comply with environmental laws can result in substantial civil or criminal penalties, as well as the revocation of necessary environmental permits. Pursuant to these laws and regulations, the Company may be subject to substantial clean-up costs for any toxic or hazardous substance that may exist on or under any of its properties. The Company cannot predict what effect additional regulation or legislation, enforcement policies thereunder, and claims for damages to property, employees, other persons and the environment resulting from operations on its properties could have on its financial condition or results of operations. The Company could incur substantial costs to comply with environmental laws and regulations. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "superfund" law, imposes liability, regardless of fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a "hazardous substance" into the environment. These persons include the current or previous owner and operator of a site and companies that disposed or arranged for the disposal of, the hazardous substance found at a site. CERCLA also authorizes the Environmental Protection Agency ("EPA") and, in some cases, private parties to take actions in response to threats to the public health or the environment and to seek recovery from such responsible classes of persons of the costs of such action. In the course of their operations, the operators of the Company's properties have generated and will generate wastes that may fall within CERCLA's definition of "hazardous substances." The Company or the operator of the properties may be responsible under CERCLA for all or part of the costs to clean up sites at which such substances have been disposed. The operations of the Company's properties are subject to the requirements of the Federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the Federal Superfund Amendment and Reauthorization Act and similar state statutes require that information be organized and maintained about hazardous materials used or produced in the operations. Certain of this information must be provided to employees, state and local government authorities and citizens. LEGAL PROCEEDINGS On January 2, 1996, Karen J. Volgstadt, individually and as administrator of the Estate of George A. Volgstadt, filed a complaint in the Supreme Court of Chautauqua County, New York against the Company and a subsidiary of the Company seeking the recovery of $6,000,000 in compensatory damages for the death of George A. Volgstadt in an accident which occurred during the course of his employment with the subsidiary. Stipulations of Discontinuance with prejudice have been entered by Mrs. Volgstadt with respect to claims against the Company and the 57 60 subsidiary. Accordingly, neither the Company nor the subsidiary has any liability with respect to this matter. The Company is involved in several other lawsuits arising in the ordinary course of business. The Company believes that the result of such proceedings, individually or in the aggregate, will not have a material adverse effect on the Company's financial position or the results of operations. 58 61 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The executive officers and directors of the Company are listed below, together with a description of their experience and certain other information. The TPG Investors anticipate that they will cause to be elected additional individuals, including individuals unaffiliated with either the TPG Investors or the Company, to serve as directors of the Company.
NAME AGE POSITION - ------------------------------- ------------------------------------------------------------- Ronald L. Clements 54 Chief Executive Officer and Director Ronald E. Huff 42 President, Chief Financial Officer and Director Joseph M. Vitale 56 Senior Vice President Legal, General Counsel, Secretary and Director Leo A. Schrider 58 Senior Vice President Technical Development Dennis D. Belden 51 Vice President Supply and Service Charles P. Faber 55 Vice President Corporate Development Tommy L. Knowles 46 Vice President Production Dean A. Swift 45 Vice President, Assistant General Counsel and Assistant Secretary Henry S. Belden, IV 57 Director Max L. Mardick 62 Director William S. Price, III 41 Director David M. Stanton 34 Director
All executive officers of the Company serve at the pleasure of its Board of Directors. Ronald L. Clements, who became Chief Executive Officer and a Director of the Company upon consummation of the Acquisition, had been Senior Vice President of Exploration and Production of the Company since 1993 and managed the Company's Exploration and Production Division. He joined Belden & Blake in 1990 and served as Vice President of Producing Operations until 1993. He has more than 30 years of petroleum engineering and production experience. Prior to joining Belden & Blake he served as Vice President and District Manager of TXO Production Corporation in Corpus Christi, Texas. From 1967 to 1982, Mr. Clements held various operational management positions with Shell Oil Company. Mr. Clements received a BS degree in Electrical Engineering from the University of North Dakota and a MS degree in Petroleum Engineering from the University of Tulsa. He is a member of the Society of Petroleum Engineers and the Ohio Oil and Gas Association. Ronald E. Huff, who became President, Chief Financial Officer and a Director of the Company upon consummation of the Acquisition, had been Senior Vice President and Chief Financial Officer of the Company since 1989, having previously served as its Senior Controller from 1986 to 1989. Mr. Huff was a director of Belden & Blake from 1991 to 1997. He is a Certified Public Accountant with nearly 20 years of experience in oil and gas finance and accounting. From 1983 to 1986, Mr. Huff served as Vice President and Chief Accounting Officer of Towner Petroleum Company. From 1980 to 1983 he worked for Sonat Exploration Company as Manager of Financial Accounting; and from 1977 to 1980 he served as Corporate Accounting Supervisor for Transco Companies, Incorporated. Mr. Huff received a BS degree in Accounting from the University of Wyoming. He is a member of the Ohio Petroleum Accountants Society and the Financial Executives Institute -- Northeast Ohio Chapter. Joseph M. Vitale has been Senior Vice President Legal of the Company since 1989 and has served as its General Counsel since 1974. He was a director of the Company from 1991 to 1997, and 59 62 was appointed to serve on the Board of Directors upon consummation of the Acquisition. Prior to joining Belden & Blake, Mr. Vitale served for four years in the Army Judge Advocate General's Corps. He holds a BS degree from John Carroll University and a JD degree from Case Western Reserve Law School. He is a member of the Ohio Oil and Gas Association, the Stark County, Ohio State and American Bar Associations, and the Interstate Oil Compact Commission. Mr. Vitale is a past Chairman of the Natural Resources Law Committee of the Ohio State Bar Association. Leo A. Schrider has been Senior Vice President of Technical Development since 1993. He previously served as Senior Vice President of Exploration, Drilling and Engineering for the Company since 1986. Mr. Schrider is a Petroleum Engineer with 35 years of experience in oil and gas production, principally in the Appalachian Basin. Prior to joining Belden & Blake in 1981, he served as Assistant and Deputy Director of Morgantown Energy Technology Center from 1976 to 1980. From 1973 to 1976, Mr. Schrider served as Project Manager of the Laramie Energy Research Center. He has also held various research positions with the U.S. Department of Energy in Wyoming and West Virginia. Mr. Schrider received his BS degree from the University of Pittsburgh in 1961 and did graduate work at West Virginia University. He has published more than 35 technical papers on oil and gas production. He was an Adjunct Professor at West Virginia University and also served as a member of the International Board of Directors of the Society of Petroleum Engineers. In 1994, Mr. Schrider was elected to the Board of Directors of the Petroleum Technology Transfer Council and is chairman of the producer advisory group representing the Appalachian region. Dennis D. Belden has served as Vice President of Supply and Service for the Company since 1989 and has managed the Oilfield Supply and Service Division since 1992. He joined Belden & Blake in 1980 and served as the Company's land manager from 1980 to 1989. From 1976 to 1980 he was employed by Wilmot Mining Company as Special Projects Manager. Mr. Belden attended Kent State University. He is a member of the Ohio Oil and Gas Association. Charles P. Faber has been Vice President of Corporate Development for the Company since 1993. He previously served as Senior Vice President of Capital Markets from 1988 to 1993. Prior to joining Belden & Blake, Mr. Faber was employed as Senior Vice President of Marketing for Heritage Asset Management from 1986 to 1988. From 1983 to 1986 he served as President and Chief Executive Officer of Samson Properties, Incorporated. Mr. Faber holds a BA degree in Marketing and an MBA in Finance from the University of Wisconsin. He is a member of the Independent Petroleum Association of America, the National Investor Relations Institute and the Petroleum Investor Relations Association. Tommy L. Knowles has been Vice President of Production of the Company since January of 1996. He has 24 years of petroleum engineering and production experience. Prior to joining Belden & Blake, Mr. Knowles served as President of FWA Drilling Company, a subsidiary of Texas Oil & Gas Corporation. From 1982 to 1988 he worked for TXO Production Corporation in Sacramento, California, serving in various management positions including Vice President. From 1979 to 1982 he held the position of Drilling and Production Manager for Texas Oil & Gas Corporation, and from 1973 to 1979 he held various engineering, supervisory and management positions with Exxon Corporation. Mr. Knowles holds a BS degree in Mechanical Engineering from the University of Texas at Austin. He is a member of the Society of Petroleum Engineers, the American Petroleum Institute, and the Independent Association of Drilling Contractors. Dean A. Swift has served as Vice President, Assistant General Counsel and Assistant Secretary of the Company since 1989. He served as Assistant General Counsel of the Company from 1981 to 1989. From 1978 to 1981 he was associated with the law firm of Hahn, Loeser and Parks in Cleveland, Ohio. Mr. Swift received a BA degree from The University of the South and a JD degree from the University of Virginia. He is a member of the Stark County, Ohio State and American Bar Associations. 60 63 Henry S. Belden, IV served as Chairman and Chief Executive Officer of the Company since 1982. He resigned as Chairman and Chief Executive Officer upon the consummation of the Acquisition, and was appointed to serve on the Board of Directors upon consummation of the Acquisition. Mr. Belden has been involved in oil and gas production since 1955 and associated with Belden & Blake since 1967. Prior to joining Belden & Blake, he was employed by Ashland Oil & Refining Company and Halliburton Services, Incorporated. Mr. Belden attended Florida State University and the University of Akron and is a member of the 25-Year Club of the Petroleum Industry and the Board of Trustees of the Ohio Oil and Gas Association. He is also a member of the Regional Advisory Board of the Independent Petroleum Association of America and a director and a member of the Executive Committee of the Pennsylvania Grade Crude Oil Association. He is a member of the Interstate Oil Compact Commission. Other professional memberships include the World Business Council and the Association of Ohio Commodores. He is a director of KeyBank-Canton District and Phoenix Packaging Corporation. Max L. Mardick was President and Chief Operating Officer of the Company from 1990 to 1997, a director from 1992 to 1997 and a director of predecessor companies from 1988 to 1992. He resigned as President and Chief Operating Officer upon consummation of the Acquisition and was appointed to serve on the Board of Directors upon consummation of the Acquisition. He previously served as Executive Vice President and Chief Operating Officer from 1988 to 1990. Mr. Mardick is a Petroleum Engineer with more than 35 years of experience in domestic and international production, engineering, drilling operations and property evaluation. Prior to joining Belden & Blake, he was employed for more than 30 years by Shell Oil Company in various engineering, supervisory and senior management positions, including: Manager, Property Acquisitions and Business Development (1986-1988); Production Manager for Shell's Onshore and Eastern Divisions (1981-1986); Production Manager of Shell's Rocky Mountain Division (1980-1981); Operations Manager (1977-1980); and Engineering Manager (1975-1977). Mr. Mardick holds a BS degree in Petroleum Engineering from the University of Kansas. He is a member of the Society of Petroleum Engineers and the Ohio Oil and Gas Association. He has served as Vice Chairman of the Alabama--Mississippi section of the Mid-Continent Oil and Gas Association. William S. Price, III, who became a director upon consummation of the Acquisition, was a founding partner of Texas Pacific in 1993. Prior to forming Texas Pacific, Mr. Price was Vice President of Strategic Planning and Business Development for G.E. Capital, and from 1985 to 1991 he was employed by the management consulting firm of Bain & Company, attaining partnership status and acting as co-head of the Financial Services Practice. Mr. Price is a 1978 graduate of Stanford University and received a JD degree from the Boalt Hall School of Law at the University of California, Berkeley. Mr. Price is Chairman of the Board of Favorite Brands International, Inc. and Co-Chairman of the Board of Beringer Wine Estates. He also serves on the Boards of Directors of Continental Airlines, Inc., Continental Micronesia, Inc., Denbury Resources, Inc. and Vivra Specialty Partners, Inc. David M. Stanton, who became a director upon consummation of the Acquisition, is a partner of Texas Pacific. From 1991 until he joined Texas Pacific in 1994, Mr. Stanton was a venture capitalist with Trinity Ventures, where he specialized in information technology, software and telecommunications investing. Mr. Stanton earned a BS degree in Chemical Engineering from Stanford University and received an MBA from the Stanford Graduate School of Business. Mr. Stanton serves on the Boards of Directors of Denbury Resources, Inc., TPG Communications, Inc. and Paradyne Partners, L.P. 61 64 SUMMARY COMPENSATION TABLE The following table shows the annual and long-term compensation for services in all capacities to the Company during the fiscal years ended December 31, 1996, 1995 and 1994 of the Company's Chief Executive Officer and its other four most highly compensated executive officers.
LONG-TERM COMPENSATION ALL OTHER AWARDS COMPENSATION(1) ------------ --------------- ANNUAL COMPENSATION NO. OF ----------------------------------------------- SHARES NAME AND OTHER ANNUAL UNDERLYING PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS - -------------------------------- ---- -------- -------- ------------ ------------ Henry S. Belden, IV 1996 $322,038 $161,962 $ 0 40,000 $25,869(2) Chairman of the Board 1995 310,994 145,765 0 40,000 18,720(2) and Chief Executive Officer 1994 299,038 39,720 0 33,000 15,165(2) Max L. Mardick 1996 236,731 83,793 0 25,000 13,439 President and Chief 1995 229,808 72,445 0 25,000 7,042 Operating Officer 1994 206,438 28,421 0 20,000 9,419 Ronald E. Huff 1996 166,462 66,175 0 20,000 11,550 Senior Vice President 1995 168,466 32,706 0 20,000 8,016 and Chief Financial Officer 1994 157,354 17,608 0 15,000 8,125 Joseph M. Vitale 1996 162,069 66,020 0 20,000 10,078 Senior Vice President 1995 156,066 52,810 0 20,000 8,768 Legal, General Counsel 1994 150,577 17,495 0 15,000 7,615 and Secretary Ronald L. Clements 1996 171,173 66,303 4,000 20,000 11,342 Senior Vice President of 1995 161,373 62,568 5,000 20,000 7,629 Exploration and Production 1994 151,731 22,514 5,000 15,000 7,892
- --------------- (1) Represents contributions of cash and Company common stock to the Company's 401(k) Profit Sharing Plan for the account of the named executive officers. (2) Includes $8,316, $7,641 and $5,422 as the portion of the total premium paid by the Company in 1996, 1995 and 1994, respectively, under a split-dollar insurance plan that is attributable to term life insurance coverage for Mr. Belden. OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------------------------------------------ % OF TOTAL OPTIONS/SARS OPTIONS/ GRANTED TO SARS EMPLOYEES IN EXERCISE OR EXPIRATION GRANT DATE NAME GRANTED(1) FISCAL YEAR BASE PRICE DATE PRESENT VALUE(2) - ------------------------------ ---------- ------------- ----------- ---------- ---------------- Henry S. Belden, IV 40,000 14.3% $ 21.00 8/26/06 $428,800 Max L. Mardick 25,000 8.9 21.00 8/26/06 268,000 Ronald E. Huff 20,000 7.1 21.00 8/26/06 214,400 Joseph M. Vitale 20,000 7.1 21.00 8/26/06 214,400 Ronald L. Clements 20,000 7.1 21.00 8/26/06 214,400
- --------------- (1) Options granted are exercisable starting 12 months after the date of grant, with 25% of the shares covered thereby becoming exercisable at that time and an additional 25% becoming exercisable on each successive anniversary date. The options were granted for a term of ten years, subject to earlier termination on cessation of employment. (2) This is a hypothetical valuation using the Black-Scholes valuation method. The Company's use of this model should not be considered as an endorsement of its accuracy at valuing options. All stock option valuation methods, including the Black-Scholes model, require a prediction about the future movement of a company's stock price. Since all options are granted at an exercise price equal to the market value of the Company's common stock on the date of grant, no value will be realized if there is no appreciation in the market price of the stock. 62 65 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE
VALUE OF UNEXERCISED IN-THE MONEY NUMBER OF UNEXERCISED OPTIONS/SARS AT FY-END (1) SHARES OPTIONS/SARS AT FY-END ACQUIRED VALUE ---------------------------- ---------------------------- NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------ ----------- -------- ----------- ------------- ----------- ------------- Henry S. Belden, IV -0- -0- 52,750 95,250 $ 714,688 $ 805,938 Max L. Mardick -0- -0- 31,250 58,750 420,781 492,344 Ronald E. Huff -0- -0- 23,750 46,250 318,438 383,438 Joseph M. Vitale -0- -0- 23,750 46,250 318,438 383,438 Ronald L. Clements -0- -0- 12,500 42,500 144,065 325,312
- --------------- (1) Values are calculated as the difference between the exercise price of the options and the market value of the Company's common stock of $25.50 as of December 31, 1996. COMPENSATION OF DIRECTORS Directors of the Company will not be compensated for their services as such nor for their participation on any committees of the Board of Directors. EMPLOYMENT AND SEVERANCE AGREEMENTS The Company has severance agreements with Messrs. Clements, Huff and Vitale which entitle each of them to receive a lump sum severance payment equal to 300% of the sum of (i) his respective annual base salary at the highest rate in effect for any period prior to his employment termination plus (ii) his highest annual bonus and incentive compensation during the three-year period preceding a change in control, in the event of the termination of his employment by the Company other than for "cause" (as defined therein) or his resignation in response to a substantial reduction in responsibilities, authority, position, compensation or location of his place of work within three years following a change in control. In addition, each of them would be entitled to receive an additional payment sufficient to cover any excise tax imposed by Section 4999 of the Code on the severance payments or other payment considered "contingent on a change in ownership or control" of the Company within the meaning of Section 280G of the Code. Messrs. Clements and Huff each entered into employment agreements dated as of June 27, 1997 (the "Employment Agreements") providing for their employment as Chief Executive Officer and President, respectively, of the Company. The Employment Agreements provide for an annual base salary of not less than $300,000 payable to Mr. Clements and $250,000 payable to Mr. Huff. Messrs. Clements and Huff will each be entitled to earn an annual bonus of up to 50% of his annual base salary based on the attainment of certain goals to be set by the Company's Board of Directors. Each of Messrs. Clements and Huff agreed to continue to hold, and not surrender, certain stock options previously granted to him under the Company's Stock Option Plan, thereby foregoing the right to receive $334,220 each in cash upon the surrender of such options. The Employment Agreements provide for the granting to each of Messrs. Clements and Huff of additional options to purchase shares of common stock of the Company constituting 1.25% of the outstanding common stock (on a fully-diluted basis) at an option price equivalent to the price paid by the TPG Investors in connection with the Equity Contribution. The options will vest over a four year period, with one-fourth (1/4) vesting one year after the date of grant and the balance at the rate of one-twelfth (1/12) at the end of each quarter thereafter during the continuation of employment with the Company. The Employment Agreements provide for certain call options and rights of first refusal in connection with the shares of common stock obtainable upon the exercise of stock options. 63 66 The Employment Agreements provide that Messrs. Clements and Huff will be entitled to employee welfare and retirement benefits substantially comparable to those presently provided by the Company and to any other employee benefits later made available to senior executive management of the Company. The Employment Agreements further provide that the existing severance agreements that Messrs. Clements and Huff have with the Company will remain in force and upon the expiration thereof will be replaced by new severance agreements providing substantially the same benefits. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, the Compensation Committee of the Board of Directors consisted of George M. Smart, Raymond D. Saunders and Gary R. Petersen, all of whom are outside directors. Henry S. Belden, IV, a director of the Company, is a director of Phoenix Packaging Corporation of which Mr. Smart is President and Chief Executive Officer. 64 67 PRINCIPAL SHAREHOLDERS The following table sets forth certain information as of July 31, 1997 regarding the beneficial ownership of the Company's common stock by each person who beneficially owns more than five percent of the Company's outstanding common stock. Each director, the chief executive officer and the four other most highly compensated executive officers and by all directors and executive officers of the Company, as a group:
FIVE PERCENT SHAREHOLDERS NUMBER OF SHARES PERCENTAGE OF SHARES ----------------------------------------- ---------------- -------------------- TPG Advisors II, Inc. 9,907,414(1) 98.3% 201 Main Street, Suite 2420 Fort Worth, Texas 76102 OFFICERS AND DIRECTORS William S. Price, III 9,907,414(1) 98.3% Henry S. Belden IV 26,757(2) * Ronald L. Clements 12,877(2) * Ronald E. Huff 12,877(2) * Tommy L. Knowles -0- -0- Max L. Mardick 16,509(2) * David M. Stanton -0- -0- Joseph M. Vitale -0- -0- All directors and executive 9,976,434 99.1% officers as a group
- --------------- *Less than 1% (1) Neither TPG Advisors II, Inc. nor Mr. Price is the record owner of any shares of the Company's common stock. Mr. Price is, however, a director, executive officer and shareholder of TPG Advisors II, Inc., which is the general partner of TPG GenPar II, L.P., which in turn is the general partner of each of TPG II, TPG Investors II, L.P. and TPG Parallel II, L.P. which are the direct beneficial owners of 8,449,439, 576,611 and 881,364 shares of common stock, respectively. (2) Consists of shares subject to stock options exercisable within 60 days. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In connection with the Transaction, the Company entered into a Transaction Advisory Agreement with TPG II pursuant to which TPG II received a cash financial advisory fee of $5.0 million upon the closing of the Acquisition as compensation for its services as financial advisor in connection with the Transaction. TPG II also will be entitled to receive (but, at its discretion, may waive) fees of up to 1.5% of the "transaction value" for each subsequent transaction (a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring or other similar transaction) in which the Company is involved. The term "transaction value" means the total value of any subsequent transaction, including, without limitation, the aggregate amount of the funds required to complete the subsequent transaction (excluding any fees payable pursuant to the Transaction Advisory Agreement and fees, if any, paid to any other person or entity for financial advisory, investment banking, brokerage or any other similar services rendered in connection with such transaction) including the amount of any indebtedness, preferred stock or similar items assumed (or remaining outstanding). The Transaction Advisory Agreement shall continue until the earlier of (i) 10 years from the execution date or (ii) the date on which TPG II and its affiliates cease to own, beneficially, directly or indirectly, at least 25% of the voting power of the securities of the Company. In management's opinion, the fees provided for under the Transaction Advisory Agreement reasonably reflect the benefits received and to be received by the Company. 65 68 Messrs. Belden and Mardick have each entered into non-competition agreements with the Company dated March 27, 1997 (the "Non-Competition Agreements"), which became effective contemporaneously with consummation of the Acquisition. Pursuant to the terms of the Non-Competition Agreements, Messrs. Belden and Mardick have each agreed, for a period of three (3) years from June 27, 1997 that he will not, in any county in the United States in which the Company does business, directly or indirectly, either for himself or as a member of a partnership or as a shareholder, investor, agent, associate or consultant engage in any business in which the Company is engaged immediately prior to June 27, 1997. Messrs. Belden and Mardick have each further agreed that he will not, directly or indirectly, make any misleading or untrue statement that disparages or would have the effect of disparaging the Company or any of its affiliates or employees or of adversely affecting the reputation, business or credit rating of the Company or any of its affiliates or employees, and that, for a period of three years from the Effective Time, he will not, directly or indirectly, interfere with, or take any action that would have the effect of interfering with, the contractual and other relationships between the Company or any of its affiliates and any of its or their employees, customers or suppliers. In consideration of such agreements, Mr. Belden will receive $2,400,616.44 and Mr. Mardick will receive $983,711.16 in each case payable in 36 monthly installments. 66 69 DESCRIPTION OF THE NOTES GENERAL The Exchange Notes will be issued, and the Senior Subordinated Notes were issued, pursuant to an Indenture (the "Indenture") among the Company, the Subsidiary Guarantors and LaSalle National Bank, as trustee (the "Trustee"). Copies of the Indenture will be made available to holders of the Notes upon request to the Company. Upon issuance of the Exchange Notes, if any, or the effectiveness of the Shelf Registration Statement the Indenture will be subject to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." The Notes are general unsecured obligations of the Company and are subordinated in right of payment to Senior Debt. The Notes are guaranteed on a senior subordinated basis by each Restricted Subsidiary of the Company and any future Restricted Subsidiary of the Company. The obligations of the Subsidiary Guarantors under the Guarantees are general unsecured obligations of each of the Subsidiary Guarantors and are subordinated in right of payment to all obligations of the Subsidiary Guarantors in respect of Senior Debt. See "-- Guarantees" and "Risk Factors -- Subordination of Notes and Guarantees." For purposes of this section, the term "Company" means Belden & Blake Corporation. As of the date of the Indenture, all of the Company's Significant Subsidiaries will be Restricted Subsidiaries. Under certain circumstances, however, the Company will be able to designate current and future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture. See "-- Certain Covenants." TERMS OF THE NOTES The Notes are limited in aggregate principal amount to $225 million and will mature on June 15, 2007. Interest on the Notes accrues at the rate of 9 7/8% per annum and is payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 1997, to Holders of the Notes of record on the immediately preceding June 1 and December 1. Interest on the Notes accrues from the most recent date on which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Notes is payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the applicable register of Holders of the Notes. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be fully registered as to principal and interest in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. OPTIONAL REDEMPTION Except as otherwise described below, the Notes are not redeemable at the Company's option prior to June 15, 2002. Thereafter, the Notes are subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued 67 70 and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years indicated below:
YEAR PERCENTAGE -------------------------------------------------------------- ---------- 2002.......................................................... 104.938% 2003.......................................................... 103.292% 2004.......................................................... 101.646% 2005 and thereafter........................................... 100.000%
Prior to June 15, 2000, the Company may, at its option, on any one or more occasions, redeem up to 40% of the original aggregate principal amount of the Notes at a redemption price equal to 109.875% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with all or a portion of the net proceeds of public sales of common stock of the Company; provided that at least 60% of the original aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 60 days of the date of the closing of the related sale of common stock of the Company. At any time on or prior to June 15, 2002, the Notes may also be redeemed as a whole at the option of the Company upon the occurrence of a Change of Control (but in no event more than 90 days after the occurrence of such Change of Control) at a redemption price equal to 100% of the principal amount thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). SELECTION AND NOTICE In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if such other Notes are not so listed, on a pro rata basis, by lot or by such method as such Trustee shall deem fair and appropriate; provided that no Note of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of the Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on the Notes or portions of them called for redemption. RANKING AND SUBORDINATION The payment of principal of, premium, if any, and interest on, the Notes and any other payment obligations of the Company in respect of the Notes (including any obligation to repurchase the Notes) are subordinated in certain circumstances in right of payment, as set forth in the Indenture, to the prior payment in full in cash of all Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred. Upon any payment or distribution of property or securities to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not a claim for such interest would be allowed in a proceeding) before the Holders of the Notes will be entitled to receive any payment with respect to the Notes, 68 71 and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of the Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of the Notes may receive payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment (whether by redemption, purchase, retirement, defeasance or otherwise) upon or in respect of the Notes (except from the trust described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs ("payment default") or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits, or with the giving of notice or passage of time or both (unless cured or waived) will permit, holders of the Designated Senior Debt as to which such default relates to accelerate its maturity ("non-payment default") and (solely with respect to this clause (ii)) the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Cash payments on the Notes shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated or a default of the type described in clause (ix) under the caption "Events of Default and Remedies" has occurred and is continuing. No new period of payment blockage may be commenced unless and until 360 days have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior Payment Blockage Notice. No nonpayment default in respect of Designated Senior Debt that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of no less than 90 days. The Indenture further requires that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency of the Company, Holders of the Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. On a pro forma basis, after giving effect to the Transaction, the principal amount of Senior Debt outstanding at March 31, 1997 would have been approximately $99.3 million, all of which would have been borrowings under the New Credit Agreement, and there would have been no senior subordinated debt outstanding (exclusive of the Notes). See "Description of Other Indebtedness." The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its Subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock." GUARANTEES The Company's payment obligations under the Notes are jointly, severally and unconditionally guaranteed (the "Guarantees") by each Subsidiary Guarantor and any future Restricted Subsidiary of the Company. The Guarantees are subordinated to Indebtedness of the Subsidiary Guarantors to the same extent and in the same manner as the Notes are subordinated to the Senior Debt. Each Guarantee by a Subsidiary Guarantor is limited to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering such Guarantee, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting rights of creditors generally. The Indenture provides that no Subsidiary Guarantor may consolidate with, or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another Person other than the Company or another Subsidiary Guarantor whether or not affiliated with such Subsidiary 69 72 Guarantor, unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee in respect of the Notes, the Indenture and the Guarantees; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. The Indenture provides that in the event of a sale or other disposition of all or substantially all of the assets of a Subsidiary Guarantor to a third party, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of a Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Subsidiary Guarantor) or the Person acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Subsidiary Guarantor) will be released from and relieved of any obligations under its Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the covenant described under the caption "-- Repurchase at the Option of Holders -- Asset Sales." Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in accordance with the terms of the Indenture shall, upon such designation, be released and relieved of its obligations under its Guarantee and any Unrestricted Subsidiary whose designation as such is revoked and any newly formed or newly acquired Subsidiary that becomes a Restricted Subsidiary will be required to execute a Guarantee in accordance with the terms of the Indenture. MANDATORY REDEMPTION Except as set forth below under "-- Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control, each Holder of the Notes will, unless the Company shall have elected to redeem the Notes prior to June 15, 2002 upon a Change of Control as permitted by the third paragraph of "-- Optional Redemption," have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offer to repurchase the Notes pursuant to the procedures required by the Indenture and described in such notice on a date no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"). The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the relevant Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of such Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such 70 73 Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each tendering Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 30 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of the Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Company will not be required to make a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The change of control that occurred upon completion of the Transaction did not constitute a Change of Control under the Indenture and the Holders of the Notes have no right to require the Company to make a Change of Control Offer or a Change of Control Payment in respect thereof. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of the Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. Asset Sales The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 85% of the consideration therefor received by the Company or such Restricted Subsidiary from such Asset Sale, plus all other Asset Sales since the date of the Indenture, on a cumulative basis, is in the form of cash, Cash Equivalents, properties and capital assets to be used by the Company or any Restricted Subsidiary in the Oil and Gas Business or oil and gas properties owned or held by another Person which are to be used in the Oil and Gas Business of the Company or its Restricted Subsidiaries, or any combination thereof (collectively the "Cash Consideration"); provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any non-cash consideration received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days of closing such Asset Sale, shall be deemed to be cash for purposes of 71 74 this provision (to the extent of the cash received); provided, however, that the Company and its Restricted Subsidiaries may make Asset Sales with a fair market value not exceeding $5 million in the aggregate in each year of twelve calendar months (beginning the first full month following the date of the Indenture) free from any of the restrictions, requirements or other provisions under this "Asset Sales" section. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, in any order or combination, (a) to reduce Senior Debt, (b) to make Permitted Investments, (c) to make investments in interests in other Oil and Gas Businesses or (d) to make capital expenditures in respect of the Company's or its Restricted Subsidiaries' Oil and Gas Business or to purchase long-term assets that are used or useful in the Oil and Gas Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph will (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15 million, the Company will be required to make an offer to all Holders of the Notes and, to the extent required by the terms thereof, to all holders or lenders of Pari Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Indenture or the agreements governing the Pari Passu Indebtedness, as applicable. To the extent that the aggregate principal amount of the Notes and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Notes surrendered by Holders thereof and other Pari Passu Indebtedness surrendered by holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and Pari Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The New Credit Agreement may prohibit the Company from purchasing any Notes and also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control or Asset Sale Offer occurs at a time when the Company is prohibited from purchasing the Notes by the terms of the New Credit Agreement or other agreements relating to other Senior Debt, the Company could seek the consent of its lenders to the purchase or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company may remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Agreement. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes. CERTAIN COVENANTS Restricted Payments The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment 72 75 to holders of the Company's Equity Interests in connection with any merger or consolidation involving the Company) to holders of the Company's Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary of the Company that is not a Wholly Owned Restricted Subsidiary of the Company (other than any such purchase, redemption or other acquisition or retirement made in connection with the Transaction); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except at final maturity or as a mandatory or sinking fund repayment; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (1), (3), (4) and (7) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the date of the Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash or the receipt of properties used in the Oil and Gas Business, the lesser of (A) the net cash proceeds of such sale, liquidation or repayment or the fair market value of property received in exchange therefor and (B) the amount of such Restricted Investment, provided, however, that the foregoing provisions of this paragraph (c) will not prohibit Restricted Payments in an aggregate amount not to exceed $15 million. The foregoing provisions will not prohibit (1) the purchase, redemption, retirement or other acquisition for value of any Equity Interests of the Company contemplated by the Transaction; (2) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (3) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (4) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of subordinated Permitted Refinancing Debt or the substan- 73 76 tially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the Indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2 million in any twelve-month period; and provided further that no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (6) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company (initially represented by stock options to acquire 204,500 shares of the Company's common stock, which number will be adjusted in connection with the Transaction) granted prior to the Acquisition and held by Messrs. Belden, Mardick, Clements and Huff, which individuals elected not to dispose of such Equity Interests in connection with the Acquisition; and (7) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or the applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than five days after the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. Designation of Unrestricted Subsidiaries The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under clause (c) of the first paragraph of the covenant "Restricted Payments." All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Incurrence of Indebtedness and Issuance of Disqualified Stock The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company; provided, however, that the Company and the Subsidiary Guarantors may incur Indebtedness or issue shares of Disqualified Stock if: (i) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have 74 77 been at least 2.5 to 1, determined on a pro forma basis as set forth in the definition of Fixed Charge Coverage Ratio; and (ii) no Default or Event of Default shall have occurred and be continuing at the time such additional Indebtedness is incurred or such Disqualified Stock is issued or would occur as a consequence of the incurrence of the additional Indebtedness or the issuance of the Disqualified Stock. Notwithstanding the foregoing, the Indenture does not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Notes; (b) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness pursuant to Credit Facilities, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Facilities does not, at any one time, exceed the greater of (i) $300 million and (ii) the Borrowing Base, provided that the Company may incur more than $300 million of Indebtedness pursuant to Credit Facilities only if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available would have been at least 2.0 to 1, determined on a pro forma basis as set forth in the definition of Fixed Charge Coverage Ratio; (c) the guarantee by any Subsidiary Guarantor of any Indebtedness that is permitted by the Indenture to be incurred by the Company; (d) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of the Indenture; (e) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that if the Company is the obligor on such Indebtedness, (i) such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (f) Indebtedness in connection with one or more standby letters of credit, guarantees, performance bonds or other reimbursement obligations, in each case, issued in the ordinary course of business and not in connection with the borrowing of money or the obtaining of advances or credit (other than advances or credit on open account, includible in current liabilities, for goods and services in the ordinary course of business and on terms and conditions which are customary in the Oil and Gas Business, and other than the extension of credit represented by such letter of credit, guarantee or performance bond itself), not to exceed in the aggregate at any given time 5% of Total Assets; (g) Indebtedness under Interest Rate Hedging Agreements entered into for the purpose of limiting interest rate risks, provided that the obligations under such agreements are related to payment obligations on Indebtedness otherwise permitted by the terms of this covenant and that the aggregate notional principal amount of such agreements does not exceed 105% of the principal amount of the Indebtedness to which such agreements relate; (h) Indebtedness under Oil and Gas Hedging Contracts, provided that such contracts were entered into in the ordinary course of business for the purpose of limiting risks that arise in the ordinary course of business of the Company and its Restricted Subsidiaries; (i) the incurrence by the Company of Indebtedness not otherwise permitted to be incurred pursuant to this paragraph, provided that the aggregate principal amount of all Indebtedness incurred pursuant to this clause (i), together with all Permitted Refinancing Debt incurred pursuant to clause (j) of this paragraph in respect of Indebtedness previously incurred pursuant to this clause (i), does not exceed $15 million at any one time outstanding; (j) Permitted Refinancing Debt incurred in exchange for, or the net proceeds of which are used to refinance, extend, renew, replace, defease or refund, Indebtedness that was permitted by the Indenture to be incurred (including Indebtedness previously incurred pursuant to this clause (j), but excluding Indebtedness under clauses (b), (c), (e), (f), (g), (h), (k), (l) and (m)); (k) accounts payable or other obligations of the Company or any Restricted Subsidiary to trade creditors created or assumed by the Company or such Restricted Subsidiary in the ordinary course of business in connection with the obtaining of goods or services; (l) Indebtedness consisting of 75 78 obligations in respect of purchase price adjustments, guarantees or indemnities in connection with the acquisition or disposition of assets; and (m) production imbalances that do not, at any one time outstanding, exceed 2% of the Total Assets of the Company. The Indenture provides that the Company will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Company. No Layering The Indenture provides that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes and (ii) the Subsidiary Guarantors will not directly or indirectly incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to Senior Debt and senior in any respect in right of payment to the Guarantees, provided, however, that the foregoing limitations will not apply to distinctions between categories of Indebtedness that exist by reason of any Liens arising or created in accordance with the provisions of the Indenture in respect of some but not all such Indebtedness. Liens The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any of its property or assets, now owned or hereafter acquired, unless all payments under the Notes are secured by such Lien prior to, or on an equal and ratable basis with, the Indebtedness so secured for so long as such Indebtedness is secured by such Lien. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to the Company or any of the Restricted Subsidiaries of the Company (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed to the Company or any Restricted Subsidiaries of the Company, (ii) make loans or advances to the Company or any Restricted Subsidiaries of the Company or (iii) transfer any of its properties or assets to the Company or any Restricted Subsidiaries of the Company, except for such encumbrances or restrictions existing under or by reason of (a) the New Credit Agreement as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof or any other Credit Facility, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or other Credit Facilities are no more restrictive with respect to such dividend and other payment restrictions than those contained in the New Credit Agreement as in effect on the date of the Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except, in the case of Indebtedness, to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired, provided that, such Indebtedness or Capital Stock was permitted by the terms of the Indenture to be incurred, (e) by reason of customary non-assignment provisions in 76 79 leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (g) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (h) any other security agreement, instrument or document relating to Senior Debt hereafter in effect, provided that such encumbrances or restrictions are customary in connection with such documents and that the terms and conditions of such encumbrances or restrictions are no more restrictive than those encumbrances or restrictions imposed in connection with the New Credit Agreement, (i) Permitted Liens or (j) customary provisions in joint venture agreements and other similar agreements relating to the distribution of revenues from such joint venture or other business venture. Merger, Consolidation, or Sale of Assets The Indenture provides that, except for the Transaction, the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Entity (if the Company is not the continuing obligor under the Indenture) assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after giving effect to such transaction or series of transactions no Default or Event of Default exists; (iv) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company and its Subsidiaries which becomes the obligation of the Company or any of its Subsidiaries as a result of such transaction as having been incurred at the time of such transaction or series of transactions), the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving Entity (if the Company is not the continuing obligor under the Indenture) is equal to or greater than the Consolidated Net Worth of the Company and its Subsidiaries immediately prior to such transaction or series of transactions; and (v) the Company or the Surviving Entity (if the Company is not the continuing obligor under the Indenture) will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock." Each Subsidiary Guarantor, if any, unless it is the other party to the transactions described above, shall have confirmed by supplemental indenture that its Guarantee shall apply to such Person's obligations under the Indenture and the Notes. Notwithstanding the restrictions described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. Further, notwithstanding the foregoing, the merger of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction shall be permitted. The foregoing provisions shall not apply if the Company shall have elected to redeem the Notes prior to 77 80 June 15, 2002, upon a Change of Control as permitted by the third paragraph of "-- Optional Redemption" and such redemption takes place prior to or simultaneously with the Company's consolidation or merger with or into another Person. Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5 million, an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above, (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate Transaction, which resolution shall be conclusive evidence of compliance with this provision, and (c) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10 million, an Officer's Certificate as described in clause (b) above and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal, engineering or investment banking firm of national standing (for purposes of this clause (c) such opinion and the resolution described in clause (b) above shall be conclusive evidence of compliance with this provision); provided that the following shall not be deemed Affiliate Transactions: (1) reasonable fees and compensation paid to (including issuances and grant of securities and stock options), and employment agreements and stock option and ownership plans for the benefit of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management; (2) payments made in connection with the Transaction, including fees to TPG II, (3) the repurchase of shares of the Company's common stock obtainable by Messrs. Belden, Mardick, Clements and Huff, pursuant to the exercise of stock options to acquire 204,500 shares of the Company's common stock granted to such individuals prior to the Acquisition, and which options such individuals elected not to exercise or surrender in connection with the Acquisition, (4) transactions between or among the Company and/or its Restricted Subsidiaries, (5) Restricted Payments and Permitted Investments that are permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments" and the definition of Permitted Investments, (6) indemnification payments made to officers, directors and employees of the Company or its Subsidiaries pursuant to charter, by-law, statutory or contractual provisions and (7) any contracts, agreements or understandings (i) existing as of the date of the Indenture or (ii) entered into pursuant to the terms of the Merger Agreement and described in this Prospectus including, without limitation, the Transaction Advisory Agreement, or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto or any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the holders of the Notes in any material respect than the original agreement as in effect on the date of the Indenture). Additional Subsidiary Guarantees The Indenture provides that if the Company or any of its Restricted Subsidiaries shall acquire or create another Restricted Subsidiary after the date of the Indenture, then such newly acquired or 78 81 created Restricted Subsidiary will be required to execute a Guarantee and deliver an opinion of counsel, in accordance with the terms of the Indenture. Business Activities The Company will not, and will not permit any Restricted Subsidiary to, engage in any material respect in any business other than the Oil and Gas Business. Commission Reports Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act the Company will file with the Commission and provide, within 15 days after such filing, the Trustee and Holders and prospective Holders (upon request) with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. In the event that the Company is not permitted to file such reports, documents and information with the Commission, the Company will provide substantially similar information to the Trustee, the Holders, and prospective Holders (upon request) as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act within 15 days of the date the Company would have been obligated to file such reports with the Commission, were the Company permitted to file such reports with the Commission. The Company also will comply with the other provisions of Section 314(a) of the Trust Indenture Act. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) a default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) a default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) the failure by the Company to comply with its obligations under "Certain Covenants -- Merger, Consolidation, or Sale of Assets" above; (iv) the failure by the Company for 30 days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with the provisions described under the captions "Repurchase at the Option of Holders" and "Certain Covenants" other than the provisions described under "-- Merger, Consolidation or Sale of Assets"; (v) failure by the Company for 60 days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (vi) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or a Significant Subsidiary, or any Person acting on behalf of such Significant Subsidiary, shall deny or disaffirm its obligations under its Guarantee; (vii) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more; (viii) the failure by the Company or any of its Subsidiaries to pay final, non-appealable judgments aggregating in excess of $10 million, which judgments remain unpaid or discharged for a period of 60 days; and (ix) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. 79 82 If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding may declare the principal of and accrued but unpaid interest on such Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within five business days of becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its and the Subsidiary Guarantors' obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of such outstanding Notes to receive payments in respect of the principal of, premium, if any, or interest on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to such Notes concerning issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had 80 83 not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange the Exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Exchange Note selected for redemption. Also, the Company is not required to transfer or exchange any Exchange Note for a period of 15 days before a selection of the Notes to be redeemed. The registered Holder of an Exchange Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as described in the next two succeeding paragraphs, the Indenture, the Notes or the Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and any existing default or compliance with any provision of the Indenture or the Notes or the Guarantees may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a nonconsenting Holder): (i) reduce the principal amount of the Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes as described above under "Optional Redemption" or "Repurchase at the Option of Holders", (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of such Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other 81 84 than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of the Notes to receive payments of principal of or premium, if any, or interest on the Notes or (vii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relate to subordination) will require the consent of the Holders of at least 66 2/3% in principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of such Notes. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or representative thereof authorized to give a consent) consent to such change. Notwithstanding the foregoing, without the consent of any Holder of the Notes the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided, however, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to provide for the assumption of the Company's obligations to Holders of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of the Notes, unless such Holder shall have offered to such Trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The Indenture, the Notes and the Guarantees provide that they will be governed by the laws of the State of New York. BOOK-ENTRY, DELIVERY AND FORM Except as set forth below, the Exchange Notes will be issued in the form of one or more fully registered Global Notes (each, a "Global Note"). Each Global Note will be deposited with, or on behalf of, The Depository Trust Company, New York, New York (the "Depositary") and registered in the name of Cede & Co., as nominee of the Depositary or will remain in the custody of the Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee. The Depository has advised the Company that it is (i) a limited purpose trust company organized under the laws of the State of New York, (ii) a member of the Federal Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and 82 85 (iv) a "Clearing Agency" registered pursuant to Section 17A of the Exchange Act. The Depository was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. The Depository's Participants include securities brokers and dealers (including the Initial Purchaser), banks and trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. So long as the Depository or its nominee is the registered owner of the Global Note, the Depository or such nominee, as the case may be, will be considered the sole owner or Holder of the Exchange Notes represented by the Global Note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have Exchange Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Securities, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to giving of any directions, instruction or approval to the Trustee thereunder. As a result, the ability of a person having a beneficial interest in Exchange Notes represented by a Global Note to pledge such interest to persons or entities that do not participate in the Depository's system or to otherwise take action with respect to such interest, may be affected by the lack of a physical certificate evidencing such interest. Accordingly, each owner of a beneficial interest in a Global Note must rely on the procedures of the Depository and, if such owner is not a Participant or an Indirect Participant, on the procedures of the Participant through which such owner owns its interest, to exercise any rights of a Holder under the Indenture or such Global Note. The Company understands that under existing industry practice, in the event the Company requests any action of holders or an owner of a beneficial interest in a Global Note desires to take any action that the Depository, as the Holder of such Global Note, is entitled to take, the Depository would authorize the Participants to take such action and the Participant would authorize such owner owning through such Participants to take such action or would otherwise act upon the instruction of such owner. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of Notes by the Depository, or for maintaining, supervising or reviewing any records of the Depository relating to such Notes. Payments with respect to the principal of, premium, if any, and interest on any Exchange Notes represented by a Global Note registered in the name of the Depository or its nominee on the applicable record date will be payable by the Trustee to or at the direction of the Depository or its nominee in its capacity as the registered Holder of the Global Note representing such Notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the Exchange Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payment and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Exchange Notes (including principal, premium, if any, and interest), or to immediately credit the accounts of the relevant Participants with such payment, in amounts proportionate to their respective holdings in the principal amount of the beneficial interest in the Global Note as shown on the records of the Depository. Payments by the Participants and the Indirect Participants to the beneficial owners of Exchange Notes will be governed by standing instructions and customary practice and will be the responsibility of the Participants or the Indirect Participants. The Company expects that pursuant to procedures established by the Depository (i) upon deposit of the Global Notes, the Depository will credit the accounts of Participants designated by the Initial Purchaser with an interest in the Global Note and (ii) ownership of the Exchange Notes will be 83 86 shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the interest of Participants), the Participants and the Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own and that security interests in negotiable instruments can only be perfected by delivery of certificates representing the instruments. Consequently, the ability to transfer Exchange Notes or to pledge the Exchange Notes as collateral will be limited to such extent. CERTIFICATED SECURITIES If (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Exchange Notes in definitive form under the Indenture, or (iii) upon the occurrence of certain other events, then, upon surrender by the Depository of its Global Notes, Certificated Securities will be issued to each person that the Depository identifies as the beneficial owner of the Exchange Notes represented by the Global Note. In addition, subject to certain conditions, any person having a beneficial interest in a Global Note may, upon request to the Trustee, exchange such beneficial interest for Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of such person or persons (or the nominee of any thereof), and cause the same to be delivered thereto. Neither the Company nor the Trustee shall be liable for any delay by the Depository or any Participant or Indirect Participant in identifying the beneficial owners of the related Exchange Notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from the Depository for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Notes to be issued). SAME-DAY SETTLEMENT AND PAYMENT Settlement for the Exchange Notes will be made in immediately available funds. So long as the Exchange Notes are represented by a permanent Global Note or Notes, all payments of principal, premium, if any, and interest will be made by the Company in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. So long as the Exchange Notes are represented by a permanent Global Note or Notes registered in the name of the Depositary or its nominee, the Notes will trade in the Depositary's Same-Day Funds Settlement System, and secondary market trading activity in the Notes will therefore be required by the Depositary to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on the trading activity in the Notes. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "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 becomes 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 asset acquired by such specified Person. 84 87 "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Applicable Premium" means, with respect to a Note at the redemption date, the greater of (i) 1% of the principal amount of such Note and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Note at June 15, 2002 (such redemption price being described under "-- Optional Redemption"), plus (2) all required interest payments (excluding accrued but unpaid interest) due on such Note through June 15, 2002, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (B) the then-outstanding principal amount of such Note. "Asset Sale" means (i) the sale, lease, conveyance or other disposition by the Company or any of its Restricted Subsidiaries (but excluding the creation of a Lien) of any assets including, without limitation, by way of a sale and leaseback (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and not by the provisions described above under "-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (including the sale by the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $5 million or (b) for net proceeds in excess of $5 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company, (iii) the making of a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments," (iv) the abandonment, farm-out, lease or sublease of undeveloped oil and gas properties in the ordinary course of business, (v) the trade or exchange by the Company or any Restricted Subsidiary of the Company of any oil and gas property or interest therein owned or held by the Company or such Restricted Subsidiary for any oil and gas property or interest therein owned or held by another Person, including any cash or Cash Equivalents necessary in order to achieve an exchange of equivalent value; provided that any such cash or Cash Equivalents received by the Company or such Restricted Subsidiary will be subject to the provisions described in the second and third paragraphs under "-- Asset Sales," which the Board of Directors of the Company determine in good faith to be of approximately equivalent value, (vi) the sale or transfer of hydrocarbons or other mineral products or surplus or obsolete equipment in the ordinary course of business or (vii) the sale of oil and gas properties in connection with tax credit transactions complying with sec. 29 of the Code. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended to 85 88 the extent the lease payments during such extension period are required to be capitalized on a balance sheet in accordance with GAAP). "Borrowing Base" means, as of any date, the lesser of (i) $600 million or (ii) the aggregate amount of borrowing availability as of such date under all Credit Facilities that determine availability on the basis of a borrowing base or other asset-based calculation. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the New Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having a rating of at least P1 from Moody's Investors Service, Inc. (or its successor) or a rating of at least A1 from Standard & Poor's Ratings Services (or its successor) and (vi) investments in money market or other mutual funds substantially all of whose assets comprise securities of types described in clauses (ii) through (v) above. "Change of Control" means the occurrence of any of the following: (i) prior to the first public offering of Voting Stock of the Company, either (x) Permitted Holders cease to be the "beneficial owner(s)" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company, or (y) Permitted Holders cease to be entitled by voting power, contract or otherwise to elect or cause the election of directors of the Company having a majority of the total voting power of the Board or Directors, in each case, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (i) and clause (ii) below, Permitted Holders shall be deemed to beneficially own any Voting Stock of an entity (the "specified entity") held by any other entity (the "parent entity") so long as the Permitted Holders beneficially own, directly or indirectly, a majority of the Voting Stock of the parent entity; (ii) following the first public offering of Voting Stock of the Company, any "Person"(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire within one year), directly or indirectly, of more than 50% of the Voting Stock of the Company; provided that the Permitted Holders beneficially own (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the Voting Stock of the Company than such other Person and do not have the right or ability by voting 86 89 power, contract or otherwise to elect or designate for election a majority of the Board of Directors; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "Person" or group of related Persons (a "Group") (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder; (iv) the adoption of a plan relating to the liquidation or dissolution of the Company; and (v) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office. "Commission" means the Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus (i) an amount equal to any extraordinary or non-recurring loss, and any net loss realized in connection with (a) an Asset Sale (together with any related provision for taxes) and (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, to the extent such losses were included in computing such Consolidated Net Income, plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements), to the extent that any such expense was included in computing such Consolidated Net Income, plus (iv) depreciation, depletion and amortization expenses (including amortization of goodwill and other intangibles) for such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, depletion and amortization expenses were included in computing such Consolidated Net Income, plus (v) exploration expenses for such Person and its Restricted Subsidiaries for such period to the extent such exploration expenses were included in computing such Consolidated Net Income, plus (vi) costs incurred in connection with acquisitions that would be eligible for capitalization treatment under GAAP, but have been expensed at the time of incurrence, plus (vii) other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such other non-cash charges were included in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation, depletion and amortization and other non-cash charges and expenses of, a Restricted Subsidiary of the relevant Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to 87 90 such Person by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending prior to the taking of any action for the purpose of which the determination is being made and for which financial statements are available (but in no event ending more than 135 days prior to the taking of such action), as (i) the par or stated value of all outstanding Capital Stock of the Company, plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit (in each case excluding any minority interest) and (B) any amounts attributable to Disqualified Stock. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the New Credit Agreement) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payments, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which the Notes are first issued and authenticated under the Indenture (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (i) the New Credit Agreement and (ii) any other Senior Debt permitted under the Indenture which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Debt as "Designated Senior Debt" for purposes of the Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than Capital Stock, pursuant to a sinking fund obligation or otherwise, is convertible or is exchangeable for Indebtedness or Disqualified Stock or redeemable for any consideration other than Capital Stock at the option of the 88 91 holder thereof, in whole or in part, in each case on or prior to the date that is 91 days after (x) the date on which the Notes mature or (y) on which there are no Notes outstanding. "Dollar-Denominated Production Payments" means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary, unless paid in Equity Interests that are not Disqualified Stock) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. Notwithstanding the foregoing, when calculating the amount of Fixed Charges, any interest expense attributable to any Person shall be included in such calculation to the same extent the Net Income of such Person was included in the calculation of Consolidated Net Income in connection with calculating the Fixed Charge Coverage Ratio. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the referent Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date (including, without limitation, any acquisition to occur on the Calculation Date) shall be deemed to have occurred on the first day of the four-quarter reference period and any cost savings or expense reductions attributable at the time of such computation or to be attributable in the future to such acquisition, shall be included in such computation, to the extent that such adjustments would be permitted under Article 11 of Regulation S-X and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the net proceeds of Indebtedness incurred or Disqualified Stock issued by the referent Person pursuant to the first paragraph of the covenant described under the caption "-- Certain Covenants -- Incur- 89 92 rence of Indebtedness and Issuance of Disqualified Stock" during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have been received by the referent Person or any of its Restricted Subsidiaries on the first day of the four-quarter reference period and applied to its intended use on such date, (iii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iv) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issuance Date. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Indebtedness" means, with respect to any Person, without duplication, (a) any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) evidenced by letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances, (iv) representing Capital Lease Obligations, (v) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable, (vi) representing any obligations in respect of Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, and (vii) in respect of any Production Payment, (b) all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person), (c) obligations of such Person in respect of production imbalances, (d) Acquired Debt of such Person, (e) Attributable Debt of such Person, and (f) to the extent not otherwise included in the foregoing, the guarantee by such Person of any Indebtedness of any other Person. "Interest Rate Hedging Agreements" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Investors" means TPG Partners II, L.P., TPG Parallel II, L.P., and TPG Investors II, L.P. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations, but excluding trade credit) or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that the following shall not constitute Investments: (i) an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company, (ii) Interest Rate Hedging Agreements entered into in accordance with the limitations set forth in clause (g) of the second paragraph of the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock," (iii) Oil and Gas Hedging Agreements entered into in accordance with the limitations set forth in clause (h) of the second paragraph of the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock" and (iv) endorsements of negotiable instruments and documents in the ordinary course of 90 93 business. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such entity is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding cash amounts placed in escrow, until such amounts are released to the Company), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting, investment banking and other professional fees and expenses, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Senior Debt) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve established for future liabilities. "New Credit Agreement" means that certain Credit Agreement, dated as of June 27, 1997, among the Company, The Chase Manhattan Bank, N.A., as Agent and lender and the other parties thereto, providing for up to $200 million of Indebtedness, including any related notes, guarantees, security or pledge agreements, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents; provided that no such amendments, restatements, modifications, renewals, refundings, replacements or refinancings shall result in provisions for Indebtedness or outstanding Indebtedness in excess of $200 million, and provided further, that the total amount of Indebtedness outstanding under the New Credit Agreement and all documents executed in connection therewith and referred to in this definition shall be no greater than $200 million in the aggregate. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable (as guarantor or otherwise); and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time, or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other 91 94 Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Oil and Gas Business" means (i) the acquisition, exploration, development, operation and disposition of interests in oil, gas and other hydrocarbon properties, (ii) the gathering, marketing, distribution, treating, processing, storage, selling and transporting of any production from such interests or properties and the marketing of oil and gas obtained from unrelated Persons, (iii) any business relating to exploration for or development, production, treatment, processing, storage, transportation, gathering or marketing of oil, gas and other minerals and products produced in association therewith, (iv) any business relating to oilfield sales and service and (v) any activity that is ancillary to or necessary or appropriate for the activities described in clauses (i) through (iv) of this definition. "Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging agreement, and other agreement or arrangement, in each case, that is designed to provide protection against oil and gas price fluctuations. "Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right of payment to the Notes. "Permitted Holders" means the Investors, any investment partnership or fund managed by the principals of TPG II, any partners of the Investors, members of their immediate family and trusts for the benefit of members of their immediate family, their respective Affiliates and any Person acting in the capacity of an underwriter in connection with a public or private offering of the Company's Capital Stock. "Permitted Indebtedness" has the meaning given in the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock." "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment and any related transactions that at the time of such Investment are contractually mandated to occur, (i) such Person becomes a Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales" or not constituting an Asset Sale by reason of the $5 million threshold contained in the definition thereof; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (e) that are at the time outstanding, not to exceed the greater of (i) $75 million or (ii) 15% of the Company's Total Assets at the time such Investment is made; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock), (g) shares of Capital Stock received in connection with any good faith settlement of a bankruptcy proceeding involving a trade creditor; (h) Interest Rate Hedging Agreements; (i) loans and advances to employees in the ordinary course of business for bona fide business purposes and (j) entry into operating agreements, joint ventures, partnership agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agree- 92 95 ments, production sharing agreements or other similar or customary agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the Oil and Gas Business, excluding however, Investments in corporations other than any Investment received pursuant to the Asset Sale provision. "Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Senior Debt that is outstanding on the date of issuance of the Notes (after giving effect to the Transaction) and Liens securing Senior Debt that is permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any Restricted Subsidiary; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company and Liens on property or assets of a Subsidiary existing at the time it became a Subsidiary, provided that such Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property or the property of the acquired subsidiary; (iv) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business (including lessee or operator obligations under statutes, governmental regulations or instruments related to the ownership, exploration and production of oil, gas and minerals on state or federal lands or waters); (v) Liens existing on the date of the Indenture (after giving effect to the Transaction); (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) statutory liens of landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like Liens arising in the ordinary course of business; (viii) pre-judgment liens and judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (ix) Liens on, or related to, properties or assets to secure all or part of the costs incurred in the ordinary course of the Oil and Gas Business for the exploration, drilling, development, production, processing, transportation, marketing, storage or operation thereof; (x) Liens on pipeline or pipeline facilities that arise under operation of law; (xi) Liens arising under operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil or natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business; (xii) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases, (xiii) Liens securing the Notes; (xiv) Liens constituting survey exceptions, encumbrances, easements, and reservations of, and rights to others for, rights-of-way, zoning and other restrictions as to the use of real properties, and minor defects of title which, in the case of any of the foregoing, do not secure the payment of borrowed money, and in the aggregate do not materially adversely affect the value of the assets of the Company and its Restricted Subsidiaries, taken as a whole, or materially impair the use of such properties for the purposes for which such properties are held by the Company or such subsidiaries; and (xv) Liens not otherwise permitted by clauses (i) through (xiv) that are incurred in the ordinary course of business of the Company or any Subsidiary with respect to obligations that do not exceed $5 million at any one time outstanding. "Permitted Refinancing Debt" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Facility) of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount 93 96 of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable taken as a whole to the Holders of the Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Production Payments" means Dollar-Denominated Production Payments and Volumetric Production Payments, collectively. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. "Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of the Company under or in respect of any Credit Facility, whether for principal, interest (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not the claim for such interest is allowed as a claim in such proceeding), reimbursement obligations, fees, commissions, expenses, indemnities or other amounts, and (ii) any other Indebtedness permitted under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes. Notwithstanding anything to the contrary in the foregoing sentence, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the Indenture (other than Indebtedness under (i) the New Credit Agreement or (ii) any other Credit Facility that is incurred on the basis of a representation by the Company to the applicable lenders that it is permitted to incur such Indebtedness under the Indenture). "Significant Subsidiary" means (i) each Subsidiary that for the most recent fiscal year of such Subsidiary had consolidated revenues greater than $10 million or as at the end of such fiscal year had assets or liabilities greater than $10 million and (ii) any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock, entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantors" means each Restricted Subsidiary of the Company existing on the date of the Indenture (such Subsidiaries being The Canton Oil & Gas Company, Peake Energy, Inc., Ward Lake Drilling, Inc. and Target Oilfield Pipe & Supply Company), and any future Restricted 94 97 Subsidiary of the Company that executes a Guarantee in accordance with the provisions of the Indenture, and, in each case, their respective successors and assigns. "Total Assets" means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the most recent balance sheet of such Person. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the redemption date to June 15, 2002; provided that if the period from the redemption date to June 15, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to June 15, 2002 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt; (c) the Company certifies that such designation complies with the limitations of the "Restricted Payments" covenant; (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests of such Person or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company or such Restricted Subsidiary than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officers' certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, if shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that (i) immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to the first paragraph of the "Incurrence of Indebtedness and Issuance of Disqualified Stock" 95 98 covenant on a pro forma basis taking into account such designation and (ii) such Subsidiary executes a Guarantee pursuant to the terms of the Indenture. "Volumetric Production Payments" means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith. "Voting Stock" of an entity means all classes of Capital Stock of such entity then outstanding and normally entitled to vote in the election of directors or all interests in such entity with the ability to control the management or actions of such entity. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. 96 99 DESCRIPTION OF OTHER INDEBTEDNESS The Company entered into a credit agreement dated as of June 27, 1997 (the "New Credit Agreement") among the Company, the several lenders from time to time parties thereto (collectively, the "Banks"), and The Chase Manhattan Bank, as administrative agent (the "Administrative Agent"), Bankers Trust Company, as syndication agent and NationsBanc of Texas, as documentation agent (collectively, the "Agents"). Chase Securities Inc., acted as advisor and arranger for the New Credit Agreement. The following is a summary description of the principal terms of the New Credit Agreement and the other loan documents. The description set forth below does not purport to be complete and is qualified in its entirety by reference to certain agreements setting forth the principal terms and conditions of the Company's New Credit Agreement, which are available upon request from the Company. Structure. The Banks have committed, subject to compliance with the Borrowing Base and customary conditions, to provide the Company with revolving credit loans of up to $200 million, of which $25 million will be available for the issuance of letters of credit. The Company initially borrowed $104.0 million on June 27, 1997 under the New Credit Agreement (i) to partially finance the acquisition of the Company by the TPG Investors; (ii) to repay certain existing outstanding indebtedness of the Company and (iii) to pay certain fees and expenses related to the Transaction. The New Credit Agreement may be utilized to fund the Company's working capital requirements, including issuance of stand-by and trade letters of credit, to fund acquisitions and for other general corporate purposes. At July 31, 1997, the Company's outstanding borrowings under the New Credit Agreement totaled $104.0 million. The New Credit Agreement is a senior secured revolving credit facility providing for revolving loans to the Company and the issuance of U.S. dollar-denominated letters of credit for the account of the Company in an aggregate principal amount (such amount includes the aggregate stated amount of all letters of credit and the aggregate reimbursement and other obligations in respect thereof) at any time not to exceed the Company's Borrowing Base, which will be the sum of the Company's proved developed producing reserves, proved developed non-producing reserves, proved undeveloped reserves and related processing and gathering assets and other assets of the Company as The Chase Manhattan Bank, Bankers Trust Company and NationsBanc of Texas (the "Engineering Committee") deem appropriate, adjusted by the Engineering Committee in accordance with their standard oil and gas lending practices and approved by the Banks holding at least 75% of the commitments under the New Credit Agreement. Initially, the Borrowing Base has been set at $180 million. In the event that 75% or more of the Borrowing Base is utilized, the Borrowing Base will be re-determined semi-annually. If less than 75% of the Borrowing Base is utilized, the Borrowing Base will be re-determined annually. The Borrower and the Required Lenders (each as defined therein) may request one additional re-determination per year. The availability of borrowings under the New Credit Agreement will be subject to certain conditions. Loans and letters of credit under the New Credit Agreement will be available at any time during the five-year term of the New Credit Agreement subject to the fulfillment of customary conditions precedent including the absence of a material adverse change in the condition of the Company, the absence of a default under the New Credit Agreement and compliance with the Borrowing Base. Security; Guaranty. The Company's obligations under the New Credit Agreement are guaranteed by each of the Company's direct and indirect domestic material subsidiaries. The New Credit Agreement and the guarantees thereof are secured by a perfected first priority security interest in the following properties of the Company and its direct and indirect subsidiaries: (i) oil and gas properties representing at least 75% of the Present Value of the oil and gas properties included in the most recently delivered reserve report; (ii) all of the gas gathering assets; (iii) all accounts 97 100 receivable, inventory and intangibles; and (iv) all of the capital stock of the Company and the Company's direct and indirect subsidiaries. Interest; Maturity. Borrowings under the New Credit Agreement bear interest at a rate per annum equal (at the Company's option) to: (i) the Administrative Agent's Eurodollar rate plus an applicable margin or (ii) an alternate base rate (equal to the highest of the Administrative Agent's prime rate, a certificate of deposit rate plus 1%, or the Federal Funds effective rate plus 1/2 of 1%) plus an applicable margin. Initially, the applicable margin is 1.5% per annum for Eurodollar rate loans and 0.5% per annum for alternate base rate loans. The New Credit Agreement will mature on June 27, 2002. Fees. The Company will be required to pay the Banks, on a quarterly basis, a commitment fee on the undrawn portion of the New Credit Agreement at a rate equal to: (i) 1/2 of 1% per annum in the event that loans under the New Credit Agreement are equal to or exceed 50% of the Borrowing Base; or (ii) 0.375% per annum in the event that loans under the New Credit Agreement are less than 50% of the Borrowing Base. The Company is also obligated to pay (i) a per annum letter of credit fee on the aggregate amount of outstanding letters of credit at a rate equal to the greater of (a) the applicable margin for Eurodollar rate loans minus 1/8 of 1% and (b) $500; (ii) a fronting bank fee for the letter of credit issuing bank equal to 1/8 of 1% per annum; and (iii) agent, arrangement and other similar fees. Covenants. The New Credit Agreement contains a number of covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness (including the Notes) or amend certain debt instruments (including the Indenture), pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company or its subsidiaries, make capital expenditures or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, under the New Credit Agreement, the Company is required to maintain specified financial ratios and tests, including minimum interest coverage ratios and maximum leverage ratios. Events of Default. The New Credit Agreement contains customary events of default, including nonpayment of principal, interest or fees, material inaccuracy of representations and warranties, violation of covenants, cross-default and cross-acceleration to certain other indebtedness, certain events of bankruptcy and insolvency, material judgments against the Company, invalidity of any guarantee or security interest and a change of control of the Company in certain circumstances as set forth therein. 98 101 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT The Company, each of the Guarantors and the Initial Purchasers entered into an exchange and registration rights agreement (the "Exchange and Registration Rights Agreement") pursuant to which the Company agreed to (i) file with the Commission on or prior to August 26, 1997 the Exchange Offer Registration Statement relating to a registered exchange offer (the "Exchange Offer") for the Senior Subordinated Notes under the Securities Act and (ii) use its best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act by November 9, 1997. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the holders of the Senior Subordinated Notes who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer the opportunity to exchange their Senior Subordinated Notes for the Exchange Notes. The Company will keep the Exchange Offer open for not less than 30 days (or longer, if required by law) after the date notice of the Exchange Offer is mailed to the holders of the Notes. If (i) applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer as contemplated thereby or (ii) for any other reason the Exchange Offer is not consummated by December 9, 1997 (iii) any holder either (A) is not eligible to participate in the Exchange Offer or (B) participates in the Exchange Offer and does not receive freely transferable Exchange Notes in exchange for tendered Senior Subordinated Notes, the Company will file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Transfer Restricted Securities (as defined below) by such holders who satisfy certain conditions relating to, among other things, the provision of information in connection with the Shelf Registration Statement. For purposes of the foregoing, "Transfer Restricted Securities" means each Senior Subordinated Note until (i) the date on which such Note has been exchanged for a freely transferable Exchange Note in the Exchange Offer, (ii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. The Company will use its best efforts to have the Exchange Offer Registration Statement and, if applicable, the Shelf Registration Statement (each a "Registration Statement") declared effective by the Commission as promptly as practicable after the filing thereof. Unless the Exchange Offer would not be permitted by a policy of the Commission, the Company will commence the Exchange Offer and will use its best efforts to consummate the Exchange Offer as promptly as practicable, but in any event prior to 165 days after the Issue Date. If applicable, the Company will use its best efforts to keep the Shelf Registration Statement effective for a period of two years after the Issue Date, subject to certain exceptions, including suspending the effectiveness thereof for certain valid business reasons. If (i) the applicable Registration Statement is not filed with the Commission on or prior to August 26, 1997, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective by November 9, 1997 (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation), (iii) the Exchange Offer is not consummated on or prior to December 9, 1997 or (iv) the Shelf Registration Statement is filed and declared effective by November 9, 1997 (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation), but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company will generally be obligated to pay liquidated damages to each holder of Transfer Restricted Securities, during the period of such Registration Default in an amount equal to $0.192 per week per $1,000 principal amount of the Notes constituting Transfer Restricted Securities held by such holder until the applicable Registration Statement is filed or declared effective, the Exchange Offer is consummated or the Shelf Registration Statement again becomes effective, as the case may be; provided, however, no liquidated damages shall be payable for a Registration Default under clause (iii) above if a Shelf 99 102 Registration Statement covering resales of the Transfer Restricted Securities for which the Exchange Offer was intended shall have been declared effective. All accrued liquidated damages shall be paid to holders in the same manner as interest payments on the Notes on semi-annual payment dates which correspond to interest payment dates for the Notes. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. The Exchange and Registration Rights Agreement also provides that the Company (i) shall make available for a period of 90 days after the consummation of the Exchange Offer a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer (including the expenses of one counsel to the holders of the Senior Subordinated Notes) and will indemnify certain holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. A broker-dealer that delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act, and will be bound by the provisions of the Exchange and Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of the Senior Subordinated Notes that wishes to exchange such Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If a holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes. If a holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Senior Subordinated Notes that were acquired as a result of market making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. Holders of the Senior Subordinated Notes will be required to make certain representations to the Company (as described above) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding liquidated damages set forth in the preceding paragraphs. A holder who sells Senior Subordinated Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). For so long as the Senior Subordinated Notes are outstanding, the Company will continue to provide to holders of such Notes and to prospective purchasers of the Notes the information required by paragraph (d)(4) of Rule 144A under the Securities Act ("Rule 144A"). The Company will provide a copy of the Exchange and Registration Rights Agreement to prospective purchasers of Notes identified to the Company by the Initial Purchasers upon request. The foregoing description of the Exchange and Registration Rights Agreement is a summary only, does not purport to be complete and is qualified in its entirety by reference to all provisions of the Exchange and Registration Rights Agreement. PLAN OF DISTRIBUTION Based on interpretations by the Staff set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for 100 103 Senior Subordinated Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "Affiliate," (ii) a broker-dealer who acquired Senior Subordinated Notes directly from the Company or (iii) broker-dealers who acquired Senior Subordinated Notes as a result of market-making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in a distribution of such Exchange Notes and that broker-dealers receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Senior Subordinated Notes where Senior Subordinated Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1997, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify such holders (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. The Initial Purchasers may engage in stabilizing transactions in accordance with Rule 104 under the Exchange Act. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Such stabilization transactions may cause the price of the Notes to be higher than it would otherwise be in the absence of such transactions. LEGAL MATTERS The validity of the Exchange Notes offered hereby will be passed upon for the Company by Black, McCuskey, Souers & Arbaugh, 220 Market Avenue South, Canton, Ohio 44702-2116. 101 104 EXPERTS Certain information with respect to the gas and oil reserves of the Company are derived from the reports of John G. Redic, Inc. and Ryder Scott Company, independent petroleum engineers. Such information has been included herein in reliance upon the authority of said firms as experts with respect to such matters. The consolidated financial statements of the Company at December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 102 105 GLOSSARY OF SELECTED OIL AND GAS TERMS The terms defined in this glossary are used throughout this Offering Memorandum. Bbl. One stock tank barrel, or 42 US gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons. Bcf. One billion cubic feet. Bcfe. One billion cubic feet of natural gas equivalent. Btu. British thermal unit, which is the quantity of heat required to raise the temperature of one pound of water from 58.5 to 59.5 degrees Fahrenheit. Developed acreage. Acres which are allocated or assignable to producing wells or wells capable of production. Gross acres or gross wells. The total acres or wells, as the case may be, in which a working interest is owned. Mbbl. One thousand Bbl. Mcf. One thousand cubic feet, used herein in reference to natural gas. Mmbbl. One million Bbl. Mcfe. One thousand cubic feet of natural gas equivalent, using the ratio of one Bbl of crude oil to six Mcf of natural gas. Mmbtu. One million Btus. Mmcf. One million cubic feet. Mmcfe. One million cubic feet of natural gas equivalent. Net acres or net wells. The sum of the fractional working interests owned in gross acres or gross wells. Present Value. The pre-tax present value, discounted at 10%, of future net cash flows from estimated proved reserves, calculated holding prices and costs constant at amounts in effect on the date of the report (unless such prices or costs are subject to change pursuant to contractual provisions) and otherwise in accordance with the Commission's rules for inclusion of oil and gas reserve information in financial statements filed with the Commission. Productive well. A well that is producing oil or natural gas or that is capable of production. Proved developed reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved reserves. The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved undeveloped reserves. Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditures is required for completion. Royalty interest. An interest in an oil and natural gas property entitling the owner to a share of oil and natural gas production free of costs of production. Working interest. The operating interest which gives the owner the right to drill, produce and conduct operating activities on the property and a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith. 103 106 BELDEN & BLAKE CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 Report of Independent Auditors..................................................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995....................... F-3 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994........................................................................ F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994............................................................. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994........................................................................ F-6 Notes to Consolidated Financial Statements......................................... F-7 FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997 (UNAUDITED) Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996............. F-23 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996............................................................................ F-24 Consolidated Statements of Shareholders' Equity for the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995......................... F-25 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996............................................................................ F-26 Notes to Consolidated Financial Statements......................................... F-27
F-1 107 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors Belden & Blake Corporation We have audited the accompanying consolidated balance sheets of Belden & Blake Corporation as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Belden & Blake Corporation at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Cleveland, Ohio February 21, 1997 F-2 108 BELDEN & BLAKE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 ------------------------ 1996 1995 --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents......................................... $ 8,606 $ 12,322 Accounts receivable, net.......................................... 33,523 28,123 Inventories....................................................... 9,397 9,253 Deferred income taxes............................................. 2,918 2,254 Other current assets.............................................. 2,280 2,198 --------- --------- TOTAL CURRENT ASSETS...................................... 56,724 54,150 PROPERTY AND EQUIPMENT, AT COST Oil and gas properties (successful efforts method)................ 266,521 235,344 Gas gathering systems............................................. 26,045 25,416 Land, buildings, machinery and equipment.......................... 31,578 29,977 --------- --------- 324,144 290,737 Less accumulated depreciation, depletion and amortization......... 86,808 59,209 --------- --------- PROPERTY AND EQUIPMENT, NET............................... 237,336 231,528 OTHER ASSETS........................................................ 9,703 11,620 --------- --------- $ 303,763 $ 297,298 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.................................................. $ 9,421 $ 11,004 Accrued expenses.................................................. 20,990 23,811 Current portion of long-term liabilities.......................... 4,203 1,976 --------- --------- TOTAL CURRENT LIABILITIES................................. 34,614 36,791 LONG-TERM LIABILITIES Bank and other long-term debt..................................... 59,216 67,223 Senior notes...................................................... 31,111 35,000 Convertible subordinated debentures............................... 5,550 6,800 Other............................................................. 1,765 1,500 --------- --------- 97,642 110,523 DEFERRED INCOME TAXES............................................... 12,589 7,693 SHAREHOLDERS' EQUITY Common stock without par value; $.10 stated value per share; authorized 50,000,000 shares; issued and outstanding 11,231,865 and 11,136,496 shares.......................................... 1,123 1,114 Preferred stock without par value; $100 stated value per share; authorized 8,000,000 shares; issued and outstanding 24,000 shares......................................................... 2,400 2,400 Paid in capital................................................... 128,035 126,063 Retained earnings................................................. 27,395 12,820 Unearned portion of restricted stock.............................. (35) (106) --------- --------- TOTAL SHAREHOLDERS' EQUITY................................ 158,918 142,291 --------- --------- $ 303,763 $ 297,298 ========= =========
See accompanying notes. F-3 109 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31 -------------------------------------- 1996 1995 1994 --------- --------- -------- REVENUES Oil and gas sales..................................... $ 79,491 $ 46,853 $ 32,574 Gas marketing and gathering........................... 44,527 40,436 33,072 Oilfield sales and service............................ 25,517 20,066 13,157 Interest and other.................................... 3,700 2,712 562 --------- --------- -------- 153,235 110,067 79,365 EXPENSES Production expense.................................... 18,098 11,756 7,827 Production taxes...................................... 3,168 2,060 1,357 Cost of gas and gathering expense..................... 37,556 33,831 28,878 Oilfield sales and service............................ 23,142 18,266 12,180 Exploration expense................................... 6,064 4,924 2,803 General and administrative expense.................... 4,573 3,802 3,567 Interest expense...................................... 7,383 6,073 3,503 Depreciation, depletion and amortization.............. 29,752 19,717 11,886 Franchise, property and other taxes................... 1,739 1,228 854 --------- --------- -------- 131,475 101,657 72,855 --------- --------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES... 21,760 8,410 6,510 Provision for income taxes............................ 6,566 2,150 2,330 --------- --------- -------- INCOME FROM CONTINUING OPERATIONS....................... 15,194 6,260 4,180 LOSS FROM DISCONTINUED OPERATIONS....................... (439) (1,139) (337) --------- --------- -------- NET INCOME.............................................. $ 14,755 $ 5,121 $ 3,843 ========= ========= ======== EARNINGS (LOSS) PER COMMON SHARE: CONTINUING OPERATIONS................................. $ 1.34 $ 0.69 $ 0.57 DISCONTINUED OPERATIONS............................... (0.04) (0.13) (0.05) --------- --------- -------- NET INCOME............................................ $ 1.30 $ 0.56 $ 0.52 ========= ========= ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.............. 11,176 8,785 7,080 ========= ========= ========
See accompanying notes. F-4 110 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
UNEARNED COMMON COMMON PREFERRED PAID IN RETAINED RESTRICTED SHARES STOCK STOCK CAPITAL EARNINGS STOCK TOTAL ------ ------ --------- -------- -------- ---------- -------- JANUARY 1, 1994....................... 7,053 $ 706 $ 2,400 $ 69,865 $ 4,216 $ (330) $ 76,857 Stock issued.......................... 32 3 385 388 Net income............................ 3,843 3,843 Preferred stock dividend.............. (180) (180) Restricted stock vested............... 129 105 234 ------ ------ ------- -------- ------- ------ -------- DECEMBER 31, 1994..................... 7,085 709 2,400 70,379 7,879 (225) 81,142 Stock issued.......................... 4,028 403 55,264 55,667 Net income............................ 5,121 5,121 Preferred stock dividend.............. (180) (180) Stock options exercised............... 2 -- 25 25 Employee stock bonus.................. 22 2 251 253 Restricted stock vested............... 144 119 263 ------ ------ ------- -------- ------- ------ -------- DECEMBER 31, 1995..................... 11,137 1,114 2,400 126,063 12,820 (106) 142,291 Net income............................ 14,755 14,755 Preferred stock dividend.............. (180) (180) Stock options exercised and related tax benefit......................... 3 -- 47 47 Employee stock bonus.................. 26 3 418 421 Restricted stock activity............. 4 -- 263 71 334 Conversion of debentures.............. 62 6 1,244 1,250 ------ ------ ------- -------- ------- ------ -------- DECEMBER 31, 1996..................... 11,232 $1,123 $ 2,400 $128,035 $27,395 $ (35) $158,918 ====== ====== ======= ======== ======= ====== ========
See accompanying notes. F-5 111 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31 ---------------------------------------- 1996 1995 1994 --------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................................... $ 14,755 $ 5,121 $ 3,843 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization......... 29,752 20,154 12,021 Loss on disposal of property and equipment....... 534 177 91 Deferred income taxes............................ 4,232 488 1,570 Deferred compensation and stock grants........... 1,311 1,067 359 Change in operating assets and liabilities, net of effects of acquisition of businesses: Accounts receivable and other operating assets...................................... (4,385) (14,485) (1,622) Inventories.................................... (144) 469 (2,328) Accounts payable and accrued expenses.......... 476 8,958 1,775 --------- ---------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES... 46,531 21,949 15,709 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired..... (4,543) (99,837) (17,968) Proceeds from property and equipment disposals...... 2,227 589 438 Additions to property and equipment................. (37,074) (23,855) (19,844) (Increase) decrease in other assets................. (705) (867) 88 --------- ---------- --------- NET CASH USED IN INVESTING ACTIVITIES....... (40,095) (123,970) (37,286) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit and long-term debt............................................. 16,105 73,000 6,100 Repayment of long-term debt and other obligations... (26,117) (17,818) (2,938) Preferred stock dividends........................... (180) (180) (180) Proceeds from sale of common stock and stock options.......................................... 40 59,438 -- Common stock placement cost......................... -- (3,746) -- --------- ---------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES................................ (10,152) 110,694 2,982 --------- ---------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.. (3,716) 8,673 (18,595) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........ 12,322 3,649 22,244 --------- ---------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.............. $ 8,606 $ 12,322 $ 3,649 ========= ========== =========
See accompanying notes. F-6 112 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Company operates primarily in the oil and gas industry. The Company's principal business is the acquisition, exploration, development and production of oil and gas reserves, and the gathering and marketing of natural gas. Sales of oil are ultimately made to refineries. Sales of gas are ultimately made to gas utilities and industrial consumers in Ohio, Michigan, West Virginia, Pennsylvania, New York and Kentucky. The Company also provides oilfield services and is a distributor of a broad range of oilfield equipment and supplies. Its customers include other independent oil and gas companies, dealers and operators throughout Ohio, Michigan, West Virginia, Pennsylvania and New York. The price of oil and gas has a significant impact on the Company's working capital and results of operations. PRINCIPLES OF CONSOLIDATION AND FINANCIAL PRESENTATION The accompanying consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts. Significant estimates used in the preparation of the Company's financial statements which could be subject to significant revision in the near term include estimated oil and gas reserves and the estimated net realizable value of the assets of discontinued operations. Although actual results could differ from these estimates, significant adjustments to these estimates historically have not been required. CASH EQUIVALENTS For purposes of the statements of cash flows, cash equivalents are defined as all highly liquid debt instruments purchased with an initial maturity of three months or less. CONCENTRATIONS OF CREDIT RISK Credit limits, ongoing credit evaluation and account monitoring procedures are utilized to minimize the risk of loss. Collateral is generally not required. Expected losses are provided for currently and actual losses have been within management's expectations. INVENTORIES Inventories of material, pipe and supplies are valued at average cost. Crude oil and natural gas inventories are stated at average cost. PROPERTY AND EQUIPMENT The Company utilizes the "successful efforts" method of accounting for its oil and gas properties. Under this method, property acquisition and development costs and certain productive exploration costs are capitalized while non-productive exploration costs, which include certain geological and geophysical costs, dry holes, expired leases and delay rentals, are expensed as incurred. Capitalized costs related to proved properties are depleted using the unit-of-production method. Depreciation, depletion and amortization of proved oil and gas properties is calculated on F-7 113 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the basis of estimated recoverable reserve quantities. These estimates can change based on economic or other factors. No gains or losses are recognized upon the disposition of oil and gas properties except in extraordinary transactions. Sales proceeds are credited to the carrying value of the properties. Maintenance and repairs are expensed, and expenditures which enhance the value of properties are capitalized. Unproved oil and gas properties are stated at cost and consist of undeveloped leases. These costs are assessed periodically to determine whether their value has been impaired, and if impairment is indicated, the costs are charged to expense. Gas gathering systems are stated at cost. Depreciation expense is computed using the straight-line method over 15 years. Property and equipment are stated at cost. Depreciation of non-oil and gas properties is computed using the straight-line method over the useful lives of the assets ranging from 3 to 15 years for machinery and equipment and 30 to 40 years for buildings. When assets other than oil and gas properties are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs is charged to income as incurred, and significant renewals and betterments are capitalized. NET INCOME PER COMMON SHARE Net income per common share is computed by subtracting preferred dividends from net income and dividing the difference by the weighted average number of common and common equivalent shares outstanding. Outstanding options, convertible securities and warrants are included in the computation of net income per common share when their effect is dilutive. REVENUE RECOGNITION Oil and gas production revenue is recognized as production and delivery take place. Oil and gas marketing revenues are recognized when title passes. Oilfield sales and service revenues are recognized when the goods or services have been provided. INCOME TAXES The Company uses the liability method of accounting for income taxes. Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes also are recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes. RECLASSIFICATIONS Certain reclassifications have been made in 1995 and 1994 to conform to the presentation in 1996. (2) ACCOUNTING CHANGES During 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based Compensation." Under SFAS 123, companies may elect to adopt the fair value method of accounting for stock-based compensation or continue to use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) to F-8 114 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) measure expense associated with stock-based compensation. The Company has elected to continue to follow APB 25. See Note 8. During 1996, the Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires impairment losses to be recognized for long-lived assets (other than unproved properties) used in continuing operations when indicators of impairment are present and the assets' carrying value is not anticipated to be recovered through future operations or sale. No impairment was required as a result of adopting SFAS 121. (3) ACQUISITIONS The following acquisitions were accounted for as purchase business combinations. Accordingly, the results of operations of the acquired businesses are included in the Company's consolidated statements of operations from the date of the respective acquisitions. During 1996, the Company acquired for approximately $4.1 million working interests in 323 oil and gas wells in Ohio and Kentucky. Estimated proved developed reserves associated with the wells totaled 6.0 Bcf of natural gas and 205,000 Bbls of oil net to the Company's interest at July 1, 1996. Effective in July 1995, the Company purchased from Quaker State Corporation most of its oil and gas properties and related assets in the Appalachian Basin (the "Quaker State Properties") for approximately $50 million. The Quaker State Properties included approximately 1,460 gross (1,100 net) wells with estimated proved reserves of 2.2 Mmbbl of oil and 46.8 Bcf of gas at December 31, 1994, approximately 250 miles of gas gathering systems, undeveloped oil and gas leases and fee mineral interests covering approximately 250,000 acres, an extensive geologic and geophysical database and other assets. In January 1995, the Company purchased Ward Lake Drilling, Inc. ("Ward Lake"), a privately-held exploration and production company headquartered in Gaylord, Michigan, for $15.1 million. Ward Lake operates and holds a production payment interest and working interests averaging 13.6% in approximately 500 Antrim Shale gas wells located in Michigan's lower peninsula. The purchase also included approximately 5,500 undeveloped leasehold acres that Ward Lake owns in Michigan. At December 31, 1994, the wells had estimated proved developed natural gas reserves totaling 98 Bcf (14 Bcf net to the Company's interest). Approximately one half of the purchase price represented payment for the proved reserves, with the balance associated with other oil and gas and corporate assets. Through the end of 1996, the Company purchased additional working interests averaging 24% in the wells operated by Ward Lake for approximately $12 million. The interests acquired had estimated proved developed reserves of 16 Bcf at December 31, 1994. The production from certain interests qualify for nonconventional fuel source tax credits. In addition, during 1995 the Company, in four separate transactions, acquired for approximately $29.2 million working interests in oil and gas wells in Michigan, Ohio, Pennsylvania and New York and drilling rights on more than 250,000 acres in Ohio. Estimated proved developed reserves associated with the wells totaled 35 Bcfe of natural gas net to the Company's interest at December 31, 1994. In January 1994, the Company purchased substantially all of TGX Corporation's Appalachian Basin assets for $15.5 million. The assets acquired included 1,034 gross (910 net) gas and oil wells on approximately 121,000 acres located in northeastern Ohio and southwestern New York and 15,000 undeveloped acres and related inventory, real estate and oilfield equipment. At December 31, 1993, the properties acquired had estimated proved reserves of 22.0 Bcf of natural gas and 28,700 Bbls of oil. F-9 115 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The unaudited pro forma results of operations for the year ended December 31, 1995 as if the acquisitions above occurred at the beginning of the period were revenues of $124.9 million, net income of $8.5 million and net income per common share of $.75. The pro forma effects of the 1996 acquisitions were not material. (4) DETAILS OF BALANCE SHEETS
DECEMBER 31 -------------------- 1996 1995 -------- -------- (IN THOUSANDS) ACCOUNTS RECEIVABLE Accounts receivable.................................... $ 16,675 $ 16,096 Allowance for doubtful accounts........................ (556) (269) Oil and gas production receivable...................... 16,729 11,610 Current portion of notes receivable.................... 675 686 -------- -------- $ 33,523 $ 28,123 ======== ======== INVENTORIES Oil.................................................... $ 1,578 $ 1,574 Natural gas............................................ 375 170 Material, pipe and supplies............................ 7,444 7,509 -------- -------- $ 9,397 $ 9,253 ======== ======== PROPERTY AND EQUIPMENT, GROSS OIL AND GAS PROPERTIES Producing properties................................... $247,651 $214,984 Non-producing properties............................... 10,277 11,286 Other.................................................. 8,593 9,074 -------- -------- $266,521 $235,344 ======== ======== LAND, BUILDINGS, MACHINERY AND EQUIPMENT Land, buildings and improvements....................... $ 8,537 $ 8,748 Machinery and equipment................................ 23,041 21,229 -------- -------- $ 31,578 $ 29,977 ======== ======== ACCRUED EXPENSES Accrued expenses....................................... $ 8,617 $ 9,924 Accrued drilling and completion costs.................. 658 4,902 Accrued income taxes................................... 612 15 Ad valorem and other taxes............................. 3,114 2,162 Compensation and related benefits...................... 2,994 2,147 Undistributed production revenue....................... 4,995 4,661 -------- -------- $ 20,990 $ 23,811 ======== ========
F-10 116 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31 ------------------- 1996 1995 ------- -------- (IN THOUSANDS) Revolving line of credit................................ $59,000 $ 67,000 Senior notes............................................ 35,000 35,000 Convertible subordinated debentures..................... 5,550 6,800 Other................................................... 246 1,871 ------- -------- 99,796 110,671 Less current portion.................................... 3,918 1,648 ------- -------- Long-term debt.......................................... $95,878 $109,023 ======= ========
The Company has a $200 million unsecured revolving credit facility with a group of banks that matures on March 31, 2001. Outstanding balances under the facility incurred interest at the Company's choice of either: (1) the one, two, or three-month LIBOR plus 1.25% (6.81% for the three-month LIBOR interest rate option at December 31, 1996) or (2) the bank's prime rate (8.25% at December 31, 1996). At December 31, 1996, amounts payable under this facility were at the three-month LIBOR option with rates ranging from 6.78% to 6.84%. Borrowings under the credit agreement are limited to the borrowing base as established semi-annually by the bank group. The borrowing base at December 31, 1996 was $70 million. The Company believes that its oil and gas reserves at December 31, 1996 could provide a borrowing base in excess of $115 million. When market conditions are favorable, the Company may enter into interest rate swap arrangements, whereby a portion of the Company's floating rate exposure is exchanged for a fixed interest rate. The Company had no such derivative financial instruments at December 31, 1996 or 1995. The Company has $35 million of 7% fixed-rate senior notes outstanding with five insurance companies. These notes, which are interest-only through 1996, mature on September 30, 2005. Equal principal payments of $3,888,888 will be required on each September 30 commencing in 1997. The convertible subordinated debentures have a fixed interest rate of 9.25% and mature on June 30, 2000. The debentures are currently convertible by the debenture holders at the rate of one share of the Company's common stock for each $20.15 of principal. During 1996, $1,250,000 of the debentures were converted by the holders into 62,034 shares of common stock. The debt agreements contain various covenants restricting payment of dividends on common stock to $5 million plus 50% of cumulative net income, restricting sales of assets to 15% of shareholders' equity in any one year and requiring the maintenance of certain levels of net worth, working capital and other financial ratios. At December 31, 1996, the aggregate long-term debt maturing in the next five years is as follows: $3,918,000 (1997); $3,907,000 (1998); $3,907,000 (1999); $9,457,000 (2000); $62,907,000 (2001); and $15,700,000 (2002 and thereafter). (6) LEASES The Company leases certain computer equipment, vehicles and office space under noncancelable agreements with lease periods of one to five years. Rent expense amounted to approximately $1.6 million, $1.4 million and $742,000 for the years ended December 31, 1996, 1995, and 1994, F-11 117 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) respectively. Future commitments under leasing arrangements were not significant at December 31, 1996. (7) SHAREHOLDERS' EQUITY In December 1996 and 1995, the Company awarded 36,077 and 26,085 shares of common stock, respectively, to employees as profit sharing and bonuses. These shares were issued in each subsequent year. In November 1996, $1,250,000 of convertible subordinated debentures were converted by the debenture holders at the rate of one share of the Company's common stock for each $20.15 of principal into 62,034 shares of common stock. In August 1995, the Company sold 4,025,000 shares of common stock. Net proceeds, after deducting underwriting discounts and expenses, totaled approximately $55.6 million. Approximately $50 million of the net proceeds were used to purchase the Quaker State Properties, and the remaining proceeds were used to reduce the outstanding balance under the Company's revolving credit agreement. Outstanding warrants for the purchase of 13,801 shares of the Company's common stock at a price of $21.74 per share were exercisable by the holder in whole or part any time prior to February 15, 1997. These warrants expired unexercised on February 15, 1997. On December 31, 1992, the Company issued 24,000 shares of Class II Serial Preferred Stock with a stated value of $100 per share. In preference to shares of common stock, each share is entitled to cumulative cash dividends of $7.50 per year, payable quarterly. The Preferred Stock is subject to redemption at $100 per share at any time by the Company and is convertible into common stock, at the holder's election, at any time after five years from the date of issuance at a conversion price of $15.00 per common share. Holders of the Preferred Stock are entitled to one vote per preferred share. In February 1997, the Company notified the preferred stockholder that it intended to redeem 100% of the preferred stock for aggregate consideration of $2.4 million in March, 1997. At December 31, 1996, the Company had reserved a total of 449,075 shares of common stock for the conversion of the convertible subordinated debentures and the Class II Serial Preferred Stock and the exercise of the outstanding warrants referred to above. The Company's Articles of Incorporation include certain anti-takeover provisions. The provisions grant the Board of Directors the authority to issue and fix the terms of preferred stock as well as the ability to take certain other actions that could have the effect of discouraging unsolicited takeover attempts. In addition, the Company has entered into contracts with its officers and other employees that provide for severance payments, in certain circumstances, in the event that their employment is terminated following a change in control. The senior notes may, at the noteholder's discretion, be accelerated and become due and payable upon a change in control of the Company. (8) STOCK OPTION PLANS The Company has an employee stock option plan which is authorized to issue up to 1,070,000 shares of common stock to officers and employees. The exercise price of options may not be less than the fair market value of a share of common stock on the date of grant. Options expire on the tenth anniversary of the grant date unless cessation of employment causes earlier termination. The options become exercisable in 25% increments over a four-year period beginning one year from date of grant. As of December 31, 1996, there were 301,000 shares available for grant under the Plan. F-12 118 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On May 27, 1994, the shareholders approved the Non-Employee Directors Stock Option Plan authorizing the issuance of up to 120,000 shares of common stock. Options for 2,000 shares will be granted each year to each non-employee director. The exercise price of options under the Plan is equal to the fair market value on the date of grant. Options expire on the tenth anniversary of the grant date. The options become exercisable on the anniversary of the grant date at a rate of one third of the shares each year. As of December 31, 1996, there were 80,000 shares available for grant under the Plan. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS 123, "Accounting for Stock-Based Compensation" requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.4% and 6.5%; volatility factors of the expected market price of the Company's common stock of .36 and .36; dividend yield of zero; and a weighted-average expected life of the option of seven years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information for grants made after January 1, 1995, follows:
1996 1995 ------- ------ Pro forma net income (in thousands)............................. $14,286 $5,016 Pro forma earnings per share.................................... $ 1.25 $ .55
The effects of applying Statement 123 for providing pro forma disclosures are not indicative of future amounts until the new rules are applied to all outstanding, nonvested awards. F-13 119 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock option activity under the two plans consisted of the following:
WEIGHTED NUMBER AVERAGE OF EXERCISE SHARES PRICE ------- -------- BALANCE DECEMBER 31, 1993.................................... 95,000 $10.00 Granted.................................................... 193,000 12.38 ------- BALANCE DECEMBER 31, 1994.................................... 288,000 11.59 Granted.................................................... 260,000 16.37 Exercised.................................................. (2,250) 11.32 Forfeited.................................................. (1,000) 10.00 ------- BALANCE DECEMBER 31, 1995.................................... 544,750 13.88 Granted.................................................... 292,000 20.74 Exercised.................................................. (3,250) 12.38 Forfeited.................................................. (30,000) 15.75 ------- BALANCE DECEMBER 31, 1996.................................... 803,500 $16.31 ======= ====== OPTIONS EXERCISABLE AT DECEMBER 31, 1996..................... 225,525 $12.73 ======= ======
The weighted average fair value of options granted during the years 1996 and 1995 were $10.59 and $8.27 per share, respectively. The exercise price for the options outstanding as of December 31, 1996 ranged from $10.00 to $16.38 per share. At December 31, 1996 the weighted average remaining contractual life of the outstanding options is 8.4 years. (9) TAXES The provision for income taxes on income from continuing operations before income taxes in the Consolidated Statements of Operations includes the following:
YEAR ENDED DECEMBER 31 -------------------------- 1996 1995 1994 ------ ------ ------ (IN THOUSANDS) CURRENT Federal.................................... $2,011 $1,103 $ 454 State...................................... 217 111 190 ------ ------ ------ 2,228 1,214 644 DEFERRED Federal.................................... 4,257 826 1,539 State...................................... 81 110 147 ------ ------ ------ 4,338 936 1,686 ------ ------ ------ TOTAL $6,566 $2,150 $2,330 ====== ====== ======
F-14 120 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effective tax rate for continuing operations differs from the U.S. federal statutory tax rate, as follows:
YEAR ENDED DECEMBER 31 ------------------------- 1996 1995 1994 ---- ----- ---- Statutory federal income tax rate......................... 35.0% 34.0% 34.0% Increases (reductions) in taxes resulting from: State income taxes, net of federal tax benefit.......... 1.9 1.7 3.4 Nonconventional fuel source tax credits................. (5.9) (10.0) -- Statutory depletion..................................... (.6) (.3) (2.3) Other, net.............................................. (.2) .2 .7 ----- ----- ----- Effective income tax rate for the year.................... 30.2% 25.6% 35.8% ===== ===== =====
The effect of the federal rate change, which was not material, is included in "Other". Significant components of deferred income tax liabilities and assets are as follows:
DECEMBER 31 -------------------- 1996 1995 ------- ------- (IN THOUSANDS) Deferred income tax liabilities: Property and equipment, net...................... $16,195 $10,891 Other, net....................................... 762 155 ------- ------- Total deferred income tax liabilities......... 16,957 11,046 Deferred income tax assets: Accrued expenses................................. 2,293 1,984 Inventories...................................... 360 212 Net operating loss carryforwards................. 667 966 Tax credit carryforwards......................... 3,562 2,263 Other, net....................................... 404 182 ------- ------- Total deferred income tax assets.............. 7,286 5,607 ------- ------- Net deferred income tax liability............. $ 9,671 $ 5,439 ======= ======= Long-term liability.............................. $12,589 $ 7,693 Current asset.................................... (2,918) (2,254) ------- ------- Net deferred income tax liability............. $ 9,671 $ 5,439 ======= =======
At December 31, 1996, the Company had approximately $1,800,000 of net operating loss carryforwards available for federal income tax reporting purposes. Substantially all of the net operating loss carryforwards are limited as to their annual utilization as a result of prior ownership changes. The net operating loss carryforwards, if unused, will expire from 2002 to 2009. The Company has alternative minimum tax credit carryforwards of approximately $3,562,000 which have no expiration date. Included in "Franchise, property and other taxes" are property taxes associated with production activities of $203,000, $163,000 and $108,000 for the years 1996, 1995 and 1994, respectively. (10) PROFIT SHARING AND RETIREMENT PLANS The Company has a non-qualified profit sharing arrangement under which the Company contributes discretionary amounts determined by the compensation committee of its Board of F-15 121 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Directors. Amounts are allocated to substantially all employees based on relative compensation. The Company contributed $1,256,600, $458,000 and $340,000 for the years 1996, 1995 and 1994, respectively, to the profit sharing plan of which one half was paid in cash and one half was paid in shares of the Company's common stock contributed into each eligible employee's 401(k) plan account. Additional discretionary bonuses are also made. The Company has a qualified defined contribution plan (a 401(k) plan) covering substantially all of the employees of the Company. Under the plan, an amount equal to 2% of participants' compensation is contributed by the Company to the plan each year. Eligible employees may also make voluntary contributions which the Company matches $.25 for every $1.00 contributed up to 6% of an employee's annual compensation. Retirement plan expense for 1996, 1995 and 1994 was $457,332, $372,213 and $286,446, respectively. The Company has non-qualified deferred compensation plans which permit certain key employees and directors to elect to defer a portion of their compensation. (11) COMMITMENTS AND CONTINGENCIES The Company is involved in various legal actions arising in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the financial position of the Company. (12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31 -------------------------- 1996 1995 1994 ------ ------ ------ (IN THOUSANDS) CASH PAID DURING THE YEAR FOR: Interest............................................... $7,830 $5,592 $3,146 Income taxes........................................... 1,222 1,296 90 NON-CASH INVESTING AND FINANCING ACTIVITIES: Acquisition of assets in exchange for long-term liabilities......................................... $ -- $8,460 $ 527 Debentures converted to common stock................... 1,250 -- -- Acquisition of assets in exchange for common stock..... -- -- 388 Sale of assets in exchange for note receivable......... -- -- 689
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the financial instruments disclosed herein is not representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences, if any, of realization or settlement. The amounts in the financial statements for cash equivalents, accounts receivable and notes receivable approximate fair value due to the short maturities of these instruments. The recorded amounts of outstanding bank and other long term debt approximate fair value because interest rates are based on LIBOR or the prime rate or due to the short maturities. The preferred stock is redeemable at $100 per share plus unpaid dividends. The following table F-16 122 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reflects the financial instruments for which the fair value differs from the carrying amount of such financial instrument in the Company's December 31, 1996 and 1995 balance sheets:
1996 1995 --------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ------- (IN THOUSANDS) Assets Amounts receivable................. $ 5,659 $ 6,976 $ 6,764 $ 8,440 Liabilities Senior notes....................... 35,000 34,500 35,000 35,200 Convertible subordinated debentures...................... 5,550 7,024 6,800 7,117
The fair value of the amounts receivable is based on the discounted expected future cash flows. The fair value of the senior notes is based on rates available at year-end for similar instruments. The fair value of the convertible subordinated debentures at December 31, 1996 is based on the conversion rate of $20.15 and valuing the common shares at the December 31, 1996 closing stock price of $25.50. The fair value of the convertible subordinated debentures at December 31, 1995 is based on rates available for similar instruments. (14) SUPPLEMENTARY INFORMATION ON OIL AND GAS ACTIVITIES The following disclosures of costs incurred related to oil and gas activities are presented in accordance with SFAS No. 69.
YEAR ENDED DECEMBER 31 --------------------------------- 1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Acquisition costs Proved properties.................. $ 4,275 $79,464 $20,274 Unproved properties................ 2,320 4,705 1,744 Developmental costs.................. 30,750 19,906 9,142 Exploratory costs.................... 6,131 4,968 2,130
PROVED OIL AND GAS RESERVES (UNAUDITED) The Company's proved developed and proved undeveloped reserves are all located within the United States. The Company cautions that there are many uncertainties inherent in estimating proved reserve quantities and in projecting future production rates and the timing of development expenditures. In addition, estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are expected to change as future information becomes available. Material revisions of reserve estimates may occur in the future, development and production of the oil and gas reserves may not occur in the periods assumed, and actual prices realized and actual costs incurred may vary significantly from those used. Proved reserves represent estimated quantities of natural gas, crude oil and condensate that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods being utilized at the time the estimates were made. F-17 123 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The estimates of proved developed reserves have been reviewed by independent petroleum engineers. The estimates of proved undeveloped reserves were prepared by the Company's petroleum engineers. The following table sets forth changes in estimated proved and proved developed reserves for the three years ended December 31, 1996:
OIL GAS (BBL) (MCF) --------- ----------- DECEMBER 31, 1993...................................... 3,532,879 94,264,949 Extensions and discoveries............................. 242,365 8,554,382 Purchase of reserves in place.......................... 222,981 26,876,534 Sales of reserves in place............................. (11,178) (1,022,027) Revisions of previous estimates........................ 622,462 3,880,633 Production............................................. (496,039) (9,562,862) --------- ----------- DECEMBER 31, 1994...................................... 4,113,470 122,991,609 Extensions and discoveries............................. 229,957 22,287,564 Purchase of reserves in place.......................... 2,197,414 111,360,991 Sale of reserves in place.............................. (28,693) (278,013) Revisions of previous estimates........................ 326,771 (419) Production............................................. (555,913) (16,961,424) --------- ----------- DECEMBER 31, 1995...................................... 6,283,006 239,400,308 Extensions and discoveries............................. 387,414 38,079,620 Purchase of reserves in place.......................... 336,279 8,182,402 Sale of reserves in place.............................. (7,664) (250,021) Revisions of previous estimates........................ 1,108,538 28,601,277 Production............................................. (718,667) (25,410,233) --------- ----------- DECEMBER 31, 1996...................................... 7,388,906 288,603,353 ========= =========== PROVED DEVELOPED RESERVES December 31, 1994...................................... 3,714,671 101,355,451 ========= =========== December 31, 1995...................................... 5,592,579 206,998,924 ========= =========== December 31, 1996...................................... 6,410,344 225,693,651 ========= ===========
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED) The following tables, which present a standardized measure of discounted future net cash flows and changes therein relating to proved oil and gas reserves, are presented pursuant to SFAS No. 69. In computing this data, assumptions other than those required by the FASB could produce different results. Accordingly, the data should not be construed as representative of the fair market value of the Company's proved oil and gas reserves. The following assumptions have been made: - Future revenues were based on year-end oil and gas prices. Future price changes were included only to the extent provided by existing contractual agreements. - Production and development costs were computed using year-end costs assuming no change in present economic conditions. - Future net cash flows were discounted at an annual rate of 10%. F-18 124 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - Future income taxes were computed using the approximate statutory tax rate and giving effect to available net operating losses, tax credits and statutory depletion. The standardized measure of discounted future net cash flows relating to proved oil and gas reserves is presented below:
DECEMBER 31 ---------------------------------------- 1996 1995 1994 ---------- --------- --------- (IN THOUSANDS) Estimated future cash inflows (outflows) Revenues from the sale of oil and gas... $1,087,997 $ 679,286 $ 395,610 Production and development costs........ (419,504) (293,601) (165,766) ---------- --------- --------- Future net cash flows before income taxes................................... 668,493 385,685 229,844 Future income taxes....................... (185,768) (80,715) (54,762) ---------- --------- --------- Future net cash flows..................... 482,725 304,970 175,082 10% timing discount....................... (223,496) (134,053) (85,228) ---------- --------- --------- Standardized measure of discounted future net cash flows.......................... $ 259,229 $ 170,917 $ 89,854 ========== ========= =========
The principal sources of changes in the standardized measure of future net cash flows are as follows:
YEAR ENDED DECEMBER 31 ------------------------------------ 1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Beginning of year............................. $170,917 $ 89,854 $ 71,086 Sale of oil and gas, net of production costs....................................... (58,023) (32,874) (23,287) Extensions and discoveries, less related estimated future development and production costs....................................... 60,738 24,441 14,317 Purchase of reserves in place less estimated future production costs..................... 10,694 104,270 20,715 Sale of reserves in place less estimated future production costs..................... (191) (329) (635) Revisions of previous quantity estimates...... 38,204 1,129 4,972 Net changes in prices and production costs.... 83,530 (4,723) 94 Change in income taxes........................ (55,494) (17,756) (8,852) Accretion of 10% timing discount.............. 21,425 11,647 8,944 Changes in production rates (timing) and other....................................... (12,571) (4,742) 2,500 -------- -------- -------- End of year................................... $259,229 $170,917 $ 89,854 ======== ======== ========
F-19 125 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (15) INDUSTRY SEGMENT FINANCIAL INFORMATION The table below presents certain financial information regarding the Company's industry segments of its continuing operations. Intersegment sales are billed on an intercompany basis at prices for comparable third party goods and services.
1996 1995 1994 -------- -------- -------- (IN THOUSANDS) REVENUES Oil and gas operations........................ $124,294 $ 88,632 $ 65,646 Oilfield sales and service.................... 32,827 25,178 17,360 Intersegment sales............................ (7,310) (5,112) (4,203) -------- -------- -------- $149,811 $108,698 $ 78,803 ======== ======== ======== OPERATING INCOME Oil and gas operations........................ $ 24,756 $ 12,444 $ 9,104 Oilfield sales and service.................... 963 673 350 -------- -------- -------- $ 25,719 $ 13,117 $ 9,454 ======== ======== ======== IDENTIFIABLE ASSETS Oil and gas operations........................ $281,761 $274,021 $132,538 Oilfield sales and service.................... 20,492 20,348 12,408 -------- -------- -------- $302,253 $294,369 $144,946 ======== ======== ======== DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE Oil and gas operations........................ $ 28,598 $ 18,729 $ 11,343 Oilfield sales and service.................... 1,154 988 543 -------- -------- -------- $ 29,752 $ 19,717 $ 11,886 ======== ======== ======== CAPITAL EXPENDITURES Oil and gas operations........................ $ 35,486 $129,219 $ 33,956 Oilfield sales and service.................... 1,240 4,735 3,391 -------- -------- -------- $ 36,726 $133,954 $ 37,347 ======== ======== ========
No customer exceeded 10% of consolidated revenue during the year ended December 31, 1996. One customer exceeded 10% of consolidated revenue during each of the years ended December 31, 1995 and 1994 which amounted to $11.1 million and $9.6 million, respectively. F-20 126 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The results of operations for the four quarters of 1996 and 1995 are shown below.
FIRST SECOND THIRD FOURTH ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 Sales and other operating revenues... $38,359 $32,542 $36,571 $42,339 Gross profit......................... 7,965 7,087 7,270 8,966 Net income........................... 3,425 3,402 3,186 4,742 Net income per common share.......... .30 .30 .28 .42 1995 Sales and other operating revenues... $20,872 $22,063 $30,566 $35,197 Gross profit......................... 3,250 3,865 5,178 5,288 Net income........................... 739 916 1,155 2,311 Net income per common share.......... .10 .12 .11 .20
Income tax expense in the fourth quarter of 1995 was reduced by approximately $600,000 to record the reduction of the effective tax rate for the first nine months of 1995 as a result of the recognition of nonconventional fuel source tax credits. (17) DISCONTINUED OPERATIONS In September 1995, the Company announced plans to sell Engine Power Systems, Inc. ("EPS"), its wholly-owned subsidiary engaged in engine, parts and service sales. The Company was unable to identify an acceptable buyer for EPS. Since September 1995, a substantial portion of the workforce was eliminated and substantial assets were sold. The Company recognized an additional charge in 1996 to reduce the remaining assets to net realizable value. Net revenues generated by EPS were approximately $3.9 million in 1996, $4.2 million in 1995 and $3.7 million in 1994. The results of operations of EPS are presented as discontinued operations in the accompanying financial statements for all periods presented.
YEAR ENDED DECEMBER 31 -------------------------------- 1996 1995 1994 ------ -------- ------ (IN THOUSANDS) Loss from operations of discontinued business.... $ (180) $ (760) $ (509) Income tax benefit............................... 63 268 172 ------ -------- ------ (117) (492) (337) Estimated loss on disposal....................... (495) (1,001) -- Income tax benefit............................... 173 354 -- ------ -------- ------ (322) (647) -- ------ -------- ------ LOSS FROM DISCONTINUED OPERATIONS................ $ (439) $ (1,139) $ (337) ====== ======== ======
(18) SALE OF TAX CREDIT PROPERTIES In February and March 1996, the Company sold certain interests that qualify for the nonconventional fuel source tax credit. The interests were sold in two separate transactions for approximately $750,000 and $100,000, respectively, in cash and a volumetric production payment under which 100% of the cash flow from the properties will go to the Company until approximately 11.7 Bcf and 3.4 Bcf, respectively, of gas has been produced and sold. In addition to receiving 100% of the cash F-21 127 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) flow from the properties, the Company will receive quarterly incentive payments based on production from the interests. The Company has the option to repurchase the interests at a future date. (19) HEDGING ACTIVITIES As a result of certain 1995 acquisitions, the Company has several contracts to sell gas at indexed prices. In early 1996, the Company's Board of Directors approved a formal policy covering hedging with financial instruments. Significant provisions of this policy are that targets are pre-defined and transactions are pre-authorized by senior management; all transactions must meet the accounting definition of a hedge; basis risk must be hedged; leveraged transactions are prohibited and quarterly reports must be made to the Board of Directors on all open positions. The Company may, from time to time, partially hedge indexed contract price exposure by selling futures contracts on the NYMEX. During 1996, the Company incurred a net $258,000 pretax loss on its hedging activities due to rapidly rising gas prices during the year. At December 31, 1996, the Company did not have any open futures contracts. When market conditions are favorable, the Company may enter into interest rate swap arrangements, whereby a portion of the Company's floating rate exposure is exchanged for a fixed interest rate. The Company had no such derivative financial instruments at December 31, 1996 or 1995. F-22 128 BELDEN & BLAKE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents...................................... $ 5,714 $ 8,606 Accounts receivable, net....................................... 30,726 33,523 Inventories.................................................... 9,500 9,397 Deferred income taxes.......................................... 3,147 2,918 Other current assets........................................... 3,113 2,280 --------- -------- TOTAL CURRENT ASSETS................................... 52,200 56,724 PROPERTY AND EQUIPMENT, AT COST Oil and gas properties (successful efforts method)............. 274,524 266,521 Gas gathering systems.......................................... 26,048 26,045 Land, buildings, machinery and equipment....................... 31,860 31,578 --------- -------- 332,432 324,144 Less accumulated depreciation, depletion and amortization...... 93,827 86,808 --------- -------- PROPERTY AND EQUIPMENT, NET............................ 238,605 237,336 OTHER ASSETS..................................................... 10,115 9,703 --------- -------- $ 300,920 $303,763 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable............................................... $ 8,691 $ 9,421 Accrued expenses............................................... 21,759 20,990 Current portion of long-term liabilities....................... 4,147 4,203 --------- -------- TOTAL CURRENT LIABILITIES.............................. 34,597 34,614 LONG-TERM LIABILITIES Bank and other long-term debt.................................. 51,203 59,216 Senior notes................................................... 31,111 31,111 Convertible subordinated debentures............................ 5,550 5,550 Other.......................................................... 1,714 1,765 --------- -------- 89,578 97,642 DEFERRED INCOME TAXES............................................ 14,458 12,589 SHAREHOLDERS' EQUITY Common stock without par value; $.10 stated value per share; authorized 50,000,000 shares; issued and outstanding 11,268,879 and 11,231,865 shares............................ 1,127 1,123 Preferred stock without par value; $100 stated value per share; authorized 8,000,000 shares; issued and outstanding -0- and 24,000 shares............................................... -- 2,400 Paid in capital................................................ 128,981 128,035 Retained earnings.............................................. 32,197 27,395 Unearned portion of restricted stock........................... (18) (35) --------- -------- TOTAL SHAREHOLDERS' EQUITY............................. 162,287 158,918 --------- -------- $ 300,920 $303,763 ========= ========
- --------------- The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes generally required by generally accepted accounting principles for complete financial statements. See accompanying notes. F-23 129 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ---------------------- 1997 1996 -------- -------- REVENUES Oil and gas sales................................................... $ 22,863 $ 19,678 Gas marketing and gathering......................................... 12,304 13,201 Oilfield sales and service.......................................... 6,379 5,480 Interest and other.................................................. 768 634 -------- -------- 42,314 38,993 EXPENSES Production expense.................................................. 4,760 4,081 Production taxes.................................................... 878 794 Cost of gas and gathering expense................................... 10,836 11,186 Oilfield sales and service.......................................... 5,964 5,040 Exploration expense................................................. 1,879 1,525 General and administrative expense.................................. 1,056 969 Interest expense.................................................... 1,702 2,011 Depreciation, depletion and amortization............................ 7,505 7,568 Franchise, property and other taxes................................. 445 450 -------- -------- 35,025 33,624 -------- -------- INCOME BEFORE INCOME TAXES............................................ 7,289 5,369 Provision for income taxes.......................................... 2,442 1,944 -------- -------- NET INCOME............................................................ $ 4,847 $ 3,425 ======== ======== NET INCOME PER COMMON SHARE........................................... $ 0.43 $ 0.30 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................................................. 11,264 11,161 ======== ========
See accompanying notes. F-24 130 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
UNEARNED COMMON COMMON PREFERRED PAID IN RETAINED RESTRICTED SHARES STOCK STOCK CAPITAL EARNINGS STOCK TOTAL ------ ------ --------- -------- -------- ---------- -------- JANUARY 1, 1995....................... 7,085 $ 709 $ 2,400 $ 70,379 $ 7,879 $ (225) $ 81,142 Stock issued.......................... 4,028 403 55,264 55,667 Net income............................ 5,121 5,121 Preferred stock dividend.............. (180) (180) Stock options exercised............... 2 -- 25 25 Employee stock bonus.................. 22 2 251 253 Restricted stock...................... 144 119 263 ------ ------ ------- -------- ------- ------ -------- DECEMBER 31, 1995..................... 11,137 1,114 2,400 126,063 12,820 (106) 142,291 Net income............................ 14,755 14,755 Preferred stock dividend.............. (180) (180) Stock options exercised and related tax benefit......................... 3 -- 47 47 Employee stock bonus.................. 26 3 418 421 Restricted stock activity............. 4 -- 263 71 334 Conversion of debentures.............. 62 6 1,244 1,250 ------ ------ ------- -------- ------- ------ -------- DECEMBER 31, 1996..................... 11,232 1,123 2,400 128,035 27,395 (35) 158,918 Net income............................ 4,847 4,847 Preferred stock redeemed.............. (2,400) (2,400) Preferred stock dividend.............. (45) (45) Stock options exercised and related tax benefit......................... 1 -- 19 19 Employee stock bonus.................. 36 4 926 930 Restricted stock activity............. 1 17 18 ------ ------ ------- -------- ------- ------ -------- MARCH 31, 1997 (UNAUDITED)............ 11,269 $1,127 $ -- $128,981 $32,197 $ (18) $162,287 ====== ====== ======= ======== ======= ====== ========
See accompanying notes. F-25 131 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 ----------------------- 1997 1996 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................................... $ 4,847 $ 3,425 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization........................ 7,505 7,568 Loss (gain) on disposal of property and equipment............... 294 (63) Deferred income taxes........................................... 1,640 1,232 Deferred compensation and stock grants.......................... 962 471 Change in operating assets and liabilities: Accounts receivable and other operating assets................ 1,464 (6,117) Inventories................................................... (103) (553) Accounts payable and accrued expenses......................... 39 (510) --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 16,648 5,453 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from property and equipment disposals..................... 51 1,080 Additions to property and equipment................................ (8,715) (3,931) Increase in other assets........................................... (315) (452) --------- -------- NET CASH USED IN INVESTING ACTIVITIES...................... (8,979) (3,303) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit and long-term debt.......... 3,000 3,105 Repayment of long-term debt and other obligations.................. (11,131) (7,123) Preferred stock redeemed........................................... (2,400) -- Preferred stock dividends.......................................... (45) (45) Proceeds from sale of common stock and stock options............... 15 -- --------- -------- NET CASH USED IN FINANCING ACTIVITIES...................... (10,561) (4,063) --------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS............................ (2,892) (1,913) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 8,606 12,322 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 5,714 $ 10,409 ========= ======== CASH PAID DURING THE PERIOD FOR: Interest........................................................... $ 2,244 $ 1,989 Income taxes....................................................... 271 193
See accompanying notes. F-26 132 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Belden & Blake Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 1996 and elsewhere herein. (2) MERGER On March 27, 1997, the Company signed a definitive merger agreement with TPG Partners II, L.P. ("TPG II"), an affiliate of Texas Pacific Group, a private investment partnership, in which TPG II will acquire the Company in an all-cash transaction. Under the terms of the agreement, the Company will become a subsidiary of TPG II which will pay $27 a share for all common shares outstanding plus an additional amount to redeem certain options held by directors and employees. The Board of Directors of Belden & Blake Corporation unanimously approved the merger agreement following approval of the transaction's terms by a special committee of outside directors. The transaction requires shareholder and regulatory approval. (3) SHAREHOLDERS' EQUITY On December 31, 1992, the Company issued 24,000 shares of Class II Serial Preferred Stock with a stated value of $100 per share. In preference to shares of common stock, each share was entitled to cumulative cash dividends of $7.50 per year, payable quarterly. The Preferred Stock was subject to redemption at $100 per share at any time by the Company and was convertible into common stock, at the holder's election, at any time after five years from the date of issuance at a conversion price of $15.00 per common share. Holders of the Preferred Stock were entitled to one vote per preferred share. On March 31, 1997, the Company redeemed all of the outstanding preferred stock for aggregate consideration of $2.4 million. (4) EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. This Statement will not materially change earnings per share as reported for the quarter ended March 31, 1997. F-27 133 NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------------------------------------------ TABLE OF CONTENTS Available Information................. 3 Summary............................... 4 Risk Factors.......................... 14 Forward-Looking Information........... 22 Use of Proceeds....................... 22 The Exchange Offer.................... 22 Capitalization........................ 31 Unaudited Pro Forma Consolidated Financial Statements................ 33 Selected Consolidated Financial Data................................ 37 Management's Discussion and Analysis of Financial Condition and Results [LOGO] of Operations....................... 38 Business and Properties............... 46 Management............................ 59 Principal Shareholders................ 65 Certain Relationships and Related Transactions........................ 65 Description of the Notes.............. 67 Description of Other Indebtedness..... 97 Exchange and Registration Rights Agreement........................... 99 Plan of Distribution.................. 100 Legal Matters......................... 101 Experts............................... 102 Glossary of Selected Oil and Gas Terms............................... 103 Index to Consolidated Financial Statements.......................... F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS. PROSPECTUS $225,000,000 BELDEN & BLAKE CORPORATION 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007 LOGO , 1997 134 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company is incorporated in Ohio. Under the Ohio General Corporation Law, an Ohio corporation has the power, under specified circumstances, to indemnify its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against expenses and liabilities incurred in any such action, suit or proceeding so long as they acted in good faith and in a manner that they reasonably believed to be in, or not opposed to, the best interests of such corporation, and with respect to any criminal action, that they have no reasonable cause to believe their conduct was unlawful. With respect to suits by or in the right of such corporation, however, indemnification is generally limited to attorneys fees and other expenses and is not available if such person is adjudged to be liable to such corporation unless the court determines that indemnification is appropriate. An Ohio corporation also has the power to purchase and maintain insurance for such persons. The Company has acquired such directors' and officers' insurance, which includes coverage for liability under the federal securities laws. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT DESCRIPTION ------- --------------------------------------------------------------------------- 2.1 Agreement and Plan of Merger dated as of March 27, 1997 by and among TPG Partners II, BB Merger Corp. and Belden & Blake Corporation 3.1 Amended and Restated Articles of Incorporation of Belden & Blake Corporation (fka Belden & Blake Energy Corporation) 3.2 Code of Regulations of Belden & Blake Corporation 3.3 Plan and Agreement of Merger between Belden & Blake Corporation and The Canton Oil & Gas Co. (Articles of Incorporation of The Canton Oil & Gas Company, fka Belden & Blake Corporation) 3.4 Code of Regulations of The Canton Oil & Gas Company 3.5 Articles of Incorporation of Peake Energy, Inc. (fka Kaiser Exploration and Mining Company) 3.6 By-Laws of Peake Energy, Inc. 3.7 Articles of Incorporation of Target Oilfield Pipe & Supply Company (fka F.B.S. Supply Co., Inc.) 3.8 Code of Regulations of Target Oilfield Pipe & Supply Company 3.9 Articles of Incorporation of Ward Lake Drilling, Inc. 3.10 By-Laws of Ward Lake Drilling, Inc. 4.1 Indenture dated as of June 27, 1997 between the Company, the Subsidiary Guarantors and LaSalle National Bank, as trustee, relating to the Notes 4.2 Registration Rights Agreement dated as of June 27, 1997 between the Company, the Guarantors and Chase Securities, Inc. 4.3 Form of 9 7/8% Senior Subordinated Notes due 2007, Original Notes (included in Exhibit 4.1) 4.4 Form of 9 7/8% Senior Subordinated Notes due 2007, Exchange Notes (included in Exhibit 4.1)
II-1 135
EXHIBIT DESCRIPTION ------- --------------------------------------------------------------------------- 5.1 Opinion of Black, McCuskey, Souers and Arbaugh 10.1 Credit Agreement dated as of June 27, 1997 by and among the Company, each of the Lenders named therein and The Chase Manhattan Bank, as Agent 10.2 Transaction Advisory Agreement dated as of June 27, 1997 by and between the Company and TPG Partners II, L.P. 10.3 Employment Agreement dated as of June 27, 1997 by and between the Company and Ronald L. Clements 10.4 Employment Agreement dated as of June 27, 1997 by and between the Company and Ronald E. Huff 10.5 Belden & Blake Corporation Non-Qualified Stock Option Plan 12.1 Statements regarding Computation of Ratios 23.1 Consent of Black, McCuskey, Souers & Arbaugh (included in Exhibit 5.1) 23.2 Consent of Ernst & Young, LLP, Independent Auditors 23.3 Consent of John G. Redic, Inc., Independent Petroleum Engineers 23.4 Consent of Ryder Scott Company, Independent Petroleum Engineers 24.1 Power of Attorney (included on signature page to this Registration Statement) 25.1 Statement of Eligibility and Qualification of Trustee of Form T-1 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery
- --------------- ITEM 22. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post effective amendment hereof) which, individually or in the aggregate, represents a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in this Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereto; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-2 136 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. II-3 137 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of North Canton, Ohio, on August 12, 1997. BELDEN & BLAKE CORPORATION By: /s/ RONALD L. CLEMENTS ------------------------------------ Ronald L. Clements Chief Executive Officer POWER OF ATTORNEY We, the undersigned directors and officers of BELDEN & BLAKE CORPORATION, hereby appoint Ronald L. Clements and Ronald E. Huff, or either of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities indicated below, which said attorneys and agents, or each of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including, without limitation, power and authority to sign for us, or any of us, in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto, and we hereby ratify and confirm all that said attorneys and agents, or each of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on the 12th day of August, 1997, in the capacities indicated.
SIGNATURE TITLE OR CAPACITY - ----------------------------------------------- -------------------------------------------- /s/ RONALD L. CLEMENTS Chief Executive Officer and Director - ----------------------------------------------- (Principal Executive Officer) Ronald L. Clements /s/ RONALD E. HUFF President, Chief Financial Officer and - ----------------------------------------------- Director (Principal Financial and Ronald E. Huff Accounting Officer) /s/ HENRY S. BELDEN IV Director - ----------------------------------------------- Henry S. Belden IV /s/ MAX L. MARDICK Director - ----------------------------------------------- Max L. Mardick Director - ----------------------------------------------- William S. Price, III Director - ----------------------------------------------- David M. Stanton Director - ----------------------------------------------- Joseph M. Vitale
II-4 138 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of North Canton, Ohio, on August 12, 1997. THE CANTON OIL & GAS COMPANY By: /s/ RONALD L. CLEMENTS ------------------------------------ Ronald L. Clements Chief Executive Officer POWER OF ATTORNEY We, the undersigned directors and officers of THE CANTON OIL & GAS COMPANY, hereby appoint Ronald L. Clements and Ronald E. Huff, or either of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities indicated below, which said attorneys and agents, or each of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including, without limitation, power and authority to sign for us, or any of us, in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto, and we hereby ratify and confirm all that said attorneys and agents, or each of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on the 12th day of August, 1997, in the capacities indicated.
SIGNATURE TITLE OR CAPACITY - ----------------------------------------------- -------------------------------------------- /s/ RONALD L. CLEMENTS Chief Executive Officer (Principal Executive - ----------------------------------------------- Officer) Ronald L. Clements /s/ RONALD E. HUFF President and Chief Financial Officer - ----------------------------------------------- (Principal Financial and Accounting Ronald E. Huff Officer) /s/ JOSEPH M. VITALE Director - ----------------------------------------------- Joseph M. Vitale
II-5 139 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of North Canton, Ohio, on August 12, 1997. PEAKE ENERGY, INC. By: /s/ RONALD L. CLEMENTS ------------------------------------ Ronald L. Clements Chief Executive Officer POWER OF ATTORNEY We, the undersigned directors and officers of PEAKE ENERGY, INC., hereby appoint Ronald L. Clements and Ronald E. Huff, or either of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities indicated below, which said attorneys and agents, or each of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including, without limitation, power and authority to sign for us, or any of us, in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto, and we hereby ratify and confirm all that said attorneys and agents, or each of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on the 12th day of August, 1997, in the capacities indicated.
SIGNATURE TITLE OR CAPACITY - ----------------------------------------------- -------------------------------------------- /s/ RONALD L. CLEMENTS Chief Executive Officer (Principal Executive - ----------------------------------------------- Officer) Ronald L. Clements /s/ RONALD E. HUFF President and Chief Financial Officer - ----------------------------------------------- (Principal Financial and Accounting Officer) Ronald E. Huff /s/ JOSEPH M. VITALE Director - ----------------------------------------------- Joseph M. Vitale
II-6 140 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the North Canton, Ohio, on August 12, 1997. TARGET OILFIELD PIPE & SUPPLY COMPANY By: /s/ DENNIS D. BELDEN ------------------------------------ Dennis D. Belden Chief Executive Officer POWER OF ATTORNEY We, the undersigned directors and officers of TARGET OILFIELD PIPE & SUPPLY COMPANY, hereby appoint Ronald L. Clements and Ronald E. Huff, or either of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities indicated below, which said attorneys and agents, or each of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including, without limitation, power and authority to sign for us, or any of us, in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto, and we hereby ratify and confirm all that said attorneys and agents, or each of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on the 12th day of August, 1997, in the capacities indicated.
SIGNATURE TITLE OR CAPACITY - ----------------------------------------------- -------------------------------------------- /s/ DENNIS D. BELDEN Chief Executive Officer and Director - ----------------------------------------------- (Principal Executive Officer) Dennis D. Belden /s/ RONALD E. HUFF Vice President, Chief Financial Officer and - ----------------------------------------------- Director (Principal Financial and Ronald E. Huff Accounting Officer) /s/ ROGER COOPER Director - ----------------------------------------------- Roger Cooper /s/ JOSEPH M. VITALE Director - ----------------------------------------------- Joseph M. Vitale
II-7 141 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the North Canton, Ohio, on August 12, 1997. WARD LAKE DRILLING, INC. By: /s/ RONALD L. CLEMENTS ------------------------------------ Ronald L. Clements Chief Executive Officer POWER OF ATTORNEY We, the undersigned directors and officers of WARD LAKE DRILLING, INC., hereby appoint Ronald L. Clements and Ronald E. Huff, or either of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities indicated below, which said attorneys and agents, or each of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including, without limitation, power and authority to sign for us, or any of us, in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto, and we hereby ratify and confirm all that said attorneys and agents, or each of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on the 12th day of August, 1997, in the capacities indicated.
SIGNATURE TITLE OR CAPACITY - ----------------------------------------------- -------------------------------------------- /s/ RONALD L. CLEMENTS Chief Executive Officer and Director - ----------------------------------------------- (Principal Executive Officer) Ronald L. Clements /s/ RONALD E. HUFF Vice President, Chief Financial Officer and - ----------------------------------------------- Director (Principal Financial and Ronald E. Huff Accounting Officer) /s/ DEAN A. SWIFT Director - ----------------------------------------------- Dean A. Swift /s/ JOSEPH M. VITALE Director - ----------------------------------------------- Joseph M. Vitale /s/ HARRY BECKER Director - ----------------------------------------------- Harry Becker /s/ DAVID BECKER Director - ----------------------------------------------- David Becker
II-8 EX-2.1 2 EXHIBIT 2.1 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of this 27th day of March, 1997, (this "Agreement"), among TPG Partners II, L.P., a Delaware limited partnership ("Parent"), BB Merger Corp., an Ohio corporation and a wholly owned subsidiary of Parent ("Sub"), and Belden & Blake Corporation, an Ohio corporation (the "Company"). WITNESSETH: WHEREAS, the General Partner of Parent and the respective boards of directors of Sub and the Company have each determined that it is in the best interests of their respective partners and stockholders, as applicable, for Parent to acquire the Company upon the terms and subject to the conditions set forth herein; WHEREAS, to complete such acquisition, the boards of directors or general partner, as applicable, of Parent, Sub and the Company have each approved the merger (the "Merger") of Sub with and into the Company in accordance with the Ohio General Corporation Law ("Ohio Law"), upon the terms and subject to the conditions set forth herein, whereby each issued and outstanding share of Common Stock, without par value, of the Company ("Company Common Stock") (shares of Company Common Stock being hereinafter collectively referred to as "Shares") not owned directly or indirectly by Parent or the Company, except holders of Dissenting Shares (as hereinafter defined), will be converted into the right to receive $27 per Share (such amount, or any greater amount per Share paid pursuant to the Merger, being hereinafter referred to as the "Per Share Amount"); WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to Parent's and Sub's willingness to enter into this Agreement, certain holders of shares of Company Common Stock are entering into a Voting Agreement in substantially the form attached hereto as Exhibit A (the "Voting Agreement") pursuant to which such holders have agreed, among other things, to vote all shares of Company Common Stock owned by such shareholders in favor of the Merger and any other matter that requires a shareholder vote in connection with the transactions contemplated hereby; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Sub and the Company hereby agree as follows: ARTICLE I THE MERGER SECTION 1.01. The Merger. Upon the terms and subject to the conditions set forth in Article VI, and in accordance with Ohio Law, at the Effective Time (as defined below) Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). SECTION 1.02. Effective Time; Closing. As promptly as practicable after the satisfaction or, if permissible hereunder, waiver of the conditions set forth in Article VI, the parties hereto shall cause the Merger to be consummated by filing this Agreement or a certificate of merger (in either case, the "Certificate of Merger") with the Secretary of State of the State of Ohio, in such form as is required by, and executed in accordance with the relevant provisions of, Ohio Law (the date and time of such filing being the "Effective Time"). Prior to such filing, a closing shall be held at the offices of Black, McCuskey, Souers & Arbaugh, 1000 United Bank Plaza, Canton, Ohio 44702-2116, or such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver, as the case may be, of the conditions set forth in Article VI. SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Ohio Law. Without limiting the generality of the foregoing, and 1 2 subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of the Company and Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. SECTION 1.04. Articles of Incorporation; Regulations. (a) At the Effective Time the articles of incorporation of Sub, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation until thereafter amended as provided by law and such articles of incorporation except that the name of the corporation specified in such articles of incorporation shall be changed to Belden & Blake Corporation. Such articles of incorporation shall be in the form attached hereto as Exhibit B. (b) The regulations of Sub, as in effect immediately prior to the Effective Time, shall be the regulations of the Surviving Corporation until thereafter amended as provided by law, the articles of incorporation of the Surviving Corporation and such regulations. Such regulations shall be in the form attached as Exhibit C. SECTION 1.05. Directors and Officers. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation from and after the Effective Time, each to hold office in accordance with the articles of incorporation and regulations of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation from and after the Effective Time, in each case until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of incorporation and regulations of the Surviving Corporation. SECTION 1.06. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of any of the following securities: (a) Each Share issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 1.06(b) and any Dissenting Shares (as defined below)) shall be cancelled and converted automatically into the right to receive an amount equal to the Per Share Amount in cash (the "Merger Consideration") payable to the holder of such Share, upon surrender, in the manner provided in Section 1.08, of the certificate that formerly evidenced such Share; (b) Each Share held in the treasury of the Company and each Share owned by Sub, Parent or any direct or indirect wholly owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto; and (c) Each share of common stock, par value $.01 per share, of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the Surviving Corporation. SECTION 1.07. Dissenting Shares. Any contrary provision of this Agreement notwithstanding, Shares that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing shall be deemed not cancelled and converted into the right to receive the Merger Consideration as provided in Section 1.06(a) if the holder of such Shares properly demands in writing the fair cash value for such Shares in accordance with Section 1701.85 of Ohio Law (collectively, the "Dissenting Shares"). Such stockholders shall be entitled to receive payment of the fair cash value of such Shares held by them in accordance with the provisions of such Section 1701.85, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to the fair cash value of such Shares under such Section 1701.85 shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 1.08, of the certificate or certificates that formerly evidenced such Shares. 2 3 SECTION 1.08. Surrender of Shares; Stock Transfer Books. (a) Prior to the Effective Time, Parent and Sub shall designate a bank or trust company to act as agent, which agent shall be reasonably acceptable to the Company (the "Paying Agent"), for the holders of Shares in connection with the Merger to receive the funds to which holders of Shares shall become entitled pursuant to Section 1.06(a), and Sub or Parent shall deposit such funds with the Paying Agent at or prior to the Effective Time. Such funds shall be invested by the Paying Agent as directed by the Surviving Corporation, provided that such investments shall be in obligations of or guaranteed by the United States of America or of any agency thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in deposit accounts, certificates of deposit or banker's acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from, commercial banks with capital, surplus and undivided profits aggregating in excess of $1 billion (based on the most recent financial statements of such bank which are then publicly available at the SEC or otherwise). Any net profit resulting from, or interest or income produced by, such investments shall be payable to the Surviving Corporation or Parent, as Parent directs. (b) Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each person who was, at the Effective Time, a holder of record of Shares entitled to receive the Merger Consideration pursuant to Section 1.06(a) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates evidencing such Shares (the "Certificates") shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates pursuant to such letter of transmittal. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly evidenced by such Certificate, and such Certificate shall then be cancelled. No interest shall accrue or be paid on the Merger Consideration payable upon the surrender of any Certificate for the benefit of the holder of such Certificate. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered on the stock transfer books of the Company, it shall be a condition of payment that the Certificate so surrendered shall be endorsed properly or otherwise be in proper form for transfer and that the person requesting such payment shall have paid all transfer and other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such taxes either have been paid or are not applicable. (c) At any time following the eighteenth month after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds which had been made available to the Paying Agent and not disbursed to holders of Shares (including, without limitation, all interest and other income received by the Paying Agent in respect of all funds made available to it), and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) only as general creditors thereof with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by them. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Share for any Merger Consideration delivered in respect of such Share to a public official pursuant to any abandoned property, escheat or other similar law. (d) At the close of business on the day of the Effective Time, the stock transfer books of the Company with respect to the Shares shall be closed and thereafter there shall be no further registration of transfers of Shares on the records of the Company. From and after the Effective Time, the holders of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided herein or by applicable law. 3 4 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Sub that: SECTION 2.01. Organization and Qualification; Subsidiaries. Each of the Company and each subsidiary of the Company (a "Subsidiary" and collectively, the "Subsidiaries") is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Section 2.01 of the disclosure schedule (the "Company Disclosure Schedule") sets forth a list of the Company's Subsidiaries. The Company and each Subsidiary is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except as would not have a Material Adverse Effect. When used in this Agreement, the term "Material Adverse Effect" means any change or effect that is or is reasonably likely to be materially adverse to the assets, business, financial condition or results of operations of the Company and the Subsidiaries taken as a whole. The Company has made available to Parent a complete and correct copy of the articles of incorporation and regulations of the Company and each Subsidiary. SECTION 2.02. Capitalization. The authorized capital stock of the Company consists of (i) 50,000,000 Shares, of which 11,268,879 Shares are issued and outstanding as of the date hereof, and (ii) 8,000,000 shares of Preferred Stock, no par value ("Company Preferred Stock"), of which 24,000 shares are issued and outstanding as of the date hereof. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights. As of the date hereof, 802,563 Shares are reserved for future issuance upon the exercise of presently outstanding stock options granted pursuant to the Stock Option Plans. Each outstanding share of capital stock of each Subsidiary is duly authorized, validly issued, fully paid and nonassessable and each such share is owned by the Company or another Subsidiary free and clear of all liens, claims, options, charges and other encumbrances of any nature. Except as set forth in this Section 2.02, and except for $5.55 million of convertible subordinated debentures (the "Debentures"), which at present may be converted into 275,434 Shares, and except for the Voting Agreements, as of the date hereof there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which Company or any Subsidiary is a party, obligating the Company or any Subsidiary to issue, sell, repurchase, redeem or otherwise acquire any shares of capital stock of or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of capital stock of the Company or any Subsidiary. There are no voting trusts or other agreements or understandings to which the Company or any Subsidiary of the Company is a party with respect to the voting of the capital stock of the Company, except for the Belden & Blake Corporation Employees 401(k) Profit Sharing Plan. SECTION 2.03. Authority Relative to this Agreement; Approval. The Company has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Merger and the other transactions contemplated hereby (the Merger and such other transactions being herein referred to collectively as the "Transactions"). The execution and delivery of this Agreement by the Company and the consummation by the Company of the Transactions have been duly and validly authorized and approved by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the Transactions (other than, with respect to the Merger, adoption of this Agreement by the stockholders of the Company in accordance with Section 1701.78 of Ohio Law and the articles of incorporation of the Company and the filing and recordation of appropriate merger documents as required by Ohio Law). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditors' rights and (ii) the availability of equitable remedies (whether in a proceeding in equity or at law). 4 5 SECTION 2.04. No Conflict; Required Filings and Consents. (a) Except as set forth in Section 2.04(a) of the Company Disclosure Schedule, the execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the articles of incorporation or regulations or equivalent organizational documents of the Company or any Subsidiary, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company or any Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation, except as would not, individually or in the aggregate, have a Material Adverse Effect. (b) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except for applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), state securities or "blue sky" laws ("Blue Sky Laws") and state takeover laws, the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), and filing and recordation of appropriate merger documents as required by Ohio Law and filings required for foreign qualification purposes. SECTION 2.05. SEC Filings; Financial Statements. (a) The Company has filed all forms, reports and documents required to be filed by it with the SEC since December 31, 1992 (the "SEC Reports"), all of which (i) were prepared in all material respects in accordance with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act, as the case may be, and the rules and regulations thereunder and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the SEC Reports was prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as may be indicated therein or in the notes thereto) and each fairly presented the consolidated financial position, results of operations and changes in financial position of the Company and the consolidated Subsidiaries as at the respective dates thereof and for the respective periods indicated therein except as otherwise noted therein (subject, in the case of unaudited statements, to normal year-end adjustments). SECTION 2.06. Absence of Certain Changes or Events. Since September 30, 1996, except as contemplated by this Agreement or disclosed in Section 2.06 of the Company Disclosure Schedule or in any SEC Report filed since September 30, 1996, and prior to the date of this Agreement, the Company and the Subsidiaries have conducted their businesses only in the ordinary course, and neither the Company nor any Subsidiary has suffered a Material Adverse Effect and none of the following has occurred: (a) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company except regular quarterly dividends on the Preferred Stock, or any repurchase, redemption or other acquisition by the Company or any Subsidiary or other acquisition by the Company or any Subsidiary of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company or any Subsidiary; (b) any incurrence, assumption or guarantee by the Company or any Subsidiary of any material indebtedness for borrowed money (other than borrowings under the Company's existing bank credit facilities) or any creation or assumption by the Company or any Subsidiary of any lien on any material asset other than in the ordinary course of business consistent with past practices; 5 6 (c) any making of any loan, advance or capital contributions to or investment in any person other than loans, advances or capital contributions to or investments in wholly-owned Subsidiaries made in the ordinary course of business consistent with past practices; (d) any change in any method of accounting or accounting practice by the Company or any Subsidiary, except for any such change required by reason of a concurrent change in generally accepted accounting principles; or (e) any (i) grant of any severance or termination pay to any director, officer or employee of the Company or any Subsidiary, (ii) entering into of any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company or any Subsidiary, (iii) any increase in benefits payable under any existing severance or termination pay policies or employment agreements, or (iv) any increase in excess of $50,000 in the aggregate in compensation, bonus or other benefits payable to directors, officers or employees of the Company or any Subsidiary, other than in the ordinary course of business consistent with past practice. SECTION 2.07. Litigation. Except as disclosed in the SEC Reports filed prior to the date of this Agreement or in Section 2.07 of the Company Disclosure Schedule, there is no claim, action, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign ("Governmental Entity"), which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any Subsidiary having, or reasonably likely to have, a Material Adverse Effect. SECTION 2.08. Employee Benefit Plans. (a) Section 2.08(a) of the Company Disclosure Schedule lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements (including, without limitation, oral and informal arrangements) whether legally enforceable or not, to which the Company or any of its Subsidiaries is a party, with respect to which the Company or any of its Subsidiaries has any material obligation or which are maintained, contributed to or sponsored by the Company or any of its Subsidiaries for the benefit of any current or former employee, officer or director of the Company or any of its Subsidiaries, (ii) any plan in respect of which the Company or any of its Subsidiaries could incur material liability under Section 4069 of ERISA in the event such plan has been or were to be terminated, (iii) any plan in respect of which the Company or any of its Subsidiaries could incur liability under Section 4212(c) of ERISA and (iv) any contracts, arrangements or understandings (including, without limitation, oral and informal arrangements) between the Company or any of its Subsidiaries or any of their respective affiliates and any employee of the Company or any of its Subsidiaries (collectively, the "Plans"). Each Plan is in writing and the Company and each of its Subsidiaries has furnished Parent with a true and complete copy of each Plan and a true and complete copy of each material document prepared in connection with each such Plan including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS determination letter for each such Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such Plan. Except as disclosed in Section 2.08(a) of the Company Disclosure Schedule, there are no other employee benefit plans, programs, arrangements or agreements, whether formal or informal, whether in writing or not, to which the Company or any of its Subsidiaries is a party, with respect to which the Company or any of its Subsidiaries has any material obligation or which are maintained, contributed to or sponsored by the Company or any of the Subsidiaries for the benefit of any current or former employee, officer or director of the Company or any of its Subsidiaries. None of the Company or any of its Subsidiaries has any express or implied commitment, whether legally enforceable or not, (i) to create, incur liability with respect to or cause 6 7 to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual or (iii) to modify, change or terminate any Plan, other than with respect to a modification, change or termination required by ERISA or the Code. (b) None of the Plans is a multiemployer plan (within the meaning of Sections 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the meaning of Section 4001(a)(15) or ERISA) for which the Company or any of its Subsidiaries could incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). Except as set forth in Section 2.08(b) of the Company Disclosure Schedule, none of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any Person or obligates the Company or any of its Subsidiaries to pay separation, severance, termination or similar-type benefits solely as a result of any transaction contemplated by this Agreement or as a result of a "change in control", within the meaning of such term under Section 280G of the Code. Except as set forth in Section 2.08(b) of the Company Disclosure Schedule, none of the Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company or any of its Subsidiaries. Each of the Plans is subject only to the laws of the United States or a political subdivision thereof. (c) Each Plan has been operated in all material respects in accordance with the requirements of all applicable laws, including without limitation, ERISA and the Code, and all persons who participate in the operation of such Plans and all Plan "fiduciaries" (within the meaning of Section 3(21) of ERISA) have acted in accordance with the provisions of all applicable laws, including, without limitation, ERISA and the Code except where the failure to do so would not have a Material Adverse Effect. Each of the Company and its Subsidiaries has performed the obligations to be performed by it under, is not in any respect in default under or in violation of, and has no knowledge of any default or violation by any party to, any Plan. No action is pending or threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could give rise to any such action. (d) Each Plan which is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code has received a favorable determination letter from the IRS that it is so qualified and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt, and no fact or event has occurred since the date of such determination letter from the IRS to adversely affect the qualified status of any such Plan or the exempt status of any such trust. Each trust maintained or contributed to by the Company or any of its Subsidiaries which is intended to be qualified as a voluntary employees' beneficiary association and which is intended to be exempt from federal income taxation under Section 501(c)(9) of the Code has received a favorable determination letter from the IRS that it is so qualified and so exempt, and no fact or event has occurred since the date of such determination by the IRS to adversely affect such qualified or exempt status. (e) Except as disclosed in Section 2.08(e) of the Company Disclosure Schedule, there has been no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Except as disclosed in Section 2.08(e) of the Company Disclosure Schedule, none of the Company or any of its Subsidiaries has incurred any liability for any excise tax arising under Section 4971, 4972, 4980 or 4980B of the Code and no fact or event exists which could give rise to any such liability. None of the Company or any of its Subsidiaries has incurred any liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course), including, without limitation, any liability in connection with (i) the termination or reorganization of any employee benefit plan subject to Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer Plan, and no fact or event exists which could give rise to any such liability. No complete or partial termination has occurred within the five years preceding the date hereof with respect to any Plan. No reportable event (within the meaning of Section 4043 of ERISA) has occurred or is expected to occur with respect to any Plan subject to Title IV of ERISA. No Plan had an accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of the most recently ended 7 8 plan year of such Plan. None of the properties or assets of the Company or any of its Subsidiaries is the subject of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code; none of the Company or any of its Subsidiaries has been required to post any security under Section 307 of ERISA or Section 401(a)(29) of the Code; and no fact or event exists which could give rise to any such lien or requirement to post any such security. (f) All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. Except as disclosed in Section 2.08(f) of the Company Disclosure Schedule, all such contributions have been or will be fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any governmental authority and no fact or event exists which could give rise to any such challenge or disallowance. As of the Closing Date, no Plan which is subject to Title IV of ERISA will have an "unfunded benefit liability" (within the meaning of Section 4001(a)(18) of ERISA). SECTION 2.09. Labor Matters. The Company has made available to Parent all collective bargaining or other labor union contracts to which the Company or any Subsidiary is a party and which are applicable to persons employed by the Company or any Subsidiary as of the date hereof. Except as set forth in Section 2.09 of the Company Disclosure Schedule, there are no strikes, slowdowns, work stoppages or lockouts, or, to the knowledge of the Company, threats thereof, by or with respect to any employees of the Company or any Subsidiary. SECTION 2.10. Proxy Statement. The Proxy Statement to be sent to the stockholders of the Company in connection with the Stockholders' Meeting (as defined below) (such proxy statement, as amended or supplemented, being referred to herein as the "Proxy Statement") and, if required to be filed, a Rule 13E-3 Transaction Statement on Schedule 13E-3 relating thereto (the "Schedule 13E-3"), will not, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company, at the time of the Stockholders' Meeting and at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent or Sub or any of their respective representatives which is contained in any of the foregoing documents. The Proxy Statement and the Schedule 13E-3 will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations thereunder. SECTION 2.11. Brokers. No broker, finder or investment banker (other than Goldman Sachs & Co., which shall be paid a fee in accordance with that certain letter agreement with the Company dated September 26, 1996, is entitled to any brokerage, finder's or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company. SECTION 2.12. Taxes. The Company and each of its Subsidiaries have filed all United States federal income tax returns and all other tax returns required to be filed by them or any of them (except where the failure to file would not have a Material Adverse Effect), and have paid and discharged all taxes shown therein to be due and there are no other taxes that would be due if asserted by a taxing authority, except such as are being contested in good faith by appropriate proceedings (to the extent that any such proceedings are required) or with respect to which the Company is maintaining reserves in accordance with generally accepted accounting principles. Neither the IRS nor any other taxing authority or agency is now asserting or, to the Company's knowledge, threatening to assert against the Company or any of its Subsidiaries any deficiency or claim for additional taxes other than additional taxes with respect to which the Company is maintaining reserves in accordance with generally accepted accounting principles. SECTION 2.13. Title to Property. Except as disclosed in Section 2.13 of the Company Disclosure Schedule, the Company and each of its Subsidiaries have good and defensible title to all of their properties 8 9 and assets, free and clear of all liens, charges and encumbrances except liens for taxes not yet due and payable and such liens or other imperfections of title, if any, as do not materially detract from the value of or interfere with the present use of the property affected thereby or which, individually or in the aggregate, would not have a Material Adverse Effect; and, to the knowledge of the Company, all leases pursuant to which the Company or any of its Subsidiaries lease from others real or personal property, are in good standing, valid and effective in accordance with their respective terms, and there is not, to the knowledge of the Company, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a material default and in respect of which the Company or such Subsidiary has not taken adequate steps to prevent such a default from occurring). SECTION 2.14. Environmental Matters. Except as disclosed in the SEC Reports filed prior to the date of this Agreement or Section 2.14 of the Company Disclosure Schedule: (a) (i) the Company and each of its Subsidiaries is in substantial compliance with all applicable Federal, state, local and foreign laws and regulations relating to protection of public health, welfare and the environment ("Environmental Laws"), (ii) the Company and each of its Subsidiaries holds all the material permits, licenses and approvals of governmental authorities and agencies necessary for the current use, occupancy or operation of the Company's business under Environmental Laws ("Environmental Permits"), and (iii) the Company and each of its Subsidiaries is in substantial compliance with all its environmental Permits. (b) The Company and each of its Subsidiaries has not been notified that it is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any similar federal, state, local or foreign law with respect to any owned or leased real property or any other location. (c) The Company and each of its Subsidiaries has not entered into or agreed to any consent decree or order and is not subject to any judgment, decree or judicial order relating to compliance with or the cleanup of substances regulated under any applicable Environmental Law. (d) None of the Company's or any of its Subsidiaries' owned or leased real property is listed or, to the knowledge of the Company, proposed for listing on the "National Priorities List" under CERCLA, or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the United States Environmental Protection Agency, as updated through January 31, 1997, or any similar state list of sites requiring investigation or cleanup. (e) To the knowledge of the Company, there are no circumstances that could give rise to material liabilities under Superfund RCRA or similar statutes including liabilities relating to remediation or natural resources damages arising from on-site or off-site conditions. SECTION 2.15. No Undisclosed Material Liabilities. Except as previously disclosed to Sub in writing, there are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability, other than: (i) liabilities disclosed or provided for in the SEC Reports filed prior to the date of this Agreement; and (ii) liabilities incurred in the ordinary course of business since the end of the period covered by the most recent SEC Report filed prior to the date of this Agreement, which individually or in the aggregate would not have a Material Adverse Effect. SECTION 2.16. Board Approval; Fairness. (a) The Board of Directors of the Company, at a meeting duly called and held on March 27, 1997, has (i) approved and adopted this Agreement and the Transactions including the Merger and (ii) recommended that the stockholders of the Company approve the Merger and adopt this Agreement and Transactions; provided, however, that such recommendation of the Board may be withdrawn, modified or amended by the Board at any time if, in the good faith opinion of the Board after 9 10 consultation with counsel, such recommendation would be inconsistent with its fiduciary duties under applicable law (collectively, "Fiduciary Duty"). (b) The Company further represents that Goldman Sachs & Co. has delivered to the Board its oral opinion, to be promptly followed up in writing, to the effect that, as of the date of the opinion, the cash consideration to be received by the holders of Shares in the Transactions contemplated by this Agreement is fair to such holders from a financial point of view, and a true and complete copy of such opinion has been delivered to Parent and Sub, it being understood and acknowledged that such opinion has been rendered for purposes of advising the Board of Directors of the Company and may not be relied upon by Parent, Sub, their affiliates or respective stockholders. (c) The Board of Directors of the Company has approved, for the purposes of Chapter 1704 of Ohio Law, (a) the grant of the option contemplated by the Voting Agreement and any acquisition of Shares by Sub pursuant to the Voting Agreement and (b) any acquisition of Shares by Sub in connection with the transactions contemplated by this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub hereby, jointly and severally, represent and warrant to the Company that: SECTION 3.01. Organization. Parent is a limited partnership organized and existing under the laws of the State of Delaware. Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. Each of Parent and Sub has the requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. SECTION 3.02. Authority Relative to this Agreement. Each of the Parent and Sub has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Transactions. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the Transactions have been duly and validly authorized by all necessary action and no other proceedings on the part of Parent or Sub are necessary to authorize this Agreement or to consummate the Transactions (other than, with respect to the Merger, the filing and recordation of appropriate merger documents as required by Ohio Law). This Agreement has been duly and validly executed and delivered by Parent and Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Sub enforceable against each of Parent and Sub in accordance with its terms, except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditors' rights and (ii) the availability of equitable remedies (whether in a proceeding in equity or at law). SECTION 3.03. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Parent and Sub do not, and the performance of this Agreement by Parent and Sub will not, (i) conflict with or violate the partnership agreement or articles of incorporation or regulations of either Parent or Sub, as applicable, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or Sub or by which any property or asset of either of them is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of Parent or Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Sub is a party or by which Parent or Sub or any property or asset of either of them is bound or affected. (b) The execution and delivery of this Agreement by Parent and Sub do not, and the performance of this Agreement by Parent and Sub will not, require any consent, approval, authorization or permit of, of filing with or notification to, any governmental or regulatory authority, domestic or foreign, except 10 11 (i) for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and state takeover laws, the HSR Act and filing and recordation of appropriate merger documents as required by Ohio Law and (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications (other than as is set forth in clause (i)) would not prevent or delay consummation of the Merger, or otherwise prevent Parent or Sub from performing their respective obligations under this Agreement. SECTION 3.04. Financing. Parent and Sub have delivered to the Company copies of a commitment letter obtained by Parent and Sub respecting a senior credit facility to be incurred at the Closing and a bridge facility that may be utilized by Parent and Sub to consummate the transactions contemplated hereby. SECTION 3.05. Proxy Statement. The information supplied by Parent for inclusion in the Proxy Statement or the Schedule 13E-3 will not, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company, at the time of the Stockholders' Meeting and at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. Notwithstanding the foregoing, Parent and Sub make no representation or warranty with respect to any information supplied by the Company or any of its representatives which is contained in any of the foregoing documents. SECTION 3.06. Sub. Sub was formed solely for the purpose of engaging in the Transactions and has not engaged in any business activities or conducted any operations other than in connection with the Transactions. SECTION 3.07. Brokers. No broker, finder or investment banker (other than Johnson Rice & Company whose fee will be paid by Parent and Sub) is entitled to any brokerage, finder's or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Parent or Sub. SECTION 3.08. Post Merger Business. It is the present intention of Parent and Sub that subsequent to the Merger they will maintain the Company's corporate headquarters and principal executive offices in the greater Canton, Ohio area and will preserve substantially intact the Company's business organization and employee work force. ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER SECTION 4.01. Conduct of Business by the Company Pending the Merger. The Company covenants and agrees that, between the date of this Agreement and the Effective Time, unless Parent shall otherwise agree in writing, the businesses of the Company and its Subsidiaries shall be conducted only in, and the Company and the Subsidiaries shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; and the Company shall use all reasonable efforts to preserve substantially intact the business organization of the Company and its Subsidiaries, to keep available the services of the current officers, employees and consultants of the Company and the Subsidiaries and to preserve the current officers, employees and consultants of the Company and the Subsidiaries and to preserve the current relationships of the Company and the Subsidiaries with customers, suppliers and other persons with which the Company or any Subsidiary has significant business relations. By way of amplification and not limitation of the foregoing, except as contemplated by this Agreement, neither the Company nor any Subsidiary shall, between the date of this Agreement and the Effective Time, directly or indirectly do, or propose to do, any of the following without the prior written consent of Parent: 11 12 (a) amend or otherwise change its articles of incorporation or regulations or equivalent organizational documents; (b) issue, sell, pledge, dispose of, grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of capital stock of any class of the Company or any Subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any shares or such capital stock, or any other ownership interest, of the Company or any Subsidiary (except for the issuance of a maximum of 1,077,997 Shares issuable pursuant to stock options outstanding on the date hereof and conversion of the Debentures) or (ii) any material assets of the Company or any Subsidiary, except for sales in the ordinary course of business; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; provided, however, that the Company may make scheduled dividend payments on the Company Preferred Stock; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; provided, however, that the Company may redeem any or all outstanding Company Preferred Stock pursuant to the terms thereof; (e) increase the compensation payable or to become payable to its officers or employees, except for increases in accordance with past practices in salaries or wages of employees of the Company or any Subsidiary, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company or any Subsidiary, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee except amendments required by law; or (f) create, incur, assume, guarantee or otherwise become liable for any amount of indebtedness for borrowed money (other than borrowings under the Company's existing bank credit facilities), individually or in the aggregate, material to the condition (financial or otherwise), business, results of operations or prospects of the Company and the Subsidiaries taken as a whole. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.01. Stockholders' Meeting. In order to consummate the Merger, the Company, acting through the Board, shall, in accordance with applicable law and the Company's restated articles of incorporation and regulations, (i) duly call, give notice of, convene and hold an annual or special meeting of its stockholders as soon as practicable following the execution and delivery of this Agreement for the purpose of considering and taking action on this Agreement, the Merger and the other Transactions (the "Stockholders' Meeting"), and (ii) subject to its Fiduciary Duty, include in the Proxy Statement the recommendations of the Board that the stockholders of the Company approve and adopt this Agreement and the Transactions. At the Stockholders' Meeting, Parent and Sub shall cause all Shares then owned by them and their subsidiaries to be voted in favor of the approval and adoption of this Agreement and the Transactions. SECTION 5.02. Proxy Statement. As soon as practicable following the execution and delivery hereof, the Company shall file the Proxy Statement in preliminary form and the Schedule 13E-3 with the SEC under the Exchange Act, and shall use all reasonable efforts to have the Proxy Statement cleared by the SEC. Parent, Sub and the Company shall cooperate with each other in the preparation of the Proxy Statement and the Schedule 13E-3, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and the Schedule 13E-3, and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall promptly provide to Parent copies of all correspondence between the Company or any representative of the Company and the SEC. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement and the Schedule 13E-3 prior 12 13 to their being filed with the SEC and shall give Parent and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and the Schedule 13E-3 and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. Each of the Company, Parent and Sub agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC and to cause the Proxy Statement and all required amendments and supplements thereto to be mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at the earliest practicable time. SECTION 5.03. Access to Information; Confidentiality. (a) From the date hereof to the Effective Time, the Company shall, and shall cause the Subsidiaries and the officers, directors, employees, auditors and agents of the Company and the Subsidiaries to, afford the officers, employees and agents of Parent and Sub access at all reasonable times to the officers, employees, agents, properties, offices, plants and other facilities, books and records of the Company and each Subsidiary, and shall make available to Parent and Sub all financial, operating and other data and information as Parent or Sub, through its officers, employees or agents, may reasonably request provided that no investigation pursuant to this Section shall affect any representation or warranty given by the Company to Parent and Sub hereunder. (b) All information obtained by Parent or Sub pursuant to this Section 5.03 shall be kept confidential in accordance with the confidentiality agreement, dated October 24, 1996 (the "Confidentiality Agreement"), between TPG Partners, L.P. and the Company. SECTION 5.04. Acquisition Proposals. Each of the Company and its Subsidiaries will not, directly or indirectly, and will instruct and otherwise use its commercially reasonable efforts to cause their respective officers, directors, employees, agents or advisors or other representatives or consultants not to, (i) directly or indirectly, solicit or initiate any proposals or offers from any person relating to any acquisition or purchase of all or a material amount of the assets of, or any securities of, or any merger, consolidation or business combination with, the Company or any of its Subsidiaries or (ii) except to the extent required by the Fiduciary Duty of the Company's Board of Directors, participate in any negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person to do or seek any of the foregoing. The Company will promptly notify Parent in the event of any proposal or offer of the type referred to in clause (i) of the first sentence of this Section 5.04, indicating in reasonable detail the identity of the persons involved and the terms and conditions of any proposal or offer. The Company will promptly notify Parent in the event of the occurrence of any matter referred to in clause (ii) of the first sentence of this Section 5.04 and indicate in reasonable detail the identity of the persons involved. SECTION 5.05. Directors' and Officers' Indemnification and Insurance. (a) For a period of six years from and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless the present and former directors and officers of the Company and its Subsidiaries against all losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (i) in respect of acts or omissions occurring at or prior to the Effective Time to the fullest extent that the Company would have been permitted to indemnify such person under Ohio law and the articles of incorporation and regulations of the Company in effect on the date hereof, or (ii) arising out of or pertaining to the Merger and the transactions contemplated by this Agreement. (b) The Surviving Corporation shall use its reasonable best efforts to maintain in effect for six (6) years from the Effective Time directors' and officers' liability insurance providing coverage no less favorable to the directors and officers of the Company at the Effective Time than the current directors' and officers' liability insurance policies maintained by the Company with respect to matters occurring prior to the Effective Time; provided that in satisfying the obligations under this provision, the Surviving Corporation shall not be obligated to pay annual premiums in excess of 200% of the amount per annum the Company paid in its last full fiscal year. 13 14 (c) This Section 5.05 shall survive the Effective Time and is intended to be for the benefit of, and shall be enforceable by, the Indemnified Parties and shall be binding on the Surviving Corporation and their respective successors and assigns. SECTION 5.06. Further Action. Upon the terms and subject to the conditions hereof, each of the parties hereto shall (i) make promptly its respective filings, and thereafter make any other required submissions, under the HSR Act with respect to the Transactions and (ii) use all reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions, including, without limitation, using all reasonable efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Company and the Subsidiaries as are necessary for the consummation of the Transactions and to fulfill the conditions to the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such action. SECTION 5.07. Public Announcements. Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or any Transaction and shall not issue any such press release or make any such public statement, except with the written approval of the other or as may be required by law or any listing agreement with a national securities exchange to which Parent or the Company is a party. SECTION 5.08. Notices of Certain Events. The Company shall promptly notify Parent and Sub of: (i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement; and (iii) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge threatened against, relating to or involving or otherwise affecting the Company or any Subsidiary which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 2.07 or which relate to the consummation of the transactions contemplated by this Agreement. SECTION 5.09. Takeover Statute. (a) If any "fair price", "moratorium", "control share acquisition" or other form of anti-takeover statute or regulations is or shall become applicable to the transactions contemplated hereby, the Company and, subject to its Fiduciary Duty, the members of the Board of Directors of the Company shall grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby. (b) Without limiting the foregoing, the Company agrees to take any and all actions as are necessary such that the Merger may be authorized by the Company's stockholders in accordance with Section 1701.78 of Ohio Law including, without limitation, the calling of a special meeting of stockholders pursuant to Section 5.01 and delivery of the notice required by Section 5.01 and a Proxy Statement as set forth in Section 5.02. SECTION 5.10. Certain Employee Benefit Plans. Following the Effective Time, the Surviving Corporation shall be bound by the severance pay plans, severance agreements and deferred compensation plans and agreements disclosed in Section 2.08 of the Company Disclosure Schedule. The provisions of this Section 5.10 are intended for the benefit of, and shall be enforceable by, the directors, officers and employees who are parties to such severance or deferred compensation agreements or participate in such severance pay or deferred compensation plans. 14 15 SECTION 5.11. Stock Options. The Company will exert commercially reasonable best efforts to obtain prior to the Effective Time from each holder of an outstanding option (an "Option") to purchase Shares granted under the Company's Stock Option Plan and the Company's Non-Employee Director Stock Option Plan (collectively, the "Stock Option Plans"), which is exercisable prior to the Effective Time or would become exercisable in accordance with the Stock Option Plans and/or separate agreements between the Company and certain Option holders effective on the consummation of the Transactions, the surrender or agreement to surrender of such Option in consideration of the payment in cash equal to the product of (i) the number of Shares previously subject to such Option and (ii) the excess, if any, of the Merger Consideration over the exercise price per share of such Option; provided, however, that this Section 5.11 shall not apply to those options listed in Section 5.11 of the Company Disclosure Schedule. SECTION 5.12. Equity Capital Contribution. At the closing referred to in Section 1.02, Parent agrees to contribute to Sub not less than $110 million of equity capital less the product of (i) the number of Shares covered by Options that are not surrendered pursuant to Section 5.11 and (ii) the excess, if any, of the Merger Consideration over the exercise price per share of such Options. ARTICLE VI CONDITIONS TO THE MERGER SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. This Agreement and the Transactions shall have been approved and adopted by the affirmative vote of the stockholders of the Company to the extent required by Ohio Law and the articles of incorporation of the Company; provided that Parent and Sub shall cause all Shares then owned by them and their subsidiaries to be voted in favor of the Merger. (b) HSR Act. Any waiting period (and any extension thereof) under the HSR Act applicable to the consummation of the Merger shall have expired or been terminated. (c) No Order. No federal or state governmental authority or other agency or commission or federal or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, ruling or injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger; provided, however, that this condition shall not be applicable to the obligations of any party until such party shall have used all reasonable efforts to have such decree, ruling, injunction or order vacated or lifted. SECTION 6.02. Conditions of Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger are subject to the satisfaction of the following additional conditions at or prior to the Effective Time, unless waived in writing by Parent and Sub: (a) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement shall be true and correct or, in the case of representations and warranties not containing any materiality qualifier, including, without limitation, "Material Adverse Effect," shall be true and correct in all material respects (i) as of the date hereof and (ii) as of the Closing Date, as though made on and as of the Closing Date (provided, however, that in the cases of clauses (i) and (ii), any such representation and warranty made as of a specific date shall be true and correct as of such specific date), and Parent and Sub shall have received certificates to such effect signed by the Chief Executive Officer or the Chief Financial Officer of the Company. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all its obligations and covenants required to be performed by the Company under this 15 16 Agreement prior to or as of the Closing Date, and Parent and Sub shall have received certificates to such effect signed by the Chief Executive Officer or the Chief Financial Officer of the Company. (c) Consents. Parent and Sub shall have received duly executed copies of all third-party consents and approvals contemplated by this Agreement to be obtained by the Company in form and substance reasonably satisfactory to Parent and Sub, except those consents the failure to so receive would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (d) Board Approval. The Board of Directors of the Company shall not have withdrawn or modified in a manner materially adverse to Parent or Sub the approval or recommendation of the Merger, the Merger Agreement or the Other Transactions, or approved or recommended any takeover proposal or any other acquisition of Shares other than the Transactions. (e) No Market Events. None of the following shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange, (ii) the declaration of a banking moratorium or any suspension of payments in respect to banks in the United States, (iii) the commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States that has a Material Adverse Effect, (iv) any material limitation (whether or not mandatory) by any governmental authority on, or any other event which might materially affect, the extension of credit by lending institutions that has a Material Adverse Effect, or (v) in the case of any of the foregoing existing at the date hereof, a material acceleration or worsening thereof. (f) No Material Adverse Change. Neither the Company nor any Subsidiary shall have suffered a Material Adverse Effect or any development that, insofar as can reasonably be foreseen, is likely to result in a Material Adverse Effect other than as a result of conditions affecting the oil and gas industry generally. (g) Redemption of Preferred Stock. The Company shall have effected the redemption of all issued and outstanding shares of the Company's Class II Serial Preferred Stock in accordance with the terms of such preferred stock prior to the record date to be established by the Board for the special meeting of stockholders to approve the Merger. (h) Change of Control Payments. There shall be no material litigation or material outstanding claims with respect to change of control, severance or other similar payments payable to officers or employees of the Company. SECTION 6.03. Conditions of Obligations of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction of the following conditions at or prior to the Effective Time, unless waived in writing by the Company; (a) Representations and Warranties. The representations and warranties of Parent and Sub and set forth in this Agreement shall be true and correct or, in the case of representations and warranties not containing any materiality qualifier, including, without limitation, "Material Adverse Effect," shall be true and correct in all material respects (i) as of the date hereof and (ii) as of the Closing Date, as though made on and as of the Closing Date (provided, however, that in the cases of clauses (i) and (ii), any such representation and warranty made as of a specific date shall be true and correct as of such specific date), and the Company shall have received certificates to such effect signed by a senior executive officer of Parent and a senior executive officer of Sub to such effect with respect to Parent matters and Sub matters, respectively. (b) Performance of Obligations of Parent and Sub. Each of Parent and Sub shall have performed in all material respects all of their respective obligations and covenants required to be performed by such party under this Agreement prior to or as of the Closing Date, and the Company shall have received certificates to such effect signed by the Chief Financial Officer of Parent and the President of Sub with respect to Parent and Sub matters, respectively. 16 17 (c) Consents. The Company shall have received duly executed copies of all third party consents and approvals contemplated by this Agreement to be obtained by Parent in form and substance reasonably satisfactory to the Company, except those consents the failure to so receive, would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (d) Fairness Opinion. The fairness opinion referred to in Section 2.16(b) shall not have been withdrawn or modified and the Company shall have received a fairness opinion, substantially in the form of the fairness opinion referred to in Section 2.16(b), to be included in the Company's Proxy Statement, and such fairness opinion shall not have been withdrawn or modified. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER SECTION 7.01. Termination. This Agreement may be terminated and the Merger and the other Transactions may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval and adoption of this Agreement and the Transactions by the stockholders of the Company: (a) By mutual written consent duly authorized by the boards of directors or general partner, as applicable, of Parent, Sub and the Company; or (b) By either Parent, Sub or the Company if (i) the Effective Time shall not have occurred on or before the date that is 120 days following the date of this Agreement; provided, however, that the right to terminate this Agreement under this Section 7.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date or (ii) any court of competent jurisdiction in the United States or other United States governmental authority shall have issued an order, decree, ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; or (c) By Parent (i) in the case of an occurrence or circumstance that would result in a failure to satisfy any condition set forth in Section 6.01 or Section 6.02, unless such occurrence or circumstance shall have been caused by or resulted from the failure of Parent or Sub to perform in any material respect any material covenant or agreement of either of them contained in this Agreement or the material breach by Parent or Sub of any material representation or warranty of either of them contained in this Agreement or (ii) if the Board or any committee thereof shall have withdrawn or modified in a manner materially adverse to Sub or Parent its approval or recommendation of this Agreement or the Merger or shall have recommended another merger, consolidation, business combination with, or acquisition of, the Company or its assets or another tender offer for Shares; or (d) By the Company (i) in the case of an occurrence or circumstance that would result in a failure to satisfy any of the conditions set forth in Section 6.01 or Section 6.03, unless such occurrence or circumstance shall have been caused by or resulted from the failure of the Company to perform in any material respect any material covenant or agreement of it contained in this Agreement or the material breach by the Company of any material representation or warranty of it contained in this Agreement or (ii) if the Board shall have withdrawn or modified in a manner adverse to Sub or Parent its approval or recommendation of the Offer, this Agreement or the Merger; or (e) By Parent, Sub or the Company if the Stockholders of the Company do not approve the Merger and the other Transactions at the Stockholders' Meeting. SECTION 7.02. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.01, this Agreement shall forthwith become void, and there shall be no liability on the part of any party hereto or its affiliates, directors, officers, advisors or shareholders, except (i) as set forth in Section 7.02 and in Sections 7.03 and 8.01 and (ii), except as set forth in Section 7.03(c), nothing shall relieve any party from liability for any intentional breach hereof. 17 18 SECTION 7.03. Fees. (a) If: (i) Parent, Sub or the Company terminates this Agreement pursuant to Sections 7.01(c) or 7.01(d), and within 12 months thereafter, the Company enters into an agreement with respect to a Third Party Acquisition (as defined below) or a Third Party Acquisition occurs, involving any party (or any affiliate thereof) (x) with whom the Company had any discussions with respect to a Third Party Acquisition, (y) to whom the Company furnished information with respect to or with a view to a Third Party Acquisition or (z) who had submitted a proposal or expressed any interest publicly or to the Company in a Third Party Acquisition, in the case of each of clauses (x), (y) and (z), prior to such termination; or (ii) Parent, Sub or the Company terminates this Agreement pursuant to Sections 7.01(c) or 7.01(d) and within 12 months thereafter a Third Party Acquisition shall occur involving a direct or indirect consideration (or implicit valuation) for Shares in excess of the Merger Consideration; then the Company shall pay to Parent and Sub a fee of $12,400,000; provided, however, that: (i) the Company in no event shall be obligated to pay more than one such fee with respect to all such agreements and occurrences and such termination; (ii) the fee required to be paid under this Section 7.03(a) shall be reduced dollar-for-dollar by any fee paid by the Company to Parent under Section 7.03(b); and (iii) the Company shall not be obligated to pay the fee required to be paid pursuant to this Section 7.03(a) if this Agreement is terminated due solely to a failure to be satisfied of any of the following conditions: Sections 6.01(b), 6.01(c), 6.02(e), 6.03(a) and 6.03(b), provided that at such time each and all of the conditions set forth in Sections 6.01 and 6.02 (other than Section 6.02(e)) shall have been satisfied. "Third Party Acquisition" means the occurrence of any of the following events: (i) the acquisition of all of the stock or assets of the Company by merger or otherwise by any person other than Parent, Sub or any affiliate thereof (a "Third Party"); or (ii) the acquisition by a Third Party of 50% or more of the total assets of the Company and its Subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 50% or more of the outstanding Shares. (b) In recognition of the significant expenditure of executive time and resources incurred by Parent and Sub in connection with the negotiation of this Agreement and investigation of the transactions contemplated hereby, and in light of the difficulty in calculating the value of such executive time and resources, upon the termination of this Agreement (i) by Parent or Sub pursuant to Section 7.01(c)(i), or (ii) under circumstances in which the Company shall be obligated to pay a fee pursuant to Section 7.03(a), the Company shall pay to Parent $5,000,000 provided, however, the Company shall not be obligated to pay the fee required to be paid pursuant to this Section 7.03(b) if this Agreement is terminated due solely to a failure to be satisfied of any of the following conditions: Sections 6.01(b), 6.01(c), 6.02(e), 6.03(a) and 6.03(b), provided that at such time each and all of the conditions set forth in Sections 6.01 and 6.02 (other than Section 6.02(e)) shall have been satisfied. Notwithstanding the foregoing, the Company shall not be obligated to pay the fee required to be paid pursuant to this Section 7.03(b) if: (i) this Agreement is terminated due solely to a failure to be satisfied of the condition set forth in Section 6.01(a); and (ii) prior to the stockholders' meeting contemplated therein the Company has not received a bona fide proposal for a Third Party Acquisition and no third party has publicly announced an intention to make such a proposal, provided that at such time each and all of the conditions set forth in Sections 6.01 and 6.02 shall have been satisfied; provided, however, in such circumstance, the Company shall promptly reimburse Parent and Sub for their reasonable out-of-pocket expenses incurred in connection with the proposed Transactions, but not in excess of $500,000 in the aggregate. (c) If this Agreement is terminated by the Company pursuant to Section 7.01(d) due solely to a failure to be satisfied of the conditions set forth in Section 6.03(a) and (b), Parent shall pay to the Company $5,000,000; provided, however (i) Parent shall not be obligated to pay such sum to the Company if at the time the Company so terminates this Agreement, any of the conditions set forth in Sections 6.01 and 6.02 shall not have been satisfied and (ii) payment of such sum shall be the Company's sole and exclusive remedy, at law or in equity, arising from such termination. 18 19 (d) Except as set forth in this Section 7.03, all costs and expenses incurred in connection with the Agreement and the Transactions shall be determined and paid by the party incurring such expenses, whether or not any Transaction is consummated. SECTION 7.04. Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective boards of directors at any time prior to the Effective Time; provided, however, that, after the approval and adoption of this Agreement and the Transactions by the stockholders of the Company, no amendment may be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 7.05. Waiver. At any time prior to the Effective Time, any party hereto may (i) extend the time for the performance of any obligation or other act of any other party hereto, (ii) waive any inaccuracy in the representations and warranties contained herein or in any document delivered pursuant hereto or (iii) waive compliance with any agreement or condition (other than, with respect to Parent and Sub, the Minimum Condition) contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. ARTICLE VIII GENERAL PROVISIONS SECTION 8.01. Non-Survival of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 7.01, as the case may be, except that the agreements set forth in Article I and Section 5.06 shall survive the Effective Time indefinitely, the agreements set forth in Section 5.05 shall survive the Effective Time for the respective periods set forth therein and the agreements set forth in Section 5.03(b) shall survive termination indefinitely. SECTION 8.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.02): if to Parent or Sub: c/o TPG Partners II, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attn: James J. O'Brien with a copy to: Kevin G. Levy Kelly, Hart & Hallman, P.C. 201 Main Street, Suite 2500 Fort Worth, Texas 76102 if to the Company: Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 47720 Attn: Joseph M. Vitale Senior Vice President and General Counsel 19 20 with copies to: Anthony E. Efremoff Black, McCuskey, Souers & Arbaugh 1000 United Bank Plaza Canton, Ohio 44702-2116 and David Porter Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 SECTION 8.03. Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" of a specified person means a person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such specified person; (b) "beneficial owner" with respect to any Shares means a person who shall be deemed to be the beneficial owner of such Shares (i) which such person or any of its affiliates or associates (as such term is defined in Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or indirectly, (ii) which such person or any of its affiliates or associates has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of consideration rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding or (iii) which are beneficially owned, directly or indirectly, by any other persons with whom such person or any of its affiliates or associates or person with whom such person or any of its affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Shares; (c) "business day" means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks are not required or authorized to close in the City of New York; (d) "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise; and (e) "person" means an individual, corporation, partnership, limited partnership, syndicate, person (including, without limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government. SECTION 8.04. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. SECTION 8.05. Entire Agreement; Assignment. Except for the Confidentiality Agreement, this Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise without the consent of the other parties provided, however, that Sub may transfer or assign, in whole or from time to time in part, to one or more of its affiliates, including Parent, its rights hereunder, but any such transfer or assignment will not relieve Sub of its obligations hereunder or prejudice the rights of stockholders to receive payment for their Shares pursuant to the Merger. 20 21 SECTION 8.06. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Sections 5.05, 5.06 and 5.10 (which are intended to be for the benefit of the persons covered thereby and may be enforced by such persons). SECTION 8.07. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio applicable to contracts executed in and to be performed in that State. SECTION 8.08. Headings. The descriptive headings contained in this Agreement are included for convenience or reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 8.09. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. TPG PARTNERS II, L.P. By TPG GenPar II, L.P., its General Partner By TPG Advisors II, Inc., its General Partner By: /s/ Richard A. Ekleberry ------------------------------------ Name: Richard A. Ekleberry Title: Vice President PARENT BB MERGER CORP By: /s/ Richard A. Ekleberry ------------------------------------ Name: Richard A. Ekleberry Title: Vice President MERGER SUB BELDEN & BLAKE CORPORATION By: /s/ Henry S. Belden IV ------------------------------------ Name: Henry S. Belden IV Title: Chief Executive Officer COMPANY 21 EX-3.1 3 EXHIBIT 3.1 1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF BELDEN & BLAKE CORPORATION FIRST: The name of the Corporation is Belden & Blake Corporation. SECOND: The place in the State of Ohio where the Corporation's principal office is to be located is the City of Green, Summit County, Ohio. THIRD: The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code. Subject to limitations prescribed by law or expressly set forth elsewhere in these Articles, but otherwise without limitation, the Corporation may explore and drill for, produce, market, sell and deal in and with oil, natural gas, hydrocarbons and derivatives thereof, purchase or otherwise acquire, lease as lessee, invest in, hold, use, lease as lessor, encumber, sell, exchange, transfer, and dispose of property of any description or any interest in such property, make contracts, form or acquire the control of other corporations, be a partner, member, associate, or participant in other enterprises or ventures, conduct its affairs in the State of Ohio and elsewhere, borrow money, issue, sell, and pledge its notes, bonds, and other evidences of indebtedness, secure any of its obligations by mortgage, pledge, or deed of trust of all or any of its property, guarantee or secure obligations of any person, and do all other things permitted by law and exercise all authority within such purposes or incidental thereto. FOURTH: The authorized number of shares of the Corporation shall be 58,000,000, all of which shall be designated as Common Shares without par value. FIFTH: When authorized by the affirmative vote of the directors, without any action by the shareholders, the Corporation may purchase its own shares for such prices, in such manner and upon such terms and conditions as the directors from time to time may determine, except that no such purchase shall be made if immediately thereafter the Corporation's assets would be less than its liabilities plus stated capital, if any, or if the Corporation is insolvent (as defined in Chapter 1701 of the Ohio Revised Code) or if there is reasonable ground to believe that by such purchase it would be rendered insolvent. 2 SIXTH: No holder of shares of the Corporation of any class, as such, shall have any pre-emptive right to purchase shares of the Corporation, to purchase securities convertible into or exchangeable for shares of the Corporation, or to purchase rights entitling the holder to acquire shares of the Corporation. SEVENTH: Notwithstanding any provision of Chapter 1701 of the Ohio Revised Code, now or hereafter in force, designating for any purpose the vote or consent of the holders of shares entitling them to exercise in excess of a majority of the voting power of the Corporation or of any particular class or classes of shares of the Corporation, such action, unless otherwise expressly required by statute, may be taken by the vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes. These Amended and Restated Articles of Incorporation shall supercede and take the place of the existing Articles of Incorporation. 3 - -------------------------------------------------------------------------------- 798027 UNITED STATES OF AMERICA, STATE OF OHIO OFFICE OF THE SECRETARY OF STATE I, BOB TAFT, Secretary of State of the State of Ohio, do hereby certify that the foregoing is a true and correct copy, consisting of 8 pages, as taken from the original record now in my official custody as Secretary of State. WITNESS my hand and official seal of Columbus, Ohio, this 27th day of June A.D. 1997 /s/ Bob Taft [Seal of the Secretary of State of Ohio] ----------------------- BOB TAFT Secretary of State By: /s/ Sara R. Vollmer ----------------------- NOTICE: This is an official certification only when reproduced in red ink - ------------------------------------------------------------------------------- EX-3.2 4 EXHIBIT 3.2 1 Exhibit 3.2 REGULATIONS OF BELDEN & BLAKE CORPORATION ARTICLE I --------- MEETINGS OF SHAREHOLDERS ------------------------ SECTION 1. ANNUAL MEETING. The annual meeting of shareholders for the election of directors, the consideration of reports to be laid before the meeting, and the transaction of such other business as may properly be brought before the meeting shall be held on the date and at the time designated by the directors or by the other person or persons calling the meeting or, in the absence of such designation, at 10:00 o'clock a.m. on the first Monday of the fourth month following the close of the Corporation's fiscal year. At the annual meeting of shareholders, the Corporation shall lay before the shareholders a financial statement in the form required by law. SECTION 2. SPECIAL MEETINGS. Special meetings of shareholders may be called by the Chairman of the Board, if any, by the President (or, in the case of the President's absence, death or disability, the Vice President authorized to exercise the authority of the President, if any), by the directors acting at a meeting, by a majority of the directors acting without a meeting, or by the holders of at least 25% of all shares outstanding and entitled to vote at the meeting. SECTION 3. PLACE OF MEETINGS. Meetings of shareholders shall be held at the principal office of the Corporation unless, with respect to meetings called by the directors, the directors determine that the meeting shall be held at some other place within or without the State of Ohio and cause such place to be specified in the notice of the meeting. SECTION 4. NOTICE OF MEETING; ADJOURNMENT; WAIVER OF NOTICE. (a) A written notice of each annual or special meeting of shareholders, stating the time, place, and purposes of the meeting, shall be given by or at the direction of the President or the Secretary or any other person required or permitted to give the notice, not less than seven days nor more than sixty days before the meeting by personal delivery or mail to each shareholder who is entitled to notice of the meeting and who is a shareholder of record as of the day preceding the date on which notice is given (or as of such other record date as may be fixed by the directors). If mailed, the notice shall be addressed to the shareholder at the address of such shareholder as it appears on the records of the Corporation. (b) Upon request in writing delivered either in person or by registered or certified mail to the President or the Secretary by any person or persons entitled to call a meeting of shareholders, the officer receiving the request shall forthwith cause notice of a meeting to be held on a date not less than seven days nor more than sixty days after the receipt of such request, 2 as such officer may fix, to be given to each shareholder who is entitled to receive notice. If the notice is not given within 15 days after the delivery or mailing of the request, the persons calling the meeting may fix the time of meeting and give notice as provided in Section 4(a), or cause the notice to be given by any designated representative. (c) Notice of the time, place, and purposes of any meeting of shareholders, whether required by law, the Articles of Incorporation, or these Regulations, may be waived in writing, either before or after the holding of such meeting, by any shareholder, which writing shall be filed with or entered upon the records of the meeting. The attendance of any shareholder at any meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by the shareholder of notice of the meeting. SECTION 5. QUORUM; ADJOURNMENT; ACTION BY SHAREHOLDERS. (a) The shareholders present in person or by proxy at any meeting of shareholders shall constitute a quorum for the meeting, but no action required to be authorized or taken by the holders of a designated proportion of the shares of any class or of each class may be authorized or taken by a lesser proportion. (b) The holders of a majority of the voting shares present at a meeting in person or by proxy may adjourn the meeting from time to time whether or not a quorum is present. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting. (c) At any meeting at which a quorum is present, all matters that come before the meeting shall be determined by the vote of the holders of a majority of the voting shares present at the meeting in person or by proxy, except when a different proportion is required by law, by the Articles of Incorporation, or by these Regulations. SECTION 6. ACTION WITHOUT A MEETING. Except as otherwise provided in Article IX of these Regulations, any action that may be authorized or taken at a meeting of shareholders of the Corporation may be authorized or taken without a meeting with the affirmative vote or approval of, and in a writing or writings signed by, all the shareholders who would be entitled to notice of a meeting of the shareholders held for such purpose, which writing or writings shall be filed with or entered upon the records of the Corporation. SECTION 7. PROXIES. (a) A person who is entitled to attend a meeting of the shareholders, to vote at a meeting of the shareholders, or to execute consents, waivers, or releases, may be represented at such meeting or may vote at such meeting, and may execute consents, waivers, and releases, and exercise any of the person's other rights, by proxy or proxies appointed by a writing signed by the person. No appointment of a proxy shall be valid after the expiration of 11 months after it is made unless the writing specifies the date on which it is to expire or the length of time it 2 3 is to continue in force. (b) Every appointment of a proxy shall be revocable unless (except to the extent otherwise provided by law) such appointment is coupled with an interest. Without affecting any vote previously taken, the person appointing a proxy may revoke a revocable appointment by a later appointment received by the Corporation or by giving notice of revocation to the Corporation in writing or in open meeting. The presence at a meeting of the person appointing a proxy does not revoke the appointment. SECTION 8. SHAREHOLDER LIST. Upon request of any shareholder at any meeting of shareholders, the Corporation shall produce at such meeting an alphabetically arranged list, or classified lists, of the shareholders of record as of the applicable record date, who are entitled to vote, showing their respective addresses and the number and class of shares held by each. ARTICLE II ---------- Directors --------- SECTION 1. NUMBER OF DIRECTORS. Until changed in accordance with the provisions of this section, there shall be three directors of the Corporation. The number of directors of the Corporation may be changed: (i) at any meeting of shareholders called for the purpose of electing directors, at which a quorum is present, by the affirmative vote of the holders of a majority of the voting shares of the Corporation present in person or by proxy at the meeting, or (ii) at any meeting of directors at which a quorum is present, by the affirmative vote of a majority of the directors present; provided, however, that in no event shall the number of directors be less than three or, if all of the outstanding shares of the Corporation are owned of record by one or two shareholders, less than the number of shareholders. No reduction in the number of directors shall of itself have the effect of shortening the term of any incumbent director. SECTION 2. ELECTION AND TERM OF OFFICE; RESIGNATIONS. Only persons nominated at a meeting of shareholders at which directors are to be elected are eligible for election as directors. At all elections of directors, the candidates receiving the greatest number of votes shall be elected. Each director shall hold office until the annual meeting of shareholders next succeeding the director's election and until the director's successor is elected, or until the earlier resignation, removal from office or death of the director. Any director may resign at any time by oral statement to that effect made at a meeting of the directors or by a writing to that effect delivered to the Secretary. A director's resignation will take effect immediately or at such other time as the director may specify. SECTION 3. REMOVAL FROM OFFICE. The directors may remove any director and thereby create a vacancy if by order of court the director has been found to be of unsound mind, if the director is adjudicated a bankrupt, or if within 60 days from the date of the election of 3 4 a director the director does not qualify by accepting in writing the election or by acting at a meeting of the directors. Additionally, all the directors or any individual director may be removed from office, without assigning any cause, by the vote of the holders of a majority of the voting power of the Corporation entitling them to elect directors in place of those to be removed. If a director is removed by the vote of the shareholders, a new director may be elected at the same meeting for the unexpired term. SECTION 4. VACANCIES. The office of a director becomes vacant if the director dies or resigns, or if the director is removed and a director is not elected to fill the unexpired term. A vacancy also exists if the directors increase the authorized number of directors, or if the shareholders increase the authorized number of directors but fail at the meeting at which such increase is authorized, or an adjournment of that meeting, to elect the additional directors for which provision is made, or if the shareholders fail at any time to elect the whole authorized number of directors. The remaining directors, though less than a majority of the whole authorized number of directors, may, by the vote of a majority of their number, fill any vacancy for the unexpired term. ARTICLE III ------------ Authority, Meetings, and Committees of the Directors ---------------------------------------------------- SECTION 1. AUTHORITY OF DIRECTORS. Except where the law, the Articles of Incorporation, or these Regulations require action to be authorized or taken by shareholders, all of the authority of the Corporation shall be exercised by or under the direction of the directors. SECTION 2. MEETINGS OF THE DIRECTORS. (a) An organizational meeting of the directors shall be held immediately following the adjournment of each annual meeting of the shareholders of the Corporation, and notice of the organizational meeting of the directors need not be given unless the meeting will not be held at the same location as the annual meeting of shareholders. (b) The directors may provide, by by-law or resolution, for other meetings of the directors. Special meetings of the directors also may be held at any time upon call of the Chairman of the Board, if any, by the President, or by a majority of the directors. (c) The organizational meeting of the directors shall be held at the same location as the annual meeting of shareholders unless otherwise set forth in a notice of the meeting. All other meetings of the directors shall be held at the principal office of the Corporation unless the directors determine that a meeting shall be held at some other place within or without the State of Ohio and cause the notice thereof to so state. (d) Except as otherwise provided in these Regulations, written notice of 4 5 the time and place of each meeting of the directors shall be given to each director, either by personal delivery or by mail, telegram, or cablegram, at least one day prior to the date of such meeting. The notice need not specify the purposes of the meeting and, unless otherwise specified in the notice, any business may be transacted at any meeting of directors. Notice of a meeting of the directors may be waived in writing, either before or after the holding of the meeting, by any director, which writing shall be filed with or entered upon the records of the meeting. The attendance of any director at any meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by the director of notice of the meeting. SECTION 3. QUORUM; ADJOURNMENT; ACTION BY DIRECTORS. A majority of the whole authorized number of directors shall constitute a quorum for the transaction of business, except that a majority of the directors then in office shall constitute a quorum for filling a vacancy among the directors. Whether or not a quorum is present, a majority of the directors present may adjourn the meeting from time to time. Notice of adjournment of a meeting of directors need not be given if the time and place to which the meeting is adjourned are fixed and announced at the meeting. The act of a majority of directors present at a meeting at which a quorum is present shall be the act of the board, unless the act of a greater number is required by law, the Articles of Incorporation, or these Regulations. SECTION 4. ACTION WITHOUT A MEETING. Any action that may be authorized or taken at a meeting of the directors may be authorized or taken without a meeting with the affirmative vote or approval of, and in a writing or writings signed by, all the directors, which writing or writings shall be filed with or entered upon the records of the Corporation. SECTION 5. ACTION BY COMMUNICATIONS EQUIPMENT. Directors may participate in a meeting of the directors (or any committee of directors) by means of any communications equipment if all persons participating can hear each other, and such participation shall constitute presence at the meeting. SECTION 6. BY-LAWS. The directors may adopt by-laws for their own government that are not inconsistent with law, the Articles of Incorporation, or these Regulations. SECTION 7. COMMITTEES OF THE DIRECTORS. (a) The directors may create one or more committees of directors, each of which shall consist of not less than three directors, and may authorize the delegation to any such committee of any of the authority of the directors, however conferred, other than the authority of filling vacancies among the directors or in any committee of the directors. In creating any committee of the directors, the directors shall specify a designation by which it shall be known and shall fix its powers and authority. (b) The directors may appoint one or more directors as alternate members of any committee of the directors, who may take the place of any absent members or members at 5 6 any meeting of the particular committee. (c) Each committee of the directors shall serve at the pleasure of the directors, shall act only in the intervals between meetings of the directors, and shall be subject to the control and direction of the directors. (d) An act or authorization of an act by any committee of the directors within the authority delegated to it by the directors shall be as effective for all purposes as the act or authorization of the directors. (e) Any committee of the directors may act by a majority of its members at a meeting or by a writing or writings signed by all of its members, which writing or writings shall be filed with or entered upon the records of the Corporation. ARTICLE IV ---------- Officers -------- SECTION 1. OFFICERS. The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such other officers (including, without limitation, a Chairman of the Board and one or more Vice Presidents) and assistant officers as the directors may from time to time determine. SECTION 2. ELECTION AND TERM OF OFFICE. The officers shall be elected by the directors. The Chairman of the Board, if one is elected, shall be a director. Any two or more offices may be held by the same person, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if the instrument is required to be executed, acknowledged, or verified by two or more officers. Each officer shall hold office until the next organizational meeting of the directors following election of the officer or until the earlier resignation, removal from office, or death of the officer. The directors may remove any officer at any time, with or without cause. The directors may fill any vacancy in any office occurring for whatever reason. SECTION 3. DUTIES OF OFFICERS. Each officer and assistant officer shall have such duties as may be specified by law or as may be determined by the directors from time to time. In addition to the foregoing, unless otherwise determined by the directors, the following officers shall have the authority and shall perform the duties set forth below: (a) CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall preside at all meetings of the directors and, unless that duty has been delegated by the directors to the President or another officer, at all meetings of the shareholders. The general authority of the Chairman of the Board to execute on behalf of the Corporation any contracts, notes, deeds, mortgages, and other papers not requiring specific approval of the directors or the execution of which the directors have not specifically delegated to another individual shall be co-ordinate with 6 7 the authority of the President. (b) PRESIDENT. The President shall preside at all meetings of the shareholders and at all meetings of the directors, other than meetings at which the Chairman of the Board, if any, presides in accordance with the provisions of the preceding section. Subject to direction of the directors and to the delegation by the directors to the Chairman of the Board of specific or general executive supervision over the property, business, and affairs of the Corporation, the President shall have general executive supervision over the property, business, and affairs of the Corporation. The President may execute on behalf of the Corporation any contracts, notes, deeds, mortgages, and other papers not requiring specific approval of the directors or the execution of which the directors have not specifically delegated to another individual. (c) VICE PRESIDENT. The Vice President, if any, shall perform all of the duties of the President, in case of the President's disability. The authority of the Vice President to execute on behalf of the Corporation any contracts, notes, deeds, mortgages, and other papers not requiring specific approval of the directors or the execution of which the directors have not specifically delegated to another individual shall be co-ordinate with the authority of the President. If more than one Vice President is elected, the Vice President designated by the directors shall perform the duties of the President upon the President's disability. If the directors fail to make such a designation, the Vice President who has held the office of Vice President for the longest consecutive period immediately prior to the President's disability shall perform the duties of the President. (d) SECRETARY. The Secretary shall keep the minutes of meetings of the shareholders and the directors. The Secretary shall keep such books as may be required by the directors and shall give notices of meetings of the shareholders and the directors required by law or by these Regulations or otherwise. The Secretary shall have authority to execute certificates attesting to action taken by the shareholders or directors. The Secretary shall have authority to execute all documents requiring the Secretary's signature. (e) TREASURER. The Treasurer shall receive and have in his or her charge all money, bills, notes, bonds, securities of other corporations, and similar property belonging to the Corporation, and shall do with this property as may be determined by the directors. The Treasurer shall keep accurate financial accounts and hold records open for the inspection and examination of the directors. The Treasurer shall have authority to execute all documents requiring the Treasurer's signature. 7 8 ARTICLE V --------- Transactions with Directors and Officers; Compensation ------------------------------------------------------ SECTION 1. CERTAIN TRANSACTIONS. (a) No contract, action, or transaction shall be void or voidable with respect to the Corporation for the reason that it is between or affects the Corporation and one or more of the directors or officers, or is between or affects the Corporation and any other person in which one or more of the directors or officers are directors, trustees, or officers, or have a financial or personal interest, or for the reason that one or more interested directors or officers participate in or vote at the meeting of the directors or a committee of the directors that authorizes such contract, action, or transaction, if in any such case any of the following apply: (i) The material facts as to the relationship or interest of such person or persons and as to the contract, action, or transaction are disclosed or are known to the directors or the committee and the directors or committee, in good faith reasonably justified by such facts, authorizes the contract, action, or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum of the directors or the committee; (ii) The material facts as to the relationship or interest of such person or persons and as to the contract, action, or transaction are disclosed or are known to the shareholders entitled to vote thereon and the contract, action, or transaction is specifically approved at a meeting of the shareholders held for such purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation held by persons not interested in the contract, action, or transaction; or (iii) The contract, action, or transaction is fair as to the Corporation as of the time it is authorized or approved by the directors, a committee of the directors, or the shareholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the directors, or of a committee of the directors, that authorizes the contract, action, or transaction. A director is not an interested director solely because the subject of the contract, action, or transaction may involve or affect a change in control of the Corporation or the continuation of the director in office as a director of the Corporation. SECTION 2. APPROVAL AND RATIFICATION OF ACTS OF DIRECTORS AND OFFICERS. Except as otherwise provided by the Articles of Incorporation or by law, any contract, action, or transaction, prospective or past, of the Corporation, of the directors, or of any director or officer 8 9 may he approved or ratified by the affirmative vote of the holders of a majority of the voting power of the Corporation not interested in the contract, action, or transaction, which approval or ratification shall be as valid and binding as though approved or ratified by every shareholder of the Corporation. SECTION 3. COMPENSATION. The directors, by the affirmative vote of a majority of those in office, and irrespective of any financial or personal interest of any of them, shall have authority to establish reasonable compensation, that may include pension, disability, and death benefits, for services to the Corporation by directors and officers, or to delegate such authority to one or more officers or directors. ARTICLE VI ---------- Limitation of Liability; Indemnification ---------------------------------------- SECTION 1. LIMITATION OF LIABILITY. (a) No person shall be found to have violated any duties to the Corporation as a director of the Corporation in any action brought against the person (including actions involving or affecting any of the following: (i) a change or potential change in control of the Corporation; (ii) a termination or potential termination of the person's service to the Corporation as a director; or (iii) the person's service in any other position or relationship with the Corporation), unless it is proved by clear and convincing evidence that the person did not act in good faith, in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, or with the care that an ordinarily prudent person in a like position would use under similar circumstances. (b) In performing any duties to the Corporation as a director, the director shall be entitled to rely on information, reports, or statements, including financial statements and other financial data, that are prepared or presented by: (i) one or more directors, officers, or employees of the Corporation who the director reasonably believes are reliable and competent in the matters prepared or presented; (ii) counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person's professional or expert competence; or (iii) a committee of the directors upon which the director does not serve, duly established in accordance with the provisions of these Regulations, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if the director has knowledge concerning the matter in question that would cause reliance on information, opinions, reports, or statements that are prepared by the foregoing persons to be unwarranted. (c) In determining what a director reasonably believes to be in the best interests of the Corporation, the director shall consider the interests of the shareholders and, in the director's discretion, may consider any of the following: (i) the interests of the Corporation's 9 10 employees, suppliers, creditors, and customers; (ii) the economy of the state and nation; (iii) community and societal considerations; and (iv) the long-term as well as short-term interests of the Corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the Corporation. (d) A director shall be liable in damages for any action the director takes or fails to take as a director only if it is proved by clear and convincing evidence in a court of competent jurisdiction that the action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation. Notwithstanding the foregoing, nothing contained in this paragraph (d) affects the liability of directors under Section 1701.95 of the Ohio Revised Code or limits relief available under Section 1701.60 of the Ohio Revised Code. SECTION 2. THIRD PARTY ACTION INDEMNIFICATION. 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 the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorney's fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or 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 the person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, the person had reasonable cause to believe that the conduct was unlawful. SECTION 3. DERIVATIVE ACTION INDEMNIFICATION. 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 the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorney's fees, actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any of the following: (a) any claim, issue, or matter as to which the person is adjudged to be 10 11 liable for negligence or misconduct in the performance of the person's duty to the Corporation unless, and only to the extent that, the court of common pleas or the court in which such action or suit was brought determines upon application that, despite the adjudication of liabilities, but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; or (b) any action or suit in which the only liability asserted against the director is pursuant to Section 1701.95 of the Ohio Revised Code. SECTION 4. SUCCESS ON MERITS. To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Section 2 or 3 of this Article VI, or in defense of any claim, issue, or matter therein, the person shall be indemnified against expenses, including attorney's fees, actually and reasonably incurred by the person in connection with the action, suit or proceeding. SECTION 5. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under Section 2 or 3 of this Article VI, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because the person has met the applicable standard of conduct set forth in Section 2 or 3 of this Article VI. Such determination shall be made as follows: (a) by a majority vote of a quorum consisting of directors of the Corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (b) if the quorum described in subparagraph (a) of this Section 5 is not obtainable or if a majority vote of a quorum of disinterested director so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Corporation or any person to be indemnified within the past five years; (c) by the shareholders; or (d) by the court of common pleas or the court in which the action, suit, or proceeding was brought. In the case of an action or suit brought by or in the right of the Corporation under Section 3 of this Article VI, any determination made by the disinterested directors under subparagraph (a) of this Section 5 or by independent legal counsel under subparagraph (b) of this Section 5 shall be communicated promptly to the person who threatened or brought the action or suit, and within ten days after receipt of the notification, the person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the 11 12 reasonableness of such determination. SECTION 6. PAYMENT OF EXPENSES IN ADVANCE. (a) Unless the only liability asserted against a director in an action, suit, or proceeding referred to in Section 2 or 3 of this Article VI is pursuant to Section 1701.95 of the Ohio Revised Code, expenses, including attorney's fees, incurred by the director in defending the action, suit, or proceeding shall be paid by the Corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director in which the director agrees to do both of the following: (i) repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that the director's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation; and (ii) reasonably cooperate with the Corporation concerning the action, suit, or proceeding. (b) Expenses, including attorney's fees, incurred by a director or officer in defending any action, suit, or proceeding referred to in Section 2 or 3 of this Article VI, may be paid by the Corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount, if it ultimately is determined that the director is not entitled to be indemnified by the Corporation. SECTION 7. NONEXCLUSIVITY. The indemnification authorized by this Article VI shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the Articles of Incorporation or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in the person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the heirs, executors, and administrators of such a person. SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance, on behalf of or for 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, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against any liability asserted against the person and incurred by the person in any such capacity, or arising out of the person's status as such, whether or not the Corporation would have the power to indemnify the person against such liability under this Article VI. Insurance may be purchased from or maintained with a person in 12 13 which the Corporation has a financial interest. SECTION 9. NO LIMITATION. The authority of the Corporation to indemnify persons pursuant to Sections 2 and 3 of this Article VI does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to Sections 6, 7 and 8 of this Article VI. Sections 2 and 3 of this Article VI do not create any obligation to repay or return payments made by the Corporation pursuant to Sections 6, 7 and 8. SECTION 10. REFERENCES. As used in Sections 2 through 9 of this Article VI, references to the Corporation include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under these sections with respect to the new or surviving corporation as such person would if such person had served the new or surviving corporation in the same capacity. ARTICLE VII ----------- Certificate for Shares ---------------------- SECTION 1. FORM OF CERTIFICATES AND SIGNATURES. Each holder of shares shall be entitled to one or more certificates in the form approved by the directors, signed by the Chairman of the Board, the President, or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer, which shall certify the number and class of shares of the Corporation held by the shareholder, but no certificate for shares shall be executed or delivered until the shares are fully paid. When a certificate is countersigned by an incorporated transfer agent or registrar, the signature of any officer of the Corporation may be facsimile, engraved, stamped, or printed. Although any officer of the Corporation whose manual or facsimile signature is affixed to a certificate ceases to hold such office before the certificate is delivered, the certificate nevertheless shall be effective in all respects when delivered. SECTION 2. TRANSFER BOOKS. The Corporation may open transfer books in any state for the purpose of transferring shares issued by it, and it may employ agents to keep the records of its shares, or to transfer or to register shares, or both, in any state. If no such transfer agent is appointed by the Corporation to act in the State of Ohio, the Corporation shall keep an office in the State of Ohio at which shares are transferable, and at which the Corporation shall keep books in which are recorded the names and addresses of all shareholders and all transfers of shares. 13 14 ARTICLE VIII ------------ Other Matters ------------- SECTION 1. COMPUTATION OF TIME FOR NOTICE. In computing the period of time for giving notice for any purposes under these Regulations, the day on which the notice is given shall be excluded and the day when the act for which notice is given is to be done shall be included. Notice given by mail shall be deemed to have been given when deposited in the mail. SECTION 2. AUTHORITY TO TRANSFER AND VOTE SECURITIES. Each officer of the Corporation is authorized to sign the name of the Corporation and to perform all acts necessary to effect on behalf of the Corporation a sale, transfer, assignment, or other disposition of any shares, bonds, other evidences of indebtedness or obligations, subscription rights, warrants, or other securities of another corporation and to issue the necessary powers of attorney. Each officer is authorized, on behalf of the Corporation, to vote the securities, to appoint proxies with respect thereto, to execute consents, waivers, and releases with respect thereto, or to cause any such action to be taken. SECTION 3. CORPORATE SEAT. The corporate seal of the Corporation shall be circular in form and shall contain the word "seal"; provided, however, that the failure to affix the corporate seal shall not affect the validity of any instrument. SECTION 4. BOOKS AND RECORDS. The Corporation shall keep correct and complete books and records of account, together with minutes of the proceedings of its incorporators, shareholders, directors and committees of the directors, and records of its shareholders showing their names and addresses and the number and class of shares issued or transferred of record to or by them from time to time. ARTICLE IX ---------- Amendments ---------- These Regulations may be amended or repealed, or new Regulations adopted: (i) at any meeting of shareholders called for that purpose by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power of the Corporation on such proposal, or (ii) without a meeting, by the written consent of the holders of record of shares entitling them to exercise a majority of the voting power of the Corporation on such proposal. If the Regulations are amended or repealed, or new Regulations are adopted, without a meeting of the shareholders, the Secretary shall mail a copy of the amendment or the new Regulations to each shareholder who would have been entitled to vote thereon but did not participate in the adoption thereof. 14 EX-3.3 5 EXHIBIT 3.3 1 Exhibit 3.3 PLAN AND AGREEMENT OF MERGER between BELDEN & BLAKE CORPORATION and THE CANTON OIL AND GAS CO This Plan and Agreement of Merger dated as of December 14, 1973, by and between BELDEN & BLAKE CORPORATION, an Ohio corporation ("B & B"), and THE CANTON OIL AND GAS CO., an Ohio corporation ("Canton"), which corporations are hereinafter sometimes referred to as the "constituent corporations," WITNESSETH, THAT: WHEREAS, the respective Boards of Directors of said corporations have deemed it advisable for the mutual benefit of said corporations and their respective shareholders that Canton be merged into B & B upon the terms and conditions hereinafter set forth; and WHEREAS, the respective Boards of Directors of each of said corporations have approved this Plan and Agreement of Merger; and WHEREAS, the authorized number of shares of Canton is 2,500 Common shares, without par value, of which 1,575 shares have been issued and are outstanding; and WHEREAS, the authorized number of shares of B & B is 100,000 Common shares, without par value, of which 34,717 shares have been issued and are outstanding (including 88 shares owned by Canton) and 15,270 shares are held in its treasury. NOW, THEREFORE, in consideration of the mutual agreements herein contained and in accordance with the laws of the State of Ohio, Canton and B & B have agreed and do hereby agree that Canton shall be merged into B & B, the surviving corporation (hereinafter called the "Corporation"), which shall continue to exist under and be governed by the laws of the State of Ohio, and that the terms and conditions of such merger shall be as follows: ARTICLE I --------- The name of the Corporation shall be Belden & Blake Corporation . 2 ARTICLE II ---------- The place in the State of Ohio where the principal office of the Corporation is to be located is the City of Canton in Stark County. ARTICLE III ----------- The purpose or purposes for which the Corporation is formed are: (1) To explore for, produce, mine, drill for, refine, process, recycle, liquefy, synthesize, purchase or otherwise acquire and to store, transport, buy, sell, exchange, distribute or otherwise dispose of and deal in petroleum, petroleum bearing shale, coal, benzol, natural gas, natural gas gasoline, petroleum distillate and all other hydrocarbons (solid, liquid or gaseous), and other minerals and the products or by-products of any and all the above enumerated products. (2) To locate, purchase, lease or otherwise acquire, own and hold lands, mines, wells, mineral claims and rights, easements, and leaseholds or any interest therein, to mine, drill wells on, develop and operate said properties and to sell, lease, mortgage, exchange, grant interests in or otherwise dispose of the same. (3) To construct, purchase or otherwise acquire, own, hold, lease, operate and to mortgage, sell, lease or otherwise dispose of pipe lines, conveyors, tank cars, trucks and other vehicles, tankers, ships, barges and other vessels, terminals, tank farms, tanks and the lands, rights of way, easements, equipment and other property required therefor. (4) To construct, purchase or otherwise acquire, own, lease, hold, operate and mortgage, sell, lease or otherwise dispose of refineries, factories, warehouses, laboratories, recycling plants, treating plants, natural gas gasoline plants, plants for the conversion of solid or gaseous hydrocarbons into liquid fuels, distillate recovery plants, plants for the extraction of petroleum from shale, and such other plants, machinery and equipment as may be necessary or convenient for effecting any of the purposes in this Article III set forth, together with the lands, leaseholds, easements, rights of way and other property required therefor. 2. 3 (5) To have one or more offices, to carry on all or any of its operations and business and without restriction or limit as to amount to purchase or otherwise acquire, lease, hold, own, mortgage, sell, convey, lease or otherwise dispose of real and personal property of every class and description in any of the States, Districts, Territories, or Possessions of the United States, and in any and all foreign countries, subject to the laws of such State, District, Territory, Possession, or Country. (6) In addition to the acts and things herein set forth, to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code. The foregoing paragraphs of this Article III shall be construed as expressing independent purposes and powers, which shall not, except as otherwise expressly provided, be limited by reference to or inference from the provisions of any other paragraph; and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of said corporation and are in furtherance of and in addition to and not in limitation of the general powers conferred upon the corporation by the Ohio General Corporation law. ARTICLE IV ---------- The number of shares which the Corporation is authorized to have outstanding is One Hundred Thousand (100,000) shares, all of which shall be common shares without par value. ARTICLE V --------- The names of the directors of the Corporation, who shall hold office from the time the merger herein provided becomes effective until their respective successors are elected and shall have duly qualified, shall be as follows: Henry S. Belden, III Dan M. Belden Glenn A. Blake Richard H. Davis R. H. Bennett Martin P. Thompson William H. Belden ARTICLE VI ---------- The Regulations of B & B in effect immediately prior to the timethe merger becomes effective shall be the Regulations 3. 4 of the Corporation, subject, however, to alteration, change or amendment in the manner therein provided. ARTICLE VII ----------- Glenn A. Blake, whose address is 702 Tuscarawas Street, West, Canton, Ohio, 44702, is hereby appointed statutory agent upon whom any process, notice or demand required or permitted by statute to be served upon either constituent corporation or upon the Corporation in the State of Ohio may be served. ARTICLE VIII ------------ The mode of carrying the merger into effect, and the manner and basis of converting the shares of the constituent corporations into shares of the Corporation shall be as follows: (a) Each common share, without par value, of B & B which shall be outstanding (except the shares owned by Canton) or held in the treasury of B & B at the time the merger becomes effective shall continue to be one (1) common share, without par value, of the Corporation. (b) Each common share, without par value, of Canton which shall be outstanding immediately prior to the effective date of the merger shall, on the effective date of the merger, without any action on the part of the holder thereof) be converted into fifteen (15) common shares, without par value, of the Corporation. (c) Each common share, without par value, of B & B which is owned by Canton immediately prior to the effective date of the merger shall be cancelled at the time the merger becomes effective. (d) After the merger becomes effective, each holder of a certificate theretofore representing common shares of Canton shall be entitled, upon surrender of same to the Corporation, to receive in exchange therefor certificates representing the number of common shares of the Corporation into which the shares represented by the certificates sosurrendered have been changed in accordance with the provisions hereof. Until so surrendered, each such certificate shall be deemed for all purposes, other than the payment of dividends, to evidence the ownership of such number of common shares of the Corporation into which such shares of Canton have been converted as herein 4. 5 provided. Unless and until any such outstanding certificate for common shares of Canton shall be so surrendered, no dividend payable on common shares of the Corporation shall be paid to the holder of any such outstanding certificate, but upon surrender thereof, such unpaid dividends shall be paid to the record holder of the newly issued certificate for such common shares of the Corporation, but without interest. ARTICLE IX ---------- At the time the merger becomes effective, the Corporation shall thereupon and thereafter possess all the rights, privileges, immunities, powers, franchises and authority of each of the constituent corporations; all property of every description, and every interest therein, and all obligations of or belonging to or due to each of the constituent corporations shall thereafter be taken and deemed to be transferred to and vested in the Corporation without further act or deed; title to any real estate, or any interest therein, vested in either of the constituent corporations shall not revert or in any way be impaired by reason of this merger, all rights of creditors of each constituent corporation shall be preserved unimpaired, and all liens upon the property of each of the constituent corporations shall be preserved unimpaired, limited in lien to the property affected by such liens, immediately prior to the time the merger becomes effective; and the Corporation shall thenceforth be liable for all obligations of each of the constituent corporations. From time to time as and when requested by the Corporation, or by its successors or assigns, Canton will execute and deliver such deeds and other instruments and will take or cause to be taken such further or other action as shall be necessary in order to vest or perfect in or to confirm of record or otherwise to the Corporation title to, and possession of, all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Canton, and otherwise to carry out the purposes hereof. ARTICLE X --------- The merger herein provided shall become effective upon the last to occur of the following events: (1) the filing of this Plan and Agreement of Merger, executed, approved, adopted and certified in accordance with the laws of the State of Ohio in the office of the Secretary of State of Ohio, or (2) the close of business on December 31, 1973, said event being hereinabove referred to as the "effective date of the merger" or "the time the merger becomes effective." ARTICLE XI ---------- This Plan and Agreement of Merger may be terminated and the merger abandoned at any time prior to the effective date 5. 6 of the merger (whether before or after approval hereof by the stockholders of the constituent corporations or either of them) by the Board of Directors of either constituent corporation for any reason. ARTICLE XII ----------- For the convenience of the parties and to facilitate the filing and recording of this Plan and Agreement of Merger, any number of counterparts may be executed, and each such executed counterpart shall be deemed an original, but such counterparts together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the constitutent corporations has caused this Plan and Agreement of Merger to be executed by its officers thereunto duly authorized as of the date first above written. BELDEN & BLAKE CORPORATION THE CANTON OIL AND GAS CO., By: /s/ Glenn A. Blake By: /s/ Henry S. Belden, III ---------------------------- ---------------------------- President President By: /s/ R. H. Bennett By: /s/ Dan M. Belden ---------------------------- ---------------------------- Secretary Secretary 6. 7 CERTIFICATE AS TO MANNER OF ADOPTION By THE CANTON OIL AND GAS CO We, the undersigned, as President and Secretary, respectively, of THE CANTON OIL AND GAS CO, an Ohio corporation, do hereby certify that in accordance with Section 1701.78 of the Ohio Revised Code the foregoing Plan and Agreement of Merger was approved by the directors of said Corporation by written instrument in accordance with Section 1701.54 of the Ohio Revised Code; and that thereafter at a meeting of the shareholders of said Corporation duly called and held on December 27, 1973, at which meeting a quorum of such shareholders was present in person or by proxy, the foregoing Plan and Agreement of Merger was adopted by the affirmative vote of the holders of shares entitling them to exercise at least two-thirds of the voting power of said Corporation. IN WITNESS WHEREOF, the undersigned, acting for and on behalf of said Corporation, have hereunto set their hands, this 27 day of December, 1973. By: /s/ Henry S. Belden, III ---------------------------- Henry S. Belden, III, President By: /s/ Dan M. Belden ---------------------------- Dan M. Belden, Secretary 8 CERTIFICATE AS TO MANNER OF ADOPTION By BELDEN & BLAKE CORPORATION We, the undersigned, as President and Secretary, respectively, of BELDEN & BLAKE CORPORATION, an Ohio corporation, do hereby certify that in accordance with Section 1701.78 of the Ohio Revised Code the foregoing Plan and Agreement of Merger was approved by the directors of said Corporation by written instrument in accordance with Section 1701.54 of the Ohio Revised Code; and that thereafter at a meeting of the shareholders of said Corporation duly called and held on December 27, 1973, at which meeting a quorum of such shareholders was present in person or by proxy, the foregoing Plan and Agreement of Merger was adopted by the affirmative vote of the holders of shares entitling them to exercise at least two-thirds of the voting power of said Corporation. IN WITNESS WHEREOF, the undersigned, acting for and on behalf of said Corporation, have hereunto set their hands, this 27th day of December, 1973. By: /s/ Glenn A. Blake ---------------------------- Glenn A. Blake, President By: /s/ R. H. Bennett ---------------------------- R. H. Bennett, Secretary EX-3.4 6 EXHIBIT 3.4 1 Exhibit 3.4 CODE OF REGULATIONS ------------------- OF -- THE CANTON OIL & GAS COMPANY ---------------------------- ARTICLE I. ---------- ISSUANCE AND TRANSFER OF SHARES ------------------------------- Section 1 - Certificates: - ------------------------- Each Shareholder of this Corporation whose shares have been fully paid up shall be entitled to a certificate or certificates showing the number of shares registered in his name on the books of the Corporation. Each certificate shall be issued in numerical order and shall be signed by the President or Vice President and the Secretary or an Assistant Secretary, and if at any time required by the Board of Directors, shall be countersigned by any Registrar and Transfer Agent that may be designated and appointed by the Board of Directors. A full record of each certificate as issued shall be kept by the Secretary or by the Registrar and Transfer Agent. No certificates for fractional shares need be issued by the Corporation unless the issuance thereof shall be affirmatively ordered by the Board of Directors at any time. In lieu of any such certificates for fractional shares, scrip or warrants of ownership of fractional shares may be issued, and upon such terms as may, from time to time, be prescribed by the Board of Directors. Section 2 - Transfers of Shares: - -------------------------------- Transfers of shares shall be made only on the books of the Corporation at the office thereof, or at the office of any Registrar and Transfer Agent that may at any time be appointed by the Board of Directors for that purpose, upon surrender of the certificates to be transferred, properly assigned, evidencing the number of shares so transferred. Certificates so surrendered 2 shall be canceled and attached to the stubs corresponding thereto in the stock certificate book, and notations of such cancellation made in proper books kept by the Corporation or by such Registrar and Transfer Agent. Section 3 - Fixing record date and closing Transfer Books: - ---------------------------------------------------------- The Board of Directors may fix a time not exceeding 45 days preceding the date of any meeting of Shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or (subject to contract rights with respect thereto) the date when any change or conversion or exchange of shares shall be made or go into effect, as a record date for the determination of Shareholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, distribution or allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares, and, in such case, only Shareholders of record on this date so fixed shall be entitled to notice of and to vote at such meeting, or to receive payment of such dividend, distribution, or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of such period. Section 4 - Registrar and Transfer Agent: - ----------------------------------------- The Board of Directors may at any time, by resolution, provide for the opening of transfer books, for the making and registration of transfers of shares of this Corporation in any state of the United States or in any foreign country, and may employ and appoint and remove, at discretion, any agent, or agents to keep the records of its shares or to transfer or to register shares, or to perform all of such functions, at any place that the Board of Directors may deem advisable. Section 5 - Lost, Destroyed or Mutilated Shares: - ------------------------------------------------ If any certificate of shares of this Corporation shall become worn, defaced or mutilated, the Directors, upon production and surrender thereof, may order the same canceled and a new certificate issued in lieu thereof. If any such certificate be lost or destroyed, the Directors, upon the furnishing of such evidence as shall be satisfactory to them of such loss or destruction, and upon the giving of such indemnity as they shall deem satisfactory, may order a new certificate to be issued in lieu of such lost or destroyed certificate to the person last appearing upon the books of the Corporation to be the owner of such lost or destroyed certificate. 3 Section 6 - Restrictions on Transfer of Shares: - ----------------------------------------------- Except as provided in this Section 6 of Article I of the Code of Regulations of Belden & Blake Corporation, no holder of the shares of this corporation shall sell, assign, transfer or otherwise dispose of any or all of such shares without first offering the same to the corporation for repurchase by it, at a price no greater than that which the selling shareholder shall have been offered in good faith by another or others or, in cases of sales other than those originating in an offer from others, at a price mutually agreeable to the selling shareholder and the corporation. The failure of the corporation to repurchase any or all of the shares offered by the selling shareholder, within a period of ninety days from receipt of the offer to sell said shares, shall leave the selling shareholder free to sell any shares held by him, and not repurchased by the corporation, to any other person, at a price not less than that at which they were offered to the corporation. When transferred, the shares shall continue to be subject to the limitations herein set forth, which shall also be binding upon the respective heirs, legatees, Executors, Administrators and assigns of each shareholder; provided, however, that, if any shares in this corporation be held by a Trustee, Executor or Administrator, then a transfer of the shares so held by such fiduciary to the beneficiaries entitled to receive the same pursuant to the terms of the trust, will or laws of descent and distribution applicable in the particular case shall not be deemed to be restricted by this section, but the transferees of shares from such fiduciary, and their respective heirs, legatees, Executors, Administrators and assigns shall continue to be bound by all the restrictions hereof. Notwithstanding the provisions of this section, however, any shareholder of the corporation may assign and transfer some or all of his shares in the corporation to a spouse, child, grandchild or a Trustee for all or any of said persons, but any shares so assigned and transferred shall continue to be subject to the limitations hereinabove set forth. All certificates for shares issued by this corporation shall contain, either on the face or on the back of such certificates, a statement that this section of the Code of Regulations restricts the transfer of the shares represented thereby, and that the corporation will mail any shareholder a copy of this section without charge within five days of receipt of written request therefor. 4 ARTICLE II. ----------- MEETINGS OF SHAREHOLDERS ------------------------ Section 1 - Annual Meetings: - ---------------------------- The annual meeting of the Shareholders of this corporation shall be held at the principal office of the Corporation at Canton, Ohio, or at such other place within or without the State of Ohio as may be ordered by the Board of Directors, by resolution or by the written order of a majority of the Directors and designated in the notice of such meeting, on the first Tuesday in April in each year, at such hour as may be ordered and designated in the written notice of such meeting. If such day be a legal holiday, then such meeting shall be held at the same hour upon the day next following which is not a legal holiday. Section 2 - Special Meetings: - ----------------------------- Special meetings of the Shareholders may be called by the President or by the Board of Directors or a majority thereof, or by the Executive Committee, if there be one, and shall be called by the President, Vice President or the Secretary, when requested in writing by the holders of a majority of the shares of the Corporation at the time entitled to exercise voting power in the election of Directors; or special meetings may be held when all of the Shareholders entitled to exercise voting power upon the question or questions to be submitted at such meeting are present in person or by proxy and consent in writing thereto. Such special meetings shall not be held outside the State of Ohio unless so ordered by a resolution of the Board of Directors, or by written order of a majority of the Directors designating the place of such meeting. The place of any special meeting shall be the principal office of the Corporation, unless a different place shall be designated in the order for such meeting. Section 3 - Notice of Meetings: - ------------------------------- A written or printed notice of every regular or special meeting and of the object thereof shall be given to each Shareholder entitled to vote thereat or to receive notice thereof appearing on the books of the Corporation at the record date fixed by the Board of Directors for the determination of Shareholders entitled to notice of and to vote at any such meeting, and in case the Board of Directors does not fix such record date, then to each Shareholder appearing on the books of the Corporation at the date such notices are mailed, by mailing such notice to the last known address of each Shareholder not later than seven days prior to the date of such meeting; provided, however, that if such notices shall be mailed as hereby required, failure of delivery thereof shall not invalidate any annual or special meeting or any proceedings thereat. 5 If any regular or special meeting shall be adjourned to another time or place after having been duly convened, no further notice of such adjourned meeting need be given other than the announcement made at the meeting at which such adjournment is taken. Any Shareholder may, in writing, waive any notice hereby required. Section 4 - Quorum: - ------------------- The presence at any meetings in person or by proxy of holders of a majority in number of the shares issued and outstanding, and entitled to exercise voting power at such meeting, shall constitute a quorum for the transaction of business; except that if no such quorum be present, the Shareholders present in person or by proxy, by the vote of a majority of the voting power represented by those so present, may adjourn the meeting to a time fixed by such vote. Section 5 - Proxies: - -------------------- A Shareholder may, by written proxy or power of attorney, authorize another person or persons to vote for him at any or all meetings of Shareholders. Such proxy must be filed with the Secretary or an Assistant Secretary of the Corporation before the person authorized thereby can vote thereunder. Such proxy, if so expressed therein, may continue in force, unless sooner revoked by written notice given by the Shareholder executing the same, for such period as shall be specified in such proxy, but unless such period for the continuance of the same in force be so expressed, any such proxy shall be valid only at the meeting for which the same is given and all adjournments thereof. If such instrument of proxy shall designate two or more persons to act as proxies, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all of the powers thereby conferred, or, if only one be present, then such powers may be exercised by that one. ARTICLE III. ------------ DIRECTORS --------- Section 1 - Number, Election and Term of Office: - ------------------------------------------------ The number of Directors shall be such number not less than three nor more than seven as the Shareholders from time to time may fix by resolution. Until otherwise ordered by the Shareholders, the number of Directors shall be five. 6 The election of Directors shall be held at the Annual Meeting of Shareholders in each year or may be held at a special meeting called for that purpose. The Directors shall hold office for the term of one year or until their successors are elected and qualified, except that any Director at any time elected to fill a newly created directorship or a vacancy, and the Directors of the Corporation first elected shall respectively hold office until the next annual meeting of Shareholders and until their successors are respectively elected. Section 2 - Qualification: - -------------------------- Any person of lawful age may be elected a Director of the Corporation, whether or not a shareholder and whether or not a citizen of the State of Ohio. Section 3 - Vacancies: - ---------------------- Upon the happening of any vacancy in the membership of the Board of Directors, whether by death, resignation, increase of the authorized number of Directors without the filling of such new position by the Shareholders at the meeting at which such increase is made, failure of the Shareholders at any time to elect the full number of authorized Directors, or otherwise, and in any of the contingencies provided by the laws of Ohio, the remaining Directors, though less than a majority of the whole authorized number of Directors, may, by the vote or a majority of their number, fill such vacancy in the Board for the unexpired term, or, in the case of a newly created directorship, for a term which shall expire contemporaneously with the terms of Directors then qualified and serving. Section 4 - Meetings of Directors: - ---------------------------------- Stated meetings of the Board of Directors may be held at such times and intervals as may by the Board of Directors from time to time be determined by either standing resolution or by-law, and may be held without notice of the time, place or purpose thereof when such time and place have been so fixed by resolution or by-law. Such meetings may be held at any place within or without the State of Ohio that the Board may by resolution, from time to time, fix. If the day so fixed for any stated meeting shall fall upon a legal holiday, such meeting shall be held upon the next succeeding day that is not a legal holiday. Section 5 - Committees of the Board of Directors: - ------------------------------------------------- The Board of Directors may from time to time establish or abolish standing or special committees, define 7 their powers and functions, and delegate to them such authority as the Board may deem expedient. Such committees shall be accountable to the Board, and shall report their actions to the Board from time to time as the Board may direct. ARTICLE IV. ----------- OFFICERS -------- The officers of the Corporation, who shall be elected by the Board of Directors, shall be a President, one or more Vice Presidents, a Secretary and a Treasurer, and the Board of Directors may, from time to time, by resolution, appoint such additional Vice Presidents, Assistant Secretaries, Assistant Treasurers or other officers, with such designations as the Board shall determine, and may prescribe their duties. The President shall be a member of the Board of Directors. Any two or more of said offices may be held by the same person except those of President and Vice President, but no officer shall execute, acknowledge, verify or countersign any instrument in more than one capacity, if such instrument is required by law, by these Regulations, or by any act of the Corporation to be executed, acknowledged, verified or countersigned by two or more officers. The term of office of the President, the Vice presidents, and the Treasurer shall be for one year and until their successors are elected and qualified, except in the case of any of such officers elected to fill a vacancy, who shall serve until the first meeting of the Board of Directors after the next ensuing annual meeting of Shareholders. The term of office of the Secretary shall be during the pleasure of the Board of Directors. Any officer of the Corporation may be removed from office at any time by the vote of a majority of the Directors. The Board of Directors may elect or appoint such subordinate officers as to it may seem desirable. Each such officer shall hold office for such period and have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and to remove subordinate officers and to prescribe the powers and duties thereof. ARTICLE V. ---------- DUTIES OF OFFICERS ------------------ Section 1 - President: - ---------------------- The President shall be the chief executive and managing officer of the Corporation. He shall preside at all 8 meetings of the Shareholders and Directors; shall have general control, management and supervision of the business, affairs and organization of the Corporation, and shall perform such other duties as may be prescribed by the Shareholders or the Board of Directors. He may execute such deeds and conveyances in the name and on behalf of the Corporation as shall from time to time be authorized by the Board of Directors. Section 2 - Vice President: - --------------------------- The Vice President shall perform the duties of the President in the case of his absence or disability, and perform such other duties as may by the Board of Directors, from time to time, be prescribed. He may execute such deeds and conveyances in the name and on behalf of the Corporation as shall from time to time be authorized by the Board of Directors, and any such deed or conveyance when so executed shall be as valid and binding as though executed by the President. In case neither the President nor the Vice President shall, at any time, be present or able to perform any duties, the Directors shall designate some other person to perform such duties for such occasions. Section 3 - Secretary: - ---------------------- The Secretary shall keep minutes of all the proceedings of the Shareholders and the Directors of this Corporation, and make proper record of the same, which shall be attested by him. He shall keep such books as may be required by the Board of Directors, shall have charge of the seal and stock books of the Corporation, except as otherwise ordered by the Board of Directors, shall issue and attest all certificates of shares, except as otherwise ordered by the Board of Directors, shall affix the seal of the Corporation to any instruments requiring such seal and attest the same, or attest the signature of the President or any other officer of the Corporation to any instrument whenever necessary, and shall generally perform such duties as may be required of him by the Shareholders or the Directors, and such as usually pertain to this office. The Secretary shall also prepare or cause to be prepared, as of the record date fixed by the Board of Directors before any meeting of the Shareholders, or as of the date of any such meeting, if the Board shall not fix a record date, or at any other time when the same may be necessary or required by the Board of Directors, a list of the Shareholders appearing of record on the books of the Corporation entitled to vote at any meeting of Shareholders or to exercise any rights or powers or to receive dividends, and shall certify such lists. 9 Section 4 - Treasurer: - ---------------------- The Treasurer shall receive and have in charge all moneys, bills, notes, bonds and similar property belonging to the Corporation, and shall do with the same as may be ordered by the Board of Directors. The Treasurer shall keep or cause to be kept such financial accounts as may be required, and shall generally perform such duties as may be required of him by the Shareholders and Directors. He shall prepare or cause to be prepared for submission at each regular meeting of the Directors, and at each annual meeting of the Shareholders, and at such other times as may by the Directors or the President be required, a statement, in such detail as shall be required, of the financial condition of the Corporation. Section 5 - Board of Directors: - ------------------------------- The Board of Directors shall have power at any time to change, modify or abolish by resolution any powers of any officer, or to assign to any officer new powers except in any instances where powers are by law required to be exercised by particular officers. Section 6 - Checks upon Bank Deposits: - -------------------------------------- Checks upon bank deposits of the Corporation shall be signed and/or countersigned by such officers or employees as the Board of Directors may, from time to time, by resolution, direct, and such directions may be varied with respect to various classes of checks. ARTICLE VI. ----------- COMPENSATION OF OFFICERS AND DIRECTORS -------------------------------------- The compensation of Directors, as such, shall be such as the Board of Directors may, from time to time, by resolution, determine. The compensation of officers shall be fixed, from time to time, by the Board of Directors, or a committee thereof, if one be appointed by the Board of Directors for that purpose, by the vote of a majority thereof, and no officer shall be excluded from voting upon any resolution fixing his own salary by reason of the fact that he is a Director or a member of a committee of the Board of Directors, all objection or exception on the part of every shareholder to the right of every Director to vote, either as such Director or as a member of any committee of the Board, upon the fixing of all salaries, including his own, being expressly waived by the adoption of these Regulations. 10 ARTICLE VII. ----------- BONDS ----- The Treasurer, and any other officer or employee, if required by the Board of Directors, shall furnish bond in such amount and with such surety as shall be prescribed and approved by the Board of Directors, assuring the faithful performance of his duties and the faithful accounting for and surrender of all moneys and property of the Corporation, which shall come to his possession. Premiums for all such bonds shall be paid by the Corporation. ARTICLE VIII. ------------- FISCAL YEAR ------------ The fiscal year of the Corporation shall be the calendar year. ARTICLE IX. ----------- SEAL ---- The corporate seal of this Corporation shall be circular, with the words "BELDEN & BLAKE CORPORATION" and "CANTON, OHIO", surrounding the words "CORPORATE SEAL". ARTICLE X. ---------- ORDER OF BUSINESS ----------------- Unless changed by a majority vote at any meeting of Shareholders, the order of business at such meetings shall be as follows: 1. Reading of minutes of last meeting of Shareholders. 2. Reports of officers. 3. Reports of committees. 4. Unfinished business. 5. New or miscellaneous business. 6. Election of Directors. 7. Adjournment. ARTICLE XI. ---------- DEFINITIONS ----------- The word "person", wherever used in these Regulations, shall be taken to mean and include individuals, partnerships, associations and bodies corporate. 11 Words of the singular number shall be taken to include the plural and those of the plural number shall be taken to include the singular, wherever appropriate. ARTICLE XII. ------------ AMENDMENT --------- These Regulations may be adopted, amended or repealed by the written assent of the holders of two-thirds of the common shares of the Corporation entitled to vote, or, by the vote of the holders of a majority of the common shares entitled to vote, at any annual meeting of Shareholders or at any special meeting called for that purpose. ---------------------------- 12 ARTICLE XIII ------------ INDEMNIFICATION --------------- Section 1. THIRD PARTY ACTIONS. 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, suit, or proceeding 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, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, 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 the 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 interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or 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 he reasonably believed to be in or not opposed to the best interests of the Corporation or that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. Section 2. DERIVATIVE ACTIONS. Other than in connection with an action or suit in which the liability of a director under Section 1701.95 of the Ohio Revised Code is the only liability asserted, 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, trustee, 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 the 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 interests of the Corporation, except that: (a) no indemnification of a director shall be made if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation; and 13 (b) no indemnification of an officer, employee, or agent, regardless of his status as a director, shall be made in respect of any claim, issue, or matter as to which he is adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation; unless and only to the extent that the Court of Common Pleas or the court in which the action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for such expenses as the Court of Common Pleas or the other court shall deem proper. Section 3. RIGHTS AFTER SUCCESSFUL DEFENSE. To the extent a director, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Section 1 or Section 2 of this Article XIII, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the action, suit, or proceeding. Section 4. OTHER DETERMINATIONS OF RIGHTS. Other than in a situation governed by Section 3 of this Article XIII, any indemnification under Section 1 or Section 2 of this Article XIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2. The determination shall be made (a) by a majority vote of those directors who, in number, constitute a quorum of the directors and who also were not and are not parties to or threatened with any such action, suit, or proceeding or (b), if such a quorum is not obtainable (or even if obtainable) and a majority of disinterested directors so directs, in a written opinion by independent legal counsel (compensated by the Corporation) or (c) by the affirmative vote in person or by proxy of the holders of record of a majority of the shares held by persons who were not and are not parties to or threatened with any such action, suit, or proceeding and entitled to vote in the election of directors, without regard to voting power that may thereafter exist upon a default, failure, or other contingency or (d) by the Court of Common Pleas or the court in which the action, suit, or proceeding was brought. Section 5. ADVANCES OF EXPENSES. Unless the action or suit is one in which the liability of a director under Section 1701.95 of the Ohio Revised Code is the only liability asserted: (a) expenses (including attorney's fees) incurred by a director in defending any action, suit, or proceeding referred to in Section 1 or Section 2 of this Article XIII shall be paid by the Corporation, as they are incurred, in advance of final disposition of the action, suit, or proceeding upon 2 14 receipt of an undertaking by or on behalf of the director in which be agrees both (i) to repay the amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation and (ii) to cooperate with the Corporation concerning the action, suit, or proceeding; and (b) expenses (including attorney's fees) incurred by a director, officer, employee, or agent in defending any action, suit, or proceeding referred to in Section 1 or Section 2 of this Article XIII may be paid by the Corporation, as they are incurred, in advance of final disposition of the action, suit, or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee, or agent to repay the amount if it is ultimately determined that he is not entitled to be indemnified by the Corporation. Section 6. PURCHASE OF INSURANCE. The Corporation may purchase and maintain insurance or furnish similar protection, including trust funds, letters of credit, and self-insurance, on behalf of or for 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, trustee, 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 capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against liability under the provisions of this Article or of the Ohio General Corporation Law. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. Section 7. MERGERS. Unless otherwise provided in the agreement of merger pursuant to which there is a merger into this Corporation of a constituent corporation that, if its separate existence had continued, would have been required to indemnify directors, officers, employees, or agents in specified situations, any person who served as a director, officer, employee, or agent of the constituent corporation, or served at the request of the constituent corporation as a director, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, shall be entitled to indemnification by this Corporation (as the surviving corporation) to the same extent he would have been entitled to indemnification by the constituent corporation if its separate existence had continued. Section 8. HEIRS; NON-EXCLUSIVITY. The indemnification provided by this Article shall continue as to a person who has ceased to be a director, officer, employee, or agent of the Corporation and shall inure to the benefit of the heirs, 3 15 executors, and administrators of such a person and shall not be deemed exclusive of, and shall be in addition to, any other rights granted to a person seeking indemnification as a matter of law or under the Articles, these Regulations, any agreement, a vote of shareholders or disinterested directors, any insurance purchased by the Corporation, any action by the directors to take into account amendments to the Ohio General Corporation Law that expand the authority of the Corporation to indemnify a director, officer, employee, or agent of the Corporation, or otherwise, both as to action in his official capacity and as to action in another capacity while holding an office. 4 EX-3.5 7 EXHIBIT 3.5 1 Exhibit 3.5 CERTIFICATE OF INCORPORATION OF KAISER EXPLORATION AND MINING COMPANY * * * * * 1. The name of the corporation is KAISER EXPLORATION AND MINING COMPANY 2. The address of its registered office in the State of Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is: TO SEARCH, PROSPECT AND EXPLORE FOR MINERALS, ORES, ELEMENTS, SUBSTANCES AND DEPOSITS OF ALL KINDS; TO MINE, PRODUCE, PURCHASE, ACQUIRE, SELL, DISPOSE OF AND DEAL IN AND WITH MINERALS, ORES AND SIMILAR SUBSTANCES, ELEMENTS AND DEPOSITS WHEREVER SITUATED. TO ENGAGE IN ANY LAWFUL ACT OR ACTIVITY FOR WHICH CORPORATIONS MAY BE ORGANIZED UNDER THE GENERAL CORPORATION LAW OF DELAWARE. 2 To manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description. To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trade-marks and trade names, relating to or useful in connection with any business of this corporation. To acquire by purchase, subscription or otherwise, and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the government of the United States of America, or by any foreign government, or by any state, 2 3 territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof. To borrow or raise moneys for any of the purposes of the corporation and, from time to time without limit as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes. To purchase, receive, take by grant, gift, devise, bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, all or any of the corporation's property and assets, or any interest therein, wherever situated. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of 3 4 Delaware or by any other law of Delaware or by this certificate of incorporation together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the corporation. The business and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in this certificate of incorporation, but the business and purposes specified in each of the foregoing clauses of this article shall be regarded as independent business and purposes. 4. THE TOTAL NUMBER OR SHARES OF COMMON STOCK WHICH THE CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS TEN (10) AND THE PAR VALUE OF EACH OF SUCH SHARES IS ONE HUNDRED DOLLARS ($100.00) AMOUNTING IN THE AGGREGATE TO ONE THOUSAND DOLLARS ($1,000.00). 4 5 5. The name and mailing address of each incorporator is as follows: NAME MAILING ADDRESS ---- --------------- B. J. CONSONO 100 West Tenth Street Wilmington, Delaware 19899 F. J. OBARA, JR. 100 West Tenth Street Wilmington, Delaware 19899 J. L. RIVERA 100 West Tenth Street Wilmington, Delaware 19899 6. The corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole board, to designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members or any committee, who may replace any absent or disqualified member at any meeting of the committee. The by-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or 5 6 not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, or in the by-laws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or by-laws, expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the corporation. 6 7 8. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation "under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. 9. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject 7 8 to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. 10. The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 24TH day of SEPTEMBER, 1969. B. J. CONSONO ------------------------- F. J. OBARA, JR. ------------------------- J. L. RIVERA ------------------------- 8 EX-3.6 8 EXHIBIT 3.6 1 Exhibit 3.6 PEAKE ENERGY, INC. ---ooOoo--- BY - LAWS ---ooOoo--- ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ---------- MEETINGS OF STOCKHOLDERS ------------------------ Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Wilmington, State of Delaware, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and 2 stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1970, shall be held on the thirty-first day of March if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged 3 in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the 4 purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment 5 a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, 6 without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than three nor more than nine. The first board shall consist of five directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created director- 7 ships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. 8 MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the tine and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president on five days' notice to each director, either personally or by mail or by telegram; 9 special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. Section 8. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. COMMITTEES OF DIRECTORS Section 10. The board of directors may, by resolu- 10 tion passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. 11 Section 11. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 12. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attend- ing committee meetings. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address 12 as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. 13 Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing 14 and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, 15 under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. 16 Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 17 ARTICLE VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the cor- 18 poration alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote 19 at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or 20 other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stock- 21 holders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorpora- 22 tion, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. EX-3.7 9 EXHIBIT 3.7 1 Exhibit 3.7 ARTICLES OF INCORPORATION OF F.B.S. SUPPLY CO., INC. The undersigned, a citizen of the United States, desiring to form a corporation for profit, under the General Corporation Act of Ohio Section 1701.01, et seq., Revised Code of Ohio, does hereby certify: FIRST: The name of said corporation shall be F.B.S. SUPPLY CO., INC. SECOND: The place in Ohio where its principal office is to be located is Industrial Blvd., P.O. Box 1026 E., Wooster, Wayne County, Ohio 44691. THIRD: The purpose or purposes for which it is formed are: a. To engage in the business of buying, selling, leasing, distributing, repairing, machining, and threading oil, gas and water well supplies, industrial supplies and to do all things necessary and incidental to such business; b. To acquire, own, use, convey and otherwise dispose of and deal in real property or any interest therein; and to own, construct, operate, manage, use or lease, in whole or in part, buildings and other structures; c. To acquire, purchase, own, hold, vote, guarantee, sell, pledge or otherwise dispose of and otherwise use and deal in or with shares of stock, bonds, mortgages, and other securities and obligations of domestic or foreign corporations, associations, partnerships or individuals and the direct or indirect obligations of the United States, or of any state, territory or dependency thereof or of any foreign government or of any governmental subdivision or instrumentality; to act as a general or limited partner in partnerships, syndicates and any other form of business organization permitted by law; d. To acquire any part or all of the business, including goodwill, of any person, firm, association or corporation, whether or not the business is similar to that in which the corporation is then engaged, and to conduct in the State of Ohio or elsewhere any business acquired, provided such business is not prohibited by the laws of the State of Ohio, and 2 e. To apply for, purchase or otherwise acquire, hold, use, sell or in any manner dispose of, lease, assign, mortgage, grant licenses or other rights therein, and in any manner deal with letters patent, patent rights, licenses, inventions, improvements, processes, copyrights, trade marks and trade names. Each purpose specified in any clause or paragraph of this Article is an independent purpose and shall not be limited by reference to or inference from the terms of any other clause or paragraph of these Articles of Incorporation. The corporation reserves the right to substantially change its purposes. If a change of purpose is authorized by the vote now or hereafter required by statute, dissenting shareholders shall not have appraisal or payment rights. FOURTH: The maximum number of shares which the corporation is authorized to have outstanding is Five Hundred (500) which shall be common shares without par value. Shares which are not issued pursuant to subscription taken by incorporators may be issued or agreed to be issued at any time and from time to time for such consideration or considerations as may be fixed by the Board of Directors. Any shares so issued, the consideration for which, as fixed by the incorporators or by the Board of Directors has been paid or delivered, shall be fully paid and nonassessable. At a meeting for such purpose, notice of which has been given to all shareholders, the shareholders may adopt a resolution of dissolution and thereby authorize the dissolution and winding-up of the Corporation upon the affirmative vote of the holders of shares entitling them to exercies 67% of the voting power of the corporation on such proposal of dissolution. FIFTH: The minimum amount of capital with which the corporation will begin business is Five Hundred Dollars ($500.00). SIXTH: Without derogation from any other power to purchase shares of the Corporation, the Board of Directors may purchase for the account of the Corporation any issued shares of the corporation to the extent of the surplus 3 in the manner permitted by law. SEVENTH: A director shall rot be disqualified from dealing or contracting with the Corporation as vendor, borrower, lender, employee, agent, or otherwise; nor shall any transaction or contract or act of the Corporation be void or voidable or in any way affected or invalidated by the fact that any director or any firm of which any director is a member of any corporation of which any director is a shareholder, director or officer is in any way interested in such transaction or contract or act, provided the fact that such director or such firm or such corporation is so interested shall be disclosed or shall be known to the Board of Directors or such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such contract or transaction or act shall be taken; nor shall any such director be accountable or responsible to the Corporation for or in respect to any such transaction or contract or act of this corporation or for any gains or profits realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer is interested in such transaction or contract or act; and any such director may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize or take action in respect to any such contract, or transaction, or act, and may vote to authorize, ratify, or approve any such contract or transaction or act, with like force and effect as if he or any firm of which he is a member, or any corporation of which he is a shareholder, director or officer were not interested in such transaction or contract or act. EIGHT: Every person who is or has been a director or officer of the Corporation shall be indemnified by it against expenses and liabilities reasonably incurred by him in connection with either (1) any action, suit or 4 proceeding to which he may be a party defendant, or (2) any claim of liability asserted against him, by reason of his having been a director or officer of the Corporation. Without limitation, the term "expenses" shall include any amount paid or agreed to be paid in satisfaction of a judgment or in settlement of a judgment or claim or liability other than any amount paid or agreed to be paid to the Corporation itself. The corporation shall not, however, indemnify any director or officer in respect to matters as to which he shall be finally adjudged liable for negligence or misconduct in the performance of his duties as such director or officer, nor in the case of settlement unless such settlement shall be found to be in the interest of the corporation (1) by the Court having jurisdiction of the action, suit or proceeding against such director or officer or of a suit involving his right to indemnification, or (2) by a majority of the directors or the corporation then in office other than those involved (whether or not such majority constitutes a quorum), or, if there are not at least two directors of the Corporation then in office other than those involved, by majority of a committee (selected by the Board of Directors) of five or more shareholders of the Corporation who are not directors or officers, provided that such indemnity in case of a settlement shall not be allowed by such directors or committee of shareholders unless it is found by independent legal counsel that such settlement is reasonable and in the interest of the corporation. The foregoing right of indemnification shall be in addition to any other rights to which any such director or officer may be entitled as a matter of law. Each person (including a director or officer of the corporation) who, at its request, acts as a director or officer of any other corporation, may 5 by indemnified by the Corporation to the same extent and subject to the same conditions that directors and officers of the Corporation are indemnified by the first paragraph hereof when authorized by a resolution of the Board of Directors of the Corporation. IN WITNESS WHEREOF, I have hereunto subscribed my name, this 14th day of June, 1979. /s/ Frank B. Swindell --------------------- Frank B. Swindell EX-3.8 10 EXHIBIT 3.8 1 Exhibit 3.8 CODE OF REGULATIONS OF TARGET OILFIELD PIPE & SUPPLY COMPANY ARTICLE I. Meetings of Shareholders ----------------------- Annual Meeting An annual meeting of Shareholders, for the election of Directors and the consideration of the reports to be laid before such meeting, shall be held on the first of June of__________________________ in each year, at 2 o'clock P.M. When the annual meeting is not held or Directors are not elected thereat, they may be elected at a special meeting called and held for the purpose. Special or Called Meetings A meeting of the Shareholders may be called by the Chairman of the Board, President, Vice-President, or by a majority of the members of the Board of Directors acting with or without a meeting, or by the persons who hold twenty-five per cent of all the shares outstanding and entitled to vote thereat. Upon the request in writing delivered to the President or Secretary by any persons entitled to call a meeting of Shareholders, it shall be the duty of the President or Secretary to give notice to Shareholders, and if such request be refused, then the persons making such request may call a meeting by giving notice in the manner provided herein. Place of Meetings The place of holding meetings of Shareholders shall be at such place as designated by the Directors Notice of Meetings A notice of the meeting of Shareholders either annual or special shall be given in writing, by the President or Vice-President or the Secretary or Assistant Secretary or, in case of their refusal, by the person or persons entitled to call such meeting, and shall state the purpose or purposes for which the meeting is called and the time when and the place where it is to be held. A copy of such notice shall be served upon or mailed to each Shareholder of record entitled to vote at such meeting or entitled to notice not more than sixty days nor less than seven days before such meeting. If mailed, it shall be directed to the Shareholder at his address as it appears upon the records of the Corporation. In the event of the transfer of shares after 2 notice has been given and prior to the holding of a meeting, it shall not be necessary to serve notice upon the transferee. If any meeting is adjourned to another time or place, no further notice as to such adjourned meeting need be given other than by announcement at the meeting at which such adjournment is taken. Waiver of Notice of Meeting of Shareholders or Directors Notice of the time, place and purpose of any meeting of Shareholders or Directors, may be waived by the written assent of every Shareholder entitled to notice, or of every Director, as the case may be, filed with or entered upon the records of the meeting, either before or after the holding thereof. ACTION WITHOUT MEETING Any action which, under any provision of the General Corporation Act, or articles, or regulations, may be taken at a meeting of the Shareholders, may be taken without a meeting if authorized by a writing signed by all of the holders of shares who would be entitled to notice of a meeting for such purpose. Whenever a Certificate in respect of any such action is required by the General Corporation Act to be filed in the Office of the Secretary of State, the officers signing the same shall state therein that the action was authorized in the manner aforesaid. ARTICLE II. Voters at Meetings Every Shareholder of record shall be entitled at each meeting of Shareholders to one vote for each share standing in his name on the books of the Corporation. No shares shall be voted upon which an installment of the purchase price is overdue and unpaid. At all elections of directors the candidate receiving the greatest number of votes shall be elected. 3 ARTICLE III. Proxies At meetings of the Shareholders of the Corporation, any Shareholder of record, entitled to attend or to vote thereat, may be represented and may vote by a proxy or proxies appointed by a writing signed by such shareholder. No appointment of a proxy hereafter made shall be valid after the expiration of eleven months after it is made unless the Shareholder executing it shall have specified therein the length of time it is to continue in force. In the event that any such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all the persons so designated unless the instrument shall otherwise provide. ARTICLE IV. Inspectors Whenever any persons entitled to vote at a meeting of Shareholders shall request the appointment of inspectors, a majority of the Shareholders present at such meeting and entitled to vote thereat shall appoint three inspectors who need not be Shareholders. If the right of any person to vote at any such meeting shall be challenged, the inspectors of election shall determine such right. The inspectors shall receive and count the votes either upon an election or for the decision of any question and shall determine the result. Their certificate of any vote shall be prima facie evidence thereof. 4 ARTICLE V. Quorum The Shareholders present in person or by proxies at any meeting for the election of Directors shall constitute a quorum. To constitute a quorum at any meeting of Shareholders for any other purpose, there shall be present in person or by proxy the holders of shares entitling them to exercise a majority of the voting power. ARTICLE VI. Directors All the capacity of the Corporation shall be vested in and all its power and authority, except as otherwise provided by law, shall be exercised by the Board of Directors consisting of ONE persons, which shall manage and conduct the business of the Corporation. The election of Directors shall take place at the annual meeting of the Shareholders, or at a special meeting called and held for that purpose, and shall be by ballot; provided that if such election be not held at an annual or special meeting, it may be held at a Shareholders' meeting at which all Shareholders are present in person or by proxy. A majority of the votes cast shall be necessary for a choice. Directors shall hold office for one year and until their successors are chosen and qualified. Any vacancies in the Board of Directors shall be filled by a majority vote of the remaining Directors. Each Director shall be a holder of record of at least ONE shares of the Corporation. He shall be entitled to receive as compensation for services the sum of - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- The first meeting of the Directors for the purpose of organization, electing officers, adopting a Code of By-Laws and transacting any other business, may be held at such time as a majority of the Directors may determine. 5 The place of holding Director's meetings shall be at such place as designated by the Directors. A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business. If notice in writing is given by any shareholders to the president, a vice-president, or the secretary of a corporation, not less than forty-eight hours before the time fixed for holding a meeting of the shareholders for the purpose of electing directors if notice of such meeting has been given at least ten days prior thereto, and otherwise not less than twenty-four hours before such time, that he desires that the voting at such election shall be cumulative, and if an announcement of the giving of such notice is made upon the convening of the meeting, each Shareholder shall have the right to cumulate his shares and to give one candidate as many votes as the number of Directors to be elected multiplied by the number of his shares equals, or to distribute them on the same principle among as many candidates as he see fit. Such right to vote cumulatively shall not be further restricted or qualified by any provisions in the articles or regulations. ARTICLE VII. Executive Committee The Board of Directors may appoint an Executive Committee, to serve until otherwise ordered, of not less than three members from their own number, each of whom shall be a holder of at least 1 shares of the Corporation. They shall have charge of the management of the business and affairs of the Corporation in the interim between the meetings of Directors, with power to appoint clerks and other employees, to fix wages and prices, determine credits, make investments, and generally discharge the duties of the Board of Directors, but not to incur debts, excepting for current expenses, unless specially authorized. They shall at all times act under the direction and control of the Board of Directors, and shall make reports to the Board of their acts, which reports shall form part of the records of the Corporation. 6 ARTICLE VIII. Officers. Term. Compensation The Officers of the Corporation to be elected by the Directors shall be a President, Vice-President, Secretary, _______________________ Treasurer ______________. They shall be holders of shares in such number, and paid such compensation, as the Board of Directors may determine. Such officers shall be chosen by the Board of Directors and shall hold office for one year and until their successors are chosen and qualified. The offices of Secretary and Treasurer and General Manager may be held by one and the same person. The General Manager, subject to the order of the Board of Directors, may appoint clerks and other employes, for such time and at such salary or wages as he or they may determine. ARTICLE IX. Duties of President and Vice-President It shall be the duty of the President to preside at all meetings of Shareholders and Directors, to sign the records thereof and all Certificates of Shares, and in general to perform all the duties usually incident to such office or which may be required by the Shareholders or Directors. It shall be the duty of the Vice-President to perform all the duties of the President, in case of the latter's absence or disability. ARTICLE X. Duties of Secretary It shall be the duty of the Secretary to take and keep an accurate record of Shareholders entitled to vote or to receive dividends, and keep an accurate record of the acts and proceedings of the Shareholders and Directors; give all notices required by law and the acts of the Shareholders and Directors; keep proper books of accounts and books for Transfer of Shares, issue and attest all Certificates of Shares. On the expiration of his term of office, he shall deliver all books, papers and property of the Corporation in his hands to his successor or to the President; and in general perform all the duties usually pertaining to the office. 7 ARTICLE XI. Duties of Treasurer The Treasurer shall receive and safely keep all money and choses in action belonging to the Corporation, and disburse the same, under the direction of the Board of Directors. He shall keep an accurate account of finances of the Corporation in books, specially to be provided for that purpose, and hold the same open for inspection and examination of the Directors and any Committee of Shareholders appointed for such inspection, and shall present abstracts of the same at annual meetings of Shareholders, or at any other meetings when requested. He shall give bond in such sum and with such security as the Board of Directors may require for the faithful performance of his duties; and on the expiration of his term shall deliver all money and other property of the Corporation in his hands to his successor or to the President. ARTICLE XII. Duties of General Manager The duties of the General Manager shall be to superintend and control the shops and Warehouses of the Corporation and the manufacture and sale of its products, under the direction of the Board of Directors, to keep accurate accounts of all property passing through his hands, and to do all things incident to such office or required by said Board of Directors. ARTICLE XIII. Dividends The surplus profits arising from the business of the Corporation shall be disposed of according to orders of the Board of Directors, made at a special or regular meeting, and no dividends shall be paid to Shareholders or other disposition made of such profits except upon an order of the Board. 8 ARTICLE XIV. Transfers Transfers of Shares can only be made on the books of the Corporation, in person or by proxy, in the presence of the President or Secretary, on surrender of the previous certificate and payment of all dues on the same; provided, that if a certificate be lost or destroyed, a duplicate may be issued by special order of the Board of Directors, upon satisfactory proof of such loss or destruction, and the giving of a suitable bond of indemnity against loss by reason thereof. The Transfer Book shall be closed against transfer of shares, for thirty days next preceding each annual meeting of Shareholders. ARTICLE XV. Seal The Seal of the Corporation shall be circular 1 1/2 inches in diameter, with the name of the Corporation engraved around the margin, and the word Seal engraved across the center. ARTICLE XVI. Order of Business At the Shareholders' meetings, the order of business shall be as follows: 1. Reading minutes of previous meetings and acting thereon. 2. Reports of Directors and Committees. 3. Financial report or statement. 4. Reports of President, General Manager and other Officers. 5. Unfinished business. 6. Election of Directors. 7. New or miscellaneous business. This order may be changed by affirmative vote of the majority of Shareholders present. ARTICLE XVII. Regulations Amended, etc. This Code of Regulations may be adopted and changed by affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or without a meeting by the written consent of the holders of record of shares entitling them to exercise two-thirds of the voting power on such proposal. EX-3.9 11 EXHIBIT 3.9 1 Exhibit 3.9 ARTICLES OF INCORPORATION These Articles of Incorporation are signed by the incorporators for the purpose of forming a profit corporation pursuant to the provisions of Act 284, Public Acts of 1972, as follows: ARTICLE I. The name of the corporation is: WARD LAKE DRILLING, INC. ARTICLE II. The purpose for which this Corporation is organized is to engage in any activity within the purposes which corporations may be organized under the Business Corporations Act of the State of Michigan, including but not limited to carrying on all business relating to the development and utilization of natural resources and to do all acts and things incidental to such businesses; to explore for, concentrate, treat, refine, prepare for market, manufacture, buy, sell, exchange, and otherwise produce, process, and deal in all kinds of minerals, oil, natural gas, and all other natural products and the products and by-products thereof of every kind and description and by whatever means the same can be and may hereafter be produced, processed, handled, or dealt in; and, generally and without limit as to amount, to buy, sell, exchange, lease, acquire, deal in lands, and mineral rights and claims, interests in oil and gas rights, plants, pipelines, and all other means of property transmission and transportation. To explore, prospect, drill for, produce, market, sell, and deal in and with petroleum, mineral, and other oils, natural gas, gasoline, naphthene, hydrocarbons, oil shales, sulphur, salt, clay, coal, minerals, mineral substances, metals, ores of every kind or other mineral or nonmineral, liquid, solid, or volatile substances and products, by-products, combinations, and derivatives thereof, and to buy, lease, hire, contract for, invest in, and otherwise acquire, and to own, hold, maintain, equip, operate, manage, mortgage, create security interests in, deal in and with, and to sell, lease, exchange, and otherwise dispose of oil, gas, mineral, and mining lands, wells, mines, quarries, rights, royalties, overriding royalties, oil payments, and other oil, gas, and mineral interests, claims, locations, patents, concessions, easements, rights-of-way, franchises, real and personal property, and all interests therein, tanks, reservoirs, storage facilities, markets, pipe lines, pumping stations, tank cars, trains, trucks, tankers, ships, and other vehicles, crafts, or machinery for use on land, water, or air, for prospecting, exploring, and drilling for, producing, gathering, manufacturing, refining, purchasing, leasing, exchanging, or otherwise acquiring, selling, exchanging, trading for, or otherwise disposing of such mineral and nonmineral substances; and to do engineering and contracting and to design, - -------------------------------------------------------------------------------- SEAL APPEARS ONLY ON ORIGINAL 2 construct, drill, bore, sink, develop, improve, extend, maintain, operate, and repair wells, mines, plants, works, machinery, appliances, rigging, casing, tools, storage, and transportation lines and Systems for this Corporation and other persons, associations, or corporations. To establish and maintain a drilling business with authority to own and operate drilling rigs, machinery, tools, or apparatus necessary in the boring or otherwise sinking of wells for the production of oil, gas, or water; to construct or acquire by lease or otherwise, and to maintain and operate pipe lines for the conveyance of oil and natural gas, oil storage tanks and reservoirs, and all convenient instrumentalities for the shipping and transportation of crude or refined petroleum or natural gas and all other volatile, solid, or liquid mineral substances in any and all forms; to manufacture, buy, sell, lease, let, and hire machines and machinery, equipment, tools, implements, and appliances, and all other property, real and personal, useful or available in prospecting for and in producing, transporting, storing, refining, or preparing for market, petroleum and natural gas and all other volatile and mineral substances and their products and by-products and of all articles and materials in any way resulting from or connected therewith; to purchase, lease, construct, or otherwise acquire, exchange, sell, let, or otherwise dispose of, own, maintain, develop, and improve any and all property, real or personal, plants, refineries, factories, warehouses, stores, and buildings of all kinds useful in connection with the business of the Corporation including the drilling for oil and gas wells or mining in any manner by any method permitted by law on such real property. ARTICLE III. The total authorized capital stock is: 50,000 shares at $1.00 par value. ARTICLE IV. The address of the initial registered office is: 145 N. Otsego Avenue, Gaylord, MI 49735 The mailing address of the initial registered office is (need not be completed unless different from the above address): The name of the initial resident agent at the registered office is: R. David Briney - -------------------------------------------------------------------------------- SEAL APPEARS ONLY ON ORIGINAL 3 ARTICLE V. The names and addresses of the incorporators are as follows: Name Residence or Business Address ---- ----------------------------- H. Charles Nelson 1580 Park Lane East Gaylord, MI 49735 R. David Briney 116 Headwaters Drive Gaylord, MI 49735 Keith H. Gornick P. O. Box 556 Gaylord, MI 49735 William F. Rolinski 679 Woodcrest Drive Gaylord, MI 49735 ARTICLE VI. When a compromise or arrangement or a plan of reorganization of this corporation is proposed between this corporation and its creditors or any class of them or between this corporation and its shareholders or any class of them, a court of equity jurisdiction within the state, on application of this corporation or of a creditor or shareholder thereof, or on application of a receiver appointed for the corporation, may order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or a reorganization, agree to a compromise or arrangement or a reorganization of this corporation as a consequence of the compromise or arrangement, the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on this corporation. We, the incorporators, sign our names this 9th day of December, 1985. WARD LAKE DRILLING, INC. BY /s/ H. Charles Nelson ------------------------------ H. Charles Nelson BY /s/ R. David Briney ------------------------------ R. David Briney BY /s/ Keith H. Gornick ------------------------------ Keith H. Gornick BY /s/ William F. Rolinski ------------------------------ William F. Rolinski - -------------------------------------------------------------------------------- SEAL APPEARS ONLY ON ORIGINAL EX-3.10 12 EXHIBIT 3.10 1 Exhibit 3.10 BYLAWS ------ OF -- WARD LAKE DRILLING, INC. ------------------------ ARTICLE I --------- Section 1. PLACE OF MEETING. Any and all meetings of the Shareholders, and of the Board of Directors, may be held within or without the State of Michigan. Section 2. ANNUAL MEETING OF SHAREHOLDERS. After the year 1985, an annual meeting of the Shareholders shall be held in each year within sixty (60) days of the close of the fiscal year in the offices of the Corporation in Gaylord, Michigan, or at such other place within or without the State of Michigan as designated by the Board of Directors, one of the purposes of which shall be the election of the Board of Directors. Section 3. DELAYED ANNUAL MEETING. If, for any reason, the annual meeting of the Shareholders shall not be held on the day hereinbefore designated, such meeting may be called and held as a delayed annual meeting or as a special meeting. Section 4. SPECIAL MEETINGS OF SHAREHOLDERS. A special meeting of the shareholders may be called at any time by the President, or by a majority of the Board of Directors, or by Shareholders entitled to vote not less than an aggregate of 50% of the outstanding shares of the Corporation having the right to vote at such special meeting. The method by which such meeting may be called is as follows: Upon receipt of a specification in writing, setting forth the date and objects of such proposed special meeting, signed by the President, or by a majority of the Board of Directors, or by Shareholders as above provided, the Secretary of this Corporation shall prepare, sign and mail the notices requisite to such meeting. Section 5. NOTICE OF MEETING OF SHAREHOLDERS. At least ten (10) days but not more than sixty (60) days prior to the date of the holding of any meeting of Shareholders, written notice of the time, place and purpose of such meeting shall be mailed, as hereinafter provided or personally delivered to each Shareholder entitled to vote at such meeting. Section 6. SHAREHOLDER ACTION WITHOUT MEETING. Any action required or permitted by the Michigan Business Corporations Act, as amended, or these Bylaws to be taken at an annual or special meeting of Shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were 2 present and voted. Prompt notice of the taking of the Corporation action without a meeting by less than unanimous written consent shall be given to Shareholders who have not consented in writing. Section 7. ORGANIZATIONAL MEETING OF BOARD. At the place of holding the annual meeting of Shareholders, and immediately following such meeting, the Board of Directors as constituted upon final adjournment of such annual meeting, shall convene for the purpose of electing officers and transacting any other business properly brought before it; provided, that the organization meeting in any year may be held at a different time and place than that herein provided, by consent of a majority of the Directors or such new Board. Section 8. REGULAR MEETINGS OF BOARD. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time determine. No notice of regular meetings of the Board shall be required. Section 9. SPECIAL MEETINGS OF BOARD. Special meetings of the Board of Directors may be called by the President, or by any other officer who is a member of the Board of Directors, at any time by means of written or personal notice of the time and place thereof to each Director. Section 10. MAILING OF NOTICES. Every written notice shall be deemed duly served when the same has been deposited in the United States mail, with postage fully prepaid, plainly addressed to the addressee at his, her or its last address appearing upon the original or duplicate stock ledger of this Corporation at its registered office in Michigan. Section 11. WAIVER OF NOTICE. Any notices herein provided for may be waived by telegram, radiogram, cablegram or other writing, either before, at or after such meeting. Attendance at a meeting in person or by proxy shall also constitute waiver of notice unless the person so attending expressly objects to the meeting at the commencement of the meeting as not being lawfully called or convened. ARTICLE II QUORUM Section 1. QUORUM OF SHAREHOLDERS. A majority of the outstanding shares of this Corporation entitled to vote, present by the record holders thereof in person or by proxy, shall constitute a quorum at any meeting of the Shareholders. Section 2. QUORUM OF DIRECTORS. A majority of the Directors shall constitute a quorum. 2 3 ARTICLE III VOTING, ELECTIONS AND PROXIES Section 1. WHO IS ENTITLED TO VOTE. Except as provided in Section 2 hereof, each Shareholder, at every meeting of the Shareholders, shall be entitled to one vote, in person or by proxy, for each share of capital stock of this Corporation held by such Shareholder. Section 2. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS. Five o'clock p.m. local time ten (10) days preceding the date of the meeting of Shareholders hereby is fixed as the record date for the determination of the Shareholders entitled to vote at such meeting; and in such case, only such Shareholders as shall be Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting. Section 3. PROXIES. No proxy shall be deemed operative unless and until signed by the Shareholder and filed with the Corporation. In the absence of limitation to the contrary contained in the proxy, the same shall extend to all meetings of the Shareholders and shall remain in force three (3) years from its date, and no longer. Section 4. VOTE BY SHAREHOLDER CORPORATION. Any other corporation owning voting shares in this Corporation may vote the same by an officer or agent, or by proxy appointed by an official or agent or by some other person, who by action of its Board or pursuant to its Bylaws, shall be appointed to vote such shares. Section 5. INSPECTORS OF ELECTION. Whenever any person entitled to vote at a meeting of the Shareholders shall request the appointment of inspectors, the presiding officer of the meeting shall appoint not more than three (3) inspectors, who need not be Shareholders. If the right of any person to vote at such meeting shall be challenged, the inspectors shall determine such right. The inspectors shall receive and count the votes upon an election, and for the decision of any question, and shall determine the result. The certificate of the inspectors on any vote shall be prima facie evidence thereof. ARTICLE IV BOARD OF DIRECTORS Section 1. NUMBER AND TERM OF DIRECTORS. The business property and affairs of this Corporation shall be managed by a Board of Directors composed of four (4) persons who shall be Shareholders. The Directors shall be elected for a term of three (3) years and until their successors are elected and qualified. The Directors may be re-elected to successive terms without limit. The number of Directors shall be set annually at the Shareholders meeting. 3 4 Section 2. ACTION BY UNANIMOUS WRITTEN CONSENT. If and when the Directors shall consent in writing to any action to be taken by the Corporation, such action shall be as valid corporate action as though it had been authorized at a meeting of the Board of Directors. Section 3. POWER TO MAKE BYLAWS. The Board of Directors shall have power to make and alter any Bylaw or Bylaws, including the fixing and altering the number of Directors. Section 4. POWER TO ELECT OFFICERS. The Board of Directors shall select a President, a Secretary and a Treasurer and other officers and agents as the Board may deem necessary for the transaction of the business of the Corporation. Section 5. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent may be removed by the Board of Directors with or without cause. Section 6. POWER TO FILL VACANCIES. A majority of the Board shall have power to fill any vacancy in any office occurring for any reason whatsoever. Any Director elected by the Board shall hold office until the next annual meeting of the Shareholders. Section 7. DELEGATION OF POWERS. For any reason deemed sufficient by the Board of Directors, the Board may delegate all or any of the powers and duties of any officer to any other officer or Director, but no officer or Director shall execute, acknowledge, or verify any instrument in more than one capacity where prohibited by applicable statute. Section 8. POWER TO APPOINT EXECUTIVE COMMITTEE. The Board of Directors shall have the power to appoint by resolution an executive committee composed of one or more Directors who, to the extent provided by such resolution, shall have and exercise the authority of the Board of Directors in the management of the business of the Corporation between the meetings of the Board. Section 9. COMPENSATION. The compensation of Directors, officers and agents may be fixed by the Board of Directors or may be delegated by the Board. ARTICLE V OFFICERS Section 1. PRESIDENT. The President shall be the chief executive officer of the Corporation. He shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. 4 5 Section 2. VICE PRESIDENTS. One or more Vice Presidents may be elected by the Board. The Vice Presidents, in the order of their seniority, shall perform the duties and exercise the powers of the President during the absence or disability of the President. Section 3. SECRETARY. The Secretary shall attend all meetings of the Shareholders, the Board of Directors and the Executive Committee, and shall preserve in the books of the Company true minutes of the proceedings of all such meetings. He shall keep in his custody the seal of the Corporation and shall have authority to affix the same to all instruments where its use is required. He shall give all notices required by statute, by-law or resolution. He shall perform such other duties as may be delegated to him by the Board of Directors or by the Executive Committee. Section 4. TREASURER. The Treasurer shall have custody of all Corporate funds and securities and shall keep in books belonging to the Corporation full and accurate accounts of all receipts and disbursements. He shall deposit all moneys, securities and other valuable effects in the name of the Corporation in such depositories as may be designated for that purpose by the Board of Directors. He shall disburse the funds of the Corporation as ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and Directors at the regular meetings of the Board, and whenever requested by them, an account of all his transactions as Treasurer and of the financial condition of the Corporation. Section 5. ASSISTANT SECRETARY AND ASSISTANT TREASURER. The Assistant Secretary, in the absence or disability of, or upon order by, the Secretary, shall perform the duties and exercise the powers of the Secretary. The Assistant Treasurer, in the absence or disability of, or upon order by the Treasurer, shall perform the duties and exercise the powers of the Treasurer. Section 6. COMBINED OFFICES. The Board of Directors may combine any of the above-described offices. ARTICLE VI STOCKS AND TRANSFERS Section 1. CERTIFICATE OF SHARES. Every Shareholder shall be entitled to a certificate for his shares signed by the President, or by the Vice President, and the Secretary, or the Treasurer, or the Assistant Secretary or the Assistant Treasurer, under the seal of the Corporation, certifying the number and class of shares represented by such certificates, which certificates shall state the terms and provisions of all classes of shares and, if such shares are not fully paid, the amount paid; provided, that where such certificate is signed by a transfer clerk acting on behalf of such Corporation, or by 5 6 registrar, the signature of any such President, Vice President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer, and the seal of the Corporation, may be a facsimile. Section 2. TRANSFERABLE ONLY ON BOOKS OF CORPORATION. Shares shall be transferable only on the books of the Corporation by the person named in the certificate, or by attorney lawfully constituted in writing, or by the Secretary of the Corporation, and upon surrender of the certificate thereof. A record shall be made of every such transfer and issue. Whenever any transfer is made for collateral security and not absolutely the fact shall be so expressed in the entry of such transfer. Section 3. STOCK RESTRICTIONS. Stockholders shall not encumber or dispose of the shares in the Corporation now owned or hereafter acquired by them except under the following terms: (a) The party desiring to dispose of his shares must first obtain the written consent of the other parties except entities under a shareholder's control, shareholder grantor trust, or the majority of a shareholder's family members. (b) In the absence of such written consent, the party desiring to dispose of his shares must give 30-days' written notice by registered mail of his intention to make such disposition. The remaining partners shall thereupon have the option, pro rata, within such 30 days to purchase all of such shares. The election to exercise the option shall be made in writing and mailed by registered mail to the party desiring to dispose of his shares. The purchase price shall be the book value of the shares as at the date of the first notice, as determined by the certified public accountant then in charge of the books of the Corporation. His determination as to book value shall be made according to accepted accounting practices and shall be binding upon the parties. The purchase price shall be payable as follows: one-half (1/2) in cash upon transfer of the shares, and one-half (1/2) by a promissory note payable one (1) year thereafter bearing interest at ten percent (10%) annually. In the event all the shares so offered are not purchased by the other parties, all the restrictions imposed by this paragraph shall forthwith terminate for a period of six (6) months, during which period the owner may dispose of his shares. To the extent that the shares are not disposed of during the six-month period, all of the restrictions imposed by this paragraph shall again be applicable. Section 4. REGISTERED SHAREHOLDERS. The Corporation shall have the right to treat the registered holder of any share as the absolute owner thereof, and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as may be otherwise expressly provided by the statutes of Michigan. Section 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint a transfer agent and registrar of 6 7 transfers, and may require all certificates of shares to bear the signature of such transfer agent and of such registrar of transfers, or as the Board may otherwise direct. Section 6. REGULATIONS. The Board of Directors shall have the power and authority to make all such rules and regulations as the Board may deem expedient regulating the issue, transfer, and registration of certificates for shares of this Corporation. ARTICLE VII DIVIDENDS AND RESERVES Section 1. SOURCE OF DIVIDENDS. The Board of Directors shall have the power and authority to declare dividends from the surplus of the Corporation. A dividend paid or any other distributions made, in any part, from sources other than earned surplus, shall be accompanied by a written notice (a)disclosing the amounts by which the dividend or (b)if such amounts are not determinable at the time of notice, disclosing the amounts by which the dividend or distribution affects stated capital, capital surplus and earned surplus, or (c)if such amounts are not determinable at the time of notice, disclosing the approximate effect of the dividend or distribution upon stated capital, capital surplus and earned surplus and stating that the amounts are not yet determinable. In determining earned surplus, the judgment of the Board of Directors shall be conclusive, in the absence of bad faith or gross negligence. Section 2. MANNER OF PAYMENT OF DIVIDEND. Dividends may be paid by the Corporation in cash, in its own shares, in its own bonds, or in its own property, including the shares or bonds of other corporations, or its own property, including the shares or bonds of other corporations, or its outstanding shares, except when currently the Corporation is insolvent or would thereby be made insolvent. A share dividend paid or other distribution of shares of the Corporation shall be accompanied by a written notice (1)disclosing the amounts by which the distribution affects stated capital, capital surplus and earned surplus, or (b)if such amounts are not determinable, at the time of the notice, disclosing the approximate effect of the distribution upon stated capital, capital surplus and earned surplus and stating that the amounts are not yet determinable. ARTICLE VIII RIGHT OF INSPECTION Section 1. BALANCE SHEET. Upon written request of a Shareholder, the Corporation shall mail to the Shareholder its balance sheet as at the end of the preceding fiscal year; its statement of income for such fiscal year; and, if prepared by the 7 8 Corporation, its statement of source and application of funds for such fiscal year. Section 2. EXAMINATION OF MINUTES AND RECORDS OF SHAREHOLDERS. Upon ten (10) days written demand, a Shareholder of the Corporation may examine for any proper purpose in person or by agent or attorney during usual business hours, the Corporation's minutes of Shareholders' meetings and records of Shareholders and make abstracts therefrom. ARTICLE IX EXECUTION OF INSTRUMENTS Section 1. CHECKS, CONTRACTS, CONVEYANCES, ETC. The Board of Directors shall have power to designate the officers and agents who shall have authority to execute any instrument on behalf of this Corporation. ARTICLE X AMENDMENT OF BYLAWS Section 1. AMENDMENTS, HOW AFFECTED. These Bylaws may be amended by the affirmative vote of a majority of the shares entitled to vote at any regular or special meeting of the Shareholders or by the affirmative vote of a majority of the Board of Directors. ARTICLE XI SPECIAL PROVISIONS Section 1. INDEMNIFICATION OF OFFICERS AND DIRECTORS. To induce any person elected or appointed as an officer, director, or employee of the Corporation to assume such position, the Corporation agrees and hereby makes a continuing offer to indemnify any such person from any liability or expense actually incurred by such person in any way arising out of such position to the fullest extent allowed by applicable law. Section 2. ELECTION UNDER IRC SECTION 1244. The Corporation is organized under a plan to issue not more than 50,000 shares of par value stock for not in excess of $50,000 within a period of 620 days from the date of the adoption of these Bylaws establishing such plan which stock shall be issued only for cash or other property (other than stock or securities). 8 EX-4.1 13 EXHIBIT 4.1 1 EXHIBIT 4.1 ================================================================================ BELDEN & BLAKE CORPORATION As Issuer THE CANTON OIL & GAS COMPANY PEAKE ENERGY, INC. WARD LAKE DRILLING, INC. TARGET OILFIELD PIPE & SUPPLY COMPANY As Subsidiary Guarantors 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007 ------------------ INDENTURE Dated as of June 27, 1997 ------------------ LASALLE NATIONAL BANK As Trustee ------------------ ================================================================================ 2
CROSS-REFERENCE TABLE* Trust Indenture Indenture Act Section Section 310 (a)(1).................................................................................... 7.10 (a)(2).................................................................................... 7.10 (a)(3).................................................................................... N.A. (a)(4).................................................................................... N.A. (a)(5).................................................................................... 7.10 (b)....................................................................................... 7.10 (c)....................................................................................... N.A. 311 (a)....................................................................................... 7.11 (b)....................................................................................... 7.11 (c)....................................................................................... N.A. 312 (a)....................................................................................... 2.5 (b)....................................................................................... 12.3 (c)....................................................................................... 12.3 313 (a)....................................................................................... 7.6 (b)(1).................................................................................... N.A. (b)(2).................................................................................... 7.7 (c)....................................................................................... 7.6; 12.2 (d)....................................................................................... 7.6 314 (a)....................................................................................... 4.3; 12.2 (b)....................................................................................... N.A. (c)(1).................................................................................... 12.4 (c)(2).................................................................................... 12.4 (c)(3).................................................................................... N.A. (d)....................................................................................... 10.3-10.5 (e)....................................................................................... 12.5 (f)....................................................................................... N.A. 315 (a)....................................................................................... 7.1 (b)....................................................................................... 7.5; 12.2 (c)....................................................................................... 7.1 (d)....................................................................................... 7.1 (e)....................................................................................... 6.11 316 (a)(last sentence)........................................................................ 2.9 (a)(1)(A)................................................................................. 6.5 (a)(1)(B)................................................................................. 6.4 (a)(2).................................................................................... N.A. (b)....................................................................................... 6.7 (c)....................................................................................... 2.12 317 (a)(1).................................................................................... 6.8 (a)(2).................................................................................... 6.9 (b)....................................................................................... 2.4 318 (a)....................................................................................... 12.1 (b)....................................................................................... N.A. (c)....................................................................................... 12.1 - ------------- N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture. 3
TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE................................................................ 1 Section 1.1. Definitions................................................................ 1 Section 1.2. Other Definitions.......................................................... 21 Section 1.3. Incorporation By Reference of Trust Indenture Act.......................................................... 22 Section 1.4. Rules of Construction...................................................... 23 ARTICLE 2 THE NOTES......................................................... 23 Section 2.1. Form and Dating............................................................ 23 Section 2.2. Execution and Authentication............................................... 25 Section 2.3. Registrar and Paying Agent................................................. 25 Section 2.4. Paying Agent to Hold Money in Trust........................................ 26 Section 2.5. Holder Lists............................................................... 26 Section 2.6. Transfer and Exchange...................................................... 27 Section 2.7. Replacement Notes.......................................................... 34 Section 2.8. Outstanding Notes.......................................................... 34 Section 2.9. Temporary Notes............................................................ 35 Section 2.10. CUSIP Number............................................................... 35 Section 2.11. Cancellation............................................................... 35 Section 2.12. Defaulted Interest......................................................... 35 ARTICLE 3 REDEMPTION AND PREPAYMENT............................................... 36 Section 3.1. Notices to Trustee......................................................... 36 Section 3.2. Selection of Notes to Be Redeemed.......................................... 36 Section 3.3. Notice of Redemption....................................................... 37 Section 3.4. Effect of Notice of Redemption............................................. 38 Section 3.5. Deposit of Redemption Price................................................ 38 Section 3.6. Notes Redeemed in Part..................................................... 38 Section 3.7. Optional Redemption........................................................ 39 Section 3.8. Mandatory Redemption....................................................... 40 Section 3.9. Offer to Purchase By Application of Excess Proceeds........................................................ 40 ARTICLE 4 COVENANTS...................................................... 42 Section 4.1. Payment of Notes........................................................... 42 Section 4.2. Maintenance of Office or Agency............................................ 43 Section 4.3. Commission Reports......................................................... 43 Section 4.4. Compliance Certificate..................................................... 44 Section 4.5. Taxes...................................................................... 44 Section 4.6. Stay, Extension and Usury Laws............................................. 45
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Page ---- Section 4.7. Restricted Payments........................................................ 45 Section 4.8. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries...................................... 48 Section 4.9. Incurrence of Indebtedness and Issuance of Disqualified Stock.................................................. 49 Section 4.10. Asset Sales................................................................ 51 Section 4.11. Transactions with Affiliates............................................... 53 Section 4.12. Liens...................................................................... 54 Section 4.13. Offer to Repurchase Upon Change of Control................................................................ 55 Section 4.14. Additional Subsidiary Guarantees........................................... 56 Section 4.15. Corporate Existence........................................................ 57 Section 4.16. No Senior Subordinated Debt................................................ 57 Section 4.17. Business Activities........................................................ 57 ARTICLE 5 SUCCESSORS.................................................. 57 Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets............................................... 57 Section 5.2. Successor Corporation Substituted; Subsidiary Guarantors Confirmed........................................ 59 ARTICLE 6 DEFAULTS AND REMEDIES............................................ 59 Section 6.1. Events of Default.......................................................... 59 Section 6.2. Acceleration............................................................... 62 Section 6.3. Other Remedies............................................................. 62 Section 6.4. Waiver of Past Defaults.................................................... 63 Section 6.5. Control by Majority........................................................ 63 Section 6.6. Limitation on Suits........................................................ 63 Section 6.7. Rights of Holders of Notes to Receive Payment................................................................ 64 Section 6.8. Collection Suit by Trustee................................................. 64 Section 6.9. Trustee May File Proofs of Claim........................................... 64 Section 6.10. Priorities................................................................. 65 Section 6.11. Undertaking for Costs...................................................... 66 ARTICLE 7 TRUSTEE................................................... 66 Section 7.1. Duties of Trustee.......................................................... 66 Section 7.2. Rights of Trustee.......................................................... 67 Section 7.3. Individual Rights of Trustee............................................... 69 Section 7.4. Trustee's Disclaimer....................................................... 69 Section 7.5. Notice of Defaults......................................................... 69 Section 7.6. Reports by Trustee to Holders of the Notes.................................................................. 69 Section 7.7. Compensation and Indemnity................................................. 70 Section 7.8. Replacement of Trustee..................................................... 71 Section 7.9. Successor Trustee by Merger, etc. ......................................... 72
-ii- 5 Page ---- Section 7.10. Eligibility; Disqualification.............................................. 72 Section 7.11. Preferential Collection of Claims Against Company........................................................ 72 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE................................... 73 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.................................................... 73 Section 8.2. Legal Defeasance and Discharge............................................. 73 Section 8.3. Covenant Defeasance........................................................ 73 Section 8.4. Conditions to Legal or Covenant Defeasance............................................................. 74 Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions................................................... 76 Section 8.6. Repayment to Company....................................................... 76 Section 8.7. Reinstatement.............................................................. 77 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER....................................... 77 Section 9.1. Without Consent of Holders of Notes........................................ 77 Section 9.2. With Consent of Holders of Notes........................................... 78 Section 9.3. Compliance with Trust Indenture Act........................................ 80 Section 9.4. Revocation and Effect of Consents.......................................... 80 Section 9.5. Notation on or Exchange of Notes........................................... 80 Section 9.6. Trustee to Sign Amendment, etc. ........................................... 80 ARTICLE 10 SUBORDINATION....................................................... 81 Section 10.1. Agreement to Subordinate................................................... 81 Section 10.2. Certain Definitions........................................................ 81 Section 10.3. Liquidation; Dissolution; Bankruptcy....................................... 82 Section 10.4. Default on Designated Senior Debt.......................................... 84 Section 10.5. Acceleration of Notes...................................................... 85 Section 10.6. When Distribution Must Be Paid Over........................................ 85 Section 10.7. Notice by Company.......................................................... 86 Section 10.8. Subrogation................................................................ 86 Section 10.9. Relative Rights............................................................ 87 Section 10.10. Subordination May Not Be Impaired by Company or the Subsidiary Guarantors....................................... 87 Section 10.11. Payment, Distribution or Notice to Representative............................................................. 87 Section 10.12. Rights of Trustee and Paying Agent......................................... 88 Section 10.13. Authorization to Effect Subordination...................................... 88 Section 10.14. Amendments................................................................. 89 Section 10.15. No Waiver of Subordination Provisions...................................... 89 -iii-
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Page ---- ARTICLE 11 THE SUBSIDIARY GUARANTEES.................................................. 89 Section 11.1. The Subsidiary Guarantees.................................................. 89 Section 11.2. Execution and Delivery of Subsidiary Guarantees............................................................. 90 Section 11.3. Subsidiary Guarantors May Consolidate, etc., on Certain Terms................................................. 91 Section 11.4. Releases of Subsidiary Guarantees.......................................... 92 Section 11.5. Limitation on Subsidiary Guarantor Liability.............................................................. 93 Section 11.6. "Trustee" to Include Paying Agent.......................................... 93 Section 11.7. Subordination of Subsidiary Guarantees..................................... 94 ARTICLE 12 MISCELLANEOUS......................................................... 94 Section 12.1. Trust Indenture Act Controls............................................... 94 Section 12.2. Notices.................................................................... 94 Section 12.3. Communication by Holders of Notes with Other Holders of Notes................................................. 96 Section 12.4. Certificate and Opinion as to Conditions Precedent................................................... 96 Section 12.5. Statements Required in Certificate or Opinion................................................................ 96 Section 12.6. Rules by Trustee and Agents................................................ 97 Section 12.7. No Personal Liability of Directors, Officers, Employees and Stockholders................................... 97 Section 12.8. Governing Law.............................................................. 97 Section 12.9. No Adverse Interpretation of Other Agreements............................................................. 97 Section 12.10. Successors................................................................. 97 Section 12.11. Severability............................................................... 98 Section 12.12. Counterpart Originals...................................................... 98 Section 12.13. Table of Contents, Headings, Etc. ......................................... 98 EXHIBITS Exhibit A FORM OF INITIAL NOTE Exhibit B FORM OF EXCHANGE NOTE Exhibit C FORM OF SUBSIDIARY GUARANTEE Exhibit D FORM OF TRANSFEREE LETTER OF REPRESENTATION -iv-
7 INDENTURE dated as of June 27, 1997 among Belden & Blake Corporation, an Ohio corporation (the "Company"), as issuer, the Subsidiary Guarantors (as hereinafter defined) as guarantors and LaSalle National Bank, as trustee (the "Trustee"). The Company, the Subsidiary Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 9 7/8% Senior Subordinated Notes due 2007 of the Company (the "Initial Notes"), and if and when issued in exchange for Initial Notes as provided in the Registration Rights Agreement (as hereinafter defined), the Company's 9 7/8% Senior Subordinated Notes due 2007 (the "Exchange Notes" and, together with the Initial Notes, the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. DEFINITIONS. "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 asset acquired by such specified Person. "Acquisition" means the merger of BB Merger Corporation, a newly organized company owned by the Investors and Johnson Rice & Company, L.L.C., with and into the Company, with the Company being the surviving corporation. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Premium" means, with respect to a Note at the redemption date, the greater of (i) 1% of the principal amount of such Note and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Note at June 15, 2002, as set forth in Section 3.7, plus (2) all required interest payments (excluding accrued but unpaid interest) due on such Note 8 2 through June 15, 2002, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (B) the then-outstanding principal amount of such Note. "Asset Sale" means (i) the sale, lease, conveyance or other disposition by the Company or any of its Restricted Subsidiaries (but excluding the creation of a Lien) of any assets including, without limitation, by way of a sale and leaseback; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Sections 4.13 and/or 5.1 hereof and not by Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (including the sale by the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $5.0 million or (b) for net proceeds in excess of $5.0 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company, (2) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company, (3) the making of a Permitted Investment or a Restricted Payment that is permitted by Section 4.7, (4) the abandonment, farm-out, lease or sublease of undeveloped oil and gas properties in the ordinary course of business, (5) the trade or exchange by the Company or any Restricted Subsidiary of the Company of any oil and gas property owned or held by the Company or such Restricted Subsidiary for any oil and gas property or interest therein owned or held by another Person, including any cash or Cash Equivalents necessary in order to achieve an exchange of equivalent value; provided that any such cash or Cash Equivalents received by the Company or such Restricted Subsidiary will be subject to the provisions described in the second and third paragraphs in Section 4.10 which the Board of Directors of the Company determines in good faith to be of approximately equivalent value, (6) the sale or transfer of hydrocarbons or other mineral products surplus or obsolete equipment in the ordinary course of business or (7) the sale of oil and gas properties in connection with tax credit transactions complying with ss.29 of the Internal Revenue Code. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been 9 3 extended or may, at the option of the lessor, be extended to the extent the lease payments during such extension period are required to be capitalized on a balance sheet in accordance with GAAP). "Bankruptcy Code" means Title 11 of the United States Code, as amended. "Board of Directors" means the Board of Directors of the Company or a Subsidiary Guarantor, as applicable, or any authorized committee of such Board of Directors. "Borrowing Base" means, as of any date, the lesser of (i) $600 million or (ii) the aggregate amount of borrowing availability as of such date under all Credit Facilities that determines availability on the basis of a borrowing base or other asset-based calculation. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the New Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having a rating of at least P1 from Moody's or a rating of at least A1 from S&P, and (vi) investments in money market or other mutual funds 10 4 substantially all of whose assets comprise securities of the types described in clauses (ii) through (v) above. "Change of Control" means the occurrence of any of the following: (i) prior to the first public offering of Voting Stock of the Company, either (x) Permitted Holders cease to be the "beneficial owner(s)" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company, or (y) Permitted Holders cease to be entitled by voting power, contract or otherwise to elect or cause the election of directors of the Company having a majority of the total voting power of the Board or Directors, in each case, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (i) and clause (ii) below, Permitted Holders shall be deemed to beneficially own any Voting Stock of an entity (the "specified entity") held by any other entity (the "parent entity") so long as the Permitted Holders beneficially own, directly or indirectly, a majority of the Voting Stock of the parent entity; (ii) following the first public offering of Voting Stock of the Company, any "Person"(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire within one year), directly or indirectly, of more than 50% of the Voting Stock of the Company; provided that the Permitted Holders beneficially own (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the Voting Stock of the Company than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "Person" or group of related Persons (a "Group") other than a Permitted Holder; (as such term is used in Sections 13(d) and 14(d) of the Exchange Act); (iv) the adoption of a plan relating to the liquidation or dissolution of the Company; and 11 5 (v) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office. "Closing Date" means the date of the closing of the sale of the Notes offered pursuant to the Offering. "Commission" means the Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus (i) an amount equal to any extraordinary or non-recurring loss, and any net loss realized in connection with (a) an Asset Sale (together with any related provision for taxes) and (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, to the extent such losses were included in computing such Consolidated Net Income, plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements), to the extent that any such expense was included in computing such Consolidated Net Income, plus (iv) depreciation, depletion and amortization expenses (including amortization of goodwill and other intangibles) for such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, depletion and amortization expenses were included in computing such Consolidated Net Income, plus (v) exploration expenses for such Person and its Restricted Subsidiaries for such period to the extent such exploration expenses were included in computing such Consolidated Net Income, plus (vi) costs incurred in connection with acquisitions that would be eligible for capitalization treatment under GAAP, but have been expensed at the time of incurrence, plus (vii) other 12 6 non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such other non-cash charges were included in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation, depletion and amortization and other non-cash charges and expenses of, a Restricted Subsidiary of the relevant Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to such Person by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending prior to the taking of any action for the purpose of which the determination is being made and for which internal financial statements are available (but in no 13 7 event ending more than 135 days prior to the taking of such action), as (i) the par or stated value of all outstanding Capital Stock of the Company, plus (ii) paid-in capital or capital surplus relating to such Capital Stock, plus (iii) any retained earnings or earned surplus, less (a) any accumulated deficit (in each case excluding any minority interest) and (b) any amounts attributable to Disqualified Stock. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.2 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the New Credit Agreement) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payment financing, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which the Notes are first issued and authenticated under this Indenture (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness set forth in Section 4.9 hereof. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "Designated Senior Debt" means (i) the New Credit Agreement and (ii) any other Senior Debt permitted under this Indenture which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Debt as "Designated Senior Debt" for purposes of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than Capital Stock, pursuant to a sinking 14 8 fund obligation or otherwise, is convertible or is exchangeable for Indebtedness or Disqualified Stock or redeemable for any consideration other than Capital Stock at the option of the holder thereof, in whole or in part, in each case on or prior to the date that is 91 days after (x) the date on which the Notes mature or (y) on which there are no Notes outstanding. "Dollar-Denominated Production Payments" means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements); (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary, unless paid in Equity Interests that are not Disqualified Stock) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. Notwithstanding the foregoing, when calculating the amount of Fixed Charges, any interest expense attributable to any Person shall be included in such calculation to the same extent the Net Income of such Person was included in the calculation of Consolidated Net Income in connection with calculating the Fixed Charge Coverage Ratio. 15 9 "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the referent Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date (including, without limitation, any acquisition to occur on the Calculation Date) shall be deemed to have occurred on the first day of the four-quarter reference period and any cost savings or expense reductions attributable at the time of such computation or to be attributable in the future to such acquisition, shall be included in such computation, to the extent that such adjustments would be permitted under Article 11 of Regulation S-X and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the net proceeds of Indebtedness incurred or Disqualified Stock issued by the referent Person pursuant to the first paragraph of Section 4.9 hereof during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have been received by the referent Person or any of its Restricted Subsidiaries on the first day of the four-quarter reference period and applied to its intended use on such date, (iii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded and (iv) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such 16 10 other entity as have been approved by a significant segment of the accounting profession as of the date hereof. "Government Securities" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Holder" means a Person in whose name a Note is registered on the Registrar's books. "Indebtedness" means, with respect to any Person, without duplication, (a) any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) evidenced by letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances, (iv) representing Capital Lease Obligations, (v) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable, (vi) representing any obligations in respect of Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, and (vii) in respect of any Production Payment, (b) all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person), (c) obligations of such Person in respect of production imbalances, (d) Acquired Debt of such Person, (e) Attributable Debt of such Person, and (f) to the extent not otherwise included in the foregoing, the guarantee by such Person of any indebtedness of any other Person. 17 11 "Indenture" means this Indenture, as amended or supplemented from time to time. "Initial Purchasers" means Chase Securities Inc., BT Securities Corporation and NationsBanc Capital Markets, Inc. as initial purchasers of the Notes. "Institutional Accredited Investors" means an institutional "accredited investor" within the meaning of Rules 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Rate Hedging Agreements" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations, but excluding trade credit) or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that the following shall not constitute Investments: (i) an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company, (ii) Interest Rate Hedging Agreements entered into in accordance with the limitations set forth in clause (g) of the second paragraph of Section 4.9, (iii) Oil and Gas Hedging Agreements entered into in accordance with the limitations set forth in clause (h) of the second paragraph of Section 4.9 and (iv) endorsements of negotiable instruments and documents in the ordinary course of business. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such entity is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Investors" means TPG II, TPG Parallel II, L.P., and TPG Investors II, L.P. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, the City of Chicago or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be 18 12 made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding cash amounts placed in escrow, until such amounts are released to the Company), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting, investment banking and other professional fees and expenses, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Senior Debt) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve established for future liabilities. "New Credit Agreement" means that certain Credit Agreement, dated as of June 27, 1997, among the Company, The Chase Manhattan Bank, N.A., as Agent and lender and the other parties thereto, providing for up to $200 million of 19 13 Indebtedness, including any related notes, guarantees, security or pledge agreements, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents; provided that no such amendments, restatements, modifications, renewals, refundings, replacements or refinancings shall result in provisions for Indebtedness or outstanding Indebtedness in excess of $200 million, and provided further, that the total amount of Indebtedness outstanding under the New Credit Agreement and all documents executed in connection therewith and referred to in this definition shall be no greater than $200 million in the aggregate. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity or agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise); (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. "Note Custodian" means the Trustee or the Registrar, as custodian with respect to the Notes in global form, or any successor entity thereto or any entity acting as custodian with respect to Notes in global form. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, the Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company, by two Officers of the Company, one of whom must be the principal executive officer, the principal 20 14 financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.5 hereof. "Oil and Gas Business" means (i) the acquisition, exploration, development, operation and disposition of interests in oil, gas and other hydrocarbon properties, (ii) the gathering, marketing, distribution, treating, processing, storage, selling and transporting of any production from such interests or properties and the marketing of oil and gas obtained from unrelated Persons, (iii) any business relating to exploration for or development, production, treatment, processing, storage, transportation, gathering or marketing of oil, gas and other minerals and products produced in association therewith, (iv) any business relating to oilfield sales and service and (v) any activity that is ancillary to or necessary or appropriate for the activities described in clauses (i) through (iv) of this definition. "Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging agreement, and other agreement or arrangement, in each case, that is designed to provide protection against oil and gas price fluctuations. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.5 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary Guarantor or the Trustee. "Pari Passu Indebtedness" means indebtedness which ranks pari passu in right of payment to the Notes. "Permitted Holders" means the Investors, any investment partnership or fund managed by the principals of TPG II, any partners of the Investors, members of their immediate family and trusts for the benefit of members of their immediate family, their respective Affiliates and any Person acting in the capacity of an underwriter in connection with a public or private offering of the Company's Capital Stock. "Permitted Indebtedness" has the meaning given in the covenant described in Section 4.9 "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment and any related transactions that at the time of such Investment are contractually mandated to occur, (i) such Person 21 15 becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.9 hereof or not constituting an Asset Sale by reason of the $5 million threshold contained in the definition thereof; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (e) that are at the time outstanding, not to exceed the greater of (i) $75 million or (ii) 15% of the Company's Total Assets at the time such Investment is made; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock), (g) shares of Capital Stock received in connection with any good faith settlement of a bankruptcy proceeding involving a trade creditor, (h) Interest Rate Hedging Agreements, (i) loans and advances to employees in the ordinary course of business for bona fide business purposes, and (j) entry into operating agreements, joint ventures, partnership agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, production sharing agreements or other similar or customary agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the Oil and Gas Business, excluding however, Investments in corporations other than any Investment received pursuant to the provisions set forth in Section 4.10. "Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Senior Debt that is outstanding on the date of issuance of the Notes (after giving effect to the Transaction) and Liens securing Senior Debt that is permitted by the terms of this Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company and Liens on property or assets of a Subsidiary existing at the time it became a Subsidiary, provided that such Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property or the property of the acquired Subsidiary; (iv) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business (including lessee or 22 16 operator obligations under statutes, governmental regulations or instruments related to the ownership, exploration and production of oil, gas and minerals on state or federal lands or waters); (v) Liens existing on the date of this Indenture (after giving effect to the Transaction); (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) prejudgment liens and statutory liens of landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like Liens arising in the ordinary course of business; (viii) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (ix) Liens on, or related to, properties or assets to secure all or part of the costs incurred in the ordinary course of the Oil and Gas Business for the exploration, drilling, development, production, processing, transportation, marketing, storage or operation thereof; (x) Liens on pipeline or pipeline facilities that arise under operation of law; (xi) Liens arising under operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil or natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business; (xii) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases, (xiii) Liens securing the Notes, (xiv) Liens constituting survey exceptions, encumbrances, easements, and reservations of, and rights to others for, rights-of-way, zoning and other restrictions as to the use of real properties, and minor defects of title which, in the case of any of the foregoing, do not secure the payment of borrowed money, and in the aggregate do not materially adversely affect the value of the assets of the Company and its Restricted Subsidiaries, taken as a whole, or materially impair the use of such properties for the purposes for which such properties are held by the Company or such Subsidiaries, and (xv) Liens not otherwise permitted by clauses (i) through (xiii) that are incurred in the ordinary course of business of the Company or any Subsidiary with respect to obligations that do not exceed $5 million at any one time outstanding. "Permitted Refinancing Debt" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Facility) of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount of such Permitted Refinancing Indebtedness 23 17 does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable taken as a whole to the Holders of the Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Production Payments" means Dollar-Denominated Production Payments and Volumetric Production Payments, collectively. "Purchase Agreement" means the agreement, dated June 23, 1997, among the Company and the Initial Purchasers relating to the Offering. "QIB" means any "qualified institutional buyer" (as defined in Rule 144A under the Securities Act"). "Registered Exchange Offer" means the offer to exchange the Initial Notes for the Exchange Notes issued under a registration statement filed pursuant to the terms of the Registration Rights Agreement. "Registration Rights Agreement" means the exchange and registration rights agreement, dated June __, 1997, among the Company and the Initial Purchasers. "Repurchase Offer" means an offer made by the Company to purchase all or any portion of a Holder's Notes pursuant to Section 4.10 or 4.13 hereof. "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions 24 18 similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group and its successors. "Securities" means the securities issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" has the meaning ascribed to such term in the Registration Rights Agreement. "Significant Subsidiary" means each Subsidiary that for the most recent fiscal year of such Subsidiary had consolidated revenues greater than $10 million or as at the end of such fiscal year had assets or liabilities greater than $10 million. "Subordinated Indebtedness" means any Indebtedness of the Company or any Restricted Subsidiary (whether outstanding on the date of the issuance of the Notes or thereafter incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means any guarantee of the obligations of the Company under this Indenture and the Notes by any Subsidiary Guarantor in accordance with the provisions of this Indenture. 25 19 "Subsidiary Guarantors" means each Restricted Subsidiary of the Company existing on the date of this Indenture (such Subsidiaries being The Canton Oil & Gas Company, Peake Energy, Inc., Ward Lake Drilling, Inc. and Target Oilfield Pipe & Supply Company), and any future Restricted Subsidiary of the Company that incurs a Subsidiary Guarantee in accordance with the provisions of this Indenture, and, in each case, their respective successors and assigns. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Total Assets" means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the most recent balance sheet of such Person. "TPG II" means TPG Partners II, L.P. "Transaction" means collectively, the Acquisition, the Offering, the execution of the New Credit Agreement and an equity investment by the Investors, and the net proceeds therefrom used to consummate the transactions contemplated by the Acquisition, the repayment of certain indebtedness of the Company and the payment of related fees and expenses. "Transaction Advisory Agreement" means the agreement between the Company and TPG II pursuant to which TPG II will receive financial advisory fees as compensation for its services as a financial advisor in connection with the Transaction and future transactions (as described therein). "Transfer Restricted Securities" means Securities that bear or are requested to bear the legend set forth in Section 2.6 hereof. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the redemption date to June 15, 2002; provided that if the period from the redemption date to June 15, 2002 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to June 15, 2002 is less than one year, the weekly average yield on actually traded United States 26 20 Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if: (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of designation, and will at all times thereafter consist of, Non-Recourse Debt; (c) the Company certifies that such designation was permitted by Section 4.7; (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no Investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company or such Restricted Subsidiary than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, 27 21 that (1) immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to Section 4.9 on a pro forma basis taking into account such designation and (2) such Subsidiary executes a Subsidiary Guarantee pursuant to Section 11.4 of this Indenture. "Volumetric Production Payments" means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith. "Voting Stock" of an entity means all classes of Capital Stock of such entity then outstanding and normally entitled to vote in the election of directors or all interests in such entity with the ability to control the management or actions of such entity. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. Section 1.2. OTHER DEFINITIONS.
Defined in Term Section "Affiliate Transaction"............................................ 4.11 "Asset Sale Offer"................................................. 3.9 "Bankruptcy Law"................................................... 10.2 "Cash Consolidation"............................................... 4.10 "Change of Control Offer".......................................... 4.13 "Change of Control Payment"........................................ 4.13 "Change of Control Payment Date"................................... 4.13 "Change of Control Redemption Payment"............................. 3.7
28 22 "Closing Date"..................................................... 2.1 "Common Stock"..................................................... 3.7 "Covenant Defeasance".............................................. 8.3 "Custodian"........................................................ 6.1 "DTC".............................................................. 2.3 "Definitive Notes"................................................. 2.1 "Event of Default"................................................. 6.1 "Excess Proceeds".................................................. 4.10 "Global Note" ..................................................... 2.1 "Global Note Holder"............................................... 2.1 "incur"............................................................ 4.9 "Legal Defeasance"................................................. 8.2 "Notice of Default"................................................ 6.1 "Offer Amount"..................................................... 3.9 "Offer Period"..................................................... 3.9 "Paying Agent"..................................................... 2.3 "Payment Blockage Notice".......................................... 10.4 "Payment Default".................................................. 6.1 "Permitted Indebtedness"........................................... 4.9 "Purchase Date".................................................... 3.9 "Registrar"........................................................ 2.3 "Restricted Payments".............................................. 4.7 "Senior Debt"...................................................... 10.2
Section 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" with respect to the Notes means the Company and with respect to the Subsidiary Guarantees means the Subsidiary Guarantors and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this indenture that are defined by the TIA, defined by TIA reference to another statute or defined by rule enacted by the Commission under the TIA have the meanings so assigned to them. Section 1.4. RULES OF CONSTRUCTION. Unless the context otherwise requires: 29 23 (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the Commission from time to time. ARTICLE 2 THE NOTES Section 2.1. FORM AND DATING. The Initial Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated herein and made part of this Indenture. Any Exchange Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B, the terms of which are incorporated herein and made part of this Indenture. The Subsidiary Guarantees of the Subsidiary Guarantors shall be substantially in the form of Exhibit C hereto, the terms of which are incorporated here in and made part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The Notes will be fully registered as to principal and interest in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. (a) GLOBAL NOTES. The Initial Notes are being offered and sold by the Company pursuant to the Purchase Agreement. Initial Notes offered and sold to QIBs in accordance with Rule 144A under the Securities Act ("RULE 144A") as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent Global Notes in definitive, fully registered form without interest coupons with the Global Securities Legend and Restricted Securities Legend called for by Exhibit A hereto (each, a "GLOBAL NOTE"), which shall be deposited on behalf of the Initial Purchasers with the Trustee, as custodian for the Depositary, and registered in the name of Cede & Co., as nominee of the Depository or will remain in the 30 24 custody of the Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee. The Global Note or Notes will be duly executed by the Company and authenticated by the Trustee as hereinafter provided. Secondary sales to Institutional Accredited Investors who are not QIBs will be reflected in a separate Global Note. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as Note Custodian, and the Depository or its nominee as hereinafter provided. (b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to Global Notes deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Notes that (i) shall be registered in the name of the Depository for such Global Note or Global Notes or the nominee of such Depository and (ii) shall be held by the Trustee as custodian for the Depository. After the issuance of Exchange Notes under a Registered Exchange Offer, the Trustee shall have no duty to hold any Global Note as custodian for the Depository or any other Security registered in the name of the Depository or a nominee of the Depository. Members of, or participants in, the Depository ("AGENT MEMBERS") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Note. (c) CERTIFICATED SECURITIES. Except as otherwise provided herein, owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of certificated Securities. Purchasers of Initial Notes who are not QIBs or Institutional Accredited Investors (referred to herein as the "NON-GLOBAL PURCHASERS") will receive certificated Initial Notes bearing the Restricted Securities Legend set forth in Exhibit A hereto ("DEFINITIVE NOTES"); PROVIDED, HOWEVER, that upon transfer of such certificated Securities to a QIB or Institutional Accredited Investor, such certificated Securities will, unless the relevant Global Note has previously been exchanged, be exchanged for an interest in a Global Note pursuant to the provisions of Section 2.6 hereof. Definitive Notes will 31 25 include the Restricted Securities Legend unless removed in accordance with this Section 2.1(c) or Section 2.6(g) hereof. Section 2.2. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate and make available for delivery (1) Initial Notes for original issue in an aggregate principal amount of $225.0 million, and (2) Exchange Notes for issue only in a Registered Exchange Offer, pursuant to the Registration Rights Agreement, in exchange for Initial Notes of an equal principal amount, in each case upon a written order of the Company signed by two Officers. Such order shall specify the amount of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes or Exchange Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $225.0 million. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Section 2.3. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York where (i) Notes may be presented for registration of transfer or for exchange ("Registrar") and (ii) Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange (the "Register"). The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall 32 26 incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC")to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.4. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent, including the Trustee (who shall be deemed to have agreed by its execution of this Indenture), to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee (unless the Paying Agent is the Trustee, in which case it shall hold in trust for the Holders) all money held by the Paying Agent for the payment of principal, premium, if any, or interest, on the Notes, and shall notify the Trustee of any default by the Company or any Subsidiary Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company or a Subsidiary, the Trustee shall serve as sole Paying Agent for the Notes. Section 2.5. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes. 33 27 Section 2.6. TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive Notes are presented to the Registrar or a co-registrar with a request: (x) to register the transfer of such Definitive Notes; or (y) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar or co-registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; PROVIDED, HOWEVER, that the Definitive Notes surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form and substance reasonably satisfactory to the Company and the Registrar or co-registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) are Transfer Restricted Securities or such Definitive Notes, accompanied by the following additional information and documents, as applicable: (A) if such Transfer Restricted Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in substantially the form set forth on the reverse of the Security); or (B) if such Transfer Restricted Securities are being transferred to the Company or to a QIB in accordance with Rule 144A under the Securities Act, a certification to that effect (in substantially the form set forth on the reverse of the Security); or (C) if such Transfer Restricted Securities are being transferred (w) pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act; or (x) to an Institutional Accredited Investor that is acquiring the security for its own account, or for the account of such an Institutional Accredited Investor, with respect to which it exercises sole discretion, in each case in a minimum principal amount of the Notes of $250,000 for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act; or (y) in reliance on another exemption from the registration requirements of the Securities Act: (i) a certification to that effect (in substantially the form set forth on the reverse of 34 28 the Security), (ii) if the Company or Registrar so requests, an Opinion of Counsel reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act and (iii) in the case of clause (x), a signed letter substantially in the form of Exhibit D hereto. (b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A GLOBAL NOTE. A Definitive Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form and substance satisfactory to the Trustee and the Company, together with: (i) if such Definitive Note is a Transfer Restricted Security, certification, substantially in the form set forth on the reverse of the Security, that such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act; and (ii) whether or not such Definitive Note is a Transfer Restricted Security, written instructions directing the Trustee to make, or to direct the Note Custodian to make, an adjustment on its books and records with respect to such Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, then the Trustee shall cancel such Definitive Note and cause, or direct the Note Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Note Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Notes are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officer's Certificate, a new Global Note in the appropriate principal amount. (c) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. (d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A DEFINITIVE NOTE. (i) Any person having a beneficial interest in a Global Note that is being transferred or exchanged pursuant to an effective registration statement under the Securities 35 29 Act or pursuant to clause (A),(B) or (C) below may upon request, and if accompanied by the information specified below, exchange such beneficial interest for a Definitive Note of the same aggregate principal amount. Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depository from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Note and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest in a Transfer Restricted Security only, the following additional information and documents: (A) if such beneficial interest is being transferred to the Person designated by the Depository as being the owner of a beneficial interest in a Global Note, a certification from such Person to that effect (in substantially the form set forth on the reverse of the Note); or (B) if such beneficial interest is being transferred (x) to a QIB in accordance with Rule 144A under the Securities Act or (y) pursuant to an effective registration statement under the Securities Act, a certification from such Person to that effect (in substantially the form set forth on the reverse of the Note); or (C) if such beneficial interest is being transferred (w) pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act; or (x) to an Institutional Accredited Investor that is acquiring the Note for its own account, or for the account of such an Institutional Accredited Investor, with respect to which it exercises sole discretion, in each case in a minimum principal amount of the Notes of $250,000 for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Notes; or (y) in reliance on another exemption from the registration requirements of the Securities Act: (i) a certification to that effect from the transferee or transferor (in substantially the form set forth on the reverse of the Note), (ii) if the Company or Registrar so requests, an Opinion of Counsel from the transferee or transferor reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act, and (iii) in the case of clause (x), a signed letter substantially in the form of Exhibit D hereto, then the Trustee or the Note Custodian, at the direction of the Trustee, will cause, in accordance with the standing 36 30 instructions and procedures existing between the Depository and the Note Custodian, the aggregate principal amount of the Global Note to be reduced on its books and records and, following such reduction, the Company will execute and the Trustee will authenticate and make available for delivery to the transferee a Definitive Note. (ii) Definitive Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.6(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall make such Definitive Notes available for delivery to the persons in whose names such Notes are so registered in accordance with the instructions of the Depository. (e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES. Notwithstanding any other provisions of this Indenture (other than the provisions set forth in subsection (f) of this Section 2.6), a Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (f) AUTHENTICATION OF DEFINITIVE NOTES IN ABSENCE OF DEPOSITORY. If at any time: (i) the Depository for the Notes notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Notes and a successor Depository for the Global Notes is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company will execute, and the Trustee, upon receipt of an Officer's Certificate requesting the authentication and delivery of Definitive Notes to the Persons designated by the Company, will authenticate and make available for delivery Definitive Notes, in an aggregate principal amount equal to the principal amount of Global Notes, in exchange for such Global Notes. (g) LEGEND. (i) Except as permitted by the following paragraph (ii), each Note certificate evidencing the Global Notes and the Definitive Notes (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend (the 37 31 "RESTRICTED SECURITIES LEGEND") in substantially the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY, ANY SUBSIDIARY GUARANTOR OR ANY AFFILIATE OF THE COMPANY OR ANY SUBSIDIARY GUARANTOR WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, IN A TRANSACTION COMPLYING WITH THE REQUIREMENTS OF RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULES 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE 38 32 COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Note that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) any such Transfer Restricted Security represented by a Global Note shall not be subject to the provisions set forth in clause (i) of this Section 2.6(g) (such sales or transfers being subject only to the provisions of Section 2.6(c) hereof); PROVIDED, HOWEVER, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Definitive Note that does not bear a legend, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certification to be substantially in the form set forth on the reverse of the Note). (h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTE. At such time as all beneficial interests in a Global Note have either been exchanged for Definitive Notes, redeemed, repurchased or canceled, such Global Note shall be returned to the Depository for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Definitive Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Note shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Note Custodian for such Global Note) or the Note Custodian with respect to such Global Note, by the Trustee or the Note Custodian, to reflect such reduction. (i) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF NOTES. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's or co-registrar's request. 39 33 (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith. (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of (a) any Definitive Note selected for redemption in whole or in part pursuant to Article 3, except the unredeemed portion of any Definitive Note being redeemed in part, or (b) any Note for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Notes or 15 Business Days before an interest payment date. (iv) Prior to the due presentation for registration of transfer of any Note, each of the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar shall be affected by notice to the contrary. (v) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange. (j) NO OBLIGATION OF THE TRUSTEE. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note in global form shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may conclusively rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. 40 34 (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including, without limitation, any transfers between or among Depository participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Section 2.7. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Registrar, or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company and the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.8. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. A Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on 41 35 that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.9. TEMPORARY NOTES. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes and make them available for delivery in exchange for temporary Notes. Section 2.10. CUSIP NUMBER. The Company in issuing the Notes may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. Section 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record 42 36 date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.1. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, then it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the paragraph of the Notes and/or Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.2. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption shall be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. A new Note in principal amount equal to the unredeemed portion thereof shall be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, unless the Company defaults in payment of the redemption price, interest ceases to accrue on Notes or portions of them called for redemption. Except as provided in this Section 3.2, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. 43 37 The provisions of the two preceding paragraphs of this Section 3.2 shall not apply with respect to any redemption affecting only a Global Note, whether such Global Note is to be redeemed in whole or in part. In case of any such redemption in part, the unredeemed portion of the principal amount of the Global Note shall be in an authorized denomination. Section 3.3. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.9 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder of Notes to be redeemed at such Holder's registered address, provided, however, that the Company shall provide notice to the Trustee in accordance with Section 3.1 hereof at least five days prior to the mailing of the notice pursuant to this Section 3.3. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed, and, if the redemption is to occur pursuant to Section 3.7, a description of the transaction or transactions that constitute the Change of Control; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. If any of the Notes to be redeemed is in the form of a Global Note, then such notice shall be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to redemptions. 44 38 At the Company's request and expense, the Trustee shall give the notice of redemption in the Company's name; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, a notice signed by two officers requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.5. DEPOSIT OF REDEMPTION PRICE. On or prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. Section 3.6. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. 45 39 Section 3.7. OPTIONAL REDEMPTION. (a) Except as set forth in clauses (b) and (c) of this Section 3.7, the Company shall not have the option to redeem the Notes pursuant to this Section 3.7 prior to June 15, 2002. From and after June 15, 2002, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of each of the years indicated below:
Percentage of Year Principal Amount ----------------- 2002...................................................... 104.938% 2003...................................................... 103.292% 2004 ..................................................... 101.646% 2005 and thereafter....................................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.7, at any time prior to June 15, 2000, the Company may, at its option, on any one or more occasions, redeem up to 40% of the original aggregate principal amount of Notes at a redemption price of 109.875% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date with all or a portion of the net proceeds of public sales of common stock of the Company, without par value (the "Common Stock"); provided that at least 60% of the original aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 60 days of the date after the closing of the related sale of such Common Stock. (c) Notwithstanding the provisions of clause (a) of this Section 3.7, upon the occurrence of a Change of Control at any time on or prior to June 15, 2002, the Company may, at its option, redeem in whole but not in part, the Notes at a redemption price equal to 100% of the principal amount thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the date of redemption (the "Change of Control Redemption Payment") (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) provided that such redemption shall be made no more than 90 days after the occurrence of a Change of Control. Provided the Company complies with Section 3.3 and the other provisions hereof applicable to such redemption, a redemption pursuant to this Section 3.7(c) can 46 40 occur simultaneously with the occurrence of a Change of Control. Notwithstanding any provision of Section 3.7(d), the Company shall notify the Trustee and, by mail, the Holders of the Notes of its decision to redeem the Notes pursuant to this Section 3.7(c) no later than 30 days after the occurrence of a Change of Control. (d) Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof and, as to Section 3.7(c) only, pursuant to the provisions of Section 4.13. Section 3.8. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.13 hereof, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.9. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders of Notes and, to the extent required by the terms thereof, to all holders or lenders of other Pari Passu Indebtedness, to purchase Notes and any such Pari Passu Indebtedness (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof, giving effect to any related offer for Pari Passu Indebtedness pursuant to Section 4.10, (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale 47 41 Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depository, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depository or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased) in the manner provided in Section 4.10; and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). 48 42 If any of the Notes subject to an Asset Sale Offer is in the form of a Global Note, then such notice may be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to repurchases. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.9. The Company, the Depository or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon receipt of a written authentication order of the Company signed by two Officers of the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.9, any purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. ARTICLE 4 COVENANTS Section 4.1. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all such amounts then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. 49 43 Section 4.2. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where principal, premium, if any, and interest on the Notes will be paid and where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the following office of an Affiliate of the Trustee as one such office or agency of the Company in accordance with Section 2.3: LaSalle National Bank, 135 South LaSalle Street, Chicago, Illinois, 60603. Section 4.3. COMMISSION REPORTS. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Company shall file with the Commission and provide, within 15 days after such filing, the Trustee and Holders and prospective Holders (upon request) with the annual reports and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act (but without exhibits in the case of the Holders and prospective Holders). In the event that the Company is not permitted to file such reports, documents and information with the Commission, the Company will provide substantially similar information to the Trustees, the Holders and prospective Holders (upon request) as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act within 15 days of the date the Company would have been obligated to file such reports with the Commission, were the Company permitted to file such reports with the Commission. The Company also will comply with the other provisions of Section 314(a) of the TIA. 50 44 Section 4.4. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. As of the date hereof, the Company's fiscal year ends on December 31 of each calendar year. In the event the Company changes its fiscal year, it shall promptly notify the Trustee of such change. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the fiscal year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within five Business Days of any Officer becoming aware of any Default or Event of Default, a certificate of two officers specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.5. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency all material taxes, 51 45 assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.6. STAY, EXTENSION AND USURY LAWS. Each of the Company and the Subsidiary Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and each of the Company and the Subsidiary Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.7. RESTRICTED PAYMENTS. The Company shall not and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment to holders of the Company's Equity Interests in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary of the Company that is not a Wholly Owned Restricted Subsidiary of the Company (other than any such purchase, redemption or other acquisition or retirement made in connection with the Transaction); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except at final maturity or as a mandatory or sinking fund repayment; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the 52 46 applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (1), (3), (4) and (7) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue and sale since the date of this Indenture of Equity Interests in the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash or the receipt of properties used in the Oil and Gas Business, the lesser of (A) the net proceeds of such sale, liquidation or repayment or the fair market value of property received in exchange therefor and (B) the amount of such Restricted Investment; provided, however, that the foregoing provisions of this paragraph (c) will not prohibit Restricted Payments in an aggregate amount not to exceed $15 million. The foregoing provisions shall not prohibit: (1) the purchase, redemption, retirement or other acquisition for value of any Equity Interests of the Company contemplated by the Transaction; (2) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (3) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (4) the defeasance, redemption or repurchase of Subordinated Indebtedness with the net cash proceeds from an 53 47 incurrence of subordinated Permitted Refinancing Debt or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of this Indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.0 million in any twelve-month period; and provided further that no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (6) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company (initially represented by stock options to acquire 204,500 shares of the Company's Common Stock, which number will be adjusted in connection with the Transaction) granted prior to the Acquisition and held by Messrs. Belden, Mardick, Clements and Huff, which individuals elected not to dispose of such Equity Interests in connection with the Acquisition; and (7) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company set forth in a certificate of two officers delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or the applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than five days after the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.7 were computed. In computing Consolidated Net Income for purposes of this Section 4.7, (i) the Company shall use audited financial statements for the portion of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (ii) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment which, 54 48 at the time of the making of such Restricted Payment, would on the good faith determination of the Company be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated shall be deemed to be Restricted Payments at the time of such designation and shall reduce the amount available for Restricted Payments under clause (c) of the first paragraph of this covenant. All such outstanding Investments shall be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation shall only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Section 4.8. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed by it to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the New Credit Agreement as in effect as of the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof or any other Credit Facility, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or any other Credit Facilities are no more restrictive taken as a whole with respect to such dividend and other payment restrictions than those contained in the New Credit Agreement as in effect on the date of this Indenture, (b) this Indenture and the Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition 55 49 (except, in the case of Indebtedness, to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases and customary provisions in other agreements that restrict assignment of such agreements or rights thereunder, entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (g) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (h) any other security agreement, instrument or document relating to Senior Debt in effect after the date of this Indenture, provided that such encumbrances or restrictions are customary in connection with such documents and that the terms and conditions of such encumbrances or restrictions are no more restrictive than those encumbrances or restrictions imposed in connection with the New Credit Agreement, (i) Permitted Liens or (j) customary provisions in joint venture agreements and other similar agreements relating to the distribution of revenue from such joint venture or other business venture. Section 4.9. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock to any person other than the Company or a Wholly-Owned Restricted Subsidiary of the Company; provided, however, that the Company and the Subsidiary Guarantors may incur Indebtedness or issue shares of Disqualified Stock if: (i) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.5 to 1, determined on a pro forma basis as set forth in the definition of Fixed Charge Coverage Ratio; and 56 50 (ii) no Default or Event of Default shall have occurred and be continuing at the time such additional Indebtedness is incurred or such Disqualified Stock is issued or would occur as a consequence of the incurrence of the additional Indebtedness or the issuance of the Disqualified Stock. Notwithstanding the foregoing, this Indenture shall not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Notes; (b) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness pursuant to Credit Facilities, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Facilities does not, at any one time, exceed the greater of (1) $300.0 million and (2) the Borrowing Base, provided that the Company may incur more than $300 million of Indebtedness pursuant to Credit Facilities only if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available would have been at least 2.0 to 1, determined on a pro forma basis as set forth in the definition of Fixed Charge Coverage Ratio; (c) the guarantee by any Subsidiary Guarantor of any Indebtedness that is permitted by this Indenture to be incurred by the Company; (d) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of this Indenture; (e) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that if the Company is the obligor on such Indebtedness, (i) such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (f) Indebtedness in connection with one or more standby letters of credit, guarantees, performance bonds or other reimbursement obligations, in each case, issued in the ordinary course of business and not in connection with the borrowing of money or the obtaining of advances or credit (other than advances or credit on open account, includible in current liabilities, for goods and services in the ordinary course of business and on terms and conditions which are customary in the Oil and Gas Business, and other than the extension of credit represented by such letter of credit guarantee or performance bond itself), not to exceed in the aggregate at any given time 5.0% of Total Assets; (g) Indebtedness under Interest Rate Hedging Agreements entered into for the purpose of limiting interest rate risks, provided that the obligations under such agreements are related to payment obligations on Indebtedness otherwise permitted by the terms of this covenant and that the 57 51 aggregate notional principal amount of such agreements does not exceed 105% of the principal amount of the Indebtedness to which such agreements relate; (h) Indebtedness under Oil and Gas Hedging Contracts, provided that such contracts were entered into in the ordinary course of business for the purpose of limiting risks that arise in the ordinary course of business of the Company and its Restricted Subsidiaries; (i) the incurrence by the Company of Indebtedness not otherwise permitted to be incurred pursuant to this paragraph, provided that the aggregate principal amount of all Indebtedness incurred pursuant to this clause (i), together with all Permitted Refinancing Debt incurred pursuant to clause (j) of this paragraph in respect of Indebtedness previously incurred pursuant to this clause (i), does not exceed $15.0 million at any one time outstanding; (j) Permitted Refinancing Debt incurred in exchange for, or the net proceeds of which are used to refinance, extend, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be incurred (including Indebtedness previously incurred pursuant to this clause (j), but excluding Indebtedness under clauses (b), (c), (e), (f), (g), (h), (k), (l) and (m)); (k) accounts payable or other obligations of the Company or any Restricted Subsidiary to trade creditors created or assumed by the Company or such Restricted Subsidiary in the ordinary course of business in connection with the obtaining of goods or services; (l) Indebtedness consisting of obligations in respect of purchase price adjustments, guarantees or indemnities in connection with the acquisition or disposition of assets; and (m) production imbalances that do not, at any one time outstanding, exceed 2% of the Total Assets of the Company. The Company shall not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Company. Section 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company set forth in an Officer's Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 85% of the consideration therefor received by the Company or such Restricted Subsidiary in such Asset Sale, plus all other Asset Sales since the date of this Indenture, on a cumulative basis, is in the form of cash, Cash Equivalents, properties and capital assets to be used by the Company or any Restricted subsidiary in the Oil and Gas Business or oil and gas properties owned or held by another 58 52 person which are to be used by the Company or its Restricted Subsidiaries, or any combination thereof (collectively the "cash consideration"); provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any non-cash consideration received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days of closing such Asset Sale, shall be deemed to be cash for purposes of this provision (to the extent of the cash received); provided, however, that the Company and its Restricted Subsidiaries may make Asset Sales with a fair market value not exceeding $5 million in the aggregate in each year of twelve calendar months (beginning the first full month following the date of this Indenture) free from any of the restrictions, requirements or other provisions set forth in this Section 4.10. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, in any order or combination: (a) to reduce Senior Debt, (b) to make Permitted Investments, in any order or combination, (c) to make investments in interests in another Oil and Gas Business or (d) to make capital expenditures in respect of the Company's or its Restricted Subsidiaries' Oil and Gas Business or to purchase long-term assets that are used or useful in such Oil and Gas Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph shall (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Notes and any other Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to, in the case of the Notes, 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase or, in the case of any other Pari Passu Indebtedness, 100% of the principal amount thereof (or with respect to discount Pari Passu Indebtedness, the accrued value thereof) on the date of purchase, in each case, in accordance with the procedures set forth in Section 3.9 hereof or the agreements governing Pari Passu Indebtedness, as applicable. To the extent that the aggregate principal amount (or accreted value, as the case may be) of the Notes and Pari Passu 59 53 Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the sum of (i) the aggregate principal amount of Notes surrendered by Holders thereof, and (ii) the aggregate principal amount or accreted value, as the case may be, of other Pari Passu Indebtedness surrendered by holders or lenders thereof, exceeds the amount of Excess Proceeds, the Trustee and the trustee or other lender representatives for the Pari Passu Indebtedness shall select the Notes and other Pari Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount (or accreted value, as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the Excess Proceeds shall be reset at zero. Section 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to an Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5 million, an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (i) above, (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (i) above and that such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or series of related Affiliate Transactions (which resolution shall be conclusive evidence of compliance with this provision) and (c) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (i) above and that such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction 60 54 or series of related Affiliate Transactions and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an accounting, appraisal, engineering or investment banking firm of national standing (which resolution and fairness opinion shall be conclusive evidence of compliance with this provision), provided, however, that the foregoing shall not apply to (1) reasonable fees and compensation paid to (including issuances and grant of securities and stock options), employment agreements and stock option and ownership plans for the benefit of officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management, (2) payments made in connection with the Transaction, including fees to TPG II, (3) the repurchase of shares of the Company's Common Stock obtainable by Messrs. Belden, Mardick, Clements and Huff, pursuant to the exercise of stock options to acquire 204,500 shares of the Company's Common Stock granted to such individuals prior to the Acquisition, and which options such individuals elected not to exercise or surrender in connection with the Acquisition, (4) transactions between or among the Company and/or its Restricted Subsidiaries, (5) Restricted Payments and Permitted Investments that are permitted by Section 4.7 and the definition of Permitted Investments, (6) indemnification payments made to officers, directors and employees of the Company or its Subsidiaries pursuant to charter, by-law, statutory or contractual provisions and (7) any contracts, agreements or understandings (i) existing as of the date of this Indenture or (ii) entered into pursuant to the terms of the Merger Agreement described in this Offering Memorandum including, without limitation, the Transaction Advisory Agreement or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto or any replacement agreement thereto so long as any such amendment or replacement agreement has terms that are not any more disadvantageous to the Holders of the Notes in any material respect than the original agreement as in affect as in effect on the date of this Indenture). Section 4.12. LIENS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any of its property or assets, now owned or hereafter acquired, unless all payments under the Notes are secured by such Lien prior to, or on an equal and ratable basis with, the Indebtedness so secured for so long as such Indebtedness is secured by such Lien. 61 55 Section 4.13. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, if the Company does not redeem the Notes pursuant to Section 3.7(c), each Holder of the Notes shall, unless the Company shall have elected to redeem the Notes prior to June 15, 2002 pursuant to Section 3.7(c), have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (1) a description of the transaction or transactions that constitute the Change of Control; (2) that the Change of Control Offer is being made pursuant to this Section 4.13 and that all Notes tendered shall be accepted for payment; (3) the purchase price and the purchase date described below (the "Change of Control Payment Date"); (4) that any Note not tendered shall continue to accrue interest, if any; (5) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest, if any, after the Change of Control Payment Date; (6) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (7) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (8) that Holders whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company and each Subsidiary Guarantor shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable to such party in connection with the repurchase of the Notes as a result of a Change of Control. (b) On a Business Day that is no earlier than 30 days nor later than 60 days from the date that the Company mails or causes to be mailed notice of the Change of Control to the Holders (the "Change of Control Payment Date"), the Company 62 56 shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of such Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Prior to complying with the provisions this Section 4.13, but in any event within 30 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of the Notes required by this Section 4.13. The Change of Control provisions described above shall be applicable whether or not any other provisions of this Indenture are applicable. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.13 and purchases all Notes (or portions thereof) validly tendered and not withdrawn under such Change of Control Offer. The change of control that shall occur upon completion of the Transaction shall not constitute a Change of Control under this Indenture and (i) the Company shall have no right to exercise its redemption option pursuant to Section 3.7(c) and (ii) the Holders of the Notes shall have no right to require the Company to make a Change of Control Offer or a Change of Control Payment in respect thereof. Section 4.14. ADDITIONAL SUBSIDIARY GUARANTEES. In the event that the Company shall acquire or create, or any of its Subsidiaries shall acquire another Restricted Subsidiary after the date of this Indenture, such newly acquired or created Restricted Subsidiary shall be deemed to make the guarantee set forth in Section 11.1 and the Company shall cause such Restricted Subsidiary to evidence such guarantee in the manner set forth in Section 11.2. 63 57 Section 4.15. CORPORATE EXISTENCE. Subject to Article 5 hereof and the events contemplated by the Transaction, the Company and the Subsidiaries shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of the Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter, partnership agreement and statutory), licenses and franchises of the Company and the Subsidiaries; provided, however, that the Company and the Subsidiaries shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of the Subsidiaries, if the Board of Directors of the relevant Person shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.16. NO SENIOR SUBORDINATED DEBT. Notwithstanding the provisions of Section 4.9 hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes and (ii) the Subsidiary Guarantors shall not directly or indirectly incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to Senior Debt of the Company and senior in any respect in right of payment to the Subsidiary Guarantees; provided, however, that the foregoing limitations shall not apply to distinctions between categories of Indebtedness that exist by reason of any Liens arising or created in respect of some but not all such Indebtedness. Section 4.17. BUSINESS ACTIVITIES. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any material respect in any business other than the Oil and Gas Business. ARTICLE 5 SUCCESSORS Section 5.1. MERGER, CONSOLIDATION, OR SALE OF SUBSTANTIALLY ALL ASSETS. Except for the Acquisition, the Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, 64 58 convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person, in either case unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Entity (if the Company is not the continuing obligor under this Indenture) assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemented indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after giving effect to such transaction or series of transactions no Default or Event of Default exists; (iv) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Subsidiary which becomes the obligation of the Company or any of its Subsidiary as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving Entity (if the Company is not the continuing obligor under this Indenture) is equal to or greater than the Consolidated Net Worth of the Company and its Subsidiaries immediately prior to such transaction or series of transactions and (v) the Company or Surviving Entity (if the Company is not the continuing obligor under this Indenture) will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of Section 4.9 hereof. Notwithstanding the foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. None of the provisions of this Section 5.1 shall be deemed to prevent the merger of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction. This Section 5.1 shall not apply to any consolidation, merger, sale, assignment, transfer, lease or other disposition if the Company shall have elected to 65 59 redeem the Notes pursuant to Section 3.7 and such redemption takes place prior to or simultaneously with the Company's consolidation or merger with or into another Person. Section 5.2. SUCCESSOR CORPORATION SUBSTITUTED; SUBSIDIARY GUARANTORS CONFIRMED. (a) Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the Surviving Entity and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1 hereof. (b) Upon any consolidation or merger, or any sale, assignment, transfer, lease conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, each Subsidiary Guarantor (unless such Subsidiary Guarantor is the Surviving Entity) shall confirm by executing a supplemental indenture that its Subsidiary Guarantee guarantees the Surviving Entity's Obligations under this Indenture and the Notes. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company defaults in the payment of interest, if any, on the Notes when the same becomes due and payable and the Default continues for a period of 30 days, whether or not such payment is prohibited by the provisions of Article 10 hereof; (2) the Company defaults in the payment of the principal of or premium, if any, on the Notes, whether or not such payment is prohibited by the provisions of Article 10 hereof; (3) the Company or a Subsidiary Guarantor fails to observe or perform any covenant, condition or agreement on 66 60 the part of the Company or a Subsidiary Guarantor to be observed or performed pursuant to Article 5 hereof; (4) the Company fails to observe or perform any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17 hereof and the Default continues for the period and after the notice specified below; (5) the Company fails to comply with any of its other agreements or covenants in, or provisions of, the Notes or this Indenture and the Default continues for consecutive days after the notice specified below; (6) except as permitted herein, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or a Significant Subsidiary, or any Person acting on behalf of a Significant Subsidiary, shall deny or disaffirm such Subsidiary Guarantor's obligation under its Subsidiary Guarantee; (7) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or guarantee now exists or shall be created hereafter, which default (a) is caused by a failure to pay principal of such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more; (8) a final non-appealable judgment or order or final non-appealable judgments or orders are rendered against the Company or any Restricted Subsidiary that remain unpaid or discharged for a period of 60 days and that require the payment of money, either individually or in an aggregate amount, in excess of $10 million; (9) the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding, 67 61 (b) consents to the entry of an order for relief against it in an involuntary case or proceeding, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property or (d) makes a general assignment for the benefit of its creditors; (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case or proceeding, (b) appoints a Custodian of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or (c) orders the liquidation of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (4) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes notify the Company and the Trustee, of the Default and the Company does not cure the Default within 30 consecutive days after receipt of the notice. A Default under clause (5) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes notify the Company and the Trustee, of the Default and the Company does not cure the Default within 60 days after receipt of the notice. Each notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." 68 62 Section 6.2. ACCELERATION. If an Event of Default (other than an Event of Default specified in clauses (9) and (10) of Section 6.1 hereof) relating to the Company or any Subsidiary Guarantor occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare the unpaid principal amount of and any accrued and unpaid interest on all the Notes to be due and payable immediately. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall notify the holders of Designated Senior Debt of such acceleration. Upon such declaration the principal and interest shall be due and payable immediately; provided, however, that so long as any Designated Senior Debt or any commitment therefor is outstanding, any such notice or declaration shall not become effective until the earlier of (a) five Business Days after such notice is delivered to the representative for the Designated Senior Debt or (b) the acceleration of any Designated Senior Debt and thereafter, payments on the Notes pursuant to this Article 6 shall be made only to the extent permitted pursuant to Article 10 herein. Notwithstanding the foregoing, if any Event of Default specified in clause (9) or (10) of Section 6.1 hereof relating to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act or notice on the part of the Trustee or any Holder. After a declaration of acceleration under this Indenture, but before a judgment or decree for payment of principal, premium, if any, and interest on the Notes due under this Article 6 has been obtained by the Trustee, Holders of a majority in principal amount of the then outstanding Notes by written notice to the Company and the Trustee may rescind an acceleration and its consequences if (i) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and (b) all overdue interest on the Notes, if any, (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iii) all existing Events of Default (except nonpayment of principal, premium, if any, or interest that has become due solely because of the acceleration) have been cured or waived. Section 6.3. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to 69 63 enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.4. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of principal of, premium and liquidated damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.5. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability it being understood that (subject to Section 7.1) the Trustee shall have no duty to ascertain whether or not such actions or forebearances are unduly prejudicial to such holders. Section 6.6. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; 70 64 (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Subsidiary Guarantor for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances 71 65 of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company or any of the Subsidiary Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee. Section 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall, subject to the provisions of Article 10, pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Sections 6.8 and 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Senior Debt to the extent required by Article 10; Third: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and accrued interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and accrued interest, as the case may be, respectively; and 72 66 Fourth: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.1. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any notices, requests, statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. 73 67 (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have furnished to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.2. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. 74 68 (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than any agent who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Subsidiary Guarantor shall be sufficient if signed by an Officer of the Company or such Subsidiary Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have furnished to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except with respect to Sections 4.1 and 4.4 hereof, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or (ii) any Default or Event of Default of which the Trustee shall have received written notification. For purposes of determining the Trustee's responsibility hereunder, whenever reference is made in this Indenture to a Default or Event of Default, such reference shall be construed to refer only to a Default or Event of Default of which the Trustee is deemed to have notice pursuant to this Section 7.2(g) (h) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (i) the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions, or agreements on the part of the Company or any Subsidiary Guarantor, except as otherwise set forth herein, but the Trustee may require of the Company full information and advice as to the performance of the covenants, conditions and agreements contained herein and shall be entitled in connection herewith to examine the books, records and premises of the Company. (j) The permissive rights of the Trustee to perform the acts enumerated in this Indenture shall not be construed as a 75 69 duty and the Trustee shall not be answerable for other than its gross negligence or willful misconduct. Section 7.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, the Subsidiary Guarantors or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.4. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes, or the Subsidiary Guarantees, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or in any certificate delivered pursuant hereto or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.5. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on, any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also 76 70 shall comply with TIA Section 313(b)(2) and transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.7. COMPENSATION AND INDEMNITY. The Company and the Subsidiary Guarantors shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder, including, without limitation, extraordinary services such as default administration. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Subsidiary Guarantors shall reimburse the Trustee upon demand for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Subsidiary Guarantors shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Subsidiary Guarantors (including this Section 7.7) and investigating or defending itself against any claim (whether asserted by the Company, the Subsidiary Guarantors or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its gross negligence or bad faith. The Trustee shall notify the Company and the Subsidiary Guarantors promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company and the Subsidiary Guarantors shall not relieve the Company and the Subsidiary Guarantors of their obligations hereunder. The Company and the Subsidiary Guarantors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Subsidiary Guarantors shall pay the reasonable fees and expenses of such counsel. The Company and the Subsidiary Guarantors need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Subsidiary Guarantors under this Section 7.7 are joint and several and shall survive the satisfaction and discharge of this Indenture. 77 71 To secure the Company's and the Subsidiary Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.8. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may 78 72 petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. Section 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 79 73 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.2. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company and the Subsidiary Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes and the Subsidiary Guarantees thereof on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company and the Subsidiary Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from their obligations under the covenants contained in Sections 4.3, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17 hereof and in clause (iv) of Section 5.1 and the covenants contained in the Subsidiary Guarantees with respect to the 80 74 outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any compliance certificate, direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture, such Notes and such Subsidiary Guarantees shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only with respect to the Company's failure to observe or perform the covenants, conditions and agreements of the Company under clause (iv) of Section 5.1), 6.1(4), 6.1(7) and 6.1(8) hereof shall not constitute Events of Default. Section 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest, on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a 81 75 ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.1(9) or 6.1(10) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 82 76 Section 8.5. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Subsidiary Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.6. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money 83 77 remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.7. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company and the Subsidiary Guarantors under this Indenture, the Notes and the Subsidiary Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be; provided, however, that if the Company or any Subsidiary Guarantor makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company or such Subsidiary Guarantor shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.2 of this Indenture, the Company, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture, the Notes or the Subsidiary Guarantees without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Securities in addition to or in place of certificated Securities (provided, however, that the uncertificated Securities are issued in registered form for purposes of section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code); (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article 5 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; 84 78 (e) to secure the Notes; or (f) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Subsidiary Guarantors, as the case may be, authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.2. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.2, the Company, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture, the Notes and the Subsidiary Guarantees with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes), and, subject to Sections 6.4 and 6.7 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes or compliance with any provision of this Indenture, the Notes or the Subsidiary Guarantees may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes). In addition, any amendment to the provisions of Article 10 of this Indenture shall require the consent of the Holders of at least 66 2/3% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes; provided that, no amendment may be made to the provisions of Article 10 of this Indenture that adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or representative thereof authorized to consent) consent to such change. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company or any Subsidiary Guarantor with any provision of this 85 79 Indenture, the Notes or the Subsidiary Guarantees. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (except as provided above with respect to Sections 3.9, 4.10 and 4.13 hereof); (c) reduce the rate of or change the time for payment of interest on any Note; (d) waive a Default or Event of Default in the payment of principal of the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal or premium, if any, or interest on the Notes; or (g) make any change in the foregoing amendment and waiver provisions. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Subsidiary Guarantors, as the case may be, authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. 86 80 After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Section 9.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.4. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.5. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.6. TRUSTEE TO SIGN AMENDMENT, ETC. The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. Neither the Company nor any Subsidiary Guarantor may sign an amendment or supplemental Indenture until its respective Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.1) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or 87 81 permitted by this Indenture and that there has been compliance with all conditions precedent. ARTICLE 10 SUBORDINATION Section 10.1. AGREEMENT TO SUBORDINATE. The Company and each Subsidiary Guarantor agree, and each Holder by accepting a Note and the related Subsidiary Guarantee agrees, that (i) the Indebtedness evidenced by (a) the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes (including any obligation to repurchase the Notes) is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and (b) the Subsidiary Guarantees and other payment Obligations in respect of the Subsidiary Guarantees are subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash of all Senior Debt of each Subsidiary Guarantor and (ii) the subordination is for the benefit of the Holders of Senior Debt. Section 10.2. CERTAIN DEFINITIONS. "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of the Company under or in respect of any Credit Facility, whether for principal, interest (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not the claim for such interest is allowed as a claim in such proceeding), reimbursement obligations, fees, commissions, expenses, indemnities or other amounts, and (ii) any other Indebtedness permitted under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes. Notwithstanding anything to the contrary in the foregoing sentence, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture (other than Indebtedness under (i) the New Credit Agreement or (ii) any other Credit Facility that is incurred on the basis of a 88 82 representation by the Company to the applicable lenders that it is permitted to incur such Indebtedness under this Indenture). A "distribution" may consist of cash, securities or other property, by set-off or otherwise. All Designated Senior Debt now or hereafter existing and all other Obligations relating thereto shall not be deemed to have been paid in full unless the holders or owners thereof shall have received payment in full in cash (or other form of payment consented to by the holders of such Designated Senior Debt) with respect to such Designated Senior Debt and all other Obligations with respect thereto. Section 10.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY. (a) Upon any payment or distribution of property or securities to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) the holders of Senior Debt of the Company shall be entitled to receive payment in full in cash of all Obligations in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not a claim for such interest would be allowed in such proceeding) before the Holders of Notes shall be entitled to receive any payment with respect to the Notes and related Obligations (except in each case that Holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture); and (2) until all Obligations with respect to Senior Debt of the Company (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Holders of Notes and the related Subsidiary Guarantees would be entitled shall be made to holders of Senior Debt of the Company (except that Holders of Notes and the related Subsidiary Guarantees may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture). 89 83 (b) Upon any payment or distribution of property or securities to creditors of a Subsidiary Guarantor in a liquidation or dissolution of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Subsidiary Guarantor or its property, or in an assignment for the benefit of creditors or any marshalling of such Subsidiary Guarantor's assets and liabilities: (1) the holders of Senior Debt of such Subsidiary Guarantor shall be entitled to receive payment in full in cash of all Obligations in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not a claim for such interest would be allowed in such proceeding) before the Holders of Notes and the related Subsidiary Guarantees shall be entitled to receive any payment or distribution with respect to the Subsidiary Guarantee made by such Subsidiary Guarantor (except in each case that Holders of Notes and the related Subsidiary Guarantees may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture); and (2) until all Obligations with respect to Senior Debt of such Subsidiary Guarantor (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Holders of Notes and the related Subsidiary Guarantees would be entitled shall be made to holders of Senior Debt of such Subsidiary Guarantor (except that Holders of Notes and the related Subsidiary Guarantees may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture). Under the circumstances described in this Section 10.3, the Company, any Subsidiary Guarantor or any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person making any payment or distribution of cash or other property or securities is authorized or instructed to make any payment or distribution to which the Holders of the Notes and the related Subsidiary Guarantees would otherwise be entitled (other than securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust referred to in the second parenthetical clause of each of clauses (a)(1), (b)(1), (c)(1), (a)(2), (b)(2) and (c)(2) above, which 90 84 shall be delivered or paid to the Holders of Notes as set forth in such clauses) directly to the holders of the Senior Debt of the Company and any Subsidiary Guarantor, as applicable, (pro rata to such holders on the basis of the respective amounts of Senior Debt of the Company and any Subsidiary Guarantor, as applicable, held by such holders) or their Representatives, or to any trustee or trustees under any other indenture pursuant to which any such Senior Debt may have been issued, as their respective interests appear, to the extent necessary to pay all such Senior Debt in full, in cash or cash equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. To the extent any payment of or distribution in respect of Senior Debt (whether by or on behalf of the Company or any Subsidiary Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment or distribution is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Senior Debt is declared to be fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Debt for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. Section 10.4. DEFAULT ON DESIGNATED SENIOR DEBT. The Company and the Subsidiary Guarantors may not make any payment (whether by redemption, purchase, retirements, defeasance or otherwise) upon or in respect of the Notes and the related Subsidiary Guarantees (other than securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments and other distributions made from any defeasance trust created pursuant to Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10 of this Indenture) until all principal and other Obligations with respect to the Senior Debt of the Company have been paid in full if: (i) a default in the payment of any principal of, premium, if any, or interest on Designated Senior Debt occurs; or 91 85 (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits, or with the giving of notice or passage of time or both (unless cured or waived) would permit, holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until 360 days shall have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior Payment Blockage Notice. No nonpayment default in respect of any Designated Senior Debt that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of no less than 90 days. The Company shall resume payments on and distributions in respect of the Notes and any Subsidiary Guarantor shall resume making payments and distributions pursuant to the Subsidiary Guarantees upon: (1) in the case of a default referred to in Section 10.4(i) hereof the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.4(ii) hereof, the earliest of (1) the date on which such nonpayment default is cured or waived or (2) 179 days after the date on which the applicable Payment Blockage Notice is received unless (A) the maturity of any Designated Senior Debt has been accelerated or (B) a Default or Event of Default under Section 6.1(9) or (10) has occurred and is continuing, if this Article otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.5. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 10.6. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment or distribution of or in respect of any Obligations with respect to the Notes or the Subsidiary Guarantees at a time when such payment or distribution is prohibited by Section 10.3 or Section 10.4 hereof, such payment or distribution shall be 92 86 held by the Trustee (if the Trustee has actual knowledge that such payment or distribution is prohibited by Section 10.3 or 10.4) or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and, except as provided in Section 10.12, shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders of Notes or the Company, the Subsidiary Guarantors or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.7. NOTICE BY COMPANY. The Company and the Subsidiary Guarantors shall promptly notify the Trustee and the Paying Agent of any facts known to the Company or any Subsidiary Guarantor that would cause a payment of any Obligations with respect to the Notes or the related Subsidiary Guarantees to violate this Article, but failure to give such notice shall not affect the subordination of the Notes and the related Subsidiary Guarantees to the Senior Debt as provided in this Article. Section 10.8. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes and the related Subsidiary Guarantees shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes and the Subsidiary Guarantees) to the rights of holders of Senior Debt to receive distributions and payments applicable to Senior Debt to the extent that distributions and payments otherwise payable to the Holders of Notes and the related Subsidiary Guarantees have been applied to the payment of Senior Debt. A payment or distribution made under this Article to holders of Senior Debt that otherwise would have been made to Holders of Notes and the related Subsidiary Guarantees is not, as between the Company and Holders of Notes, a payment by the Company on the Notes. 93 87 Section 10.9. RELATIVE RIGHTS. This Article defines the relative rights of Holders of Notes and the related Subsidiary Guarantees and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and the related Subsidiary Guarantees and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes and the related Subsidiary Guarantees. If the Company fails because of this Article to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY OR THE SUBSIDIARY GUARANTORS. No right of any present or future holders of any Senior Debt to enforce subordination as provided in this Article Ten will at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any Subsidiary Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or any Subsidiary Guarantor with the terms of this Indenture, regardless of any knowledge thereof that any such holder of Senior Debt may have or otherwise be charged with. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt. Section 10.11. PAYMENT, DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a payment or distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets or securities of the Company or any Subsidiary Guarantor referred to in this Article 10, the Trustee and the Holders of Notes and the related Subsidiary Guarantees shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating 94 88 trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders of Notes and the related Subsidiary Guarantees for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other Indebtedness of the Company or any Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes and the Subsidiary Guarantees, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes or Subsidiary Guarantees to violate this Article, which notice shall specifically refer to Section 10.3 or 10.4 hereof. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.9 hereof at least 30 days before the expiration of the time to file such claim, each lender under the New Credit Agreement is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes and the related Subsidiary Guarantees. 95 89 Section 10.14. AMENDMENTS. No amendment may be made to the provisions of or the definitions of any terms appearing in this Article 10, or to the provisions of Section 6.2 relating to the Designated Senior Debt, that adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or Representative authorized to give a consent) consent to such change. Section 10.15. NO WAIVER OF SUBORDINATION PROVISIONS. Without in any way limiting the generality of Section 10.9 of this Indenture, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (c) release any Person liable in any manner for the collection of Senior Debt; and (d) exercise or refrain from exercising any rights against the Company and each Subsidiary Guarantor and any other Person. ARTICLE 11 THE SUBSIDIARY GUARANTEES Section 11.1. THE SUBSIDIARY GUARANTEES. Each of the Subsidiary Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and premium and interest, on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on premium and interest, on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so 96 90 guaranteed for whatever reason, the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. The Subsidiary Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company or the Subsidiary Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each of the Subsidiary Guarantors agrees that it shall not be entitled to any right of subrogation in relation to the Holders of Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each of the Subsidiary Guarantors further agrees that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. The Subsidiary Guarantors shall have the right to seek contribution from any Subsidiary Guarantor not paying so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantees. Section 11.2. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES. (i) To evidence its Subsidiary Guarantee set forth in Section 11.1, each of the Subsidiary Guarantors hereby agrees that a notation of such Subsidiary Guarantee substantially in the form of Exhibit C shall be endorsed by an officer of such Subsidiary Guarantor on each Note authenticated and delivered by the Trustee, that this Indenture shall be executed on behalf of such Subsidiary Guarantor by its President or one of its Vice 97 91 Presidents and attested to by an Officer and that such Subsidiary Guarantor shall deliver to the Trustee an Opinion of Counsel that the foregoing have been duly authorized, executed and delivered by such Subsidiary Guarantor and that such Subsidiary Guarantee is a valid and legally binding obligation of such Subsidiary Guarantor, enforceable against such Subsidiary Guarantor in accordance with its terms. Each Subsidiary Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.1 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the applicable Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which such Subsidiary Guarantee is endorsed, such Subsidiary Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees set forth in this Indenture on behalf of the Subsidiary Guarantors. Section 11.3. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. No Subsidiary Guarantor may consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the Surviving Person), another Person other than the Company or another Subsidiary Guarantor, whether or not affiliated with such Subsidiary Guarantor, unless: (a) subject to the provisions of Section 11.4 hereof, the Person formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor pursuant to a supplemental indenture in form reasonably satisfactory to the Trustee in respect of the Notes, this Indenture and such Subsidiary Guarantor's Guarantee; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; and (c) such transaction does not violate any of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17. Notwithstanding the foregoing, none of the Subsidiary Guarantors shall be permitted to consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another corporation, Person or entity pursuant to the preceding sentence if such consolidation or merger would not be permitted by Section 5.1 hereof. 98 92 In case of any such consolidation or merger and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for such Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of any Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor, or shall prevent any sale or conveyance of the property of any Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or any Subsidiary Guarantor. Section 11.4. RELEASES OF SUBSIDIARY GUARANTEES. In the event of a sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantor or a sale or other disposition of all of the capital stock of any Subsidiary Guarantor, to any corporation or other Person (including an Unrestricted Subsidiary) by way of merger, consolidation, or otherwise, in a transaction that does not violate any of the covenants of this Indenture, then such Subsidiary Guarantor (in the event of a sale or other disposition, by way of such merger, consolidation or otherwise, of all the capital stock of such Subsidiary Guarantor) shall be released and relieved of any obligations under its Subsidiary Guarantee and such acquiring corporation or other Person (in the event of a sale or other disposition of all or substantially all of the assets of such Subsidiary Guarantor), if other than a Subsidiary Guarantor, shall have no obligation to assume or otherwise become liable under such Subsidiary Guarantee; provided, that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10, the Trustee shall execute any documents reasonably required in order to evidence the release of any 99 93 Subsidiary Guarantor from its obligations under its Subsidiary Guarantee. Any Subsidiary Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of such Subsidiary Guarantor under this Indenture as provided in this Article 11. Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in accordance with the terms of this Indenture shall, upon such designation, be released from and relieved of its obligations under its Subsidiary Guarantee and any Unrestricted Subsidiary whose obligation as such is revoked and any newly created or newly acquired Subsidiary that is or becomes a Restricted Subsidiary shall be required to execute a Subsidiary Guarantee in accordance with the terms of this Indenture. Section 11.5. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY. For purposes hereof, each Subsidiary Guarantor's liability shall be that amount from time to time equal to the aggregate liability of such Subsidiary Guarantor thereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Notes and this Indenture and (ii) the amount, if any, which would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Subsidiary Guarantee of the Notes was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that, it shall be a presumption in any lawsuit or other proceeding in which such Subsidiary Guarantor is a party that the amount guaranteed pursuant to its Subsidiary Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Subsidiary Guarantor, or debtor in possession or trustee in bankruptcy of such Subsidiary Guarantor, otherwise proves in such a lawsuit that the aggregate liability of such Subsidiary Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of a Subsidiary Guarantor in accordance with the previous sentence, the right of such Subsidiary Guarantor to contribution from other Subsidiary Guarantors and any other rights such Subsidiary Guarantor may have, contractual or otherwise, shall be taken into account. Section 11.6. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in Article 10 and 100 94 this Article 11 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in Article 10 and this Article 11 in place of the Trustee. Section 11.7. SUBORDINATION OF SUBSIDIARY GUARANTEES. The obligations of each of the Subsidiary Guarantors under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of the Subsidiary Guarantor pursuant to Article 10 hereof. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments or distributions by or on behalf of any of the Subsidiary Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. ARTICLE 12 MISCELLANEOUS Section 12.1. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. If any provisions of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the letter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. Section 12.2. NOTICES. Any notice or communication by the Company or the Subsidiary Guarantors or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Subsidiary Guarantor: Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 44720 Telecopier No.: (330) 497-5470 Attention: Joseph M. Vitale 101 95 With a copies to: Black, McCuskey, Soures & Arbaugh 1000 United Bank Plaza 220 Market Avenue South Canton, Ohio 44702 Telecopier No.: (330) 456-5756 Attention: Anthony E. Effromoff and Kelly, Hart & Hallman 201 Main Street Suite 2500 Fort Worth, Texas 76102 Telecopier No.: (817) 878-9285 Attention: Kevin G. Levy If to the Trustee: LaSalle National Bank 135 South LaSalle Street Chicago, Illinois 60603 Telecopier No.: Attention: Ref: Belden & Blake Corporation The Company or any Subsidiary Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. 102 96 If the Company or any Subsidiary Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). Section 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company or any Subsidiary Guarantor to the Trustee to take any action under this Indenture, the Company or such Subsidiary Guarantor, as the case may be, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is 103 97 necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 12.6. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No director, officer, employee, incorporator or stockholder of the Company or any Subsidiary, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. Section 12.8. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES. Section 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or their respective Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture and the Subsidiary Guarantees. Section 12.10. SUCCESSORS. All agreements of the Company and each Subsidiary Guarantor in this Indenture, the Notes and the Subsidiary Guarantees shall bind its respective successors. All agreements of the Trustee in this Indenture shall bind its successors. 104 98 Section 12.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 105 SIGNATURES Dated as of _________, 1997 BELDEN & BLAKE CORPORATION Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ THE CANTON OIL & GAS COMPANY Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ PEAKE ENERGY, INC. Attest: By:________________________________ Name:______________________________ __________________________ Tile:______________________________ WARD LAKE DRILLING, INC. Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ TARGET OILFIELD PIPE & SUPPLY COMPANY Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ LASALLE NATIONAL BANK Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________
106 EXHIBIT A [FORM OF FACE OF INITIAL NOTE] SERIES A NOTE [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY, ANY SUBSIDIARY GUARANTOR OR ANY AFFILIATE OF THE COMPANY OR ANY SUBSIDIARY GUARANTOR WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, IN A TRANSACTION COMPLYING WITH THE REQUIREMENTS OF RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT A-1 107 PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULES 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. A-2 108 BELDEN & BLAKE CORPORATION 9 7/8% Senior Subordinated Notes due 2007 No. 1 $225,000,000 CUSIP Number: 077447 AA 8 BELDEN & BLAKE CORPORATION, an Ohio corporation, promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Twenty-Five Million Dollars on June 15, 2007. Interest Payment Dates: June 15 and December 15. Record Dates: June 1 and December 1. Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto and imprinted hereon. Dated: June 27, 1997 BELDEN & BLAKE CORPORATION By ---------------------------- Name: Title: By ---------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION LASALLE NATIONAL BANK, as Trustee, certifies that this is one of the Notes referred to in the within-mentioned Indenture: By ---------------------------- Authorized Signatory A-3 109 Dated: June 27, 1997 (Back of Note) 9 7/8% Senior Subordinated Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Belden & Blake Corporation, an Ohio corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate of 9 7/8% per annum, which interest shall be payable in cash semiannually in arrears on each June 15 and December 15, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"); provided that the first Interest Payment Date shall be December 15, 1997. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 2. METHOD OF PAYMENT. On each Interest Payment Date the Company will pay interest to the Person who is the Holder of record of this Note as of the close of business on the June 1 or December 1 immediately preceding such Interest Payment Date, even if this Note is cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest on this Note will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, in the event the Notes do not remain in book-entry form, at the option of the Company, payment of interest may be made by check mailed to the Holder of this Note at its address set forth in the register of Holders of Notes; provided that all payments with respect to the Global Notes and Definitive Notes having an aggregate principal amount of $5.0 million or more the Holders of which have given wire transfer instructions to the Company at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, LaSalle National Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or A-4 110 any Subsidiary Guarantor or any other of the Company's Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of June 27, 1997 ("Indenture") among the Company, the Subsidiary Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general unsecured obligations of the Company equal in an aggregate principal amount to $225,000,000 and will mature on June 15, 2007. The Notes are general unsecured senior subordinated obligations of the Company limited to $225,000,000 million aggregate principal amount (subject to Section 2.6 of the Indenture). This Note is one of the Initial Notes referred to in the Indenture. The Notes include the Initial Notes and any Exchange Notes issued in exchange for the Initial Notes pursuant to the Indenture and the Registration Rights Agreement. The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Restricted Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries, the investments of the Company and its Subsidiaries and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Restricted Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. 5. OPTIONAL REDEMPTION. (a) The Notes are not redeemable at the Company's option prior to June 15, 2002. From and after June 15, 2002, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years indicated below: A-5 111
YEAR PERCENTAGE ---- ---------- 2002...................................... 104.938% 2003...................................... 103.292% 2004 ..................................... 101.646% 2005 and thereafter ...................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5, prior to June 15, 2000 the Company may, at its option, on any one or more occasions, redeem up to 40% of the original aggregate principal amount of Notes at a redemption price equal to 109.875% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with the net proceeds of sales of public Equity Interests of the Company; provided that at least 60% of the original aggregate principal amount of Notes must remain outstanding immediately after the occurrence of such redemption; and provided, further, that any such redemption shall occur within 60 days after the date of the closing of the related sale of such Equity Interests. (c) Notwithstanding the provisions of clause (a) of this Paragraph 5, upon the occurrence of a Change of Control at any time on or prior to June 15, 2002, the Company may, at its option, redeem in whole but not in part, the Notes at a redemption price equal to 100% of the principal amount thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) provided that such redemption shall be made no more than 90 days after the occurrence of a Change of Control. The Company shall notify the Trustee and, by mail, the Holders of the Notes of its decision to redeem the Notes pursuant to this Paragraph 5(c) within 30 days of the occurrence of a Change of Control. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) Upon the occurrence of a Change of Control, if the Company does not redeem the Notes pursuant to paragraph 5(c), each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). The right of the A-6 112 Holders of the Notes to require the Company to repurchase such Notes upon a Change of Control may not be waived by the Trustee without the approval of the Holders of the Notes required by Section 9.2 of the Indenture. Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes pursuant to the procedures required by the Indenture and described in such notice. The Change of Control Payment shall be made on a business day not less than 30 days nor more than 60 days after such notice is mailed. The Company and each Subsidiary Guarantor will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales permitted by the Indenture, when the aggregate amount of Excess Proceeds exceeds $15 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Notes and any other Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to, in the case of the Notes, 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase or, in the case of any Pari Passu Indebtedness, 100% of the principal amount thereof (or with respect to discount Pari Passu Indebtedness, the accreted value thereof) on the date of purchase, in each case, in accordance with the procedures set forth in Section 3.9 of the Indenture or the agreements governing the Pari Passu Indebtedness, as applicable. To the extent that the aggregate principal amount (or accreted value, as the case may be) of Notes, and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the sum of (i) the aggregate principal amount of Notes surrendered by Holders thereof and (ii) the aggregate principal amount or accreted value, as the case may be, of Pari Passu Indebtedness surrendered by holders or lenders thereof exceeds the amount of Excess Proceeds, the Trustee and the trustee or other lender representative for the Pari Passu Indebtedness shall select the Notes and the other Pari Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount (or accreted value, as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than A-7 113 $1,000 may be redeemed in part but only in integral multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on the aggregate principal amount of the Notes called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes may be issued initially in the form of one or more fully registered Global Notes. The Notes may also be issued in registered form without coupons in minimum denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Note for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or the tender offer or exchange offer for, such Notes), and any existing Default or Event of Default under, or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 consecutive days in the payment when due of interest on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (ii) default in A-8 114 payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (iii) failure by the Company to comply with the provisions of Article 5 of the Indenture; (iv) failure by the Company for 30 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with the provisions of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, and 4.17 of the Indenture; (v) failure by the Company for 60 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements or covenants in, or provisions of, this Note or in the Indenture; (vi) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or a Subsidiary Guarantor or any Person acting on behalf of a Subsidiary Guarantor, shall deny or disaffirm such Subsidiary Guarantor's obligations under its Subsidiary Guarantee; (vii) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Restricted Subsidiary whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more; provided, that if any such default is cured or waived or any such acceleration rescinded, or such indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default under the Indenture and any consequential acceleration of the Notes shall be automatically rescinded; (viii) a final non-appealable judgment or order or final non-appealable judgments or orders are rendered against the Company or any Restricted Subsidiary that remain unpaid or discharged for a period of 60 days and that require the payment in money, either individually or in an aggregate amount, that is more than $10 million; and (ix) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. If any Event of Default (other than an Event of Default described in clause (ix) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the A-9 115 foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within 5 Business days after becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. SUBORDINATION. The Notes are subordinated to Senior Debt of the Company. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) and authorizes the Trustee to give effect and appoints the Trustee as attorney-in-fact for such purpose. 14. TRUSTEE DEALINGS WITH COMPANY. The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 15. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Company, as such, A-10 116 shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act. 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 44726 Telecopier No.: (330) 497-5470 Attention: Joseph M. Vitale [NOTE: THE FORM OF SUBSIDIARY GUARANTEE ATTACHED AS EXHIBIT C TO THE INDENTURE IS TO BE ATTACHED TO THIS NOTE.] A-11 117 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Your Signature: ---------------- ------------------- Signature Guarantee:* ---------------------------------------- (Signature must be guaranteed) - -------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Note. In connection with any transfer or exchange of any of the Notes evidenced by this certificate occurring prior to the date that is three years after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Notes are being: CHECK ONE BOX BELOW: 1 [ ] acquired for the undersigned's own account, without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section 2.6(d)(i)(A) of the Indenture); or 2 [ ] transferred to the Company; or 3 [ ] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or 4 [ ] transferred pursuant to an effective registration statement under the Securities Act; or - ------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-12 118 5 [ ] transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or 6 [ ] transferred to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Exhibit D to the Indenture); or 7 [ ] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (5), (6) or (7) is checked, the Trustee or the Company may require, prior to registering any such transfer of the Notes, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ------------------------------- Signature Signature Guarantee:* - ------------------------------ ------------------------------- (Signature must be guaranteed) Signature - -------------------------------------------------------------------------------- - -------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-13 119 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.13 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the principal amount you elect to have purchased: $______________ Date: Your Signature: --------------- ------------------------------------ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:* ----------------------- - -------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-14 120 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The following increases or decreases in this Global Note have been made: Principal Amount of Signature of Amount of decrease Amount of increase this Global Note authorized officer Date of in Principal Amount in Principal Amount following such of Trustee or Note Exchange of this Global Note of this Global Note decrease or increase Custodian
A-15 121 EXHIBIT B (Form of Face of Exchange Note) SERIES B NOTE [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. B-1 122 BELDEN & BLAKE CORPORATION 9 7/8% Senior Subordinated Notes due 2007 No. 1 $225,000,000 CUSIP Number: 077447 AA 8 BELDEN & BLAKE CORPORATION, an Ohio corporation, promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Twenty-Five Million Dollars on June 15, 2007. Interest Payment Dates: June 15 and December 15. Record Dates: June 1 and December 1. Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto and imprinted hereon. Dated: June 27, 1997 BELDEN & BLAKE CORPORATION By ----------------------------- Name: Title: By ----------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION LASALLE NATIONAL BANK, as Trustee, certifies that this is one of the Notes referred to in the within-mentioned Indenture: By ----------------------------- Authorized Signatory B-2 123 Dated: June 27, 1997 (Back of Note) 9 7/8% Senior Subordinated Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Belden & Blake Corporation, an Ohio corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate of 9 7/8% per annum, which interest shall be payable in cash semiannually in arrears on each June 15 and December 15, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"); provided that the first Interest Payment Date shall be December 15, 1997. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 2. METHOD OF PAYMENT. On each Interest Payment Date the Company will pay interest to the Person who is the Holder of record of this Note as of the close of business on the June 1 or December 1 immediately preceding such Interest Payment Date, even if this Note is cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest on this Note will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, in the event the Notes do not remain in book-entry form, at the option of the Company, payment of interest may be made by check mailed to the Holder of this Note at its address set forth in the register of Holders of Notes; provided that all payments with respect to the Global Notes and Definitive Notes having an aggregate principal amount of $5.0 million or more the Holders of which have given wire transfer instructions to the Company at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, LaSalle National Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or B-3 124 any Subsidiary Guarantor or any other of the Company's Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of June 27, 1997 ("Indenture") among the Company, the Subsidiary Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general unsecured obligations of the Company equal in an aggregate principal amount to $225,000,000 and will mature on June 15, 2007. The Notes are general unsecured senior subordinated obligations of the Company limited to $225,000,000 million aggregate principal amount (subject to Section 2.6 of the Indenture). This Note is one of the Initial Notes referred to in the Indenture. The Notes include the Initial Notes and any Exchange Notes issued in exchange for the Initial Notes pursuant to the Indenture and the Registration Rights Agreement. The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Restricted Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries, the investments of the Company and its Subsidiaries and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Restricted Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. 5. OPTIONAL REDEMPTION. (a) The Notes are not redeemable at the Company's option prior to June 15, 2002. From and after June 15, 2002, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years indicated below: B-4 125
YEAR PERCENTAGE ---- ---------- 2002................................... 104.938% 2003................................... 103.292% 2004 .................................. 101.646% 2005 and thereafter ................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5, prior to June 15, 2000 the Company may, at its option, on any one or more occasions, redeem up to 40% of the original aggregate principal amount of Notes at a redemption price equal to 109.875% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with the net proceeds of sales of public Equity Interests of the Company; provided that at least 60% of the original aggregate principal amount of Notes must remain outstanding immediately after the occurrence of such redemption; and provided, further, that any such redemption shall occur within 60 days after the date of the closing of the related sale of such Equity Interests. (c) Notwithstanding the provisions of clause (a) of this Paragraph 5, upon the occurrence of a Change of Control at any time on or prior to June 15, 2002, the Company may, at its option, redeem in whole but not in part, the Notes at a redemption price equal to 100% of the principal amount thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) provided that such redemption shall be made no more than 90 days after the occurrence of a Change of Control. The Company shall notify the Trustee and, by mail, the Holders of the Notes of its decision to redeem the Notes pursuant to this Paragraph 5(c) within 30 days of the occurrence of a Change of Control. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) Upon the occurrence of a Change of Control, if the Company does not redeem the Notes pursuant to paragraph 5(c), each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). The right of the B-5 126 Holders of the Notes to require the Company to repurchase such Notes upon a Change of Control may not be waived by the Trustee without the approval of the Holders of the Notes required by Section 9.2 of the Indenture. Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes pursuant to the procedures required by the Indenture and described in such notice. The Change of Control Payment shall be made on a business day not less than 30 days nor more than 60 days after such notice is mailed. The Company and each Subsidiary Guarantor will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales permitted by the Indenture, when the aggregate amount of Excess Proceeds exceeds $15 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Notes and any other Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to, in the case of the Notes, 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase or, in the case of any Pari Passu Indebtedness, 100% of the principal amount thereof (or with respect to discount Pari Passu Indebtedness, the accreted value thereof) on the date of purchase, in each case, in accordance with the procedures set forth in Section 3.9 of the Indenture or the agreements governing the Pari Passu Indebtedness, as applicable. To the extent that the aggregate principal amount (or accreted value, as the case may be) of Notes, and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the sum of (i) the aggregate principal amount of Notes surrendered by Holders thereof and (ii) the aggregate principal amount or accreted value, as the case may be, of Pari Passu Indebtedness surrendered by holders or lenders thereof exceeds the amount of Excess Proceeds, the Trustee and the trustee or other lender representative for the Pari Passu Indebtedness shall select the Notes and the other Pari Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount (or accreted value, as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than B-6 127 $1,000 may be redeemed in part but only in integral multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on the aggregate principal amount of the Notes called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes may be issued initially in the form of one or more fully registered Global Notes. The Notes may also be issued in registered form without coupons in minimum denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Note for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or the tender offer or exchange offer for, such Notes), and any existing Default or Event of Default under, or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 consecutive days in the payment when due of interest on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (ii) default in B-7 128 payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (iii) failure by the Company to comply with the provisions of Article 5 of the Indenture; (iv) failure by the Company for 30 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with the provisions of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, and 4.17 of the Indenture; (v) failure by the Company for 60 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements or covenants in, or provisions of, this Note or in the Indenture; (vi) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or a Subsidiary Guarantor or any Person acting on behalf of a Subsidiary Guarantor, shall deny or disaffirm such Subsidiary Guarantor's obligations under its Subsidiary Guarantee; (vii) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Restricted Subsidiary whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more; provided, that if any such default is cured or waived or any such acceleration rescinded, or such indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default under the Indenture and any consequential acceleration of the Notes shall be automatically rescinded; (viii) a final non-appealable judgment or order or final non-appealable judgments or orders are rendered against the Company or any Restricted Subsidiary that remain unpaid or discharged for a period of 60 days and that require the payment in money, either individually or in an aggregate amount, that is more than $10 million; and (ix) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. If any Event of Default (other than an Event of Default described in clause (ix) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the B-8 129 foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within 5 Business days after becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. SUBORDINATION. The Notes are subordinated to Senior Debt of the Company. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) and authorizes the Trustee to give effect and appoints the Trustee as attorney-in-fact for such purpose. 14. TRUSTEE DEALINGS WITH COMPANY. The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 15. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Company, as such, B-9 130 shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act. 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 44726 Telecopier No.: (330) 497-5470 Attention: Joseph M. Vitale [NOTE: THE FORM OF SUBSIDIARY GUARANTEE ATTACHED AS EXHIBIT C TO THE INDENTURE IS TO BE ATTACHED TO THIS NOTE.] B-10 131 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Your Signature: ---------------- -------------------- Signature Guarantee:* ------------------------------ (Signature must be guaranteed) - -------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Note. In connection with any transfer or exchange of any of the Notes evidenced by this certificate occurring prior to the date that is three years after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Notes are being: CHECK ONE BOX BELOW: 1 [ ] acquired for the undersigned's own account, without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section 2.6(d)(i)(A) of the Indenture); or 2 [ ] transferred to the Company; or 3 [ ] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or 4 [ ] transferred pursuant to an effective registration statement under the Securities Act; or - -------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). B-11 132 5 [ ] transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or 6 [ ] transferred to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Exhibit D to the Indenture); or 7 [ ] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (5), (6) or (7) is checked, the Trustee or the Company may require, prior to registering any such transfer of the Notes, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. -------------------------------- Signature Signature Guarantee:* - ------------------------- -------------------------------- (Signature must be guaranteed) Signature - -------------------------------------------------------------------------------- - ----------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). B-12 133 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The following increases or decreases in this Global Note have been made: Principal Amount of Signature of Amount of decrease Amount of increase this Global Note authorized officer Date of in Principal Amount in Principal Amount following such of Trustee or Note Exchange of this Global Note of this Global Note decrease or increase Custodian
B-13 134 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.13 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the principal amount you elect to have purchased: $______________ Date: Your Signature: ---------------- --------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee:* ---------------------------- - -------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). B-14 135 EXHIBIT C FORM OF SUBSIDIARY GUARANTEE Each of the Subsidiary Guarantors, if any, hereby, jointly and severally and unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and premium and interest on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on premium and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason and the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. The obligations of the Subsidiary Guarantors to the Holders of Notes and to the Trustee pursuant to this Subsidiary Guarantee and the Indenture (including the subordination provisions thereof) are expressly set forth in Article 11 of the Indenture, and reference is hereby made to such Indenture for the precise terms of this Subsidiary Guarantee. The terms of Article 11 of the Indenture are incorporated herein by reference. This is a continuing Subsidiary Guarantee and shall remain in full force and effect and shall be binding upon each of the Subsidiary Guarantors and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Notes and the Indenture and shall inure to the benefit of the Trustee and the Holders of Notes and their successors and assigns and, in the event of any transfer or assignment of rights by any Holder of Notes or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. Notwithstanding the foregoing, any Subsidiary Guarantor that satisfies the provisions of Section 11.4 of the Indenture shall be released of its obligations hereunder. This is a Subsidiary Guarantee of payment and not a guarantee of collection. C-1 136 This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. For purposes hereof, each Subsidiary Guarantor's liability will be that amount from time to time equal to the aggregate liability of such Subsidiary Guarantor hereunder but shall be limited to the lesser of (i) the aggregate amount of the obligations of the Company under the Notes and the Indenture and (ii) the amount, if any, which would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor law of the State of New York) or (B) left it with unreasonably small capital at the time its Subsidiary Guarantee of the Notes was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that, it shall be a presumption in any lawsuit or other proceeding in which such Subsidiary Guarantor is a party that the amount guaranteed pursuant to its Subsidiary Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Subsidiary Guarantor, or debtor in possession or trustee in bankruptcy of such Subsidiary Guarantor, otherwise proves in such a lawsuit that the aggregate liability of such Subsidiary Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Subsidiary Guarantor in accordance with the previous sentence, the right of such Subsidiary Guarantor to contribution from other Subsidiary Guarantors and any other rights such Subsidiary Guarantor may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. C-2 137 THE CANTON OIL & GAS COMPANY By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- PEAKE ENERGY, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- WARD LAKE DRILLING, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- TARGET OILFIELD PIPE & SUPPLY COMPANY By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- C-3 138 EXHIBIT D FORM OF TRANSFEREE LETTER OF REPRESENTATION Belden & Blake Corporation c/o LaSalle National Bank 135 South LaSalle Street Chicago, Illinois 60603 Dear Sirs: This certificate is delivered to request a transfer of $ principal amount of the 9 7/8% Senior Subordinated Notes due 2007 (the "Notes") of Belden & Blake Corporation (the "Company"). Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name: -------------------------------------- Address: ----------------------------------- Taxpayer ID Number: ------------------------ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rules 501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as amended (the "Securities Act")), purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes and invest in or purchase securities similar to the Notes in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Company of any affiliate of the Company was the owner D-1 139 of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rules 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor", in each case in a minimum principal amount of Notes of $250,000, or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resales will not apply subsequent to the Resale Restriction Termination Date, if any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rules 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Termination Date of the Notes pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Company and the Trustee. Transferee: -------------------------------- By: ---------------------------------------- D-2 EX-4.2 14 EXHIBIT 4.2 1 Exhibit 4.2 BELDEN & BLAKE CORPORATION $225,000,000 9 7/8% Senior Subordinated Notes due 2007 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ June 27, 1997 CHASE SECURITIES INC. BT SECURITIES CORPORATION NATIONSBANC CAPITAL MARKETS, INC. c/o Chase Securities Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Belden & Blake Corporation, an Ohio corporation (the "COMPANY"), proposes to issue and sell to Chase Securities Inc. ("CSI"), BT Securities Corporation and NationsBanc Capital Markets, Inc. (together with CSI, the "INITIAL PURCHASERS"), upon the terms and subject to the conditions set forth in a purchase agreement dated June 23, 1997 (the "PURCHASE AGREEMENT"), $225,000,000 aggregate principal amount of its 97/8% Senior Subordinated Notes due 2007 (the "NOTES") which Notes shall be unconditionally guaranteed on a senior subordinated basis (the "Subsidiary Guarantee" and together with the Notes, the "Securities"), by the Subsidiary Guarantors (as defined in the Offering Memorandum (as defined in the Purchase Agreement)). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, each of the Company and Subsidiary Guarantors agrees with the Initial Purchasers, for the benefit of the holders (including the Initial Purchasers) of the Securities, the Exchange Securities (as defined herein) and the Private Exchange Securities (as defined herein) (collectively, the "HOLDERS"), as follows: 1. REGISTERED EXCHANGE OFFER. The Company and the Subsidiary Guarantors shall (i) prepare and, not later than 60 days following the date of original issuance of the Securities (the "ISSUE DATE"), file with the Commission a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "REGISTERED EXCHANGE OFFER") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company (the "EXCHANGE NOTES") unconditionally guaranteed on a senior subordinated basis by the Subsidiary Guarantors (the "Exchange Guarantee" and, together with 2 2 the Exchange Notes, the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use its reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 135 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 165 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). The Exchange Securities will be issued under the Indenture or an indenture (the "EXCHANGE SECURITIES INDENTURE") between the Company, the Subsidiary Guarantors and the Trustee or such other bank or trust company that is reasonably satisfactory to the Initial Purchasers, as trustee (the "EXCHANGE SECURITIES TRUSTEE"), such indenture to be identical in all material respects to the Indenture, except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities to do so (assuming that such Holder (a) is not an affiliate of the Company, the Subsidiary Guarantors, or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not an Initial Purchaser with Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Subsidiary Guarantors, the Initial Purchasers and each Exchanging Dealer (as defined herein) acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing substantially the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer. If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company and the Subsidiary Guarantors shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "PRIVATE EXCHANGE"), a like aggregate principal amount of debt securities of the Company (the "PRIVATE EXCHANGE NOTES") unconditionally guaranteed on a senior subordinated basis by the Subsidiary Guarantors (the "Private Exchange Guarantees" and, 3 3 together with the Private Exchange Notes, the "Private Exchange Securities") that are identical in all material respects to the Exchange Securities, except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Company shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Company and the Subsidiary Guarantors shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Company and the Subsidiary Guarantors shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. Each of the Company and the Subsidiary Guarantors shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of 4 4 time as such persons must comply with such requirements in order to resell the Exchange Securities; PROVIDED that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) each of the Company and the Subsidiary Guarantors shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Securities Indenture, as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company and the Subsidiary Guarantors that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Company or a Subsidiary Guarantor or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. SHELF REGISTRATION. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company and the Subsidiary Guarantors are not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) any Securities validly tendered pursuant to the Registered Exchange Offer are not exchanged for Exchange Securities within 165 days after the Issue Date, or (iii) any Initial Purchaser so 5 5 requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following the consummation of the Registered Exchange Offer, or (iv) any applicable law or interpretations do not permit any Holder to participate in the Registered Exchange Offer, or (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Securities in exchange for tendered Securities then the following provisions shall apply: (a) The Company and the Subsidiary Guarantors each shall use its reasonable best efforts to file as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2) with the Commission, and thereafter each shall use its reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined herein) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "SHELF REGISTRATION STATEMENT" and, together with any Exchange Offer Registration Statement, a "REGISTRATION STATEMENT"). (b) The Company and the Subsidiary Guarantors each shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period ending the earlier of (i) two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "SHELF REGISTRATION PERIOD"). The Company and the Subsidiary Guarantors each shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions hereof, the Company and the Subsidiary Guarantors will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "HOLDERS' INFORMATION")) does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 6 6 3. LIQUIDATED DAMAGES. (a) The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages if the Company or the Subsidiary Guarantors fail to fulfill their obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) the applicable Registration Statement is not filed with the Commission on or prior to 60 days after the Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 135 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation), (iii) the Registered Exchange Offer is not consummated on or prior to 165 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective within 135 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation) but shall thereafter cease to be effective (at any time that the Company and the Subsidiary Guarantors are obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Company will be obligated to pay liquidated damages to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. As used herein, the term "TRANSFER RESTRICTED SECURITIES" means (i) each Security until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay liquidated damages to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the Paying Agent under the Indenture within one business day after the happening of each and every Registration Default. The Company shall pay the liquidated damages due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the liquidated damages then due. The liquidated damages due shall be payable on each interest 7 7 payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay liquidated damages shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the liquidated damages provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. REGISTRATION PROCEDURES. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as any Initial Purchaser may reasonably propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by any Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Company shall advise each Initial Purchaser, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; 8 8 (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company and the Subsidiary Guarantors will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company will furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company and the Subsidiary Guarantors each consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Company will furnish to each Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Initial Purchaser or Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Initial Purchaser, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or other persons may reasonably request; and the Company and the Subsidiary Guarantors each consents to the 9 9 use of such prospectus or any amendment or supplement thereto by any such Initial Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company and the Subsidiary Guarantors each will use its reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; PROVIDED that the Company and the Subsidiary Guarantors will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company and the Subsidiary Guarantors each will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company and the Subsidiary Guarantors are required to maintain an effective Registration Statement, the Company and the Subsidiary Guarantors will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company and the Subsidiary Guarantors each will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; PROVIDED that in no event shall such earning statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first 10 10 month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company and the Subsidiary Guarantors will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company and the Subsidiary Guarantors such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company and the Subsidiary Guarantors may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "ADVICE") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "EFFECTIVENESS PERIOD"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company and the Subsidiary Guarantors shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the managing underwriters (if any) shall reasonably request in order to facilitate any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply 11 11 all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "INSPECTOR") in connection with such Shelf Registration Statement. (r) In the case of a Shelf Registration Statement, the Company and the Subsidiary Guarantors each shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use its reasonable best efforts to cause (i) its counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) its officers to execute and deliver all customary documents and certificates requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) and (iii) its independent public accountants to provide a comfort letter in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 5. REGISTRATION EXPENSES. The Company and the Subsidiary Guarantors each will bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and the Company and the Subsidiary Guarantors, jointly and severally, will reimburse the Initial Purchasers and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "SPECIAL COUNSEL") acting for the Initial Purchasers or Holders in connection therewith. 6. INDEMNIFICATION. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as applicable, the Company and the Subsidiary Guarantors, jointly and severally shall indemnify and hold harmless each Holder (including, without limitation, any such Initial Purchaser or Exchanging Dealer), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in 12 12 connection with any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that neither the Company nor any of the Subsidiary Guarantors shall be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and PROVIDED, FURTHER, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company or the Subsidiary Guarantors with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless each of the Company and the Subsidiary Guarantors, each of their affiliates, each of their respective officers, directors, employees, representatives and agents, and each person, if any, who controls each of the Company and the Subsidiary Guarantors within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any Subsidiary Guarantor may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company or the Subsidiary Guarantors by such Holder, and shall reimburse the Company or any Subsidiary Guarantor promptly upon demand for any legal or other expenses reasonably incurred by the Company or such Subsidiary Guarantor in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), 13 13 notify the indemnifying party in writing of the claim or the commencement of that action; PROVIDED, HOWEVER, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and PROVIDED, FURTHER, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; PROVIDED, HOWEVER, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 14 14 7. CONTRIBUTION. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors from the offering and sale of the Securities, on the one hand, and a Holder with respect to the sale by such Holder of Securities, Exchange Securities or Private Exchange Securities, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Subsidiary Guarantors on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Subsidiary Guarantors on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Company as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company and/or the Subsidiary Guarantors or information supplied by the Company and/or the Subsidiary Guarantors on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. RULES 144 AND 144A. The Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other 15 15 information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. The Company and the Subsidiary Guarantors each covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). Upon the written request of any Holder of Transfer Restricted Securities, the Company and the Subsidiary Guarantors each shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: 16 16 (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to Chase Securities Inc., BT Securities Corporation and NationsBanc Capital Markets, Inc.; (2) if to an Initial Purchaser, initially at its address set forth in the Purchase Agreement; and (3) if to the Company or the Subsidiary Guarantors, initially at the address of the Company (on behalf of itself and the Subsidiary Guarantors) set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and each Subsidiary Guarantor and their respective successors and assigns. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) DEFINITION OF TERMS. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (h) REMEDIES. In the event of a breach by the Company, the Subsidiary Guarantors or by any Holder of any of their obligations under this Agreement, each Holder, the Company or such Subsidiary Guarantor, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company or such Subsidiary Guarantor of its obligations under Sections 1 or 2 hereof for which liquidated damages have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company, each Subsidiary Guarantor and each Holder agree that monetary damages would not 17 17 be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) NO INCONSISTENT AGREEMENTS. Each of the Company and the Subsidiary Guarantors represents, warrants and agrees that (i) it has not entered into, and shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company or the Subsidiary Guarantors to register any debt securities of the Company or the Subsidiary Guarantors under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) NO PIGGYBACK ON REGISTRATIONS. None of the Company, the Subsidiary Guarantors or any of their security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company or the Subsidiary Guarantors in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) SEVERABILITY. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (l) JOINT AND SEVERAL LIABILITY. Each Subsidiary Guarantor, by its execution and delivery of a counterpart to this Agreement, agrees that it shall be jointly and severally liable for all obligations and liabilities of the Company hereunder. 18 18 Please confirm that the foregoing correctly sets forth the agreement among the Company, each Subsidiary Guarantor and the Initial Purchasers. Very truly yours, BELDEN & BLAKE CORPORATION By --------------------------------- Name: Title: THE CANTON OIL & GAS COMPANY By --------------------------------- Name: Title: PEAKE ENERGY, INC. By --------------------------------- Name: Title: WARD LAKE DRILLING, INC. By --------------------------------- Name: Title: TARGET OILFIELD PIPE & SUPPLY COMPANY By --------------------------------- Name: Title: 19 19 Accepted: CHASE SECURITIES INC. By ------------------------------- Authorized Signatory BT SECURITIES CORPORATION By ------------------------------- Authorized Signatory NATIONSBANC CAPITAL MARKETS, INC. By ------------------------------- Authorized Signatory 20 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. Each of the Company and the Subsidiary Guarantors has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 21 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 22 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. Each of the Company and the Subsidiary Guarantors has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 199_, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.1 Neither the Company nor the Subsidiary Guarantors will receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company and the Subsidiary Guarantors have jointly and severally agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ----------------- 1 In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Registered Exchange Offer prospectus. 23 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ----------------------------------- Address: -------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-5.1 15 EXHIBIT 5.1 1 Exhibit 5.1 [BLACK, McCUSKEY, SOUERS & ARBAUGH LETTERHEAD] August 4, 1997 Belden & Blake Corporation The Canton Oil & Gas Company Peake Energy, Inc. Ward Lake Drilling Target Oilfield Pipe & Supply Company c/o Belden & Blake Corporation 5200 Stoneham Road North Canton, OH 44720 Gentlemen: Reference is made to your Registration Statement on Form S-4 to be filed with the Securities and Exchange Commission in connection with the offer to exchange up to $225,000,000 in aggregate principal amount of 9 7/8% Series B Senior Subordinated Notes of Belden & Blake Corporation (the "Company") due 2007 (the "Exchange Notes") for up to $225,000,000 in aggregate principal amount of the Company's outstanding 9 7/8% Series A Senior Subordinated Notes due 2007 (the "Series A Notes"). The Exchange Notes are to be issued pursuant to an Indenture among the Company, as issuer, The Canton Oil & Gas Company, Peake Energy, Inc., Ward Lake Drilling, Inc. and Target Oilfield Pipe & Supply Company, as guarantors (the "Subsidiary Guarantors") and LaSalle National Bank, as trustee, dated as of June 27, 1997 (the "Indenture"). As counsel for the Company, we have examined the corporate records of each of the Company and the Subsidiary Guarantors, including its governing documents and the records of proceedings taken by its shareholders and directors to date, including proceedings of the Board of Directors in connection with the Indenture. In addition, we have examined and reviewed such documents, records and other matters as we have deemed necessary in order to express the opinions hereinafter set forth. Based upon the foregoing and subject to the qualifications set forth below, we are of the opinion that: [BLACK McCUSKEY LOGO] 2 Belden & Blake Corporation August 4, 1997 Page 2 (i) each of the Company and the Subsidiary Guarantors has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (ii) the Indenture has been duly authorized, executed and delivered by the Company and each of the Subsidiary Guarantors and, if governed by and construed in accordance with the laws of the State of Ohio, would constitute a valid and legally binding agreement of the Company and each of the Subsidiary Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law); (iii) the Company has full right, power and authority to execute and deliver the Exchange Notes and to perform its obligations thereunder, and all corporate or other action required to be taken for the due and proper authorization, execution and delivery of the Exchange Notes has been duly and validly taken; (iv) each of the Subsidiary Guarantors has full right, power and authority to execute and deliver guaranties of the Exchange Notes in the form of Exhibit C to the Indenture (the "Guarantees") and to perform its obligations thereunder, and all corporate or other action required to be taken for the due and proper authorization, execution and delivery of the Guarantees has been duly and validly taken; (v) the Exchange Notes have been duly authorized by the Company and, when issued and delivered in exchange for Series A Notes of like principal amounts, would constitute, if governed by and construed in accordance with the laws of the State of Ohio, valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law); (vi) the Guarantees have been duly authorized by each of the Subsidiary Guarantors and, when executed and delivered by each of the Subsidiary Guarantors, would constitute, if governed by and construed in accordance with the laws of the State of Ohio, a valid and binding agreement of each of the Subsidiary Guarantors enforceable in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). 3 Belden & Blake Corporation August 4, 1997 Page 3 The foregoing opinions are limited to the laws of the State of Ohio, the General Corporation Law of the State of Delaware and the Business Corporation Act of the State of Michigan, and we do not express any opinion as to the laws of any other jurisdiction. We consent to the filing of this opinion as an Exhibit to Registration Statement. In giving such consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. Very truly yours, Black, McCuskey, Souers & Arbaugh EX-10.1 16 EXHIBIT 10.1 1 Exhibit 10.1 EXECUTION COPY - -------------------------------------------------------------------------------- $200,000,000 CREDIT AGREEMENT AMONG BB MERGER CORP., AS BORROWER THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT BANKERS TRUST COMPANY, AS SYNDICATION AGENT AND NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT DATED AS OF JUNE 27, 1997 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS -----------------
PAGE ---- SECTION 1. DEFINITIONS......................................................................................... 1 1.1 Defined Terms.................................................................................... 1 1.2 Other Definitional Provisions.................................................................... 17 SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS .......................................................... 18 2.1 Revolving Credit Commitments..................................................................... 18 2.2 Procedure for Revolving Credit Borrowing......................................................... 18 2.3 Repayment of Loans; Evidence of Debt............................................................. 19 SECTION 3. LETTERS OF CREDIT................................................................................... 19 3.1 The L/C Commitment............................................................................... 19 3.2 Procedure for Issuance of Letters of Credit...................................................... 20 3.3 Fees, Commissions and Other Charges.............................................................. 20 3.4 L/C Participations............................................................................... 21 3.5 Reimbursement Obligation of the Borrower......................................................... 22 3.6 Obligations Absolute............................................................................. 22 3.7 Letter of Credit Payments........................................................................ 22 3.8 L/C Applications................................................................................. 23 SECTION 4. GENERAL PROVISIONS.................................................................................. 23 4.1 Interest Rates and Payment Dates................................................................. 23 4.2 Computation of Interest and Fees................................................................. 23 4.3 Conversion and Continuation Options.............................................................. 23 4.4 Minimum Amounts Maximum Number of Tranches....................................................... 24 4.5 Optional Prepayments and Commitment Reductions................................................... 24 4.6 Commitment Fee; Administrative Agent's Fee; Other Fees........................................... 25 4.7 Inability to Determine Interest Rate............................................................. 26 4.8 Pro Rata Treatment and Payments.................................................................. 26 4.9 Computation of Borrowing Base.................................................................... 27 4.10 Borrowing Base Compliance........................................................................ 28 4.11 Illegality....................................................................................... 29 4.12 Requirements of Law.............................................................................. 29 4.13 Taxes............................................................................................ 30 4.14 Indemnity........................................................................................ 31 4.15 Change of Lending Office......................................................................... 31 SECTION 5. REPRESENTATIONS AND WARRANTIES...................................................................... 32 5.1 Financial Condition.............................................................................. 32 5.2 No Change........................................................................................ 33 5.3 Corporate Existence; Compliance with Law......................................................... 33 5.4 Corporate Power; Authorization; Enforceable Obligations.......................................... 33 5.5 No Legal Bar..................................................................................... 34 5.6 No Material Litigation........................................................................... 34 5.7 No Default....................................................................................... 34 5.8 Ownership of Property; Liens..................................................................... 34
- i - 3 PAGE 5.9 Intellectual Property............................................................................ 34 5.10 No Burdensome Restrictions....................................................................... 35 5.11 Taxes............................................................................................ 35 5.12 Federal Reserve Regulations...................................................................... 35 5.13 ERISA............................................................................................ 35 5.14 Investment Company Act; Other Regulations........................................................ 35 5.15 Subsidiaries..................................................................................... 36 5.16 Purpose of Loans................................................................................. 36 5.17 Environmental Matters............................................................................ 36 5.18 No Material Misstatements........................................................................ 37 5.19 Capitalization of Belden & Blake and the Borrower................................................ 37 5.20 Location of Real Property and Leased Premises.................................................... 37 5.21 Solvency......................................................................................... 37 5.22 Labor Matters.................................................................................... 38 5.23 Insurance........................................................................................ 38 5.24 Future Commitments............................................................................... 38 5.25 Security Documents............................................................................... 38 SECTION 6. CONDITIONS PRECEDENT................................................................................ 39 6.1 Conditions to Initial Extensions of Credit....................................................... 39 6.2 Conditions to Each Extension of Credit........................................................... 42 SECTION 7. AFFIRMATIVE COVENANTS............................................................................... 43 7.1 Financial Statements............................................................................. 43 7.2 Certificates; Other Information.................................................................. 44 7.3 Payment of Obligations........................................................................... 45 7.4 Conduct of Business and Maintenance of Existence; Compliance with Law and Contractual Obligations....................................................................... 45 7.5 Maintenance of Property; Insurance............................................................... 45 7.6 Inspection of Property; Books and Records; Discussions........................................... 45 7.7 Notices.......................................................................................... 46 7.8 Environmental Laws............................................................................... 46 7.9 Further Assurances............................................................................... 47 7.10 Additional Collateral............................................................................ 47 7.11 Collateral Value................................................................................. 48 7.12 Oil and Gas Mortgages............................................................................ 48 7.13 Maintenance and Operation of Property............................................................ 48 SECTION 8. NEGATIVE COVENANTS.................................................................................. 49 8.1 Financial Covenant Conditions.................................................................... 49 8.2 Limitation on Indebtedness....................................................................... 50 8.3 Limitation on Liens.............................................................................. 51 8.4 Limitation on Guarantee Obligations.............................................................. 52 8.5 Limitation on Fundamental Changes................................................................ 52 8.6 Limitation on Sale of Assets..................................................................... 53 8.7 Limitation on Dividends.......................................................................... 54 8.8 Limitation on Investments, Loans and Advances.................................................... 54
- ii - 4 PAGE 8.9 Limitation on Optional Payments and Modifications of Debt Instruments, Other Material Agreements........................................................................... 55 8.10 Limitation on Transactions with Affiliates....................................................... 55 8.11 Limitation on Sales and Leasebacks............................................................... 56 8.12 Limitation on Changes in Fiscal Year............................................................. 56 8.13 Limitation on Negative Pledge Clauses............................................................ 56 8.14 Limitation on Lines of Business.................................................................. 56 8.15 Redeemable Capital Stock......................................................................... 56 8.16 Forward Sales.................................................................................... 56 8.17 Hedging Agreements............................................................................... 57 SECTION 9. EVENTS OF DEFAULT................................................................................... 57 SECTION 10. THE AGENTS......................................................................................... 60 10.1 Appointment..................................................................................... 60 10.2 Delegation of Duties............................................................................ 60 10.3 Exculpatory Provisions.......................................................................... 60 10.4 Reliance by Administrative Agent................................................................ 60 10.5 Notice of Default............................................................................... 61 10.6 Non-Reliance on Administrative Agent and Other Lenders.......................................... 61 10.7 Indemnification................................................................................. 61 10.8 Administrative Agent in Its Individual Capacity................................................. 62 10.9 Successor Administrative Agent.................................................................. 62 10.10 Issuing Lender.................................................................................. 62 10.11 Syndication Agent and Documentation Agent....................................................... 62 SECTION 11. MISCELLANEOUS...................................................................................... 62 11.1 Amendments and Waivers.......................................................................... 62 11.2 Notices......................................................................................... 63 11.3 No Waiver; Cumulative Remedies.................................................................. 64 11.4 Survival of Representations and Warranties...................................................... 64 11.5 Payment of Expenses and Taxes................................................................... 64 11.6 Successors and Assigns; Participations and Assignments.......................................... 65 11.7 Adjustments; Set-off............................................................................ 67 11.8 Counterparts.................................................................................... 68 11.9 Severability.................................................................................... 68 11.10 Integration..................................................................................... 68 11.11 GOVERNING LAW................................................................................... 68 11.12 Submission To Jurisdiction; Waivers............................................................. 68 11.13 Acknowledgments................................................................................. 69 11.14 WAIVERS OF JURY TRIAL........................................................................... 69
- iii - 5 SCHEDULES 1.1(a) Commitments 1.1(b) Refinanced Indebtedness 1.1(c) Assumed Indebtedness 1.1(d) Certain Subsidiaries 5.1 Sales, Transfers and Dispositions 5.15 Subsidiaries 5.19 Capital Stock 5.20A Owned Real Property 5.20B Leased Real Property 5.24 Future Commitments 5.25 Financing Statements 6.1 Sources and Uses of Funds 8.3 Existing Liens 8.4 Guarantee Obligations 8.10 Affiliated Transactions 11.2 Addresses for Notices EXHIBITS A Form of Revolving Credit Note B-1 Form of Guarantee and Collateral Agreement B-2 Form of Parent Pledge Agreement C-1 Form of Opinion of Counsel to the Loan Parties C-2 Form of Opinion of Counsel to Parent C-3 Form of Opinion of Michigan Counsel to the Loan Parties C-4 Form of Opinion of Ohio Counsel to the Loan Parties C-5 Form of Opinion of Pennsylvania and New York Counsel to the Loan Parties C-6 Form of Opinion of West Virginia Counsel to Loan Parties D-1 Form of Michigan Mortgage D-2 Form of New York Mortgage D-3 Form of Ohio Mortgage D-4 Form of Pennsylvania Mortgage D-5 Form of West Virginia Mortgage E Form of Borrowing Certificate F Form of Assignment and Acceptance G Form of Assumption Agreement - iv - 6 CREDIT AGREEMENT, dated as of June 27, 1997, among BB Merger Corp., an Ohio corporation, the several banks, financial institutions and other entities from time to time parties to this Agreement (collectively, the "LENDERS"), The Chase Manhattan Bank, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), Bankers Trust Company, as syndication agent for the Lenders (in such capacity, the "SYNDICATION AGENT"), and NationsBank of Texas, N.A., as documentation agent for the Lenders (in such capacity, the "DOCUMENTATION AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, BB Merger Corp., TPG Partners II, L.P. ("TPG"), and Belden & Blake Corporation have entered into an Agreement and Plan of Merger, dated as of March 27, 1997 (the "Acquisition Agreement"); WHEREAS, as contemplated by the Acquisition Agreement, BB Merger Corp., simultaneously with the making of the initial Loans (as hereinafter defined), shall merge with and into Belden & Blake (the "ACQUISITION"), which shall be the surviving corporation and a wholly-owned direct subsidiary of TPG, two partnerships affiliated with TPG and Johnson Rice & Company, L.L.C., an unrelated third-party investor (collectively, "PARENT"); WHEREAS, in order to finance a portion of the Acquisition (including related fees and expenses), to repay existing indebtedness and to provide financing for the general corporate requirements of the Borrower (as defined herein) and its subsidiaries after the Acquisition, (i) the Borrower has requested that the Lenders make up to $200 million in senior secured Revolving Credit Loans, subject to the terms and conditions set forth herein, (ii) the Borrower intends to issue through a Rule 144A offering (the "SENIOR SUBORDINATED NOTE OFFERING") at least $225 million in aggregate principal amount of high-yield senior subordinated debt securities (the "SENIOR SUBORDINATED NOTES") and (iii) the Parent shall provide at least $108.2 million of cash proceeds to the Borrower in exchange for the issuance of common equity of the Borrower; NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by Chase in connection with extensions of credit to debtors); "BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve System (the 7 2 "BOARD") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "ABR LOANS": Loans the rate of interest applicable to which is based upon the ABR. "ACQUISITION": as defined in the recitals to this Agreement. "ACQUISITION AGREEMENT:" as defined in the recitals to this Agreement. "ACQUISITION DOCUMENTS": the collective reference to the Acquisition Agreement and any other agreements, instruments and other documents delivered in connection therewith, as amended, supplemented or otherwise modified in accordance with the terms of this Agreement. "ADMINISTRATIVE AGENT": as defined in the preamble to this Agreement. "AFFILIATE": as to any Person, any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "AGENTS": the collective reference to the Administrative Agent, the Syndication Agent and the Documentation Agent. "AGGREGATE REVOLVING CREDIT EXPOSURE": as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Loans made by such Lender then outstanding and (b) such Lender's Commitment Percentage of the Letter of Credit Outstanding at such time. "AGREEMENT": this Credit Agreement, as further amended, supplemented or otherwise modified from time to time. 8 3 "APPLICABLE MARGIN": for any day with respect to ABR Loans and Eurodollar Loans, the applicable per annum rate set forth below opposite the Borrowing Base Usage in effect on such day: Eurodollar Commitment BORROWING BASE USAGE ABR MARGIN MARGIN FEE -------------------- ---------- ------ --- Greater than or equal to .50% 1.50% .50% 50% Less than 50% .25% 1.25% .375% As used herein, "BORROWING BASE USAGE" on any day means the percentage equivalent of the ratio of (i) the aggregate of the aggregate principal amount of the Loans then outstanding and Letter of Credit Outstanding on such day to (ii) the Borrowing Base in effect on such day. "ARRANGER": Chase Securities Inc. "ASSIGNEE": as defined in subsection 11.6(c). "ASSUMPTION AGREEMENT": the Agreement, substantially in the form of Exhibit G hereto, to be executed on the Closing Date by Belden & Blake and the Administrative Agent. "AVAILABLE COMMITMENT": as to any Lender at any time, an amount equal to the excess, if any, of (a) the amount of such Lender's Revolving Credit Commitment over (b) such Lender's Aggregate Revolving Credit Exposure. "BELDEN & BLAKE": Belden & Blake Corporation, an Ohio Corporation. "BORROWER": (a) prior to the Acquisition, BB Merger Corp., an Ohio Corporation, and (b) upon and following consummation of the Acquisition, Belden & Blake or any successor thereof. "BORROWER REDETERMINATION NOTICE": a notice from the Borrower to each member of the Engineering Committee requesting that the Engineering Committee redetermine the Borrowing Base, which notice may be sent by the Borrower at any time, PROVIDED no more than one such notice may be delivered by the Borrower during any consecutive 12 month period. "BORROWING BASE": at any time of determination, the amount then in effect as determined in accordance with subsection 4.9; PROVIDED, HOWEVER, that from the date hereof until such time as the Borrowing Base is so redetermined in accordance with subsection 4.9, the Borrowing Base shall be $180,000,000. "BORROWING BASE AVAILABILITY": as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Commitment Percentage of the Borrowing Base in effect at such time and (b) such Lender's Aggregate Revolving Credit Exposure. "BORROWING BASE DEFICIENCY": as defined in subsection 4.10. "BORROWING BASE PERIOD": (a) initially, the period commencing on the Closing Date and ending on the date the Borrowing Base is next redetermined pursuant to subsection 4.9 9 4 and (b) thereafter, each period commencing on the last day of the immediately preceding Borrowing Base Period and ending on the earlier of (i) the immediately succeeding January 1 (or July 1, if the Borrowing Base is redetermined semi-annually in accordance with subsection 4.9); and (ii) the date of the first Reserve Report, if any, issued since the commencement of such Borrowing Base Period in connection with a Borrower Redetermination Notice or a Lender Redetermination Notice. "BORROWING BASE USAGE": as defined under the definition of Applicable Margin. "BORROWING DATE": any Business Day specified in a notice pursuant to subsection 2.2 or 3.2 as a date on which the Borrower requests the Lenders to make Loans or the Issuing Lender to issue a Letter of Credit hereunder. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "CAPITAL LEASE": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CASH EQUIVALENTS": (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank (i) having capital and surplus in excess of $500,000,000 or (ii) which has a short-term commercial paper rating which satisfies the requirements set forth in clause (d) below, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued, fully guaranteed or insured by the United States Government or any agency thereof, (d) commercial paper of a domestic issuer rated at least A-2 by Standard and Poor's Ratings Group ("S&P") or P-2 by Moody's Investors Service, Inc. ("MOODY'S"), (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which have assets in excess of $100,000,000. "C/D ASSESSMENT RATE": for any day as applied to any ABR Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well- capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. section 327.4 (or any successor provision) to the 10 5 FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D RESERVE PERCENTAGE": for any day as applied to any ABR Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) (the "BOARD"), for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "CHANGE OF CONTROL": the occurrence of any of the events set forth in paragraph (k) of Section 9. "CHASE": The Chase Manhattan Bank. "CLOSING DATE": the date on which the conditions precedent set forth in subsection 6.1 shall be satisfied. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL": all assets of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "COMMITMENTS": the collective reference to the Revolving Credit Commitments and the L/C Commitment. "COMMITMENT PERCENTAGE": as to any Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the aggregate Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Loans then outstanding). "COMMITMENT PERIOD": the period from and including the date hereof to but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "COMMODITY HEDGING AGREEMENT": a commodity hedging or purchase agreement or similar arrangement entered into with the intent of protecting against fluctuations in commodity prices or the exchange of notional commodity obligations, either generally or under specific contingencies. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "CONSOLIDATED INTEREST EXPENSE": with respect to the Borrower and its Subsidiaries on a consolidated basis for any period, the sum of (i) gross interest expense (including all cash and accrued interest expense) of the Borrower and its Subsidiaries for such period on a consolidated basis, including to the extent included in interest expense in accordance with 11 6 GAAP (x) the amortization of debt discounts and (y) the portion of any payments or accruals with respect to Capital Leases allocable to interest expense and (ii) capitalized interest of the Borrower and its Subsidiaries on a consolidated basis. "CONSOLIDATED NET INCOME": for any period, net income of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP, excluding, however, any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "DEFAULT": any of the events specified in Section 9, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DOCUMENTATION AGENT": as defined in the preamble to this Agreement. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "EBITDA": with respect to the Borrower, for any period, Consolidated Net Income for that period, PLUS, without duplication and to the extent deducted from revenues in determining Consolidated Net Income for that period, (a) the aggregate amount of Consolidated Interest Expense for that period, (b) the aggregate amount of letter of credit fees paid during that period, (c) the aggregate amount of income tax expense for that period, (d) all amounts attributable to depreciation, depletion and amortization for that period, (e) the aggregate amount of exploration expenses for that period, (f) the aggregate amount of any extraordinary or nonrecurring loss (but not gain), together with any related provision for taxes for such loss (but not gain) for that period (g) the aggregate cost incurred in connection with the Acquisition for that period, to the extent such costs were not capitalized and (h) all non-cash or extraordinary expenses during that period, and MINUS, without duplication and to the extent added to revenues in determining Consolidated Net Income for that period, all non-cash or extraordinary income during that period, in each case determined in accordance with GAAP and without duplication of amounts. "ENGINEERING COMMITTEE": Chase, Bankers Trust and NationsBank. "ENVIRONMENTAL CONSULTANT": as defined in subsection 7.8(c). "ENVIRONMENTAL LAWS": any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, or other legally enforceable requirement (including, without limitation, common law) of any foreign government, the United States, or any state, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, as has been, is now, or may at any time hereafter be, in effect. "ENVIRONMENTAL PERMITS": any and all permits, licenses, registrations, notifications, approvals, exemptions and any other authorization required under any Environmental Law. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. 12 7 "EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "EURODOLLAR BASE RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate per annum for Dollar deposits with a maturity comparable to such Interest Period which appears on the Telerate British Bankers Assoc. Interest Settlement Rates Page at approximately 10:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; PROVIDED that if there shall no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page, the Eurodollar Base Rate shall mean an interest rate per annum equal to the average (rounded upward, if necessary, to the next 1/16th of 1%) of the respective rates per annum notified to the Administrative Agent by each of the Reference Banks as the average of the rates at which Dollar deposits (in an amount comparable to the amount of such Reference Lender's Eurodollar Loan to be outstanding during such Interest Period and for a maturity comparable to such Interest Period) are offered to such Reference Bank in immediately available funds by prime banks in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "TELERATE BRITISH BANKERS ASSOC. INTEREST SETTLEMENT RATES PAGE" shall mean the display designated as Page 3750 on Teleratesystem Incorporated (or such other replacement page thereof used to display London interbank offered rates of major banks). "EURODOLLAR LOANS": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "EURODOLLAR RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "EVENT OF DEFAULT": any of the events specified in Section 9, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time, PROVIDED that for purposes of determining compliance with the covenants contained in Section 8, "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the date hereof and applied on a basis consistent with the application used in the financial statements referred to in subsection 5.1. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 13 8 "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral Agreement executed and delivered by the Borrower and each of the Guarantors, dated as of June 27, 1997, substantially in the form of Exhibit B-1, as amended, modified or supplemented from time to time. "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. Obligations of the Borrower or any Subsidiary pursuant to indemnities which (a) are granted in the ordinary course of business, including, without limitation, such obligations in connection with stock purchase agreements or asset purchase and sale agreements and (b) do not cover Indebtedness of the types described in clauses (a) through (f) of the definition of Indebtedness, shall not constitute "Guarantee Obligations" for purposes of this Agreement. "GUARANTOR": Each of the Wholly-Owned Subsidiaries. "HEDGING AGREEMENT": any Interest Rate Protection Agreement, Commodity Hedging Agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "HYDROCARBON INTERESTS": all rights, titles, interests and estates now owned or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee or lease interests, farm-outs overriding royalty and royalty interests, net profit interests, oil payments, production payment interests and similar mineral interests, including any reserved or residual interest of whatever nature. "HYDROCARBONS": oil, gas, casinghead gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, all products refined, separated, settled and dehydrated therefrom and all products refined therefrom, including, without limitation, kerosene, liquefied petroleum gas, 14 9 refined lubricating oils, diesel fuel, drip gasoline, natural gasoline, helium, sulfur and all other minerals. "INDEBTEDNESS": of any Person at any date (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices and accrued current liabilities incurred in the ordinary course of business), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Capital Leases, (d) all obligations of such Person in respect of letters of credit and acceptances issued or created for the account of such Person, (e) all obligations of such Person under Commodity Hedging Agreements and Interest Rate Protection Agreements, (f) all obligations of others of the type referred to in clauses (a) through (e) above and which are secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, except that the amount of any nonrecourse obligation shall be deemed to be the lesser of the value of the property securing such obligation and the amount of such obligation so secured and (g) all Guarantee Obligations with respect to the items described in clauses (a) through (e) above. "INITIAL RESERVE REPORT": as defined in subsection 6.1(u). "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last day of each March, June, September and December, commencing September 30, 1997, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan having an Interest Period longer than three months each day which is three months or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "INTEREST PERIOD": with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next 15 10 succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period pertaining to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (3) the Borrower shall use reasonable efforts to select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "INTEREST RATE PROTECTION AGREEMENT": an interest rate swap, cap or collar agreement or similar arrangement entered into with the intent of protecting against fluctuations in interest rates or the exchange of notional interest obligations, either generally or under specific contingencies. "INVESTMENTS": as defined in subsection 8.9. "ISSUING LENDER": Chase, in its capacity as issuer of a Letter of Credit, and any other Lender or Affiliate of any Lender in each case either designated by the Borrower as an Issuing Lender or consented to by the Borrower as an Issuing Lender (provided that such consent is not unreasonably withheld). "L/C APPLICATION": as defined in subsection 3.2. "L/C COMMITMENT": the Issuing Lender's obligation to issue Letters of Credit pursuant to Section 3 of this Agreement. "L/C PARTICIPATING INTEREST": with respect to any Letter of Credit (a) in the case of the Issuing Lender with respect thereto, its interest in such Letter of Credit and any L/C Application relating thereto after giving effect to the granting of participating interests therein, if any, pursuant hereto and (b) in the case of each Participating Lender, its undivided participating interest in such Letter of Credit and any L/C Application relating thereto. "LENDER REDETERMINATION NOTICE": a notice from the Supermajority Lenders to the Borrower giving notice of their election to redetermine the Borrowing Base, which notice may be sent by the Supermajority Lenders at any time they so elect, PROVIDED that such an election (excluding any election made in connection with the incurrence of Permitted Subordinated Refinancing Debt as permitted in the definition thereof) can be made by the Supermajority Lenders no more than once during any consecutive 12 month period. "LETTERS OF CREDIT": as defined in subsection 3.1(a). "LETTER OF CREDIT OUTSTANDINGS": at any time, the sum of (a) the aggregate amount available for drawing under Letters of Credit then outstanding and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to subsection 3.5. 16 11 "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing). "LOAN": as defined in subsection 2.1(a). "LOAN DOCUMENTS": this Agreement, any Notes, the L/C Applications and the Security Documents. "LOAN PARTIES": the Parent, the Borrower, the Guarantors and each other Subsidiary of the Borrower which (after giving effect to the Acquisition) is a party to a Loan Document. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the Acquisition, (b) the business, assets, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole, or (c) the validity or enforceability of this or any of the other Loan Documents or the rights and remedies of the Agents and the Lenders hereunder or thereunder. "MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials, or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos or asbestos containing material, polychlorinated biphenyls, urea- formaldehyde insulation, and any other substance that is regulated pursuant to or could give rise to liability under any Environmental Law. "MICHIGAN MORTGAGE": the collective reference to the Open-End Mortgage, substantially in the form of Exhibit D-1 hereto, executed and delivered by the appropriate Loan Party with respect to specified Oil and Gas Properties and other Collateral located in Michigan, as the same may be amended, supplemented or otherwise modified from time to time. "MORTGAGED PROPERTY": all of the Oil and Gas Properties and other Collateral purported to be subject to the Lien of the Mortgages. "MORTGAGES": collectively, (i) the Michigan Mortgage, (ii) the New York Mortgage, (iii) the Ohio Mortgage, (iv) the Pennsylvania Mortgage and (v) the West Virginia Mortgage, and each other mortgage, deed of trust, assignment, security agreement or mortgage executed by the Borrower or any other Loan Party and in form and substance reasonably satisfactory to the Administrative Agent which purports to create a Lien in favor of the Administrative Agent, in each case as amended, supplemented or otherwise modified from time to time. "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NATIONSBANK": as defined in the preamble to this Agreement. "NEW YORK MORTGAGE": the collective reference to the Open-End Mortgage, Assignment and Security Agreement, substantially in the form of Exhibit D-2 hereto, executed 17 12 and delivered by the appropriate Loan Party with respect to specified Oil and Gas Properties and other Collateral located in New York, as the same may be amended, supplemented or otherwise modified from time to time. "NON-EXCLUDED TAXES": as defined in subsection 4.13(a). "NON-U.S. LENDER": as defined in subsection 4.13(b). "NOTES": as defined in subsection 2.3(e). "OBLIGATIONS": as defined in the Guarantee and Collateral Agreement. "OHIO MORTGAGE": the collective reference to the Open-End Mortgage, Assignment and Security Agreement, substantially in the form of Exhibit D-3 hereto, executed and delivered by the appropriate Loan Party with respect to specified Oil and Gas Properties and other Collateral located in Ohio, as the same may be amended, supplemented or otherwise modified from time to time. "OIL AND GAS BUSINESS": (a) the acquisition, exploration, exploitation, development, operation and disposition of interests in oil and gas properties and Hydrocarbons, (b) the gathering, marketing, treating, processing, storage, selling and transporting of any production from such interests or properties, including, without limitation, the marketing of Hydrocarbons obtained from unrelated Persons; (c) any business relating to or arising from exploration for or development, production, treatment, processing, storage, transportation or marketing of oil, gas and other minerals and products produced in association therewith; (d) any business relating to oilfield sales and service, and (e) any activity that is ancillary or necessary or desirable to facilitate the activities described in clauses (a) through (d) of this definition. "OIL AND GAS PROPERTIES": Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority having jurisdiction) which may affect all or any portion of the Hydrocarbon Interests; all pipelines, gathering lines, compression facilities, tanks and processing plants; all interests held in royalty trusts whether presently existing or hereafter created; all Hydrocarbons in and under and which may be produced, saved, processed or attributable to the Hydrocarbon Interests, the lands covered thereby and all hydrocarbons in pipelines, gathering lines, tanks and processing plants and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any way appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, and all rights, titles, interests and estates described or referred to above, including any and all real property, now owned or hereafter acquired, used or held for use in connection with the operating, working or development of any of such Hydrocarbon Interests or Property and including any and all surface leases, rights-of-way, easements and servitude together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing; all oil, gas and mineral leasehold and fee interests, all overriding royalty interests, mineral interests, royalty interests, net profits interests, net revenue interests, oil payments, production payments, carried interests and any and all other interests in Hydrocarbons; in each case whether now owned or hereafter acquired directly or indirectly. "PARENT": as defined in the recitals hereto. 18 13 "PARENT PLEDGE AGREEMENT": the Pledge Agreement executed and delivered by each Parent, dated as of June 27, 1997, substantially in the form of Exhibit B-2, as amended, modified or supplemented from time to time. "PARTICIPANTS": as defined in subsection 11.6(b). "PARTICIPATING LENDER": with respect to any Letter of Credit, any Lender (other than the Issuing Lender with respect to such Letter of Credit) with respect to its L/C Participating Interest in such Letter of Credit. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PENNSYLVANIA MORTGAGE": the collective reference to the Open-End Mortgage, Assignment and Security Agreement, substantially in the form of Exhibit D-4 hereto, executed and delivered by the appropriate Loan Party with respect to specified Oil and Gas Properties and other Collateral located in Pennsylvania, as the same may be amended, supplemented or otherwise modified from time to time. "PERMITTED BUSINESS ACQUISITION": the formation of a new Subsidiary or any acquisition of all or substantially all the assets of, or shares of capital stock, partnership interests, joint venture interests, limited liability company interests or other similar equity interests in, a Person or division or line of business of a Person (or any subsequent investment made in a previously acquired Permitted Business Acquisition) if immediately after giving effect thereto: (a) no Default or Event of Default shall have occurred and be continuing or would result therefrom, (b) all transactions related thereto shall be consummated in accordance with applicable laws, (c) all of the Capital Stock of any acquired or newly formed corporation, partnership, association or other business entity are owned directly by the Borrower or a domestic Wholly-Owned Subsidiary and all actions required to be taken, if any, with respect to such acquired or newly formed Subsidiary under subsection 7.10 shall have been taken, (d)(i) the Borrower shall be in compliance, on a PRO FORMA basis after giving effect to such acquisition or formation, with the covenants contained in subsection 8.1 recomputed as at the last day of the most recently ended fiscal quarter of the Borrower as if such acquisition had occurred on the first day of each relevant period for testing such compliance, and the Borrower shall have delivered to the Administrative Agent an officers' certificate to such effect, together with all relevant financial information for such Person or assets and (ii) any acquired or newly formed Subsidiary shall not be liable for any Indebtedness or Guarantee Obligations (except for Indebtedness and Guarantee Obligations permitted by subsections 8.2 and 8.4) and (e) any acquired or newly formed Subsidiary shall not have (except for Indebtedness and Guarantee Obligations permitted by subsections 8.2 and 8.4) any material liabilities (contingent or otherwise), including, without limitation, liabilities under Environmental Laws and liabilities with respect to any Plan, and the Borrower shall have delivered to the Administrative Agent a certificate, approved by the Board of Directors of the Borrower and signed by a Responsible Officer (who shall attest to such approval), that to the best of the Board of Directors' knowledge, no such material liabilities exist. "PERMITTED BUSINESS INVESTMENTS": investments made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business as a means of actively exploiting, exploring for, acquiring, developing, processing, gathering, marketing or transporting oil and gas through agreements, transactions, interests or arrangements which permit one to share risks or costs, comply with regulatory requirements regarding local 19 14 ownership or satisfy other objectives customarily achieved through the conduct of Oil and Gas Business jointly with third parties, including, without limitation, the entry into operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out and farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil or natural gas, unitization and pooling declarations and agreements and area of mutual interest agreements, production sharing agreements or other similar or customary agreements, transactions, properties, interests, and investments and expenditures in connection therewith; PROVIDED that an investment in capital stock, partnership interests, joint venture interests, limited liability company interests or other similar equity interests in a Person shall not constitute a Permitted Business Investment. "PERMITTED SUBORDINATED REFINANCING DEBT": Indebtedness of the Borrower issued in exchange for, or the net proceeds of which are used to refinance, replace, defease or refund, any or all of the Senior Subordinated Notes; PROVIDED that (a) the principal amount of such Permitted Subordinated Refinancing Debt does not exceed the principal amount (or accreted value, if applicable) of the Senior Subordinated Notes so refinanced, replaced, defeased or refunded, plus the amount of premiums, prepayments, penalties and other amounts required to be paid in connection therewith and the reasonable and customary fees and expenses incurred in connection therewith, (b) the subordination provisions in such Permitted Subordinated Refinancing Debt are no less favorable to the Lenders than the subordination provisions contained in the Senior Subordinated Notes, (c) the interest rate on such Permitted Subordinated Refinancing Debt is a market rate of interest (provided, that if such interest rate on such Permitted Subordinated Refinancing Debt is higher than the interest rate on the Senior Subordinated Notes, the Supermajority Lenders shall have a right to give the Borrower a Lender Redetermination Notice within 60 days of the date the Administrative Agent is informed of the incurrence of such Permitted Subordinated Refinancing Debt) and the interest periods are no shorter than the interest periods with respect to the Senior Subordinated Notes and (d) the timing and amounts of principal repayments (including any sinking fund therefor) on such Permitted Subordinated Refinancing Debt are no sooner and greater, respectively, than the timing and amounts of principal repayments under the Senior Subordinated Notes. "PERSON": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLAN": at a particular time, any employee benefit plan which is subject to Title IV of ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PROPERTIES": any kind of facility, fixture, property or asset, whether real, personal or mixed, or tangible or intangible owned, leased or operated by the Borrower or any Subsidiary. "PROVED RESERVES": the estimated quantities of crude oil, condensate, natural gas and natural gas liquids that adequate geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from proved reservoirs under existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made). "RE-DETERMINATION DATE": each date that the redetermined Borrowing Base becomes effective subject to the notice requirements specified in subsection 4.9. 20 15 "REFERENCE BANKS": means four major banks in the London interbank market selected by the Administrative Agent. "REFINANCED INDEBTEDNESS": the Indebtedness of Belden & Blake and its Subsidiaries described as "Refinanced Indebtedness" on Schedule 1.1(b), which will constitute all of the existing Indebtedness of Belden & Blake and its Subsidiaries on the Closing Date and will be repaid (or defeased or the provision for repayment is made, in either case on terms reasonably acceptable to the Administrative Agent) in full on the Closing Date, except for Indebtedness listed on Schedule 1.1(c). "REGISTER": as defined in subsection 11.6(d). "REGULATION U": Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "REIMBURSEMENT OBLIGATIONS": the obligation of the Borrower to reimburse the Issuing Lender pursuant to subsection 3.5(a) for amounts drawn under Letters of Credit issued by the Issuing Lender in accordance with the terms of this Agreement and the related L/C Applications. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "REQUIRED LENDERS": at any time, Lenders the Commitment Percentages of which aggregate at least 51%. "REQUIREMENT OF LAW": as to any Person, the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESERVE REPORT": a report in form and with attachments consistent with the Initial Reserve Report with respect to the Oil and Gas Properties of the Borrower and its Subsidiaries prepared (a) for the annual report as of December 31, 1996 by John G. Redic, Inc. and, for all other annual reports as of December 31, by Ryder Scott Company or another independent engineering firm selected by the Borrower and reasonably acceptable to the Required Lenders and (b) for all other reports, by engineers employed by the Borrower and certified by a Responsible Officer of the Borrower. "RESPONSIBLE OFFICER": of any Loan Party, the chief executive officer, the president or any vice president of such Loan Party or, with respect to financial matters, the chief financial officer or treasurer of such Loan Party. "REVOLVING CREDIT COMMITMENT": as to any Lender, the obligation of such Lender to make Loans to the Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 21 16 1.1(a), as such amount may be reduced from time to time in accordance with the provisions of this Agreement. "REVOLVING CREDIT LOANS": as defined in subsection 2.1(a). "REVOLVING CREDIT NOTE": as defined in subsection 2.3(e). "SECURITY DOCUMENTS": the collective reference to the Guarantee and Collateral Agreement, the Parent Pledge Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Borrower hereunder and under any of the other Loan Documents or to secure any guarantee of any such obligations and liabilities. "SENIOR DEBT": with respect to the Borrower and its Subsidiaries, Indebtedness of the Borrower and its Subsidiaries other than Subordinated Indebtedness. "SENIOR SUBORDINATED INDENTURE": the Indenture, to be dated as of the Closing Date, between the Borrower and LaSalle National Bank, as trustee, pursuant to which the Senior Subordinated Notes, if any, are to be used issued with subordination provisions no less favorable to the Lenders as those contained in the draft distributed to the Lenders on June 20, 1997. "SENIOR SUBORDINATED NOTES": as defined in the recitals hereto. "SENIOR SUBORDINATED NOTE OFFERING": as defined in the recitals to this Agreement. "SERIES A PREFERRED STOCK": Class II Serial Preferred Stock of Belden & Blake. "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SUBORDINATED DEBT OFFERING MEMORANDUM": the Offering Memorandum as in effect on June 27, 1997 related to the issuance of the Senior Subordinated Notes, as such Offering Memorandum shall be further amended, supplemented or otherwise modified from time to time. "SUBORDINATED INDEBTEDNESS": the Senior Subordinated Notes, Permitted Subordinated Refinancing Debt and any other Indebtedness of the Borrower subordinated to the prior payment in full of the Obligations in a manner acceptable to the Required Lenders as evidenced by their written approval. "SUBORDINATED NOTE DOCUMENTS": the collective reference to the Senior Subordinated Notes, the Senior Subordinated Indenture, the Subordinated Debt Offering Memorandum and each agreement, instrument and document delivered in connection therewith or relating thereto. "SUBSIDIARY": as to any Person, a corporation, partnership or other entity of which more than 50% of the total voting power of shares of stock or other equity ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to vote in the election of directors, a managing general partner, or majority of general partners or other managers or trustees thereof, is at the time owned or controlled, directly or indirectly by such Person or one or more of the 22 17 other Subsidiaries of such Person (or a combination thereof). Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to any direct or indirect Subsidiary or Subsidiaries of the Borrower. "SUPERMAJORITY LENDERS": at any time, Lenders the Commitment Percentages of which aggregate at least 75%. "TERMINATION DATE": the date which is the fifth anniversary of the Closing Date. "TRANCHE": the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); Tranches may be identified as "EURODOLLAR TRANCHES". "TRANSFEREE": as defined in subsection 11.6(f). "TYPE": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan. "UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "WEST VIRGINIA MORTGAGE": the collective reference to the Credit Line Deed of Trust, Open-End Mortgage, Assignment, Financing Statement and Security Agreement, substantially in the form of Exhibit D-5 hereto, executed and delivered by the appropriate Loan Party with respect to specified Oil and Gas Properties and other Collateral located in West Virginia, as the same may be amended, supplemented or otherwise modified from time to time. "WHOLLY-OWNED SUBSIDIARY": a Subsidiary of the Borrower, all of the outstanding Capital Stock of which (other than directors' qualifying shares) is owned, directly or indirectly, by the Borrower or one or more other Wholly-Owned Subsidiaries of the Borrower; PROVIDED, that each of the Persons listed on Schedule 1.1(d) shall be deemed not to be a Wholly-Owned Subsidiary. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any Loan Document or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in any Loan Document, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower or any Subsidiary of the Borrower not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. References in this Agreement or any other Loan Document to financial statements shall be deemed to include all related schedules and notes thereto. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. 23 18 (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (e) References in this Agreement or any other Loan Document to knowledge of any Loan Party of events or circumstances shall be deemed to refer to events or circumstances of which a Responsible Officer has knowledge or should have had knowledge if such Loan Party had exercised due diligence within the meaning of Section 1-201 of the Uniform Commercial Code. SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS 2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("REVOLVING CREDIT LOANS" or "LOANS") to the Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the amount of such Lender's Revolving Credit Commitment; PROVIDED that no Lender shall make any Revolving Credit Loans if, after giving effect thereto, the sum of the Revolving Credit Loans and Letter of Credit Outstanding (in each case, after giving effect to the Loans requested to be made and the Letters of Credit requested to be issued on such date) exceed the lesser of (i) the Lenders' Revolving Credit Commitments and (ii) the Borrowing Base then in effect. During the Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with subsections 2.2 and 4.3, PROVIDED that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Termination Date. 2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may borrow under the Revolving Credit Commitments during the Commitment Period on any Business Day, PROVIDED that the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 12:00 noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans initially are to be Eurodollar Loans or (b) one Business Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of ABR Loans, $1,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Available Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in subsection 11.2 prior to 11:00 A.M., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 24 19 2.3 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan of such Lender on the Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 9). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof to but not including the date the Loans are paid in full at the rates per annum, and on the dates, set forth in subsection 4.1. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 11.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 2.3(b) shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the existence and amounts of the obligations of the Borrower therein recorded; PROVIDED, HOWEVER, that the failure of the Administrative Agent or any Lender to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender in accordance with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note of the Borrower evidencing the Revolving Credit Loans of such Lender, substantially in the form of Exhibit A with appropriate insertions as to date and principal amount (a "REVOLVING CREDIT NOTE" or "NOTE"). SECTION 3. LETTERS OF CREDIT 3.1 THE L/C COMMITMENT. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in subsection 3.4(a), agrees to issue letters of credit ("LETTERS OF CREDIT") for the account of the Borrower on any Business Day during the Commitment Period in such form as may be approved from time to time by the Issuing Lender; PROVIDED that the Issuing Lender shall not issue any Letter of Credit if, after giving effect to such issuance and after giving effect to any Loans requested to be made or Letters of Credit requested to be issued on such date, (i) the Letter of Credit Outstanding would exceed $25,000,000 or (ii) the sum of the Revolving Credit Loans and Letter of Credit Outstanding would exceed the lesser of (x) the Revolving Credit Commitments and (y) the Borrowing Base then in effect. Each Letter of Credit shall (i) be issued to support obligations of the Borrower or any of its Subsidiaries, contingent or otherwise, which finance the working capital and business needs of the Borrower and its Subsidiaries, and (ii) shall expire no later than the earlier of (x) one year (or such later date agreed to by the Issuing Lender) after the date of issuance and (y) five Business Days prior to the Termination Date, PROVIDED that any Letter of Credit with a one-year tenor may provide for the extension thereof 25 20 for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). Each Letter of Credit shall be denominated in Dollars. (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any Participating Lender to exceed any limits imposed by, any applicable Requirement of Law. 3.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender and the Administrative Agent at their respective addresses for notices specified herein a letter of credit application in the Issuing Lender's then customary form (an "L/C APPLICATION") completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as may be customary and as the Issuing Lender may reasonably request. Upon receipt of any L/C Application, the Issuing Lender will process such L/C Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and, upon receipt by the Issuing Lender of confirmation from the Administrative Agent that issuance of such Letter of Credit will not contravene subsection 3.1, the Issuing Lender shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the L/C Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower and the Administrative Agent promptly following the issuance thereof, and, thereafter, the Administrative Agent shall promptly furnish a copy thereof to the Lenders. 3.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrower shall pay to the Administrative Agent, for the account of (i) the Issuing Lender and the Participating Lenders, a letter of credit commission with respect to each Letter of Credit, computed for the period from the date such Letter of Credit is issued to the date upon which the next payment is due under this subsection (and, thereafter, from the date of payment under this subsection to the date upon which the next payment is due under this subsection) at the rate per annum equal to the Applicable Margin (MINUS .125%) in effect from time to time for Eurodollar Loans of the daily aggregate amount available to be drawn under such Letter of Credit for the period covered by clause (i) above during such period provided such amount charged shall not be less than $500, and (ii) the Issuing Lender, a letter of credit commission with respect to each Letter of Credit in an amount equal to .125% per annum of the stated amount of such Letter of Credit (and an additional .125% of the stated amount of such Letter of Credit on each anniversary of its issuance date). The letter of credit commissions payable pursuant to clause (i) and (ii) above shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing September 30, 1997, and on the Termination Date. (b) In addition to the foregoing fees and commissions, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending, negotiating or otherwise administering any Letter of Credit. 26 21 (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Lender and the Participating Lenders all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this subsection. 3.4 L/C PARTICIPATIONS. (a) Effective on the date of issuance of each Letter of Credit, the Issuing Lender irrevocably agrees to grant and hereby grants to each Participating Lender, and each Participating Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such Participating Lender's own account and risk an undivided interest equal to such Participating Lender's Commitment Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued by the Issuing Lender and the amount of each draft paid by the Issuing Lender thereunder. Each Participating Lender unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which such Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such Participating Lender shall pay to the Administrative Agent, for the account of the Issuing Lender, upon demand at the Administrative Agent's address specified in subsection 11.2, an amount equal to such Participating Lender's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. On the date that any Assignee becomes a Lender party to this Agreement in accordance with subsection 11.6, participating interests in any outstanding Letters of Credit held by the transferor Lender from which such Assignee acquired its interest hereunder shall be proportionately reallotted between such Assignee and such transferor Lender. Each Participating Lender hereby agrees that its obligation to participate in each Letter of Credit, and to pay or to reimburse the Issuing Lender for its participating share of the drafts drawn or amounts otherwise paid thereunder, is absolute, irrevocable and unconditional and shall not be affected by any circumstances whatsoever (including, without limitation, the occurrence or continuance of any Default or Event of Default), and that each such payment shall be made without offset, abatement, withholding or other reduction whatsoever. (b) If any amount required to be paid by any Participating Lender to the Issuing Lender pursuant to subsection 3.4(a) in respect of any unreimbursed portion of any draft paid by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such Participating Lender shall pay to the Administrative Agent, for the account of the Issuing Lender, on demand, an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such draft is paid to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any Participating Lender pursuant to subsection 3.4(a) is not in fact made available to the Administrative Agent, for the account of the Issuing Lender, by such Participating Lender within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such Participating Lender, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans hereunder. A certificate of the Issuing Lender submitted to any Participating Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Lender has paid a draft under any Letter of Credit and has received from any Participating Lender its PRO RATA share of such payment in accordance with subsection 3.4(a), the Issuing Lender receives any reimbursement on account of such unreimbursed portion, or any payment of interest on account thereof, the Issuing Lender will pay to the Administrative Agent, for the account of such Participating Lender, its PRO RATA share thereof; PROVIDED, HOWEVER, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such Participating Lender shall return to the 27 22 Administrative Agent for the account of the Issuing Lender, the portion thereof previously distributed to it. 3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall notify the Borrower and the Administrative Agent of the date and the amount thereof. The Borrower agrees to reimburse the Issuing Lender (whether with its own funds or with proceeds of the Revolving Credit Loans) on each date on which the Issuing Lender pays a draft so presented under any Letter of Credit for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this subsection from the date of payment of the applicable draft until payment in full thereof, (x) for the period commencing on the date of payment of the applicable draft to the date which is 3 days thereafter, at the rate which would be payable on ABR Loans at such time and (y) thereafter, at the rate which would be payable on ABR Loans at such time plus 3%. 3.6 OBLIGATIONS ABSOLUTE. (a) The Borrower's obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower or any other Person may have or have had against the Issuing Lender or any other Lender or any beneficiary of a Letter of Credit. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower's obligations under subsection 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, including, without limitation, Article V thereof, shall be binding on the Borrower and shall not result in any liability of such Issuing Lender to the Borrower. (b) Without limiting the generality of the foregoing, it is expressly agreed that the absolute and unconditional nature of the Borrower's obligations under this Section 3 to reimburse the Issuing Lender for each drawing under a Letter of Credit will not be excused by the gross negligence or wilful misconduct of the Issuing Lender. However, the foregoing shall not be construed to excuse the Issuing Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Lender's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. 3.7 LETTER OF CREDIT PAYMENTS. Without limitation of subsection 3.6, the responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of 28 23 Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 3.8 L/C APPLICATIONS. To the extent that any provision of any L/C Application, including any reimbursement provisions contained therein, related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall prevail. SECTION 4. GENERAL PROVISIONS 4.1 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin in effect on such day. (b) Each ABR Loan shall bear interest for each day at a rate per annum equal to the ABR plus the Applicable Margin in effect on such day. (c) If all or a portion of (i) any principal of any Loan, (ii) any interest payable thereon, (iii) any commitment fee or (iv) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), the principal of the Loans and any such overdue interest, commitment fee or other amount shall bear interest at a rate per annum which is the ABR plus 3%, in each case from the date of such non-payment until such overdue principal, interest, commitment fee or other amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, PROVIDED that interest accruing pursuant to subsection 4.1(c) shall be payable from time to time on demand. 4.2 COMPUTATION OF INTEREST AND FEES. (a) Whenever, in the case of ABR Loans, it is calculated on the basis of the Prime Rate, interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; and, otherwise, interest and fees shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR, the Eurocurrency Reserve Requirements, the C/D Assessment Rate or the C/D Reserve Percentage shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations and calculations used by the Administrative Agent in determining any interest rate pursuant to subsection 4.1(a). 4.3 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at least one Business Day's prior irrevocable notice of such election, PROVIDED that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or 29 24 Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans and ABR Loans may be converted as provided herein, PROVIDED that (i) no Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a conversion is not appropriate and (ii) no Loan may be converted into a Eurodollar Loan after the date that is one month prior to the Termination Date. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans, PROVIDED that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a continuation is not appropriate or (ii) after the date that is one month prior to the Termination Date and PROVIDED, FURTHER, that if the Borrower shall fail to give such notice or if such continuation is not permitted such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 4.4 MINIMUM AMOUNTS MAXIMUM NUMBER OF TRANCHES. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof. In no event shall there be more than eight Eurodollar Tranches outstanding at any time. 4.5 OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) The Borrower may on the last day of any Interest Period with respect thereto, in the case of Eurodollar Loans, or at any time and from time to time, in the case of ABR Loans, prepay the Loans, in whole or in part, without premium or penalty, upon at least one Business Day's irrevocable notice to the Administrative Agent, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, in each case if of a combination thereof, the amount allocable to each. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 4.14. Partial prepayments shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. (b) Subject to subsection 4.5(c), the Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments. Any such reduction shall be in an amount equal to $10,000,000 or a whole multiple of $5,000,000 in excess thereof and shall reduce permanently the Revolving Credit Commitments then in effect. Termination of the Revolving Credit Commitments shall also terminate the obligation of the Issuing Lender to issue Letters of Credit. (c) In the event of any termination of the Revolving Credit Commitments, the Borrower shall on the date of such termination repay or prepay all its outstanding Revolving Credit Loans (together with accrued and unpaid interest on the Revolving Credit Loans), reduce the Letter of Credit Outstanding to zero and cause all Letters of Credit to be canceled and returned to the Issuing Lender (or shall cash collateralize the Letter of Credit Outstanding on terms and pursuant to documentation reasonably satisfactory to the Issuing Lender and the Administrative Agent). In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or prior to the 30 25 effective date of such reduction, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Revolving Credit Exposure of all the Lenders and (ii) if the Aggregate Revolving Credit Exposure of all the Lenders would exceed the aggregate Revolving Credit Commitments after giving effect to such reduction, then, prior to giving effect to such reduction, the Borrower shall, on the date of such reduction, FIRST, repay or prepay Revolving Credit Loans and, SECOND, reduce the Letter of Credit Outstanding (or cash collateralize the Letter of Credit Outstanding on terms and pursuant to documentation reasonably satisfactory to the Issuing Lender and the Administrative Agent), in an aggregate amount sufficient to eliminate such excess. (d) The Loans shall be repaid, and the Letter of Credit Outstanding shall be reduced or cash collateralized, to the extent required by subsection 4.10. All such repayments and cash collateralization shall be made in accordance with subsection 4.5. (e) (i) In the event the amount of any prepayment of the Loans required to be made above shall exceed the aggregate principal amount of the outstanding ABR Loans (the amount of any such excess being called the "EXCESS AMOUNT"), the Borrower shall have the right, in lieu of making such prepayment in full, to prepay all the outstanding applicable ABR Loans and to deposit an amount equal to the Excess Amount with, and (ii) in the event that Letter of Credit Outstanding are required to be cash collateralized, the Borrower shall deposit an amount equal to the aggregate amount of Letter of Credit Outstanding to be cash collateralized with, the Administrative Agent in a cash collateral account maintained (pursuant to documentation reasonably satisfactory to the Administrative Agent) by and in the sole dominion and control of the Administrative Agent. Any amounts so deposited shall be held by the Administrative Agent as collateral for the Obligations and applied to the prepayment of the applicable Eurodollar Loans at the end of the current Interest Periods applicable thereto or Letter of Credit Outstanding, as the case may be, or, during an Event of Default, to payment of any Obligations (including obligations in respect of the Letters of Credit). On any Business Day on which (i) collected amounts remain on deposit in or to the credit of such cash collateral account after giving effect to the payments made on such day pursuant to this subsection 4.5(e) and (ii) the Borrower shall have delivered to the Administrative Agent a written request or a telephonic request (which shall be promptly confirmed in writing) that such remaining collected amounts be invested in the Cash Equivalent specified in such request, the Administrative Agent shall use its reasonable efforts to invest such remaining collected amounts in such Cash Equivalent, PROVIDED, HOWEVER, that the Administrative Agent shall have continuous dominion and full control over any such investments (and over any interest that accrues thereon) to the same extent that it has dominion and control over such cash collateral account and no Cash Equivalent shall mature after the end of the Interest Period for which it is to be applied. The Borrower shall not have the right to withdraw any amount from such cash collateral account until the applicable Eurodollar Loans and accrued interest thereon and Letter of Credit Outstanding are paid in full or if a Default or Event of Default then exists or would result. Any prepayment or collateralization pursuant to this subsection 4.5(e) shall be applied in the order set forth in clause (ii) of the second sentence of subsection 4.5(c). 4.6 COMMITMENT FEE; ADMINISTRATIVE AGENT'S FEE; OTHER FEES. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee for the period from and including, for each Lender, the Closing Date to but not including the Termination Date, computed at the rate per annum set forth in the definition of "Applicable Margin" on the average daily amount of the lesser of (i) the Available Commitment of such Lender and (ii) the Borrowing Base Availability with respect to such Lender, during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December (commencing on September 30, 1997) and on the Termination Date or such earlier date as the Revolving Credit Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. Commitment fees shall be nonrefundable when paid. The Administrative Agent shall, 31 26 at the request of the Borrower, deliver to the Borrower a statement showing the calculations used by the Administrative Agent in determining any commitment fee pursuant to this subsection 4.6(a). (b) The Borrower shall pay to the Administrative Agent the agency fees set forth in the agency fee letter agreement dated April 28, 1997 among TPG, Chase and Chase Securities Inc., on the dates specified therein. (c) The Borrower shall pay to Chase, for the account of Chase, Bankers Trust and NationsBank, the fees set forth in the letter agreement dated April 28, 1997 among TPG, Chase, Bankers Trust and NationsBank, on the Closing Date. 4.7 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. 4.8 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee hereunder and any reduction of the Revolving Credit Commitments of the Lenders shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in subsection 11.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its Commitment 32 27 Percentage of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from the Borrower. 4.9 COMPUTATION OF BORROWING BASE. (a) The Borrowing Base in effect from time to time shall represent the maximum principal amount (subject to the aggregate amount of the Revolving Credit Commitments) of Loans and Letter of Credit Outstandings that the Lenders will allow to remain outstanding during the Commitment Period. The Borrowing Base shall be determined in accordance with this subsection 4.9. The Borrowing Base will be based upon the value of certain Proved Reserves attributable to the Oil and Gas Properties of the Borrower and its Subsidiaries and other assets of the Borrower and its Subsidiaries acceptable to the Engineering Committee in its sole discretion, and will be determined by the Engineering Committee in accordance with paragraph (d) of this subsection 4.9, subject to approval by the Supermajority Lenders. Until the Commitments are no longer in effect, all Letters of Credit have terminated and all of the Obligations are paid in full, this Agreement shall be subject to the then effective Borrowing Base. During the period from and after the Closing Date until the first Redetermination Date, the amount of the Borrowing Base shall be $180,000,000; (b) Prior to April 1 of each year (and, if at any time during the period from January 1 to August 31 of any year, the average Borrowing Base Usage for such period exceeds 75%, on October 1st of such year), the Borrower shall furnish to the Administrative Agent and to each Lender Reserve Reports, which Reserve Reports shall be dated as of the immediately preceding December 31 (in the case of Reserve Reports due on April 1) and June 30 (in the case of Reserve Reports due on October 1), and shall set forth, among other things, (i) the Oil and Gas Properties, then owned by the Borrower and its Subsidiaries, (ii) the Proved Reserves attributable to such Oil and Gas Properties and (iii) a projection of the rate of production and net income of the Proved Reserves as of the date of such Reserve Report, all in accordance with the guidelines published by the Securities and Exchange Commission. Concurrently with the delivery of the Reserve Reports, the Borrower shall furnish to the Administrative Agent and to each Lender a certificate of a Responsible Officer showing any additions to or deletions from the Oil and Gas Properties listed in the Reserve Report, which additions or deletions were made by the Borrower and its Subsidiaries since the date of the previous Reserve Report, and certifying which of the Oil and Gas Properties listed in the Reserve Report are subject to a Mortgage. (c) The Borrowing Base shall be re-determined (i) after receipt by the Engineering Committee of each scheduled Reserve Report, (ii) upon the delivery of a Lender Redetermination Notice to the Borrower and (iii) upon the delivery of a Borrower Redetermination Notice to each member of the Engineering Committee, all as provided in this subsection 4.9. Within 60 days after the delivery of a Borrower Redetermination Notice or a Lender Redetermination Notice, the Borrower shall furnish to the Administrative Agent and to each Lender a Reserve Report as of the most recent practicable date. If the Borrower fails to deliver a Reserve Report within the time period provided for 33 28 in the preceding sentence, then the Engineering Committee shall have the right to rely on the last Reserve Report previously delivered by the Borrower with any such adjustments and taking into account any additional information as the Engineering Committee may deem appropriate, in its sole discretion. On or before the date which is 30 days after receipt (i) of a scheduled annual (or, if applicable, semi-annual) Reserve Report or (ii) of a Reserve Report in connection with a Lender Redetermination Notice or a Borrower Redetermination Notice, the Engineering Committee, shall re-determine, the Borrowing Base, in its sole discretion, and the Administrative Agent shall notify the Borrower and the Lenders of the Engineering Committee's re-determination of the Borrowing Base. Within 10 days after receipt from the Administrative Agent of the amount of the Engineering Committee's re-determination of the Borrowing Base, each Lender shall notify the Administrative Agent stating whether or not such Lender agrees with that re-determination. Failure of any Lender to give such notice within such period of time shall be deemed to constitute an acceptance of such re- determination. If the Supermajority Lenders agree with that re-determination, then the Administrative Agent promptly shall notify the Borrower of the Borrowing Base as so re-determined, whereupon that re-determined value shall automatically become effective (and shall remain effective until the Borrowing Base is again re-determined as provided in this subsection 4.9(c)). If the Supermajority Lenders do not approve the Engineering Committee's re-determination of the Borrowing Base, then the Engineering Committee shall make a further re-determination of the Borrowing Base in its sole discretion, and the Administrative Agent promptly shall submit the Engineering Committee's new re-determination to the Lenders and the Borrower until the Supermajority Lenders agree upon a re-determination of the Borrowing Base, whereupon the Administrative Agent promptly shall notify the Borrower of the redetermination and the re-determination shall become effective as provided above. Each re-determination provided for by this subsection 4.9(c) shall be made in accordance with the provisions of subsection 4.9(d). It is the intention of the Borrower and the Lenders that the Borrowing Base be redetermined within 45 days after the furnishing of each Reserve Report, subject to the provisions of this paragraph (c). (d) (i) All determinations and re-determinations by the Engineering Committee provided for in this subsection 4.9 (and any determinations and decisions by either or both of the Engineering Committee and the Supermajority Lenders in connection therewith, including effecting any re-determination of the value of any component contained in a Reserve Report) shall be made by the Engineering Committee and the Lenders in their sole discretion and shall be made on a reasonable basis and in good faith based upon the application by the Engineering Committee and the Lenders of their respective normal oil and gas lending criteria as they exist at the time of determination. (ii) All re-determinations in the Borrowing Base referred to in this subsection 4.9 shall become effective immediately upon the delivery of notice by the Administrative Agent to the Borrower of the re-determination. 4.10 BORROWING BASE COMPLIANCE. If at any time the Aggregate Revolving Credit Exposure of the Lenders exceeds the Borrowing Base then in effect (any such excess, the "BORROWING BASE DEFICIENCY"), the Borrower shall prepay the Revolving Credit Loans and then cash collateralize the Letter of Credit Outstandings in an amount equal to 50% of the Borrowing Base Deficiency within 90 days after the effective date of the redetermination resulting in such Borrowing Base Deficiency, and within the next 90 days prepay the Revolving Credit Loans and then cash collateralize the Letter of Credit Outstandings in an amount equal to the balance of such Borrowing Base Deficiency in each case together with interest accrued to the date of such payment or prepayment and any amounts payable under subsection 4.14. In addition, the Borrower may, in order to reduce or eliminate such Borrowing Base Deficiency, submit (i) additional Oil and Gas Properties in accordance with subsection 7.10(c) and/or (ii) other properties reasonably acceptable to and on terms to be agreed upon by the 34 29 Supermajority Lenders, to be included in the Borrowing Base. Prepayments and collateralization pursuant to this subsection 4.10 shall be made as set forth in subsection 4.5(c). 4.11 ILLEGALITY. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof after the date hereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 4.14. 4.12 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof after the date hereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any L/C Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by subsection 4.13, changes in the rate or computation of tax on the overall net income of such Lender, franchise taxes imposed in lieu of net income taxes and doing business taxes); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduced amount receivable. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then 35 30 from time to time, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 4.13 TAXES. (a) All payments made by the Borrower under this Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes, franchise taxes (imposed in lieu of net income taxes) and doing business taxes imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Note, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, PROVIDED, HOWEVER, that the Borrower shall not be required to increase any such amounts payable to any Non-U.S. Lender if such Non-U.S. Lender fails to comply with the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If, when the Borrower is required by this subsection 4.14(a) to pay any Non-Excluded Taxes, the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America, or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "NON-U.S. LENDER") shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest," a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, an annual certificate representing that such Non-U.S. Lender (i) is not a "bank" for purposes of Section 36 31 881(c) of the Code (and is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank in any filing with or submission made to any Governmental Authority or rating agency), (ii) is not a 10% shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and (iii) is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents, along with such other additional forms as the Borrower, the Administrative Agent (or, in the case of a Participant, the Lender from which the related participation shall have been purchased) may reasonably request to establish the availability of such exemption. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). 4.14 INDEMNITY. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur (other than through such Lender's gross negligence or willful misconduct) as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or converted, or not so borrowed, converted or continued, for the period from the date of such prepayment or conversion or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Loans provided for herein (excluding, however, the percentage added to the Eurodollar Rate pursuant to subsection 4.1(a) to the extent included therein) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 4.15 CHANGE OF LENDING OFFICE. (a) Each Lender agrees that if it makes any demand for payment under subsection 4.12 or 4.13(a), or if any adoption or change of the type described in subsection 4.11 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrower to make payments under subsection 4.12 or 4.13(a), or would eliminate or reduce the effect of any adoption or change described in subsection 4.11. (b) If any Lender requests compensation under subsection 4.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to subsection 4.13, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to, and such Lender promptly shall, assign and delegate, without recourse (in accordance with and subject to the restrictions contained in subsection 11.6), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED 37 32 that (i) if such assignee is not a Lender or an Affiliate thereof, the Borrower shall have received the prior written consent of the Administrative Agent and Issuing Lender which consents shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (at least to the extent of such outstanding principal) and the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under subsection 4.12 or payments required to be made pursuant to subsection 4.13, such assignment will result in a reduction in such compensation or payments compared to the compensation or payments payable to the assigning Lender. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation no longer exist or cease to apply. SECTION 5. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that: 5.1 FINANCIAL CONDITION. (a) The consolidated balance sheets of Belden & Blake and its consolidated Subsidiaries at December 31, 1995 and December 31, 1996 and the related consolidated statements of operations, of cash flows and of changes in stockholders' equity for the respective fiscal years ended on such dates, together with the related notes and schedules thereto, reported on by Ernst & Young LLP, copies of which have heretofore been furnished to each Lender, present fairly in all material respects the consolidated financial condition of Belden & Blake and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the respective fiscal years then ended. (b) The unaudited consolidated balance sheet of Belden & Blake and its consolidated Subsidiaries at March 31, 1997 and the related unaudited consolidated statements of operations, of cash flows and of changes in stockholders' equity for the 3-month period ended on such dates, together with the related notes and schedules thereto, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, present fairly in all material respects the consolidated financial condition of each of Belden & Blake and its consolidated Subsidiaries as at such dates, and the consolidated results of their respective operations and their consolidated cash flows for the 3-month period then ended (subject to normal year-end audit adjustments). (c) The unaudited PRO FORMA consolidated balance sheet of the Borrower and its consolidated Subsidiaries, as of the Closing, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, represent in all material respects the PRO FORMA consolidated financial condition of the Borrower and its consolidated Subsidiaries as of such date after giving effect to the Acquisition and the initial extensions of credit under this Agreement, assuming that the Acquisition occurred on March 31, 1997. (d) All such financial statements referred to in subsections 5.1(a) and (b), including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). On the Closing Date, after giving effect to the Acquisition, neither the Borrower nor any of its consolidated Subsidiaries have, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or 38 33 liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the financial statements referred to in subsection 5.1(c) or in the notes thereto to the extent required by GAAP. During the period from January 1, 1997 to and including the date hereof there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at December 31, 1996, other than as set forth on Schedule 5.1. 5.2 NO CHANGE. (a) Since December 31, 1996, there has been no development, circumstance or event which has had or could reasonably be expected to have a Material Adverse Effect, and (b), except for dividends with respect to, and the redemption of, shares of Series A Preferred Stock, during the period from January 1, 1997 to and including the date hereof no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Borrower nor has any of the Capital Stock of the Borrower been redeemed, retired, purchased or otherwise acquired for value by any Loan Party. 5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all applicable Requirements of Law except to the extent that the failure to be so qualified or to comply with such Requirements of Law could not reasonably be expected to have, in the aggregate, a Material Adverse Effect. 5.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower and each of the other Loan Parties has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party, grant the Liens granted by it pursuant to the Security Documents and, in the case of the Borrower, to borrow hereunder and has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party (including the granting of the Liens to be granted by it pursuant to the Security Documents and, in the case of the Borrower, the borrowings hereunder). Other than the filing of the Mortgages and appropriate financing statements and other actions necessary to perfect the Liens created by the Security Documents, no consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder, the granting and perfection of the Liens to be granted by the Security Documents or with the execution, delivery, performance, validity or enforceability of the Loan Documents to which each Loan Party is a party other than those which have been obtained and are in full force and effect. This Agreement has been, and each other Loan Document to which any Loan Party is a party will be, duly executed and delivered on behalf of such Loan Party. This Agreement constitutes, and each other Loan Document to which any Loan Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 39 34 5.5 NO LEGAL BAR. The execution, delivery and performance of the Loan Documents, the granting of the Liens under the Security Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any applicable Requirement of Law or Contractual Obligation of the Borrower or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation except pursuant to the Loan Documents. 5.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 5.7 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 5.8 OWNERSHIP OF PROPERTY; LIENS. (a) Except for the Oil and Gas Properties, the Borrower and its Subsidiaries each have good title in fee simple to, or a valid leasehold interest in, all its material real property and material interests in real property set forth in Schedules 5.20A and 5.20B, and good title to, a valid leasehold interest in or a license to use, all its other material property, and none of such property is subject to any Lien except as permitted by subsection 8.3. (b) The Borrower and its Subsidiaries each have good and defensible title to all of its Oil and Gas Properties which are not personal property and good title to all such Oil and Gas Properties which are personal property and material to the Borrower and its Subsidiaries taken as a whole, except for (i) such imperfections of title as do not in the aggregate materially detract from the value thereof to, or the use thereof in, the business of the Borrower or any of its Subsidiaries, (ii) Oil and Gas Properties disposed of since the date of the most recent Reserve Report as permitted by subsection 8.6 hereof, and (iii) Liens permitted by subsection 8.3 hereof. The quantum and nature of the interest of the Borrower and its Subsidiaries in and to the Oil and Gas Properties as set forth in each Reserve Report (including the Initial Reserve Report) includes the entire interest of the Borrower and its Subsidiaries in such Oil and Gas Properties as of the date of such Reserve Report and are complete and accurate in all material respects as of the date of such Reserve Report; and there are no "back-in" or "reversionary" interests held by third parties which could materially reduce the interest of the Borrower and its Subsidiaries in such Oil and Gas Properties except as expressly set forth in such Reserve Report. The ownership of the Oil and Gas Properties by the Borrower and its Subsidiaries shall not in any material respect obligate any such Loan Party to bear the costs and expenses relating to the maintenance, development or operations of each such Oil and Gas Property in an amount in excess of the working interest of such Loan Party in each Oil and Gas Property set forth in the most recent Reserve Report. 5.9 INTELLECTUAL PROPERTY. Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Borrower know of any valid basis for any such claim. The use of such Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, do not have a Material Adverse Effect. 40 35 5.10 NO BURDENSOME RESTRICTIONS. No applicable Requirement of Law or Contractual Obligation of the Borrower or any of its Subsidiaries has a Material Adverse Effect. 5.11 TAXES. Each of the Borrower and its Subsidiaries has filed all material tax returns which, to the knowledge of such Loan Party, are required to be filed by it and has paid or caused to be paid all taxes shown on said returns and all assessments, fees and other governmental charges levied upon it or upon any of its property or income which are due and payable, other than such taxes, assessments, fees and other governmental charges, if any, as are being diligently contested in good faith and by appropriate proceedings and with respect to which there have been established adequate reserves on the books of the Borrower or its Subsidiaries, as the case may be, in accordance with GAAP. No tax lien has been filed and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such taxes or assessments, fees or other governmental charges, other than claims which are being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves with respect thereto are being maintained on the books of the Borrower or the applicable Subsidiary, as the case may be, in conformity with GAAP. 5.12 FEDERAL RESERVE REGULATIONS. (a) Neither the Borrower nor any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System, including Regulation G, U or X. 5.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 5.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Neither the Borrower nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither the Borrower nor any of its Subsidiaries is subject to regulation under any Federal or State statute or regulation (other than Regulation X of the Board of Governors of the Federal Reserve System) which limits its ability to incur Indebtedness under this Agreement or the other Loan Documents. 41 36 5.15 SUBSIDIARIES. The Persons listed on Schedule 5.15 constitute all the Subsidiaries of the Borrower and Belden & Blake at the date hereof. 5.16 PURPOSE OF LOANS. The proceeds of the Loans made on the Closing Date will be used to finance the Acquisition, to refinance existing indebtedness of Belden & Blake and to pay costs and expenses relating to the Acquisition. Loans made after the Closing Date shall be used for general corporate purposes of the Borrower and its Subsidiaries. 5.17 ENVIRONMENTAL MATTERS. Other than exceptions to any of the following that could not, individually or in the aggregate, reasonably be expected to give rise to a Material Adverse Effect: (a) each of the Borrower and its Subsidiaries: (i) is, and within the period of all applicable statutes of limitation has been, in compliance with all applicable Environmental Laws; (ii) holds all Environmental Permits (each of which is in full force and effect) required for any of its current or planned operations or for any property owned, leased, or otherwise operated by it; (iii) is, and within the period of all applicable statutes of limitation has been, in compliance with all of its Environmental Permits; and (iv) reasonably believes that (A) each of its Environmental Permits will be timely renewed without expense, (B) any additional Environmental Permits which it has reason to believe will be required will be timely obtained without expense, and (C) the costs of complying with such renewed or additional Environmental Permits and any other Environmental Laws applicable to or reasonably expected to apply to the Borrower and its Subsidiaries will not exceed the Borrower's and its Subsidiaries' existing costs of complying with Environmental Permits and Environmental Laws. (b) Materials of Environmental Concern have not been transported, disposed of, emitted, discharged, or otherwise released or threatened to be released, to or at any real property presently or formerly owned, leased or operated by the Borrower or any Subsidiary or at any other location, which could reasonably be expected to (i) give rise to liability of the Borrower or any Subsidiary under any applicable Environmental Law, (ii) interfere with the Borrower's continued operations, or (iii) impair the fair saleable value of any material real property owned or leased by the Borrower or any Subsidiary. (c) no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under or relating to any Environmental Law to which the Borrower or any Subsidiary is, or to the knowledge of the Borrower will be, named as a party is pending or, to the knowledge of the Borrower, threatened. (d) the Borrower has not received any written request for information, or been notified that it or any Subsidiary is a potentially responsible party under the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or with respect to any Materials of Environmental Concern. (e) neither the Borrower nor any Subsidiary has entered into or agreed to any consent decree, order, or settlement or other agreement, nor is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law. 42 37 (f) neither the Borrower nor any Subsidiary has assumed or retained, by contract or operation of law, any liabilities of any kind, fixed, contingent or otherwise, under any Environmental Law. 5.18 NO MATERIAL MISSTATEMENTS. (a) All written information, reports, financial statements, exhibits and schedules furnished to the Administrative Agent or any Lender by or on behalf of the Borrower or any of its Subsidiaries and the Acquisitions in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, when taken as a whole, did not contain, and as they may be amended, supplemented or modified from time to time, will not contain, as of the date such statements were made, any untrue statements of a material fact and did not omit, and as they may be amended, supplemented or modified from time to time, will not omit, to state as of the date such statements were made, any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were, are or will be made, not materially misleading. (b) All projections and estimates concerning the Borrower and its Subsidiaries that are or have been made available to the Administrative Agent or any Lender by or on behalf of the Borrower or any of its Subsidiaries, have been or will be prepared based on good faith estimates and based upon assumptions believed by the Borrower to be reasonable at the time of such preparation. 5.19 CAPITALIZATION OF BELDEN & BLAKE AND THE BORROWER. The authorized Capital Stock, the par value thereof and the amount of such authorized Capital Stock issued and outstanding for each of the Borrower and its Subsidiaries as of the Closing Date (after giving effect to the issuance of the common stock described in subsection 6.1(0) and the consummation of the Acquisition) are set forth on Schedule 5.19. All outstanding shares of Capital Stock of the Borrower are fully paid and nonassessable and, on and after the Closing Date, will be owned beneficially and of record by Parent and will be free of all Liens (other than the Liens created pursuant to the Security Documents). 5.20 LOCATION OF REAL PROPERTY AND LEASED PREMISES. (a) Part A of Schedule 5.20 lists completely and correctly as of the Closing Date all material real property (other than Oil and Gas Properties) owned in fee by Belden & Blake, the Borrower and each of its Subsidiaries and the addresses thereof. (b) Part B of Schedule 5.20 lists completely and correctly as of the Closing Date all material real property (other than Oil and Gas Properties) leased by the Borrower and each of its Subsidiaries and the respective addresses thereof. 5.21 SOLVENCY. (a) Immediately after the consummation of the Acquisition and the other transactions to occur on the Closing Date and immediately following the making of each Loan made on the Closing Date and after giving effect to the application of the proceeds thereof, (i) the fair value of the assets of the Borrower on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Borrower on a consolidated basis; (ii) the present fair saleable value of the property of the Borrower on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower on a consolidated basis on its debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date. For purposes of the representation contained in this 43 38 subsection 5.21(a), unliquidated, contingent, disputed and unmatured claims shall be valued at the amount that can, in light of all the facts and circumstances existing at such time, be reasonably expected to be an actual or matured liability. (b) The Borrower neither intends to, nor believes that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash available to be received by it or any such Subsidiary and the time and amounts of cash to be payable on or in respect of its Indebtedness or that of any such Subsidiary. 5.22 LABOR MATTERS. There are no strikes pending or threatened against the Borrower or any of its Subsidiaries. The hours worked and payments made to the Borrower or any of its Subsidiaries have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable law dealing with such matters. All material payments due from the Borrower or any of its Subsidiaries or for which any claim may be made against the Borrower or any of its Subsidiaries, on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of the Borrower or such Subsidiary to the extent required by GAAP. The consummation of the Acquisition will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any of its Subsidiaries (or any predecessor) is a party or by which the Borrower or any Subsidiary (or any predecessor) is bound. 5.23 INSURANCE. Each of the Borrower and its Subsidiaries carries and maintains with respect to its insurable properties insurance (including, to the extent consistent with past practices, self-insurance) with financially sound and reputable insurers of the types, to such extent and against such risks as is customary with companies in the same or similar businesses. 5.24 FUTURE COMMITMENTS. As of the Closing Date, except as set forth on Schedule 5.24, on a net basis there are no gas imbalances, take-or-pay or other prepayments with respect to any Oil and Gas Property of the Borrower or any Subsidiary which would require the Borrower or any Subsidiary to deliver Hydrocarbons produced from Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor. 5.25 SECURITY DOCUMENTS. (a) The provisions of the Guarantee and Collateral Agreement and the Parent Pledge Agreements will be effective to create in favor of the Administrative Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof and (i) when stock certificates and notes representing or constituting such pledged securities are delivered to the Administrative Agent, the Guarantee and Collateral Agreement and the Parent Pledge Agreements shall constitute a perfected first lien on, and security interest in, all right, title and interest of the pledgor party therein in the pledged securities described therein and (ii) when the financing statements referred to in Schedule 5.25 have been filed and recorded in the offices in the jurisdictions listed in Schedule 5.25 under the names set forth in Schedule 5.25, the Administrative Agent, for the ratable benefit of the Lenders, shall have a fully perfected first priority security interest in all right, title and interest of the Borrower and each of its Subsidiaries in such Collateral (other than the pledged securities referred to in Clause (i) above) superior in right to any Liens which the Borrower, any of its Subsidiaries or any third Person may have against such Collateral or interests therein. (b) The provisions of the Mortgages will be effective to grant to the Administrative Agent, for the ratable benefit of the Lenders, legal, valid and enforceable mortgage liens on all of the right, title and interest of the Borrower in the mortgaged property described therein. Such Mortgages, 44 39 when recorded in the appropriate recording office, will constitute perfected first liens on, and security interest in, such mortgaged property. SECTION 6. CONDITIONS PRECEDENT 6.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT. The agreement of each Lender to make the initial Loan requested to be made by it and of the Issuing Lender to issue the initial Letter of Credit to be issued by it is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan and the issuance of such Letter of Credit on the Closing Date, of the following conditions precedent: (a) LOAN DOCUMENTS. The Administrative Agent shall have received (with the number of original counterparts requested by the Administrative Agent) (i) this Agreement, executed and delivered by a duly authorized officer of the Borrower, (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of each Loan Party thereto, (iii) each Mortgage (except as otherwise provided in subsections 6.1(v) and 7.12), each executed and delivered by a duly authorized officer of each Loan Party that is a party thereto; (iv) Parent Pledge Agreements, each executed and delivered by a duly authorized officer of each Loan Party thereto and (v) the Assumption Agreement, executed and delivered by a duly authorized officer of the Borrower. (b) RELATED AGREEMENTS. The Administrative Agent shall have received true and correct copies, certified as to authenticity by the Borrower, of each Acquisition Document and such other documents or instruments as may be reasonably requested by the Administrative Agent, including, without limitation, a copy of any debt instrument or security agreement to which the Borrower and its Subsidiaries will be a party after the Closing Date. (c) BORROWING CERTIFICATE. The Administrative Agent shall have received (with the number of original counterparts requested by the Administrative Agent), a certificate of the Borrower, dated the Closing Date, substantially in the form of Exhibit E, with appropriate insertions and attachments, satisfactory in form and substance to the Administrative Agent, executed by a Responsible Officer of the Borrower. (d) CORPORATE PROCEEDINGS OF THE LOAN PARTIES. The Administrative Agent shall have received (with the number of original counterparts requested by the Administrative Agent), a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of each Loan Party authorizing (i) the execution, delivery and performance of this Agreement and the Loan Documents to which it is a party, (ii) in the case of the Borrower, the borrowings contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Loan Documents, certified by the Secretary or an Assistant Secretary of such Loan Party as of the Closing Date, which certificate shall be in form and substance reasonably satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (e) LOAN PARTY INCUMBENCY CERTIFICATES. The Administrative Agent shall have received (with the number of original counterparts requested by the Administrative Agent), a certificate of each Loan Party, dated the Closing Date, as to the incumbency and signature of the officers of such Loan Party executing any Loan Document reasonably satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of such Loan Party. 45 40 (f) CORPORATE DOCUMENTS. The Administrative Agent shall have received (with the number of original counterparts requested by the Administrative Agent), true and complete copies of the certificate of incorporation and by-laws of each Loan Party, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of such Loan Party. (g) CONSENTS, LICENSES AND APPROVALS. All governmental and third party approvals (including consents) necessary in connection with the Acquisition and the execution, delivery and performance of the Loan Documents shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Acquisition or the financing thereof, including, without limitation, this Agreement. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of the Borrower as to the foregoing. (h) FEES. The Lenders, the Agents and the Arranger shall have received all fees and expenses required to be paid on or before the Closing Date for which invoices have been presented. (i) LEGAL OPINIONS. The Administrative Agent shall have received the following legal opinions: (i) the executed legal opinion of Black, McCuskey, Souers & Arbaugh, counsel to the Borrower and each Guarantor, substantially in the form of Exhibit C-1; (ii) the executed legal opinion of Kelly, Hart & Hallman, counsel to each Parent (excluding Johnson Rice & Company, L.L.C.), substantially in the form of Exhibit C-2; (iii) the executed legal opinion of Leibenguth, Boos & Associates, P.C., Michigan Counsel to the Administrative Agent, substantially in the form of Exhibit C-3; (iv) the executed legal opinion of Vorys, Sater, Seymour and Pease, Ohio Counsel to the Administrative Agent, substantially in the form of Exhibit C-4; and (v) the executed legal opinion of Bulson & Lindhome, Pennsylvania and New York Counsel to the Administrative Agent, substantially in the form of Exhibit C-5; (vi) the executed legal opinion of Bowles Rice McDavid Graff & Love, West Virginia Counsel to the Administrative Agent, substantially in the form of Exhibit C-6. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (j) PLEDGED STOCK; STOCK POWERS. The Administrative Agent shall have received the certificates representing the shares pledged pursuant to the Guarantee and Collateral Agreement and the Parent Pledge Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof, and the notes pledged, if any, pursuant to the Guarantee and Collateral Agreement and the Parent Pledge Agreement, each endorsed in blank by a duly authorized officer of the pledgor thereof. 46 41 (k) ACTIONS TO PERFECT LIENS. Except as otherwise provided in subsections 6.1(v) and 7.12, the Administrative Agent shall have received properly completed and executed financing statements (or other similar documents), including, without limitation, duly executed financing statements on form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents and the Administrative Agent shall be reasonably satisfied that, other than filing such financing statements and other similar documents and the Mortgages, no other filings, recordings, registrations or other actions are necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents. (l) COPIES OF DOCUMENTS. If requested by the Administrative Agent, the Administrative Agent shall have received a copy, certified by such parties as the Administrative Agent may reasonably deem appropriate, of any document burdening the property covered by any Mortgage. (m) LIEN SEARCHES. The Administrative Agent shall have received the results of recent lien searches by Persons reasonably satisfactory to the Administrative Agent, in such jurisdictions and offices as it shall request and such searches shall reveal no Liens on any assets of the Borrower, Belden & Blake and each of their respective Subsidiaries, except for (i) Liens permitted by subsection 8.3 and (ii) Liens to be released, on the Closing Date. (n) INSURANCE. The Administrative Agent shall have received (i) copies of, or an insurance broker's or agent's certificate as to coverage under, the insurance policies required by subsection 7.5 and the applicable provisions of the Security Documents, and each property and casualty policy covering any property which is Collateral shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Administrative Agent as additional insured, in form and substance reasonably satisfactory to the Administrative Agent and (ii) confirmation from such insurance broker that the scope and amount of coverage maintained by the Borrower and its Subsidiaries are comparable to the scope and amount of the insurance maintained by other companies of similar size in the same industry and general location. (o) COMMON STOCK. The Borrower shall have received at least $108.2 million in gross cash proceeds from the issuance of its newly-issued Common Stock to Parent. (p) SUBORDINATED FINANCING. The Subordinated Notes shall have been issued, and the Borrower shall have received gross proceeds of not less than $225 million therefrom, on terms and conditions no less favorable to the Lenders than those contained in the Subordinated Debt Offering Memorandum and the Senior Subordinated Indenture. (q) ACQUISITION. The Acquisition shall have been consummated simultaneously with the initial extensions of credit hereunder in accordance with applicable law, the Acquisition Documents and all related documentation on terms reasonably acceptable to the Lenders and the Agents and the capital, corporate and ownership structures of the Loan Parties, after giving effect to the Acquisition, shall be satisfactory to the Lenders. The aggregate consideration paid by the Borrower to the holders of capital stock of Belden & Blake shall not exceed $441 million (including related fees and expenses and the refinancing of indebtedness). None of the conditions to the obligations of any of the parties to the Acquisition Agreement to consummate the Acquisition shall have been waived, and the Acquisition Agreement shall not have been amended, supplemented or otherwise modified, without the prior written consent of the Required Lenders. 47 42 (r) REFINANCED INDEBTEDNESS. The Administrative Agent shall have received evidence satisfactory to it that, simultaneously with the making of the initial Revolving Credit Loans, the Refinanced Indebtedness shall have been paid in full, all commitments relating thereto shall have been terminated and all Liens securing the Refinanced Indebtedness shall have been terminated in a manner satisfactory to the Administrative Agent for the benefit of the Lenders. (s) REDEMPTION OF PREFERRED STOCK. Belden & Blake shall have effected the redemption of all issued and outstanding shares of its Series A Preferred Stock in accordance with terms of such preferred stock prior to the record date to be established by its Board of Directors for the special meeting of stockholders to approve the Acquisition. (t) SOURCES AND USES. The Administrative Agent and the Lenders shall be reasonably satisfied that the sources and uses of funds for the Acquisition shall not be materially inconsistent with the sources and uses listed on Schedule 6.1. (u) RESERVE REPORT. The Administrative Agent shall have received a Reserve Report with respect to the Oil and Gas Properties of Belden & Blake satisfactory in form and substance to the Administrative Agent (collectively, the "INITIAL RESERVE REPORT"). (v) TITLE TO OIL AND GAS PROPERTIES. The Lenders shall be satisfied as to the title to the Oil and Gas Properties representing all of the Oil and Gas Properties included in the Initial Reserve Report and the Borrower and its Subsidiaries shall have executed and delivered Mortgages covering such percentage of Oil and Gas Properties included in the Initial Reserve Report as shall be reasonably acceptable to the Engineering Committee. (w) ENVIRONMENTAL REPORTS. The Administrative Agent shall have received environmental assessment reports from Enviro Solutions, dated March 7, 1997, with respect to processing and other facilities and other parcels of real property owned or leased by Belden & Blake, and the Lenders shall be reasonably satisfied with the potential environmental liabilities to which Belden & Blake and its Subsidiaries may be subject based on such reports. (x) FLOOD INSURANCE. With respect to any of the Mortgaged Properties which is located in an area identified by the Secretary of Housing and Urban Development as having special flood hazards, the Administrative Agent shall have delivered notice(s) to, and received acknowledgement from, the relevant Loan Party as required pursuant to Section 208.8(e)(3) of Regulation H of the Board of Governors of the Federal Reserve System. (y) ADDITIONAL MATTERS. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. 6.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit and any renewal or extension of a Letter of Credit) is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by each Loan Party in or pursuant to the Loan Documents shall be true and correct in all 48 43 material respects on and as of such date as if made on and as of such date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. (c) ADDITIONAL MATTERS. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents and the Acquisition Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by, and Letter of Credit issued on behalf of, the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date thereof that the conditions contained in this subsection have been satisfied. SECTION 7. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Loan, Note or Letter of Credit remains outstanding and unpaid or any amount is owing to any Lender or any Agent hereunder or under any other Loan Document, the Borrower shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 7.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent with sufficient copies for the Lenders: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, (i) a copy of the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of operations, cash flows and changes in stockholders' equity for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Ernst & Young LLP or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Required Lenders; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of the Borrower and its consolidated Subsidiaries, the unaudited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of operations, cash flows and changes in stockholders' equity of the Borrower and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end and audit adjustments); 49 44 all such financial statements shall be complete and correct in all material respects and shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 7.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative Agent, with sufficient copies for the Lenders: (a) concurrently with the delivery of the financial statements referred to in subsection 7.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 7.1(a) and (b), a certificate of a Responsible Officer stating that, to the best of such Officer's knowledge, during such period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary has been formed or acquired, the Borrower has complied with the requirements of subsection 7.10 with respect thereto), (ii) neither the Borrower nor any of its Subsidiaries has changed its name, its principal place of business, its chief executive office or the location of any material item of tangible Collateral without complying with the requirements of this Agreement and the Security Documents with respect thereto and (iii) the Borrower has observed or performed all of its covenants (and setting forth the calculations used to determine compliance with the covenants set forth in subsection 8.1) and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; (c) not later than 45 days after the end of each fiscal year of the Borrower, a copy of the projections by the Borrower of the operating budget and cash flow budget of the Borrower and its Subsidiaries for the succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared based on good faith estimates and reasonable assumptions of the Borrower; (d) within five days after the same are filed, copies of all financial statements and reports, if any, which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (e) promptly upon receipt thereof, copies of all reports and management letters submitted to the Borrower or any Subsidiary by independent public accountants in connection with any interim or special audit of the books or operations of the Borrower or such Subsidiary made by such accountants; (f) together with any Reserve Report delivered pursuant to subsection 4.9, a schedule identifying as of the last day of the fiscal period for which the financial statements are delivered or as of the date of delivery of such Reserve Report, as the case may be, each commodity fixed price contract having a term longer than one year then in effect as to which the Borrower or any of its Subsidiaries is bound which provides for payments during any year of such contract of $5,000,000 or more, and setting forth the names of the parties thereto and of any guarantees thereof, and the volumes attributable to each such contract; 50 45 (g) deliver to the Administrative Agent within 30 days of obtaining any renewal or replacement insurance policies as and when required by subsection 7.5(b)(v), certificates of insurance evidencing the Borrower's compliance with subsection 7.5; and (h) promptly, such additional financial and other information concerning the Borrower and its Subsidiaries as any Lender (acting through the Administrative Agent) may from time to time reasonably request. 7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or the applicable Subsidiary, as the case may be. 7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE; COMPLIANCE WITH LAW AND CONTRACTUAL OBLIGATIONS. Except as permitted by subsections 8.5 and 8.6, continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not reasonably be expected to have, in the aggregate, a Material Adverse Effect. 7.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all material property owned or leased by it that is useful and necessary in its business in good working order and condition, ordinary wear and tear excepted; maintain with financially sound and reputable insurance companies insurance of such types, in such amounts and against such risks as is customary to be maintained by companies engaged in the same or a similar business in the same general area; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. (b) (i) Cause all such property and casualty insurance policies with respect to the Collateral to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement (or other endorsement acceptable to the Administrative Agent), in form and substance reasonably satisfactory to the Administrative Agent, which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower or the Loan Parties under such policies directly to the Administrative Agent; (ii) cause all such policies to provide that neither the Borrower, the Administrative Agent, nor any other party shall be a coinsurer thereunder; (iii) if requested by the Administrative Agent, deliver original or certified copies of all such policies to the Administrative Agent; (iv) cause each such policy to provide that it shall not be canceled, or not renewed (A) by reason of nonpayment of premium unless not less than 20 days' prior written notice thereof has been given by the insurer to the Administrative Agent or (B) for any other reason unless not less than 30 day's prior written notice thereof has been given by the insurer to the Administrative Agent; and (v) if requested in writing by the Administrative Agent, deliver to the Administrative Agent, prior to the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent), or insurance certificate with respect thereto, together with evidence satisfactory to the Administrative Agent of payment of the premium therefor. 7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all 51 46 Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be requested through the Administrative Agent and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants. 7.7 NOTICES. Promptly give notice to the Administrative Agent of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, which in the case of either clause (i) or (ii), if not cured or if adversely determined, as the case may be, could reasonably be expected, in the opinion of a Responsible Officer, to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries (i) which could reasonably be expected, in the opinion of a Responsible Officer, to result in an adverse judgment of $1,000,000 or more not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) any material adverse change in the business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what the Borrower and its Subsidiaries have taken or propose to take with respect thereto. 7.8 ENVIRONMENTAL LAWS. (a)(i) Comply with all Environmental Laws applicable to it, and obtain, comply with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned; and (ii) take all reasonable efforts to ensure that all of its tenants, subtenants, contractors, subcontractors, and invitees comply with all Environmental Laws, and obtain, comply with and maintain any and all Environmental Permits, applicable to any of them insofar as any failure to so comply, obtain or maintain reasonably could be expected to adversely affect the Borrower or any of its Subsidiaries. For purposes of this subsection 7.8(a), noncompliance by the Borrower or any of its Subsidiaries with any applicable Environmental Law or Environmental Permit shall be deemed not to constitute a breach of this covenant provided that, upon learning of any actual or suspected noncompliance, the Borrower and its Subsidiaries shall promptly undertake all reasonable efforts to achieve compliance, and provided further that, in any case, such non-compliance, and any other noncompliance with Environmental Law, individually or in the aggregate, could not reasonably 52 47 be expected to give rise to a Material Adverse Effect or materially and adversely affect the value of any material Mortgaged Property considered for calculation of the Borrowing Base. (b) Comply with all orders and directives of all Governmental Authorities regarding Environmental Laws, other than such orders and directives as to which an appeal or other appropriate action to contest such order or directive has been timely and properly taken in good faith, and provided that the pendency of any and all such appeals could not reasonably be expected to give rise to a Material Adverse Effect or to materially and adversely affect the value of any Mortgaged Property. (c) Prior to acquiring any ownership or leasehold interest in real property or other interest in any real property that could give rise to the Borrower being subject to potential significant liability under or violations of any Environmental Law that could reasonably be expected to have a Material Adverse Effect: (i) notify the Engineering Committee; and (ii) if requested by the Engineering Committee, provide to the Engineering Committee a written report by an environmental consultant reasonably acceptable to the Engineering Committee (the "Environmental Consultant") assessing the presence or potential presence of significant levels of any Materials of Environmental Concern on, under, in, or about the property, or of other conditions that could give rise to potentially significant liability or violations of any Environmental Law. 7.9 FURTHER ASSURANCES. Upon the request of the Administrative Agent, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including, without limitation, financing statements and continuation statements) for filing under the provisions of the Uniform Commercial Code or any other Requirement of Law which are necessary or advisable to maintain in favor of the Administrative Agent, for the benefit of the Lenders, Liens on the Collateral that are duly perfected in accordance with all applicable Requirements of Law. 7.10 ADDITIONAL COLLATERAL. (a) It is the intention of the parties hereto that the Obligations and guarantees thereof be secured by a perfected first priority security interest in the following properties of the Borrower and its Subsidiaries (other than the Persons listed on Schedule 1.1(d)): (i) Oil and Gas Properties representing at least 75% of the present value of the Oil and Gas Properties included in the most recently delivered Reserve Report, (ii) all of the gathering system assets, (iii) all accounts receivable, equipment, inventory, and intangibles and (iv) all of the Capital Stock of the Borrower and its Subsidiaries. Accordingly, with respect to assets acquired after the Closing Date that are intended to be subject to the lien created by any of the Security Documents but which are not so subject (other than any assets described in paragraph (b) of this subsection), the Borrower and its Subsidiaries shall, from time to time (and, in any event, (x) within 30 days after the reasonable request by the Administrative Agent to do so and (y) with respect to Oil and Gas Properties, only to the extent necessary to ensure compliance with subsection 7.11), (A) execute and deliver to the Administrative Agent such amendments to the relevant Security Documents or such other documents as the Administrative Agent shall reasonably deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on such assets, (B) take all actions necessary or advisable to cause such Lien to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be requested by the Administrative Agent, and (C) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (A) and (B) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (b) With respect to any Person that, subsequent to the Closing Date, becomes a Subsidiary of the Borrower, promptly upon the request of the Administrative Agent: (i) cause such 53 48 new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, pursuant to documentation which is in form and substance reasonably satisfactory to the Administrative Agent, and (B) to take all actions reasonably necessary or advisable to cause the Lien created by the Guarantee and Collateral Agreement to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent, (ii) cause the Capital Stock of such Person owned by the Borrower and any Subsidiary to be pledged to the Administrative Agent, for the ratable benefit of the Lenders, pursuant to documentation reasonably satisfactory to the Administrative Agent, and take all actions reasonably necessary or advisable to cause the Lien thereon to be duly perfected in accordance with all applicable Requirements of Law, and deliver the certificates representing such Capital Stock to the Administrative Agent, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Borrower or such Subsidiary, as the case may be and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) With respect to any Oil and Gas Property acquired after the Closing Date by the Borrower or any Subsidiary, promptly (and in any event within 30 days after the acquisition thereof) but only to the extent required to maintain compliance with subsection 7.11: (i) execute and deliver to the Administrative Agent such amendments to the relevant Security Documents or such other documents as the Administrative Agent shall deem reasonably necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on such Oil and Gas Property; (ii) take all actions reasonably necessary or advisable to cause such Lien to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of mortgages, deeds of trust or like documents or financing statements in such jurisdictions as may be requested by the Administrative Agent; and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 7.11 COLLATERAL VALUE. Within 60 days after a Reserve Report is delivered pursuant to subsection 4.9, cause to be included in the Collateral, Oil and Gas Properties representing at least 75% of the value of the total Oil and Gas Properties of the Borrower and its Subsidiaries included in the most recently delivered Reserve Report. 7.12 OIL AND GAS MORTGAGES. Within 90 days after the Closing Date, cause to be executed and delivered to the Administrative Agent, for the ratable benefit of the Lenders, Mortgages which are satisfactory in form and substance to the Administrative Agent and which, together with the Mortgages executed and delivered on the Closing Date, shall cover at least 75% of the value of the Oil and Gas Property included in the Initial Reserve Report. 7.13 MAINTENANCE AND OPERATION OF PROPERTY. To the extent that the failure to comply could reasonably be expected to have a Material Adverse Effect on the financial condition or operations of Borrower or its Subsidiaries and consistent with the standards of a reasonably prudent operator: (a) Maintain, develop, and operate Borrower's Oil and Gas Properties, and oil and gas gathering assets in a good and workmanlike manner, and observe and comply with all of the terms and provisions, express or implied, of all oil and gas leases relating to the properties so long as the oil and gas leases are capable of producing hydrocarbons and 54 49 accompanying elements in quantities and at prices providing for continued efficient and profitable operation of business; (b) Comply in all material respects with all contracts and agreements applicable to or relating to Borrower's Oil and Gas Properties or the production and sale of hydrocarbons and accompanying elements therefrom; (c) At all times, maintain, preserve, and keep all operating equipment used with respect to Borrower's Oil and Gas Properties, and oil and gas gathering assets in proper repair, working order and condition, and make all necessary or appropriate repairs, renewals, replacements, additions and improvements thereto so that the efficiency of the operating equipment shall at all times be properly preserved and maintained, provided that no item of operating equipment need be so repaired, renewed, replaced, added to or improved, if Borrower or its Subsidiaries shall in good faith determine that the action is not necessary or desirable for its continued efficient and profitable operation of business. (d) With respect to Borrower's Oil and Gas Properties, and oil and gas gathering assets which are operated by operators other than Borrower or a Subsidiary, seek to enforce the operators' contractual obligations to maintain, develop, and operate such properties subject to the applicable operating agreements. SECTION 8. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Loan, Note or any Letter of Credit remains outstanding and unpaid or any amount is owing to any Lender or any Agent hereunder or under any other Loan Document, the Borrower shall not, and shall not (except with respect to subsection 8.1) permit any Subsidiary to, directly or indirectly: 8.1 FINANCIAL COVENANT CONDITIONS. (a) Senior Debt Interest Coverage Ratio. Permit, for any period of four consecutive fiscal quarters ending after the date hereof, the ratio of EBITDA for such four consecutive fiscal quarters to Consolidated Interest Expense on Senior Debt for such four consecutive fiscal quarters to be less than 3.5 to 1.0. (b) Total Debt Interest Coverage Ratio. Permit, for any period of four consecutive fiscal quarters ending after the date hereof, the ratio of EBITDA to Consolidated Interest Expense of the Borrower and its Subsidiaries for such four consecutive fiscal quarters to be (i) through the period ending June 30, 1999, less than 1.75 to 1.0, (ii) thereafter through the period ending June 30, 2000, less than 1.85 to 1.00, (iii) thereafter through the period ending June 30, 2001, less than 2.15 to 1.00 and (iv) thereafter, less than 2.25 to 1.0. (c) Senior Debt Leverage Ratio. Permit the ratio of Senior Debt as of the last day of any fiscal quarter to EBITDA for the period of four consecutive fiscal quarters then ended to be greater than 3.5 to 1.0; (d) Total Debt Leverage Ratio. Permit the ratio of Indebtedness of the Borrower and its Subsidiaries as of the last day of any fiscal quarter to EBITDA for the period of four consecutive fiscal quarters then ended to be (i) through the period ending June 30, 1998, greater than 6.0 to 1.0, (ii) thereafter through the period ending June 30, 1999, greater than 5.75 to 1.00 and (iii) thereafter, greater than 5.5 to 1.0. 55 50 (e) Current Ratio. Permit the ratio of current assets to current liabilities at any time to be less than 1.0 to 1.0 (for purposes of this calculation, current assets will include an amount equal to the Borrowing Base Availability). During the first three fiscal quarters after the Closing Date (commencing with the quarter ending September 30, 1997), EBITDA and Consolidated Interest Expense for purposes of paragraphs (a), (b), (c), and (d) will be calculated based upon the Borrower's operations after the Closing Date, annualized in the following manner: first fiscal quarter: actual figure for such quarter multiplied by four. second fiscal quarter: actual figures for each of first and second fiscal quarters multiplied by two. third fiscal quarter: actual figures for each of first, second and third fiscal quarters multiplied by 4/3. In addition, for purposes of determining compliance with paragraphs (c) and (d), Indebtedness described in subsections 8.2(f) and (g) and Guarantee Obligations with respect thereto shall not be included in Indebtedness and Senior Debt. 8.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness or allow any Subsidiary to issue preferred stock, except: (a) Indebtedness of the Loan Parties under the Loan Documents; (b) Indebtedness of the Borrower issued to any Wholly-Owned Subsidiary and Indebtedness and preferred stock of any Wholly-Owned Subsidiary issued to the Borrower or any other Wholly-Owned Subsidiary; (c) (i) Indebtedness of the Borrower evidenced by the Senior Subordinated Notes and (ii) Permitted Subordinated Refinancing Debt, if any; (d) Guarantee Obligations permitted by subsection 8.4; (e) Indebtedness of the Borrower and its Wholly-Owned Subsidiaries existing on the Closing Date and listed on Schedule 1.1(c), but not any extensions, renewals or replacements of such Indebtedness; (f) Indebtedness under Interest Rate Protection Agreements entered into for the purpose of limiting interest rate risks and not for the purpose of speculation, provided that the obligations under such agreements are related to payment obligations on Indebtedness otherwise permitted by the terms of this covenant; (g) Indebtedness under Commodity Hedging Agreements provided that such contracts were entered into in the ordinary course of business for the purpose of limiting risks that arise in the ordinary course of business of the Borrower and its Subsidiaries and not for the purpose of speculation; and (h) additional Indebtedness of the Borrower and its Wholly-Owned Subsidiaries not to exceed $10,000,000 in aggregate principal amount at any one time outstanding. 56 51 8.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes, assessments, fees and other governmental charges and claims that are not yet due or which are being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves with respect thereto are maintained on the books of the Borrower or the applicable Subsidiary, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, suppliers' mechanics', materialmen's, vendors', repairmen's, landlords' and other like Liens arising in the ordinary course of business securing obligations which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) Liens incurred and deposits made in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits made to secure the performance of bids, tenders, trade contracts (other than for borrowed money), leases, statutory and regulatory obligations, surety and appeal bonds, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business; (e) Liens constituting survey exceptions, encumbrances, easements and reservations of, or rights of others for, rights-of-way, zoning and other restrictions as to the use of real properties and other similar encumbrances incurred in the ordinary course of business which, with respect to all of the foregoing, do not secure the payment of Indebtedness of the type described in clauses (a)-(d) of the definition thereof and which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any Subsidiary; (f) Liens in favor of the Borrower securing Indebtedness of any Subsidiary to the Borrower; (g) Liens encumbering gathering system assets that arise under operation of law incurred in the ordinary course of business which, with respect to all of the foregoing, do not secure the payment of Indebtedness of the type described in clauses (a)-(d) of the definition thereof and which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any Subsidiary; (h) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases, PROVIDED that the amount of any obligations secured thereby that are delinquent, that are not diligently contested in good faith and for which adequate reserves are not maintained by the Borrower or the applicable Subsidiary, as the case may be, do not exceed, at any time outstanding, the amount owing by the Borrower or any Subsidiary, as applicable, for one month's payments as due thereunder; and PROVIDED, FURTHER, the aggregate amount of obligations secured by Liens permitted by this paragraph (h) shall not exceed, at any time outstanding, $10,000,000. 57 52 (i) Liens (not otherwise permitted hereunder) on property not included in the Borrowing Base which secure obligations not exceeding $10,000,000 in aggregate principal amount at any time outstanding, PROVIDED no such Liens under this clause (i) shall encumber any Capital Stock or other equity interests pledged under the Guarantee and Collateral Agreement; (j) Liens created pursuant to the Security Documents; (k) Liens constituting "Permitted Encumbrances" under and as such term is defined in the respective Mortgages; (n) Liens existing on the date of this Agreement (after giving effect to the Acquisition) and listed on Schedule 8.3; (o) Liens arising under operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farm-out and farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil or natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements that are customary in the Oil and Gas Business; PROVIDED that the amount of any obligations secured thereby that are delinquent, that are not diligently contested in good faith and for which adequate reserves are not maintained by the Borrower or the applicable Subsidiary, as the case may be, do not exceed, at any time outstanding, the amount owing by the Borrower or any Subsidiary, as applicable, for one month's billed operating expenses or other expenditures attributable to such entity's interest in the Property covered thereby; and PROVIDED, further, the aggregate amount of obligations secured by Liens permitted by this paragraph (o) shall not exceed, at any time outstanding, $10,000,000; and (p) pre-judgment Liens and judgment Liens not giving rise to an Event of Default; PROVIDED, that the aggregate amount of such Liens permitted by this paragraph (p) shall not exceed, at any time outstanding, $10,000,000. 8.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to exist any Guarantee Obligation except: (a) Guarantee Obligations with respect to the Senior Subordinated Notes and Permitted Subordinated Refinancing Debt, which Guarantee Obligations shall contain subordination provisions no less favorable to the Lenders than the subordination provisions with respect to the Senior Subordinated Notes; (b) Guarantee Obligations in existence on the date hereof and listed on Schedule 8.4; (c) Guarantee Obligations by the Borrower or any Subsidiary of Indebtedness of the Borrower or any Wholly-Owned Subsidiary permitted by subsection 8.2; (d) Guarantee Obligations arising under the Loan Documents; and (e) Guarantee Obligations permitted by subsection 8.8. 8.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation as a constituent party, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of 58 53 its property, business or assets, or make any material change in its present method of conducting business except: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (PROVIDED that the Borrower shall be the continuing or surviving corporation) or with or into any one or more Wholly-Owned Subsidiaries of the Borrower (PROVIDED that the Wholly-Owned Subsidiary or Subsidiaries shall be the continuing or surviving Person); (b) any Subsidiary of the Borrower may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Wholly-Owned Subsidiary; (c) any Wholly-Owned Subsidiary may be merged or consolidated with any Person acquired in connection with a Permitted Business Acquisition, PROVIDED such Wholly-Owned Subsidiary shall be the continuing or surviving Person; and (d) the Borrower and its Subsidiaries may consummate the Acquisition and effect any transaction permitted by subsections 8.6 and 8.9. 8.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or issue or sell any shares of the Borrower's or such Subsidiary's Capital Stock to any Person, except: (a) the sale or other disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory (including Hydrocarbons or other mineral products or surplus) in the ordinary course of business; (c) the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) as permitted by subsection 8.5; (e) up to $5,000,000 of sales of assets during each Borrowing Base Period; (f) a transfer of assets by the Borrower to a Wholly-Owned Subsidiary or by a Wholly-Owned Subsidiary to the Borrower or to another Wholly-Owned Subsidiary; (g) an issuance of capital stock by a Wholly-Owned Subsidiary to the Borrower or to another Wholly-Owned Subsidiary; (h) the abandonment, farm-out, lease or sublease of Oil and Gas Properties not containing Proved Reserves in the ordinary course of business; PROVIDED, THAT, the aggregate value of Oil and Gas Properties so abandoned, farmed-out or subleased during any Borrowing Base Period shall not exceed $2,500,000; (i) the trade or exchange by the Company or any Subsidiary of any Oil and Gas Property or interest therein owned or held by the Company or such Subsidiary for any Oil and Gas Property or interest therein owned or held by another Person, including any cash or Cash 59 54 Equivalents necessary in order to achieve an exchange of equivalent value; PROVIDED, THAT, that the aggregate value of trades or exchanges permitted by this paragraph (i) shall not exceed $5,000,000 during any Borrowing Base Period; (j) the making of an Investment permitted by subsection 8.8 or a Restricted Payment permitted by subsection 8.7; and (k) the sale of Oil and Gas Properties in connection with tax credit transactions complying with Section 29 of the Code, which sale does not result in a reduction in the Borrower's or its Subsidiaries', as the case may be, right to receive the cash flow from such Oil and Gas Properties and which sale is on terms reasonably acceptable to the Engineering Committee. Notwithstanding anything to the contrary contained herein, no sale may be made of the Capital Stock of any Subsidiary, except in connection with the sale of all of its outstanding Capital Stock that is then held by the Borrower and any other Subsidiary. 8.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend on (other than dividends of its own Capital Stock), or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Borrower or any Subsidiary or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (such declarations, payments, setting apart, purchases, redemptions, defeasance, retirements, acquisitions and distributions being herein called "RESTRICTED PAYMENTS"), except that: (a) any Wholly-Owned Subsidiary may declare and pay dividends to or make other distributions to the Borrower or to any other Wholly-Owned Subsidiary; (b) the Borrower may repurchase, redeem or otherwise acquire or retire for value any Capital Stock of the Borrower or any Subsidiary held by any of the Borrower's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date hereof; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Capital Stock shall not exceed $2,000,000 in any twelve-month period; (c) the Borrower may purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Borrower granted prior to the Acquisition and held by former executives of Belden & Blake who elected not to dispose of such Capital Stock in connection with the Acquisition; and (d) the purchase, redemption, retirement or other acquisition for value of any Capital Stock or rights to acquire Capital Stock of the Borrower in connection with the Acquisition, in accordance with the Acquisition Documents. 8.8 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan, extension of credit or capital contribution to, or incur any Guarantee Obligation on behalf or for the benefit of, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment (including by the issuance of letters of credit) in (collectively, "Investments"), any Person (other than the Borrower or any Wholly-Owned Subsidiary), except: 60 55 (a) extensions of trade credit in the ordinary course of business; (b) Investments in Cash Equivalents; (c) loans and advances to officers and employees of the Borrower or any Subsidiary for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate amount for the Borrower and its Subsidiaries not to exceed $2,000,000 at any one time outstanding; (d) Investments constituting Permitted Business Investments; (e) Investments constituting Permitted Business Acquisitions; and (f) up to $10,000,000 in the aggregate of other Investments made or entered into in the ordinary course of the Oil and Gas Business. 8.9 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS, OTHER MATERIAL AGREEMENTS. (a) (i) Make any payments, optional payment or prepayment on or redemption, defeasance or purchase of any Indebtedness (other than Indebtedness under this Agreement), (ii) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of any such Indebtedness (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon), (iii) make an Asset Sale Offer after receipt of Net Proceeds from an Asset Sale (as such terms are defined in the Senior Subordinated Indenture) unless all Obligations under the Loan Documents have been paid in full and the Commitments hereunder terminated or (iv) amend the subordination provisions of the Senior Subordinated Notes or any Permitted Subordinated Refinancing Debt; PROVIDED, that as long as no Default or Event of Default has occurred or is continuing or would exist after giving effect thereto, the Borrower may redeem or repurchase Subordinated Indebtedness otherwise permitted by this Agreement with the net cash proceeds from an incurrence of Permitted Subordinated Refinancing Debt or the substantially concurrent sale (other than to a Subsidiary of the Borrower) of Capital Stock or rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). (b) Amend, modify, supplement, waive or terminate, or permit the amendment, modification, supplement, waiver or termination of or to, its articles or certificate of incorporation in any manner materially adverse to the Lenders. (c) Designate any Indebtedness as "Designated Senior Debt" under the Senior Subordinated Indenture without the consent of the Required Lenders. (d) Amend, modify or otherwise supplement the Acquisition Agreement in any manner materially adverse to the Lenders. 8.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate (other than transactions between or among the Borrower and the Wholly-Owned Subsidiaries) unless such transaction is (a) not prohibited by another provision of this Agreement, (b) in the ordinary course of the Borrower's or the applicable Subsidiary's business and (c) upon fair and reasonable terms no less favorable to the Borrower or the applicable Subsidiary, as the case may be, 61 56 than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate or, in the event no comparable transaction with an unaffiliated Person is available, on terms that are fair from a financial point of view to the Borrower or the applicable Subsidiary. Notwithstanding the foregoing, the following transactions shall not be deemed to violate this Section 8.10: (i) payments made, or contracts, agreements or understandings entered into, in connection with the Acquisition, which payments, contracts, agreements or understandings are listed on Schedule 8.10 (including pursuant to any amendment thereto or replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Lenders in any material respect than the agreement in effect on the date of this Agreement); (ii) the purchase, redemption, acquisition of retirement of Capital Stock pursuant to Section 8.7(b) and (c); (iii) transactions between or among the Borrower and/or its Wholly-Owned Subsidiaries, (iv) Restricted Payments permitted by Section 8.7 and Investments that are permitted by the provisions of Section 8.8; (v) indemnification payments made to officers, directors and employees of the Borrower or its Subsidiaries pursuant to charter, by-law, statutory or contractual provisions; and (vi) reasonable fees and compensation in the ordinary course of business paid to (including issuances and grant of securities and stock options), and employment agreements and stock option and ownership plans for the benefit of, officers, directors or employees of the Borrower or any Subsidiary of the Borrower as determined in good faith by the Borrower's Board of Directors. 8.11 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement (a "SALE AND LEASEBACK TRANSACTION") with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or any Subsidiary. 8.12 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of the Borrower and its Subsidiaries to end on a day other than December 31. 8.13 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person any agreement which prohibits or limits the ability of the Borrower or any Subsidiary to create, incur, assume or suffer to exist any Lien, in favor of any of the Administrative Agent, the Lenders under the Loan Documents and their respective assignees under the Loan Documents or any Person refinancing all or a portion of the Commitments hereunder, upon any of its property, assets or revenues, whether now owned or hereafter acquired. 8.14 LIMITATION ON LINES OF BUSINESS. Enter into any business, either directly or through any Subsidiary, except for the Oil and Gas Business and those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or which are directly related thereto. 8.15 REDEEMABLE CAPITAL STOCK. Issue any Capital Stock which is mandatorily redeemable, or redeemable at the option of the holder thereof, except to employees of the Borrower or its Subsidiaries or to former executives of Belden & Blake, each of whom has elected not to dispose of their Capital Stock in connection with the Acquisition. 8.16 FORWARD SALES. Except in accordance with ordinary practice in the Oil and Gas Business, enter into or permit to exist any advance payment agreement or other arrangement pursuant to which the Borrower or any of its Subsidiaries, having received full or substantial payment of the purchase price for a specified quantity of Hydrocarbons upon entering such agreement or arrangement, is required to deliver, in one or more installments subsequent to the date of such agreement or 62 57 arrangement, such quantity of Hydrocarbons pursuant to and during the terms of such agreement or arrangement. 8.17 HEDGING AGREEMENTS. Enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any of its Subsidiaries is exposed in the conduct of its business or the management of its liabilities, provided that such Hedging Agreements may not be entered into for speculative purposes. SECTION 9. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower or any Subsidiary shall default in the observance or performance of any agreement applicable to it contained in subsection 4.10, subsection 7.12 or Section 8 of this Agreement; or (d) The Borrower or any Subsidiary shall default in the observance or performance of any other agreement applicable to it contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 consecutive days after the earlier of (i) the Borrower's obtaining knowledge of such default or (ii) the receipt by the Borrower of notice thereof from the Administrative Agent or any Lender; or (e) The Borrower or any Subsidiary shall (i) default in any payment of principal of or interest of any Indebtedness (other than the Loans) or in the payment of any Guarantee Obligation, beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable, PROVIDED that the aggregate principal amount of all such Indebtedness and Guarantee Obligations which would then become due and payable would equal or exceed $10,000,000; or 63 58 (f) (i) The Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA or (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, could have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Borrower or any Subsidiary involving in the aggregate a liability (to the extent not paid or covered by insurance) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days after the entry thereof; or (i) (i) Any of the Security Documents shall cease, for any reason, to be in full force and effect with respect to any material asset, or any Loan Party which is a party to any of the Security Documents shall so assert or (ii) the Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) The subordination provisions contained in any Subordinated Note Document or any other Subordinated Indebtedness shall cease, for any reason, to be in full force and effect, 64 59 or any Person that is a party thereto or holders of at least 25% the aggregate principal amount of the Senior Subordinated Notes shall so assert; or (k) (i) TPG shall cease to own, directly or indirectly, at least 51% of the voting Capital Stock of the Borrower; (ii) the shares of Capital Stock of the Borrower owned directly or indirectly by TPG shall cease to be owned free of Liens and other claims (other than Liens created by the Loan Documents); or (iii) a "Change of Control" (as defined in the Subordinated Note Documents or any other document governing Indebtedness of Parent, the Borrower or any Subsidiary) shall occur; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) of this Section, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued and unpaid interest thereon) and all other amounts owing under this Agreement (including, without limitation, all Letter of Credit Outstandings, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by written notice to the Borrower, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by written notice to the Borrower, declare the Loans hereunder (with accrued and unpaid interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of Letter of Credit Outstandings, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then unexpired amount that is available to be drawn under such Letters of Credit. The Borrower hereby grants to the Administrative Agent, for the benefit of the Issuing Lender and the L/C Participants, a security interest in such cash collateral to secure all obligations of the Borrower under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired, been cancelled or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the Notes. After all such Letters of Credit shall have expired, been cancelled or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower. The Borrower shall execute and deliver to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants, such further documents and instruments as the Administrative Agent may reasonably request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 65 60 SECTION 10. THE AGENTS 10.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints Chase as Administrative Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 10.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 10.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 10.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Loan Parties), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, where unanimous consent of the Lenders is expressly required hereunder, such Lenders) as it deems appropriate or 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 or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, where unanimous 66 61 consent of the Lenders is expressly required hereunder, such Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative 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 interests of the Lenders. 10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of any Loan Party, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of each Loan Party and made its own decision to make its extensions of credit hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of each Loan Party. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 10.7 INDEMNIFICATION. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; PROVIDED that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. 67 62 The agreements in this subsection shall survive the payment of the Obligations and all other amounts payable hereunder. 10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though the Administrative Agent were not the Administrative Agent hereunder and under the other Loan Documents. With respect to the extensions of credit made by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent, with the consent of the Borrower (such consent not to be unreasonably withheld or delayed), shall succeed to the rights, powers and duties of the Administrative Agent hereunder. Effective upon such appointment and approval, the term "Administrative Agent" shall mean such successor agent, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 10.10 ISSUING LENDER. The provisions of this Section 10 applicable to the Administrative Agent shall apply to the Issuing Lender in the performance of its duties under the Loan Documents, MUTATIS MUTANDIS. 10.11 SYNDICATION AGENT AND DOCUMENTATION AGENT. Neither the Syndication Agent nor the Documentation Agent shall have any duties or liabilities under the Loan Documents in their capacities as such. SECTION 11. MISCELLANEOUS 11.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into with the applicable Loan Parties written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the applicable Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall (i) reduce the amount or extend the scheduled date of final maturity of any Loan, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitments, in each case without the consent of each Lender affected thereby, or (ii) amend, modify or waive any provision of this 68 63 subsection or reduce the percentage specified in the definition of Required Lenders or Supermajority Lenders (or modify any provision of this Agreement or any other Loan Document to provide that an action currently requiring the approval of or consent by the Supermajority Lenders may be taken with the consent or approval by a lower percentage of Lenders), or consent to the assignment or transfer by any Loan Party of any of its rights and obligations under this Agreement and the other Loan Documents or release all or substantially all of the Collateral other than in accordance with the terms of the applicable Loan Document or release any Loan Party from its obligations under the Guarantee and Collateral Agreement other than in accordance with the terms of the applicable Loan Documents, in each case without the written consent of all the Lenders, or (iii) amend, modify or waive any provision of Section 10 without the written consent of the then Administrative Agent and Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 11.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand or by courier service, when delivered, (b) in the case of delivery by mail, three Business Days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in Schedule 11.2 in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrower: BB Merger Corp. Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 47720 Attention: Joseph M. Vitale, Esq. With a copy to: Kelly, Hart & Hallman 201 Main Street Suite 2500 Fort Worth, TX 76102 Attention: Kevin G. Levy, Esq. The Administrative Agent: The Chase Manhattan Bank One Chase Manhattan Plaza, 3rd Floor New York, New York 10081 Attention: Global Oil and Gas Fax: (212) 552-1687 With a copy to: Chase Manhattan Bank Agency Services 69 64 Corporation One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Agency Services, Sandra Miklave Tel: (212) 552-7953 Fax: (212) 552-5658 PROVIDED that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsection 2.3, 4.3, 4.5 or 4.8 shall not be effective until received. 11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, the Issuing Lender or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the extensions of credit hereunder. 11.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or reimburse the Agents and the Arranger for all their reasonable and documented out-of-pocket costs and expenses incurred in connection with the development, syndication, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of (i) counsel to the Administrative Agent and (ii) the Administrative Agent customarily charged by it in connection with syndicated credits, (b) to pay or reimburse each Lender and the Administrative Agent for all its reasonable and documented costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and to the several Lenders, (c) to pay, indemnify, and hold each Lender and the Agents (and their respective Affiliates and their respective directors, officers, employees and agents) harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender, the Arranger and the Agents (and their respective directors, officers, employees, agents and affiliates) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents or the use or the proposed use of proceeds contemplated by this Agreement or in connection with the Acquisition and any such other documents, including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to any Loan Party or any of 70 65 the Properties (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), PROVIDED that the Borrower shall have no obligation under this clause (d) to any Agent, the Arranger or any Lender (or any of their respective directors, officers, employers, agents or affiliates), with respect to indemnified liabilities arising from the gross negligence or willful misconduct of such Person. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert, and hereby waives, and to cause each of its Subsidiaries not to assert and to so waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder and the termination of this Agreement. 11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agents, all future holders of the Obligations and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking or lending business and in accordance with applicable law and at no cost or expense to the Borrower, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, (i) such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance thereof, (iii) such Lender shall remain the holder of any such Loan (and any Note evidencing such Loan) for all purposes under this Agreement and the other Loan Documents, (iv) the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents, and (v) in any proceeding under the Bankruptcy Code the Lender shall be, to the extent permitted by law, the sole representative with respect to the obligations held in the name of such Lender, whether for its own account or for the account of any Participant. No Lender shall be entitled to create in favor of any Participant, in the participation agreement pursuant to which such Participant's participating interest shall be created or otherwise, any right to vote on, consent to or approve any matter relating to this Agreement or any other Loan Document except for those specified in clauses (i) and (ii) of the proviso to subsection 11.1. The Borrower agrees that each Participant shall be entitled to the benefits of subsections 4.13 and 4.14 with respect to its participation in the Commitments and the Loans and Letters of Credit outstanding from time to time as if it was a Lender; PROVIDED that, in the case of subsection 4.13, such Participant shall have complied with the requirements of said subsection and PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking or lending business and in accordance with applicable law, at any time and from time to time assign to any Lender or, with the prior written consent of each Issuing Lender, any Affiliate thereof or, with the prior written consent of the Administrative Agent, the Borrower and each Issuing Lender (which in each case shall not be unreasonably withheld), to an additional bank or financial institution or other entity (an "ASSIGNEE") all or any part of its rights and obligations under this Agreement and the other Loan Documents including, without limitation, its Revolving Credit Commitments, L/C Commitments, 71 66 Revolving Credit Loans and L/C Participating Interests, pursuant to an Assignment and Acceptance, substantially in the form of Exhibit F, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender, by the Borrower, the Administrative Agent and each Issuing Lender) and delivered to the Administrative Agent for its acceptance and recording in the Register, PROVIDED that (i) (unless the Borrower and the Administrative Agent otherwise consent in writing) no such transfer to an Assignee (other than a Lender or any Affiliate thereof) shall be in an aggregate principal amount less than $10,000,000 in the aggregate (or, if less, the full amount of such assigning Lender's Revolving Credit Loans, participating interests in Letters of Credit and Revolving Credit Commitments) and (ii) if any Lender assigns all or any part of its rights and obligations under this Agreement to one of its Affiliates in connection with or in contemplation of the sale or other disposition of its interest in such Affiliate, the Borrower's prior written consent shall be required for such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Revolving Credit Commitment and L/C Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding any provision of this paragraph (c) and paragraph (e) of this subsection, the consent of the Borrower shall not be required, and, unless requested by the Assignee and/or the assigning Lender, new Notes shall not be required to be executed and delivered by the Borrower, for any assignment which occurs at any time when any of the events described in Section 9(f) shall have occurred and be continuing. (d) The Administrative Agent, on behalf of the Borrower, shall maintain at the address of the Administrative Agent referred to in subsection 11.2 a copy of each Assignment and Acceptance delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may (and, in the case of any Loan or other obligation hereunder not evidenced by a Note, shall) treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder not evidenced by a Note shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Notwithstanding anything in this Agreement to the contrary, no assignment under subsection 11.6(c) of any rights or obligations under or in respect of the Loans, the Notes or the Letters of Credit shall be effective unless and until the Administrative Agent shall have recorded the assignment pursuant to subsection 11.6(d). Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (other than in the case of an assignment by a Lender to an affiliate of such Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. On or prior to such effective date, the assigning Lender shall surrender any outstanding Notes held by it all or a portion of which are being assigned, and the 72 67 Borrower, at its own expense, shall, upon the request to the Administrative Agent by the assigning Lender or the Assignee, as applicable, execute and deliver to the Administrative Agent (in exchange for the outstanding Notes of the assigning Lender) a new Revolving Credit Note to the order of such Assignee in an amount equal to the lesser of (A) the amount of such Assignee's Revolving Credit Commitment and (B) the aggregate principal amount of all Revolving Credit Loans made by such Assignee, after giving effect to such Assignment and Acceptance and, if the assigning Lender has retained a Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order of the assigning Lender in an amount equal to the lesser of (A) the amount of such Lender's Revolving Credit Commitment and (B) the aggregate principal amount of all Revolving Credit Loans made by such Lender, after giving effect to such Assignment and Acceptance. Any such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Note replaced thereby. Any Notes surrendered by the assigning Lender shall be returned by the Administrative Agent to the Borrower marked "canceled". (f) The Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee, any and all financial information in such Lender's possession concerning the Loan Parties and their Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Loan Parties and their Affiliates prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER") shall at any time receive any payment of all or part of its Loans or Reimbursement Obligations, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 9(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans or Reimbursement Obligations, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans or Reimbursement Obligations, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower, as the case may be. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender, PROVIDED that, to the 73 68 extent permitted by applicable law, the failure to give such notice shall not affect the validity of such set-off and application. 11.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 11.9 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Borrower, the other Loan Parties, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 11.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW. 11.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in subsection 11.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 74 69 11.13 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. 11.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 75 70 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. BB MERGER CORP. By: /s/ Ronald E. Huff -------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, as Administrative Agent, Issuing Lender and as a Lender By: /s/ Peter M. Ling -------------------------------- Peter M. Ling Title: Vice President BANKERS TRUST COMPANY, as Syndication Agent and as a Lender By: /s/ Halli J. Hayes -------------------------------- Title: Managing Director NATIONSBANK OF TEXAS, N.A., as Documentation Agent and as a Lender By: /s/ J. Scott Fowler -------------------------------- J. Scott Fowler Title: Vice President 76 71 DEN NORSKE BANK, ASA By: /s/ William V. Moyer -------------------------------- William V. Moyer Title: First Vice President By: /s/ Morten Bjornsen -------------------------------- Morten Bjornsen Title: Senior Vice President ABN AMRO BANK N.V. By: /s/ Kathryn C. Toth -------------------------------- Kathryn C. Toth Title: Group Vice President and Operational Manager By: /s/ Jim Janousky -------------------------------- Title: Group V.P. BANKBOSTON N.A. By: /s/ Robert S. Schauer -------------------------------- Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ -------------------------------- Title: Manager - Oil & Gas Financing SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ Paul E. Cornell -------------------------------- Paul E. Cornell Title: First Vice President WELLS FARGO BANK (TEXAS), N.A. By: /s/ -------------------------------- Title: Vice President EX-10.2 17 EXHIBIT 10.2 1 Exhibit 10.2 TRANSACTION ADVISORY AGREEMENT THIS TRANSACTION ADVISORY AGREEMENT (this "Agreement") is made and entered into as of June 27, 1997, between Belden & Blake Corporation, an Ohio corporation (the "Company"), and TPG Partners II, L.P., a Delaware limited partnership (together with its successors, "TPG"). WHEREAS, TPG and certain other investors are, concurrently with the execution of this Agreement, acquiring the Company by the merger of BB Merger Corp., a corporation owned by TPG and such investors ("BB Merger Corp."), into the Company (the "Acquisition"); WHEREAS, TPG has rendered financial advisory services to BB Merger Corp. in connection with the negotiation of the Acquisition and the debt and equity financing transactions related thereto (collectively with the Acquisition, the "Transaction"); and WHEREAS, the Company has requested that TPG render financial advisory and other similar services to the Company with respect to any future proposals for a tender offer, acquisition, sale, merger exchange offer, recapitalization, restructuring, or other similar transaction directly or indirectly involving the Company, or any of its subsidiaries, and any other person or entity (collectively, "Add-on Transaction"); NOW THEREFORE, in consideration of the services rendered and to be rendered by TPG and to evidence the obligations of the Company to TPG and the mutual covenants herein contained, the Company and TPG hereby agree as follows: 1. RETENTION. (a) The Company and TPG hereby acknowledge that TPG has acted as financial advisor to BB Merger Corp. in connection with the Transaction. (b) The Company hereby retains TPG as the exclusive financial advisor in connection with any Add-on Transactions that may be consummated during the term of this Agreement, and agrees that the Company will not retain any other person or entity to provide such services in connection with any such Add-on Transaction without the prior written consent of TPG. TPG agrees that it shall provide such financial advisory, investment banking, and other similar services in connection with any such Add-on Transaction as may be requested from time to time by the Board of Directors of the Company. 2. TERM. The term of this Agreement shall continue until the earlier to occur of (i) the tenth anniversary of the date hereof or (ii) the date on which TPG and its affiliates cease to own beneficially, directly or indirectly, at lease twenty-five percent of the voting power of the securities of the Company or its successors. 2 3. COMPENSATION. (a) As compensation for TPG's services as financial advisor to BB Merger Corp. in connection with the Transaction, the Company hereby irrevocable agrees to pay to TPG a cash fee of $5,000,000 to be paid at the closing of the Transaction. (b) As compensation for TPG's financial advisory and other similar services rendered in connection with any Add-on Transaction pursuant to Section 1(b) hereof, the Company shall pay to TPG, at the closing of any such Add-on Transaction, a cash fee in the amount of 1.5% of the Transaction Value of such Add-on Transaction. As used herein, the term "Transaction Value" means the total value of the Add-on Transaction, including, without limitation, the aggregate amount of the funds required to complete the Add-on Transaction (excluding any fees payable pursuant to this Section 3(b)), including the amount of any indebtedness, preferred stock or similar items assumed (or remaining outstanding). (c) Any or all of the fees provided for in this Section 3 may be waived in full or in part by TPG in its sole and absolute discretion. 4. REIMBURSEMENT OF EXPENSES. In addition to the compensation to be paid pursuant to Section 3 hereof, the Company agrees to reimburse TPG, promptly following demand therefor, together with invoices or reasonably detailed descriptions thereof, for all reasonable disbursements and out-of-pocket expenses (including fees and disbursements of counsel and accountants) incurred by TPG (i) as financial advisor to BB Merger Corp. in connection with the Transaction or (ii) in connection with the performance by it of the services contemplated by Section 1(b) hereof. 5. INDEMNIFICATION. The Company shall indemnify and hold harmless each of TPG, its affiliates, and their respective directors, officers, controlling persons (within the meaning of Section 15 of the Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934), if any, agents and employees (TPG, its affiliates, and such other specified persons being collectively referred to as "Indemnified Persons" and individually as an "Indemnified Person") from and against any and all claims, liabilities, losses, damages and expenses incurred by an Indemnified Person (including those resulting from the negligence of the Indemnified Person and fees and disbursements of the respective Indemnified Person's counsel) which (A) are related to or arise out of (i) actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by the Company or (ii) actions taken or omitted to be taken by an Indemnified Person with the Company's consent or in conformity with the Company's instructions or the Company's actions or omissions or (B) are otherwise related to or arise out of TPG's engagement, and will reimburse each Indemnified Person for all costs and expenses, including fees of any Indemnified Person's counsel, as they are incurred, in connection with investigating, preparing for, defending, or appealing any action, formal or informal claim, investigation, inquiry or other proceeding, whether or not in connection with TPG's acting pursuant to the engagement, whether or not any Indemnified Person is named as a party thereto and whether or not any liability results therefrom. The Company will not however, be responsible for any claims, liabilities, losses, damages, or expenses pursuant to clause (B) of the preceding sentence that have resulted primarily from TPG's gross negligence or willful misconduct. The Company also agrees that neither TPG nor any other Indemnified 2 3 Person shall have any liability to the Company for or in connection with such engagement except for any such liability for claims, liabilities, losses, damages or expenses incurred by the Company that have resulted primarily from TPG's gross negligence or willful misconduct. The Company further agrees that it will not, without the prior written consent of TPG, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of TPG and each other Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceeding. THE COMPANY HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE, OR THE SOLE, JOINT OR CONCURRENT, ORDINARY NEGLIGENCE OF TPG OR ANY OTHER INDEMNIFIED PERSON. The foregoing right to indemnity shall be in addition to any rights that TPG and/or any other Indemnified Person may have at common law or otherwise and shall remain in full force and effect following the completion or any termination of the engagement. The Company hereby consents to personal jurisdiction and to service and venue in any court in which any claim which is subject to this agreement is brought against TPG or any other Indemnified Person. It is understood that, in connection with TPG's engagement, TPG may also be engaged to act for the Company in one or more additional capacities, and that the terms of this engagement or any such additional engagement may be embodied in one or more separate written agreements. This indemnification shall apply to the engagement specified in the first paragraph hereof as well as to any such additional engagement(s) (whether written or oral) and any modification of said engagement or such additional engagement(s) and shall remain in full force and effect following the completion or termination of said engagement or such additional engagements. 6. CONFIDENTIAL INFORMATION. In connection with the performance of the services hereunder, TPG agrees not to divulge any confidential information, secret processes or trade secrets disclosed by the Company to it solely in its capacity as a financial advisor, unless the Company consents to the divulging thereof or unless such information, secret processes, or trade secrets are publicly available or otherwise available to TPG without restriction or breach of any confidentiality agreement or unless required by any governmental authority or in response to any valid legal process. 7. GOVERNING LAW. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of the State of Texas excluding any choice-of-law provisions thereof. 8. ASSIGNMENT. This Agreement and all provisions contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned (other than with respect to the rights and obligations of TPG, which 3 4 may be assigned to any one or more of its principals or affiliates) by any of the parties without the prior written consent of the other parties (which consent will not unreasonably be withheld). 9. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 10. OTHER UNDERSTANDINGS. All discussions, understandings, and agreements heretofore made between any of the parties hereto with respect to the subject matter hereof are merged in this Agreement, which fully and completely expresses the Agreement of the parties hereto. All calculations of (i) compensation pursuant to Section 3(b) and (ii) reimbursable expenses pursuant to Section 4 of this Agreement shall be made by TPG and, in the absence of objection from the Company, shall be final and conclusive. The Company expressly acknowledges that TPG has been retained solely as an advisor to the Company, and not as an advisor to or agent of any other person, and that the Company's engagement of TPG is not intended to confer any rights upon any person not a party hereto, including shareholders, employees or creditors of the Company, as against TPG, TPG's affiliates or their respective directors, officers, agents and employees. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TPG PARTNERS II, L.P. By: TPG Genpar II, L.P., its General Partner By: TPG Advisors II, Inc., its General Partner By: /s/ Carrie A. Wheeler --------------------------- Name: Carrie A. Wheeler Title: Vice President BELDEN & BLAKE CORPORATION By: /s/ Joseph M. Vitale ------------------------------- Name: Joseph M. Vitale Title: Sr. Vice President 5 EX-10.3 18 EXHIBIT 10.3 1 Exhibit 10.3 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into effective as of the ___ day of June, 1997 (the "Effective Date"), by and between Belden & Blake Corporation, an Ohio corporation ("Employer"), and Ronald L. Clements ("Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Employer desires to employ Executive as its Chief Executive Officer, and Executive desires to be so employed by Employer, upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Executive, intending to be legally bound, agree as follows: 1. EMPLOYMENT. Employer hereby employs Executive as its Chief Executive Officer upon the terms and conditions and for the compensation herein provided. Executive hereby agrees to be so employed and to fulfill the duties of Chief Executive Officer as such duties may be defined from time to time by Employer's Board of Directors. Executive shall also serve as a member of Employer's Board of Directors. 2. DUTIES AND POWERS. For so long as Executive is employed by Employer, Executive agrees as follows: to devote his full and exclusive business time and attention to the business of Employer and of any subsidiaries or affiliates of Employer (excluding reasonable vacations and sick leave in accordance with Employer's policies consistent with his position); to perform all duties in a professional and prudent manner, to devote the best of his skill, energy, experience and judgment to such duties; and to communicate to Employer suggestions, ideas or information that may be helpful to Employer in its businesses. Executive shall have all the powers associated with his position as Chief Executive Officer, subject to all lawful policies and guidelines as may be established by the Board of Directors of Employer. Executive agrees to devote his full business time to the performance of services hereunder and not to engage in any other activity or own any interest that would conflict with the interests of Employer or would interfere with his responsibilities to Employer and the performance of his duties hereunder; provided, however, that: (i) passive investments of less than 5% of the outstanding securities of any corporation that do not conflict with Executive's performance of his duties to Employer hereunder shall be deemed not to violate this provision; and (ii) Executive may engage in activities involving charitable, educational, religious and similar types of organizations, speaking engagements and similar type activities to the extent that such other activities do not detract from the performance by Executive of his duties and obligations hereunder. 3. COMPENSATION AND BENEFITS. For all services rendered by Executive pursuant to this Agreement, Employer shall compensate Executive as follows: 2 (a) BASE COMPENSATION. In consideration of the full and faithful performance by Executive of his obligations hereunder, subject to the terms and conditions set forth herein, Employer (or, at Employer's option, any subsidiary or affiliate of Employer for which Executive also provides services hereunder) shall pay to Executive a salary of $300,000 per annum (such annual compensation as it may be increased from time to time shall be referred to herein as the "Base Compensation"). Executive's Base Compensation will be paid in accordance with Employer's customary payroll practices (but not less frequently than monthly) and will be prorated based upon the number of days elapsed in any partial year. Base Compensation shall be reviewed annually by the Human Resources Committee of Employer's Board of Directors and may be increased at the sole discretion of such Committee. (b) BONUS. In addition to the Base Compensation payable to Executive, Executive may be awarded an annual bonus based on the attainment of certain goals to be set by Employer's Board of Directors. Such annual bonus is targeted to be 50% of Executive's Base Compensation but may be more or less than 50% of such Base Compensation depending on whether the goals set by Employer's Board are exceeded or not met. (c) BENEFITS. Executive shall be entitled, as an employee of Employer, to employee retirement and welfare benefits substantially comparable to those enjoyed by Employee immediately prior to the Effective Date and to any other employee benefits made available to senior executive management of Employer. (d) EXPENSES. Executive shall be entitled to reimbursement by Employer for his ordinary and necessary business expenses incurred in the performance of his duties under this Agreement if supported by reasonable documentation as required by Employer in accordance with its usual practices. Employer shall provide membership to Executive in a local country club and such membership shall allow all members of Employer's corporate management team to use the club's facilities at no additional cost. Employer will be responsible for paying initiation fees and monthly dues. Executive shall be entitled to reimbursement by Employer for financial and tax planning advisory services at rates customary to the local area, not to exceed $25,000 on an annual basis. (e) LIABILITY FOR TAXES. Employer shall have no liability for any tax liability of Executive attributable to any payment made under this Agreement except for customary employer's liability for federal and state employee taxes (e.g., social security, Medicare, etc.). Employer may withhold from any such payment such amounts as may be required by applicable provisions of the Internal Revenue Code, other tax laws, and the rules and regulations of the Internal Revenue Service and other tax agencies, as in effect at the time of any such payment. 4. TERMINATION OF EMPLOYMENT. (a) TERMINATION AT WILL. The parties acknowledge and agree that Executive's employment hereunder is an employment at will. Notwithstanding any other provision contained in this Agreement, either Executive or Employer may terminate Executive's employment 2 3 hereunder at any time with or without Cause (as defined in subsection 4(b)(i)) or with or without Good Reason (as defined in subsection 4(b)(ii)) at its or his election upon prior written notice (a "Termination Notice") to the other. A Termination Notice shall be effective upon delivery to the other party and the termination shall be effective as of the date set forth in such Termination Notice (hereinafter, the "Termination Date"). (b) DEFINITIONS OF "CAUSE" AND "GOOD REASON". For purposes of this Agreement, the terms "Cause" and "Good Reason" shall have the following meanings: (i) "Cause" means (A) Executive's continued willful failure to perform his duties with Employer (other than any such failure resulting from disability), (B) Executive's engaging in willful, reckless or grossly negligent misconduct which is materially injurious to Employer, monetarily or otherwise, or (C) Executive's indictment pertaining to a felony or crime involving moral turpitude. (ii) "Good Reason" means (A) a substantial and adverse change in Executive's status or position as a key employee of Employer, or a substantial reduction in the duties and responsibilities previously exercised by Executive, or any failure to reappoint or reelect Executive to, such position, except in connection with the termination of Executive's employment for Cause or disability, or as a result of Executive's death; (B) a reduction (other than for Cause) by Employer in Executive's Base Compensation; (C) a relocation of Executive's principal place of work to any location that is more than 25 miles from Canton, Ohio; (D) a sale or other exchange or transfer (whether by merger, reorganization or otherwise) of substantially all of the shares or assets of Employer; or (E) a material breach of the provisions of this Agreement by Employer. (c) PURCHASE RIGHTS. All shares of stock of Employer that are held by Executive, whether now held or hereafter acquired by Executive pursuant to the exercise of stock options held by Executive or otherwise (collectively, the "Executive Stock") and all options or other securities evidencing rights to acquire stock of Employer (collectively, "Executive Options" and, together with the Executive Stock, the "Executive Securities"), will be, in the event of the termination of Executive's employment hereunder, subject to the following purchase rights: (i) If, prior to the second anniversary of the Effective Date, Executive terminates his employment hereunder without Good Reason, or Employer terminates Executive's employment hereunder with Cause, Employer will have the option to purchase (1) all or a portion of the Executive Stock at a price equal to the LESSER of (A) actual cost paid by Executive for such Executive Stock (less any dividends or distributions received with respect to such Executive Stock) plus interest on such amount at a rate equal to the Prime Rate (as defined herein) on an annual basis or (B) Fair Value (as determined below), and (2) all or a portion of the Executive Options at a price equal to the product of (x) $0.01 and (y) the number of shares for which such Executive Options are exercisable. (ii) If, after the second anniversary of the Effective Date, Executive terminates his employment hereunder without Good Reason, or Employer terminates Executive's employment hereunder with Cause, Employer will have the option to purchase (1) all or a portion of the Executive Stock at a price equal to the aggregate Fair Value of such 3 4 Executive Stock, and (2) all or a portion of the Executive Options at a price equal to the difference between (A) the Fair Value of the shares for which such Executive Options are exercisable and (B) the option price that would have been payable by Executive upon exercise of such Executive Options. (iii) If Executive dies, becomes disabled or terminates his employment hereunder with Good Reason, or Employer terminates Executive's employment hereunder without Cause, (1) Employer will have the option to purchase all or a portion of the Executive Stock, and Executive or his personal representative will have the option to cause Employer to purchase all or a portion of the Executive Stock, at a price equal to the GREATER of (A) actual cost paid by Executive for such Executive Stock (less any dividends or distributions received with respect to such Executive Stock) plus interest on such amount at a rate equal to the Prime Rate on an annual basis or (B) Fair Value, and (2) Employer will have the option to purchase all or a portion of the Executive Options, and Executive or his personal representative will have the option to cause Employer to purchase all or a portion of the Executive Options, at a price equal to the difference between (x) the Fair Value of the number of shares for which such Executive Options are exercisable, and (y) the option price that would have been payable by Executive upon exercise of such Executive Options. (iv) The call options provided Employer in (i), (ii) and (iii) above (the "Employer Options") may be exercised by Employer delivering to Executive, within 180 days of the Termination Date, a written notice (an "Employer Notice of Exercise"), setting forth the number of shares of Executive Stock and/or number of Executive Options to be purchased by Employer. The option provided Executive in (iii) above (the "Executive Put") may be exercised by Executive delivering to the Secretary of Employer, within 180 days of the Termination Date, a written notice (an "Executive Notice of Exercise"), setting forth the number of shares of Executive Stock and/or number of Executive Options to be purchased by Employer. (v) The Employer Notice of Exercise shall contain, and in the event that Executive has delivered an Executive Notice of Exercise, Employer shall deliver a separate notice to Executive within ten (10) days of receipt thereof containing, Employer's determination of the applicable Fair Value, including information used by Employer in determining such Fair Value. If Executive objects to such determination, Executive must notify Employer in writing within ten (10) days of receipt of the notice from Employer as to its determination of Fair Value. In such event, Employer and Executive shall then negotiate as to the determination of Fair Value for a period of thirty (30) days. Neither Employer nor Executive shall be required in this negotiation to agree to the determination of the other. If Executive and Employer fail to agree as to a determination of Fair Value, then Executive and Employer shall endeavor to designate a mutually acceptable appraiser to determine such value. If Executive and Employer have not agreed on an appraiser within fifteen (15) days, then Executive and Employer shall each appoint an appraiser within ten (10) days thereafter. The two appraisers shall within ten (10) days thereafter appoint a third appraiser. The third appraiser shall determine the Fair Value of the Executive Stock to be purchased within thirty (30) days after such appraiser's appointment. The value determined, whether by agreement 4 5 between Executive and Employer or by appraisal, shall be determinative for purposes of the Employer Options and the Executive Put. Employer shall bear the cost of all appraisers other than the appraiser appointed by Executive to assist in appointing a third appraiser, the cost of which shall be paid by Executive. Each of Executive and Employer shall be given reasonable advance notice of the time and place of any appraisal proceedings and shall have the right to be present, heard, and represented by counsel. (vi) As used herein, "Fair Value" shall mean the fair value of shares of Common Stock of Employer, valuing Employer as an ongoing entity (including a consideration of the value of Employer if it were to be sold intact to a third party), and determined after taking into account Employer's indebtedness and other securities senior to the shares of Common Stock (assuming the exercise of any conversion, warrant or option rights where the exercise price is advantageous to the holders). No minority, blockage or illiquidity discount will be taken into account. As used herein, "Prime Rate" shall mean the prime rate or base rate of The Chase Manhattan Bank, N.A., or its successor, as published or announced by such bank from time to time. The then applicable Prime Rate will be adjusted annually to the rate in effect on the first business day of each calendar year and such Prime Rate, as adjusted, will remain in effect throughout such calendar year. (vii) The closing of any transaction pursuant to this Section 4 shall take place at the principal office of Employer within thirty (30) days after the final determination of Fair Value pursuant to subsection (v) above. At the closing of any transaction pursuant to this Section 4, the parties shall take all action necessary to convey the shares of Executive Stock and/or the Executive Options to be purchased at such time, free of all liens and encumbrances, all as reasonably determined by Employer. (d) NON-TRANSFERABILITY OF STOCK AFTER TERMINATION OF EMPLOYMENT. Except as set forth in this Section 4, notwithstanding anything herein to the contrary, Executive may not make or suffer any transfer or propose to make any transfer of the Executive Stock during the 180-day period immediately following the Termination Date. 5. RIGHT OF FIRST REFUSAL. (a) TRANSFER RESTRICTIONS. Executive hereby acknowledges that a limitation on ownership of the Executive Stock is necessary in light of the closely-held nature of Employer, and therefore Executive agrees that he will not make or suffer any transfer of all or part of the Executive Stock, except in accordance with this Agreement, and that he will sell or transfer any or all the Executive Stock only in compliance with this Agreement, and that any transfer not made in accordance with this Agreement will be void ab initio and of no force and effect. Notwithstanding anything contained in this Agreement to the contrary, any transfer of the Executive Stock hereunder will be subject to receipt of any necessary approvals required under any agreement of Employer, and the time frames established hereunder for the transfer of and payment for such Executive Stock will be extended as necessary to obtain any such approvals; provided, however, that the parties shall diligently pursue and reasonably cooperate in obtaining any such required approvals. 5 6 (b) GRANT OF RIGHT OF FIRST REFUSAL. Each time Executive proposes to make or suffers any transfer of all or any portion of the Executive Stock (other than in accordance with Section 4 hereof), Executive, or in the event of his death or incapacity, his legal representative, shall promptly so inform Employer by notice in writing (the "Company Notice") stating (i) the number of shares of Executive Stock proposed to be transferred (the "Subject Shares"), (ii) the name and address of the proposed transferee, and (iii) the other terms and conditions of such proposed transfer, including any consideration proposed to be received for the Subject Shares. Any such proposed transfer shall be a bona fide transaction with an independent third party. The date of the mailing of the Company Notice is hereinafter referred to as the "Company Notice Date." By giving the Company Notice to Employer, Executive will be deemed to have granted to Employer an option, as provided below, to purchase all the Subject Shares for the same consideration as is set forth in the Company Notice and on the same terms as are set forth in the Company Notice. (c) CLOSING. Employer shall, within thirty (30) days after the Company Notice Date, determine whether it desires to purchase the Subject Shares and so advise Executive in writing, and it shall, within ninety (90) days after the Company Notice Date, complete the purchase of such Subject Shares at the price and upon the terms and conditions set forth in Section 5(b) above. The closing of the purchase and sale of the Subject Shares will take place at Employer's principal office or at such other place as the parties may agree. At the closing, the parties shall take all action necessary to convey the Subject Shares to be transferred in accordance with this Section, free of all liens and encumbrances, all as reasonably determined by Employer. (d) PERMISSIBLE TRANSFER. If Employer does not elect to purchase all the Subject Shares within the period provided, and such transfer is otherwise permissible under Section 5(a), then all such Subject Shares may be disposed of by Executive to the prospective transferee named in the Company Notice, at the price and on the terms and conditions set forth in the Company Notice, at any time within one hundred and eighty (180) days after delivery of the Company Notice pursuant to Section 5(a), free and clear of all restrictions except as provided in Section 5(a). Employer, as a condition to the effectiveness of such transfer, may request that the prospective transferee agree that the Subject Shares so purchased will be held subject to the right of first refusal contained in this Section 5, and may require such prospective transferee to execute a document evidencing that such shares are subject to this right of first refusal. 6. NONDISCLOSURE. (a) CONFIDENTIAL INFORMATION. Executive hereby acknowledges that in connection with his employment by Employer he will be exposed to and may obtain certain information (including, without limitation, procedures, memoranda, notes, records and customer and supplier lists whether such information has been or is made, developed or compiled by Executive or otherwise has been or is made available to him) regarding the business and operations of Employer and its subsidiaries or affiliates. Executive further acknowledges that such information and procedures are unique, valuable, considered trade secrets and deemed proprietary by Employer. For purposes of this Agreement, such information and procedures shall be referred to as "Confidential Information," except that the following shall not be considered Confidential Information: (i) information disclosed on a non-confidential basis to third parties by Employer (but not by Executive in violation of this Agreement), (ii) information released from confidential 6 7 treatment by written consent of Employer, and (iii) information lawfully available to the general public. (b) USE OF CONFIDENTIAL INFORMATION. Executive agrees that all Confidential Information is and will remain the property of Employer. Executive further agrees, while employed by Employer hereunder and thereafter, to hold in the strictest confidence all Confidential Information, and not to, directly or indirectly, duplicate, sell, use, lease, commercialize, disclose or otherwise divulge to any person or entity any portion of the Confidential Information or use any Confidential Information for his own benefit or profit or allow any person, entity or third party, other than Employer and authorized executives of the same, to use or otherwise gain access to any Confidential Information. (c) TRADE SECRET. It is the intention of the parties that to the extent any Confidential Information may constitute a "trade secret" as defined by Ohio common law, then, in addition to the remedies set forth in this Agreement, Employer may elect to bring an action against Executive in the case of any actual or threatened misappropriation of any such trade secret by Executive. (d) NO REMEDY AT LAW. Regardless of whether any of the Confidential Information shall constitute a trade secret as defined by Ohio common law, Executive expressly recognizes and agrees that the restrictions contained in this Section 6 represent a reasonable and necessary protection of the legitimate interests of Employer, that his failure to observe and comply with his covenants and agreements herein will cause irreparable harm to Employer, that it is and will continue to be difficult to ascertain the harm and damages to Employer that such a failure by Executive could cause, and that a remedy at law for such failure by Executive will be inadequate. 7. NON-INTERFERENCE, NON-SOLICITATION AND NON-COMPETITION COVENANTS. (a) ACKNOWLEDGEMENT OF ACCESS. Pursuant to this Agreement, Executive has agreed to become Chief Executive Officer of Employer and to comply with the non-disclosure provisions contained in Section 6 hereof. Executive recognizes and acknowledges that he will be given access to certain of Employer's Confidential Information (as defined in Section 6(a)), and have access to and authority to develop relationships with customers of Employer because of his position and status as Employer's Chief Executive Officer, which he would not otherwise attain. In consideration of the foregoing, Executive agrees to comply with the terms of this Section 7. (b) RESTRICTED PERIOD. The restraints imposed by this Section 7 shall apply during any period that Executive continues to receive payment of Base Compensation hereunder, and for a period of two years thereafter (the "Restricted Period"); provided, however, that, notwithstanding anything contained herein to the contrary, the restraints imposed by this Section 7 shall not apply following the termination of Executive's employment with Employer (i) by Employer without Cause or (ii) by Executive for Good Reason. In the event that any Court having jurisdiction should find that the Restricted Period is so long and/or the scope (distance) (as set forth below) is so broad as to constitute an undue hardship on Executive, then, in such 7 8 event only, the Restricted Period and area limitations shall be valid for the maximum time and area for which they could be legally made and enforced. (c) COVENANT. During the Restricted Period, Executive shall not, as an executive (other than as an executive of Employer or an affiliate thereof), employee, employer, stockholder, officer, director, partner, consultant, advisor, proprietor, lender, provider of capital or other ownership, operational or management capacity, directly or indirectly, (i) solicit or hire any employee of Employer or otherwise interfere with or disrupt the employment relationship between Employer and any employee, (ii) solicit or do business with (a) Employer's customers with whom Employer did business while Executive was employed under this Agreement or (b) individuals or entities who Executive met as a result of his position with Employer while Executive was employed under this Agreement, that results in competition with Employer in any county, parish or other comparable jurisdiction within a state, province or nation located in North America in which any of such customers have operations (other than customers whose business relationship with Employer has terminated for at least 90 days) or in which Employer has conducted business while Executive was employed under this Agreement (collectively, the "Restricted Area"), or (iii) be associated with any entity engaged in the business of oil and/or gas exploration, development, production, distribution and/or marketing in the Restricted Area that results in competition with Employer (but excluding association due to ownership of less than 5% of the outstanding securities of any such entity). (d) REASONABLENESS. Executive expressly recognizes and agrees that the restraints imposed by this Section 7 are (i) reasonable as to time, geographic limitation and scope of activity to be restrained; (ii) reasonably necessary to the enjoyment by Employer of the value of its assets and to protect its legitimate interests; and (iii) not oppressive. Executive further expressly recognizes and agrees that the restraints imposed by this Section 7 represent a reasonable and necessary restriction for the protection of the legitimate interests of Employer, that the failure by the Executive to observe and comply with the covenants and agreements in this Section 7 will cause irreparable harm to Employer, that it is and will continue to be difficult to ascertain the harm and damages to Employer that such a failure by the Executive would cause, that the consideration received by the Executive for entering into these covenants and agreements is fair, that the covenants and agreements and their enforcement will not deprive Executive of his ability to earn a reasonable living in the oil and gas industry or otherwise, and that Executive has acquired knowledge and skills in his field that will allow him to obtain employment without violating these covenants and agreements. Executive further expressly acknowledges that he has been encouraged to and has consulted independent counsel, and has reviewed and considered this Agreement with that counsel before executing this Agreement. 8. MEMORANDA, NOTES, RECORDS, ETC. All memoranda, notes, records, customer lists or other documents made or compiled by Executive or otherwise made available to him concerning the business of Employer or its subsidiaries or affiliates shall be Employer's property and shall be delivered to Employer upon the expiration or termination of Executive's employment hereunder or at any other time upon request by Employer, and Executive shall retain no copies of those documents. Executive shall never at any time have or claim any right, title or interest in any material or matter of any sort prepared for or used in connection with the business or promotion of Employer. 8 9 9. ENFORCEMENT. The parties hereto recognize that the covenants of Executive hereunder are special, unique and of extraordinary character. Accordingly, it is the intention of the parties that, in addition to any other rights and remedies which Employer may have in the event of any breach of this Agreement, Employer shall be entitled, and hereby is expressly and irrevocably authorized by Executive, INTER ALIA, to demand and obtain specific performance, including without limitation temporary and permanent injunctive relief, and all other appropriate equitable relief against Executive in order to enforce against Executive, or in order to prevent any breach or any threatened breach by Executive of, the covenants and agreements contained herein. In case of any breach of this Agreement, nothing herein contained shall be construed to prevent Employer from seeking such other remedy in the courts as it may elect or invoke. 10. MISCELLANEOUS. (a) NON-DELEGATION OF DUTIES. Executive may not delegate the performance of any of his obligations or duties hereunder, or assign any rights hereunder, without the prior written consent of Employer. Any such purported delegation or assignment in the absence of such written consent shall be null and void with no force or effect. Notwithstanding the foregoing, nothing herein shall prevent Executive from delegating ministerial tasks to assistants of the type that are normally assigned by executives to assistants. (b) BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and permitted assigns and any receiver, trustee in bankruptcy or representative of the creditors of each such person. (c) SURVIVAL OF COVENANTS. Notwithstanding anything contained in this Agreement, in the event Executive's employment is terminated for any reason whatsoever, the covenants and agreements of Executive contained in Sections 4, 5, 6, 7 (to the extent set forth therein), 8, 9 and 10(c) and the covenants of Employer contained in Section 4 hereof shall survive any such termination and shall not lapse except as provided herein. (d) SEVERABILITY/MODIFICATION. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. (e) GOVERNING LAW. This Agreement is entered into in Ohio, and the construction, validity and interpretation of this Agreement shall be governed by the laws of the State of Ohio without regard to the laws of conflicts of laws thereof. (f) EFFECTIVENESS; ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire understanding and agreement between the parties relating to the subject matter hereof. Neither this Agreement nor any provision hereof may be waived, modified, amended, changed, discharged or terminated, except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge or termination is sought. 9 10 (g) NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery if delivered personally to the party to whom notice is to be given (or to the appropriate address below), or on the third day after mailing if mailed to the party to whom notice is to be given by certified or registered mail, return receipt requested, postage prepaid, or by courier, addressed as follows, or to such other person at such other address as any party may request in writing to the other party to this Agreement: TO EXECUTIVE: Ronald L. Clements 5670 Foxchase NW Canton, Ohio 44718 TO EMPLOYER: Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 47720 with a copy to: Kelly, Hart & Hallman, P.C. 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Attention: Kevin G. Levy Any party may change its address for purposes of this paragraph by giving the other parties written notice of the new address in the manner set forth above. (h) HEADINGS. The section headings herein are for convenience only and shall not be used in interpreting or construing this Agreement. (i) SEVERANCE AGREEMENT. Executive and Employer hereby acknowledge and agree that the Severance Agreement by and between them (the "Severance Agreement") remains in effect as of the Effective Date and that it will continue in effect following the Effective Date in accordance with its terms. In the event that Executive is employed by Employer at the expiration of the Severance Agreement, Executive and Employer shall enter into a new severance agreement containing substantially the same terms and conditions as the Severance Agreement (including, without limitation, provisions regarding non-competition and similar matters) and providing for a severance benefit in an amount equal to the sum of (1) three times the total compensation of Executive from Employer as reported on Form W-2 by Employer and (2) all compensation of Executive deferred by Employer for the calendar year immediately preceding the termination of Executive's employment, such severance benefit to be payable solely in the event of the termination of Executive's employment with Employer under the circumstances described in the Severance Agreement as giving rise to payment of benefits under Section 4 of the Severance Agreement. 10 11 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement to be effective as of the Effective Date. EXECUTIVE: ------------------------------------------ RONALD L. CLEMENTS EMPLOYER: BELDEN & BLAKE CORPORATION, an Ohio corporation By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 11 EX-10.4 19 EXHIBIT 10.4 1 Exhibit 10.4 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into effective as of the ___ day of June, 1997 (the "Effective Date"), by and between Belden & Blake Corporation, an Ohio corporation ("Employer"), and Ronald E. Huff ("Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Employer desires to employ Executive as its President and Chief Financial Officer, and Executive desires to be so employed by Employer, upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Executive, intending to be legally bound, agree as follows: 1. EMPLOYMENT. Employer hereby employs Executive as its President and Chief Financial Officer upon the terms and conditions and for the compensation herein provided. Executive hereby agrees to be so employed and to fulfill the duties of President and Chief Financial Officer as such duties may be defined from time to time by Employer's Board of Directors. Executive shall also serve as a member of Employer's Board of Directors. 2. DUTIES AND POWERS. For so long as Executive is employed by Employer, Executive agrees as follows: to devote his full and exclusive business time and attention to the business of Employer and of any subsidiaries or affiliates of Employer (excluding reasonable vacations and sick leave in accordance with Employer's policies consistent with his position); to perform all duties in a professional and prudent manner, to devote the best of his skill, energy, experience and judgment to such duties; and to communicate to Employer suggestions, ideas or information that may be helpful to Employer in its businesses. Executive shall have all the powers associated with his position as President and Chief Financial Officer, subject to all lawful policies and guidelines as may be established by the Board of Directors of Employer. Executive agrees to devote his full business time to the performance of services hereunder and not to engage in any other activity or own any interest that would conflict with the interests of Employer or would interfere with his responsibilities to Employer and the performance of his duties hereunder; provided, however, that: (i) passive investments of less than 5% of the outstanding securities of any corporation that do not conflict with Executive's performance of his duties to Employer hereunder shall be deemed not to violate this provision; and (ii) Executive may engage in activities involving charitable, educational, religious and similar types of organizations, speaking engagements and similar type activities to the extent that such other activities do not detract from the performance by Executive of his duties and obligations hereunder. 2 3. COMPENSATION AND BENEFITS. For all services rendered by Executive pursuant to this Agreement, Employer shall compensate Executive as follows: (a) BASE COMPENSATION. In consideration of the full and faithful performance by Executive of his obligations hereunder, subject to the terms and conditions set forth herein, Employer (or, at Employer's option, any subsidiary or affiliate of Employer for which Executive also provides services hereunder) shall pay to Executive a salary of $250,000 per annum (such annual compensation as it may be increased from time to time shall be referred to herein as the "Base Compensation"). Executive's Base Compensation will be paid in accordance with Employer's customary payroll practices (but not less frequently than monthly) and will be prorated based upon the number of days elapsed in any partial year. Base Compensation shall be reviewed annually by the Human Resources Committee of Employer's Board of Directors and may be increased at the sole discretion of such Committee. (b) BONUS. In addition to the Base Compensation payable to Executive, Executive may be awarded an annual bonus based on the attainment of certain goals to be set by Employer's Board of Directors. Such annual bonus is targeted to be 50% of Executive's Base Compensation but may be more or less than 50% of such Base Compensation depending on whether the goals set by Employer's Board are exceeded or not met. (c) BENEFITS. Executive shall be entitled, as an employee of Employer, to employee retirement and welfare benefits substantially comparable to those enjoyed by Employee immediately prior to the Effective Date and to any other employee benefits made available to senior executive management of Employer. (d) EXPENSES. Executive shall be entitled to reimbursement by Employer for his ordinary and necessary business expenses incurred in the performance of his duties under this Agreement if supported by reasonable documentation as required by Employer in accordance with its usual practices. Employer shall provide membership to Executive in a local country club and such membership shall allow all members of Employer's corporate management team to use the club's facilities at no additional cost. Employer will be responsible for paying initiation fees and monthly dues. Executive shall be entitled to reimbursement by Employer for financial and tax planning advisory services at rates customary to the local area, not to exceed $25,000 on an annual basis. (e) LIABILITY FOR TAXES. Employer shall have no liability for any tax liability of Executive attributable to any payment made under this Agreement except for customary employer's liability for federal and state employee taxes (e.g., social security, Medicare, etc.) and except as may be provided in the Severance Agreement (as defined in Section 10(i) below). Employer may withhold from any such payment such amounts as may be required by applicable provisions of the Internal Revenue Code, other tax laws, and the rules and regulations of the Internal Revenue Service and other tax agencies, as in effect at the time of any such payment. 2 3 4. TERMINATION OF EMPLOYMENT. (a) TERMINATION AT WILL. The parties acknowledge and agree that Executive's employment hereunder is an employment at will. Notwithstanding any other provision contained in this Agreement, either Executive or Employer may terminate Executive's employment hereunder at any time with or without Cause (as defined in subsection 4(b)(i)) or with or without Good Reason (as defined in subsection 4(b)(ii)) at its or his election upon prior written notice (a "Termination Notice") to the other. A Termination Notice shall be effective upon delivery to the other party and the termination shall be effective as of the date set forth in such Termination Notice (hereinafter, the "Termination Date"). (b) DEFINITIONS OF "CAUSE" AND "GOOD REASON". For purposes of this Agreement, the terms "Cause" and "Good Reason" shall have the following meanings: (i) "Cause" means (A) Executive's continued willful failure to perform his duties with Employer (other than any such failure resulting from disability), (B) Executive's engaging in willful, reckless or grossly negligent misconduct which is materially injurious to Employer, monetarily or otherwise, or (C) Executive's indictment pertaining to a felony or crime involving moral turpitude. (ii) "Good Reason" means (A) a substantial and adverse change in Executive's status or position as a key employee of Employer, or a substantial reduction in the duties and responsibilities previously exercised by Executive, or any failure to reappoint or reelect Executive to, such position, except in connection with the termination of Executive's employment for Cause or disability, or as a result of Executive's death; (B) a reduction (other than for Cause) by Employer in Executive's Base Compensation; (C) a relocation of Executive's principal place of work to any location that is more than 25 miles from Canton, Ohio; (D) a sale or other exchange or transfer (whether by merger, reorganization or otherwise) of substantially all of the shares or assets of Employer; or (E) a material breach of the provisions of this Agreement by Employer. (c) PURCHASE RIGHTS. All shares of stock of Employer that are held by Executive, whether now held or hereafter acquired by Executive pursuant to the exercise of stock options held by Executive or otherwise (collectively, the "Executive Stock") and all options or other securities evidencing rights to acquire stock of Employer (collectively, "Executive Options" and, together with the Executive Stock, the "Executive Securities"), will be, in the event of the termination of Executive's employment hereunder, subject to the following purchase rights: (i) If, prior to the second anniversary of the Effective Date, Executive terminates his employment hereunder without Good Reason, or Employer terminates Executive's employment hereunder with Cause, Employer will have the option to purchase (1) all, but not less than all, of the Executive Stock at a price equal to the LESSER of (A) actual cost paid by Executive for the Executive Stock (less any dividends or distributions received with respect to the Executive Stock) plus interest on such amount at a rate equal to the Prime Rate (as defined herein) on an annual basis or (B) Fair Value (as determined below), and (2) all, but not less than all, of the Executive Options at a price equal to the 3 4 product of (x) $0.01 and (y) the number of shares for which the Executive Options are exercisable. (ii) If, after the second anniversary of the Effective Date, Executive terminates his employment hereunder without Good Reason, or Employer terminates Executive's employment hereunder with Cause, Employer will have the option to purchase (1) all, but not less than all, of the Executive Stock at a price equal to the aggregate Fair Value of the Executive Stock, and (2) all, but not less than all, of the Executive Options at a price equal to the difference between (A) the Fair Value of the shares for which the Executive Options are exercisable and (B) the option price that would have been payable by Executive upon exercise of the Executive Options. (iii) If Executive dies, becomes disabled or terminates his employment hereunder with Good Reason, or Employer terminates Executive's employment hereunder without Cause, (1) Employer will have the option to purchase all, but not less than all, of the Executive Stock, and Executive or his personal representative will have the option to cause Employer to purchase all, but not less than all, of the Executive Stock, at a price equal to the GREATER of (A) actual cost paid by Executive for the Executive Stock (less any dividends or distributions received with respect to the Executive Stock) plus interest on such amount at a rate equal to the Prime Rate on an annual basis or (B) Fair Value, and (2) Employer will have the option to purchase all, but not less than all, of the Executive Options, and Executive or his personal representative will have the option to cause Employer to purchase all, but not less than all, of the Executive Options, at a price equal to the difference between (x) the Fair Value of the number of shares for which the Executive Options are exercisable, and (y) the option price that would have been payable by Executive upon exercise of the Executive Options. (iv) The call options provided Employer in (i), (ii) and (iii) above (the "Employer Options") may be exercised by Employer delivering to Executive, within 180 days of the Termination Date, a written notice (an "Employer Notice of Exercise"), setting forth the number of shares of Executive Stock and/or number of Executive Options to be purchased by Employer. The option provided Executive in (iii) above (the "Executive Put") may be exercised by Executive delivering to the Secretary of Employer, within 180 days of the Termination Date, a written notice (an "Executive Notice of Exercise"), setting forth the number of shares of Executive Stock and/or number of Executive Options to be purchased by Employer. (v) In the event that Fair Value has been determined within the twelve-month period preceding the date of the Employer Notice of Exercise or Executive Notice of Exercise, as applicable, the Employer Notice of Exercise shall contain, and in the event that Executive has delivered an Executive Notice of Exercise, Employer shall deliver a separate notice to Executive within ten (10) days of receipt thereof containing, such prior determination of Fair Value. (vi) In the event that Fair Value has not been determined within the twelve-month period referenced above, the Employer Notice of Exercise shall contain, and in the event that Executive has delivered an Executive Notice of Exercise, Employer shall deliver a 4 5 separate notice to Executive within ten (10) days of receipt thereof containing, Employer's determination of the applicable Fair Value, including information used by Employer in determining such Fair Value. In the event that Executive objects to Employer's determination as set forth in its notice to Executive, Executive must notify Employer in writing within ten (10) days of receipt of the notice from Employer as to its determination of Fair Value. In such event, Employer and Executive shall then negotiate as to the determination of Fair Value for a period of thirty (30) days. Neither Employer nor Executive shall be required in this negotiation to agree to the determination of the other. If Executive and Employer fail to agree as to a determination of Fair Value, then Executive and Employer shall endeavor to designate a mutually acceptable appraiser to determine such value. If Executive and Employer have not agreed on an appraiser within fifteen (15) days, then Executive and Employer shall each appoint an appraiser within ten (10) days thereafter. The two appraisers shall within ten (10) days thereafter appoint a third appraiser. The third appraiser shall determine the Fair Value of the Executive Stock to be purchased within thirty (30) days after such appraiser's appointment. The value determined, whether by agreement between Executive and Employer or by appraisal, shall be determinative for purposes of the Employer Options and the Executive Put. Employer shall bear the cost of all appraisers other than the appraiser appointed by Executive to assist in appointing a third appraiser, the cost of which shall be paid by Executive. Each of Executive and Employer shall be given reasonable advance notice of the time and place of any appraisal proceedings and shall have the right to be present, heard, and represented by counsel. (vii) As used herein, "Fair Value" shall mean the fair value of shares of Common Stock of Employer, valuing Employer as an ongoing entity (including a consideration of the value of Employer if it were to be sold intact to a third party), and determined after taking into account Employer's indebtedness and other securities senior to the shares of Common Stock (assuming the exercise of any conversion, warrant or option rights where the exercise price is advantageous to the holders). No minority, blockage or illiquidity discount will be taken into account. As used herein, "Prime Rate" shall mean the prime rate or base rate of The Chase Manhattan Bank, N.A., or its successor, as published or announced by such bank from time to time. The then applicable Prime Rate will be adjusted annually to the rate in effect on the first business day of each calendar year and such Prime Rate, as adjusted, will remain in effect throughout such calendar year. (viii) The closing of any transaction pursuant to this Section 4 shall take place at the principal office of Employer, (A) in the event that Fair Value has been previously determined in the twelve-month period set forth in subsection (v), within thirty (30) days after delivery of the Employer Notice of Exercise or the Executive Notice of Exercise, as applicable, or (B), in the event that Fair Value is determined pursuant to subsection (vi), within thirty (30) days after the final determination of Fair Value pursuant to such subsection (vi). At the closing of any transaction pursuant to this Section 4, the parties shall take all action necessary to convey the shares of Executive Stock and/or the Executive Options to be purchased at such time, free of all liens and encumbrances, all as reasonably determined by Employer. 5 6 (d) NON-TRANSFERABILITY OF STOCK AFTER TERMINATION OF EMPLOYMENT. Except as set forth in this Section 4, notwithstanding anything herein to the contrary, Executive may not make or suffer any transfer or propose to make any transfer of the Executive Stock during the 180-day period immediately following the Termination Date. 5. RIGHT OF FIRST REFUSAL. (a) TRANSFER RESTRICTIONS. Executive hereby acknowledges that a limitation on ownership of the Executive Stock is necessary in light of the closely-held nature of Employer, and therefore Executive agrees that he will not make or suffer any transfer of all or part of the Executive Stock, except in accordance with this Agreement, and that he will sell or transfer any or all the Executive Stock only in compliance with this Agreement, and that any transfer not made in accordance with this Agreement will be void ab initio and of no force and effect. Notwithstanding anything contained in this Agreement to the contrary, any transfer of the Executive Stock hereunder will be subject to receipt of any necessary approvals required under any agreement of Employer, and the time frames established hereunder for the transfer of and payment for such Executive Stock will be extended as necessary to obtain any such approvals; provided, however, that the parties shall diligently pursue and reasonably cooperate in obtaining any such required approvals. (b) GRANT OF RIGHT OF FIRST REFUSAL. Each time Executive proposes to make or suffers any transfer of all or any portion of the Executive Stock (other than in accordance with Section 4 hereof and other than a Permitted Transfer (as defined below)), Executive, or in the event of his death or incapacity, his legal representative, shall promptly so inform Employer by notice in writing (the "Company Notice") stating (i) the number of shares of Executive Stock proposed to be transferred (the "Subject Shares"), (ii) the name and address of the proposed transferee, and (iii) the other terms and conditions of such proposed transfer, including any consideration proposed to be received for the Subject Shares. Any such proposed transfer shall be a bona fide transaction with an independent third party. The date of the mailing of the Company Notice is hereinafter referred to as the "Company Notice Date." By giving the Company Notice to Employer, Executive will be deemed to have granted to Employer an option, as provided below, to purchase all the Subject Shares for the same consideration as is set forth in the Company Notice and on the same terms as are set forth in the Company Notice. (c) CLOSING. Employer shall, within thirty (30) days after the Company Notice Date, determine whether it desires to purchase the Subject Shares and so advise Executive in writing, and it shall, within ninety (90) days after the Company Notice Date, complete the purchase of such Subject Shares at the price and upon the terms and conditions set forth in Section 5(b) above. The closing of the purchase and sale of the Subject Shares will take place at Employer's principal office or at such other place as the parties may agree. At the closing, the parties shall take all action necessary to convey the Subject Shares to be transferred in accordance with this Section, free of all liens and encumbrances, all as reasonably determined by Employer. (d) PERMISSIBLE DISPOSITIONS. If Employer does not elect to purchase all the Subject Shares within the period provided, and such transfer is otherwise permissible under Section 5(a), then all such Subject Shares may be disposed of by Executive to the prospective transferee named in the Company Notice, at the price and on the terms and conditions set forth in the 6 7 Company Notice, at any time within one hundred and eighty (180) days after delivery of the Company Notice pursuant to Section 5(b), free and clear of all restrictions except as provided in Section 5(a). Employer, as a condition to the effectiveness of such transfer, may request that the prospective transferee agree that the Subject Shares so purchased will be held subject to the right of first refusal contained in this Section 5, and may require such prospective transferee to execute a document evidencing that such shares are subject to this right of first refusal. (e) PERMITTED TRANSFERS. As used herein, "Permitted Transfer" shall mean a transfer of any or all of the Executive Stock pursuant to (i) a transfer of the community property interest, if any, of Executive's spouse in any shares of Executive Stock to Executive upon the death of such spouse or in connection with the divorce of Executive; (ii) a transfer of shares of Executive Stock by Executive to Executive's spouse, children, grandchildren or a trust established for the primary benefit of Executive's spouse, children or grandchildren if, following the transfer, Executive retains sole control over the voting of such shares of Executive Stock and the initiation or participation in any shareholder litigation and other decisions with respect to such shares; or (iii) a transfer of shares of Executive Stock approved by the holders of at least a majority of the outstanding shares of the Common Stock of Employer. 6. NONDISCLOSURE. (a) CONFIDENTIAL INFORMATION. Executive hereby acknowledges that in connection with his employment by Employer he will be exposed to and may obtain certain information (including, without limitation, procedures, memoranda, notes, records and customer and supplier lists whether such information has been or is made, developed or compiled by Executive or otherwise has been or is made available to him) regarding the business and operations of Employer and its subsidiaries or affiliates. Executive further acknowledges that such information and procedures are unique, valuable, considered trade secrets and deemed proprietary by Employer. For purposes of this Agreement, such information and procedures shall be referred to as "Confidential Information," except that the following shall not be considered Confidential Information: (i) information disclosed on a non-confidential basis to third parties by Employer (but not by Executive in violation of this Agreement), (ii) information released from confidential treatment by written consent of Employer, and (iii) information lawfully available to the general public. (b) USE OF CONFIDENTIAL INFORMATION. Executive agrees that all Confidential Information is and will remain the property of Employer. Executive further agrees, except as otherwise required by law, while employed by Employer hereunder and thereafter, to hold in the strictest confidence all Confidential Information, and not to, directly or indirectly, duplicate, sell, use, lease, commercialize, disclose or otherwise divulge to any person or entity any portion of the Confidential Information or use any Confidential Information for his own benefit or profit or allow any person, entity or third party, other than Employer and authorized executives of the same, to use or otherwise gain access to any Confidential Information. (c) TRADE SECRET. It is the intention of the parties that to the extent any Confidential Information may constitute a "trade secret" as defined by Ohio common law, then, in addition to the remedies set forth in this Agreement, Employer may elect to bring an action against 7 8 Executive in the case of any actual or threatened misappropriation of any such trade secret by Executive. (d) NO REMEDY AT LAW. Regardless of whether any of the Confidential Information shall constitute a trade secret as defined by Ohio common law, Executive expressly recognizes and agrees that the restrictions contained in this Section 6 represent a reasonable and necessary protection of the legitimate interests of Employer, that his failure to observe and comply with his covenants and agreements herein will cause irreparable harm to Employer, that it is and will continue to be difficult to ascertain the harm and damages to Employer that such a failure by Executive could cause, and that a remedy at law for such failure by Executive will be inadequate. 7. NON-INTERFERENCE, NON-SOLICITATION AND NON-COMPETITION COVENANTS. (a) ACKNOWLEDGEMENT OF ACCESS. Pursuant to this Agreement, Executive has agreed to become President and Chief Financial Officer of Employer and to comply with the non-disclosure provisions contained in Section 6 hereof. Executive recognizes and acknowledges that he will be given access to certain of Employer's Confidential Information (as defined in Section 6(a)), and have access to and authority to develop relationships with customers of Employer because of his position and status as Employer's President and Chief Financial Officer, which he would not otherwise attain. In consideration of the foregoing, Executive agrees to comply with the terms of this Section 7. (b) RESTRICTED PERIOD. The restraints imposed by this Section 7 shall apply during any period that Executive continues to receive payment of Base Compensation hereunder, and for a period of two years thereafter (the "Restricted Period"); provided, however, that, notwithstanding anything contained herein to the contrary, the restraints imposed by this Section 7 shall not apply following the termination of Executive's employment with Employer (i) by Employer without Cause or (ii) by Executive for Good Reason. In the event that any Court having jurisdiction should find that the Restricted Period is so long and/or the scope (distance) (as set forth below) is so broad as to constitute an undue hardship on Executive, then, in such event only, the Restricted Period and area limitations shall be valid for the maximum time and area for which they could be legally made and enforced. (c) COVENANT. During the Restricted Period, Executive shall not, as an executive (other than as an executive of Employer or an affiliate thereof), employee, employer, stockholder, officer, director, partner, consultant, advisor, proprietor, lender, provider of capital or other ownership, operational or management capacity, directly or indirectly, (i) solicit or hire any employee of Employer or otherwise interfere with or disrupt the employment relationship between Employer and any employee, (ii) solicit or do business with (a) Employer's customers with whom Employer did business while Executive was employed under this Agreement or (b) individuals or entities who Executive met as a result of his position with Employer while Executive was employed under this Agreement, that results in competition with Employer in any county, parish or other comparable jurisdiction within a state, province or nation located in North America in which any of such customers have operations (other than customers whose business relationship with Employer has terminated for at least 90 days) or in which Employer has conducted business while Executive was employed under this Agreement (collectively, the 8 9 "Restricted Area"), or (iii) be associated with any entity engaged in the business of oil and/or gas exploration, development, production, distribution and/or marketing in the Restricted Area that results in competition with Employer (but excluding association due to ownership of less than 5% of the outstanding securities of any such entity). (d) REASONABLENESS. Executive expressly recognizes and agrees that the restraints imposed by this Section 7 are (i) reasonable as to time, geographic limitation and scope of activity to be restrained; (ii) reasonably necessary to the enjoyment by Employer of the value of its assets and to protect its legitimate interests; and (iii) not oppressive. Executive further expressly recognizes and agrees that the restraints imposed by this Section 7 represent a reasonable and necessary restriction for the protection of the legitimate interests of Employer, that the failure by the Executive to observe and comply with the covenants and agreements in this Section 7 will cause irreparable harm to Employer, that it is and will continue to be difficult to ascertain the harm and damages to Employer that such a failure by the Executive would cause, that the consideration received by the Executive for entering into these covenants and agreements is fair, that the covenants and agreements and their enforcement will not deprive Executive of his ability to earn a reasonable living in the oil and gas industry or otherwise, and that Executive has acquired knowledge and skills in his field that will allow him to obtain employment without violating these covenants and agreements. Executive further expressly acknowledges that he has been encouraged to and has consulted independent counsel, and has reviewed and considered this Agreement with that counsel before executing this Agreement. 8. MEMORANDA, NOTES, RECORDS, ETC. All memoranda, notes, records, customer lists or other documents made or compiled by Executive or otherwise made available to him concerning the business of Employer or its subsidiaries or affiliates shall be Employer's property and shall be delivered to Employer upon the expiration or termination of Executive's employment hereunder or at any other time upon request by Employer, and Executive shall retain no copies of those documents. Executive shall never at any time have or claim any right, title or interest in any material or matter of any sort prepared for or used in connection with the business or promotion of Employer. 9. ENFORCEMENT. The parties hereto recognize that the covenants of Executive hereunder are special, unique and of extraordinary character. Accordingly, it is the intention of the parties that, in addition to any other rights and remedies which Employer may have in the event of any breach of this Agreement, Employer shall be entitled, and hereby is expressly and irrevocably authorized by Executive, INTER ALIA, to demand and obtain specific performance, including without limitation temporary and permanent injunctive relief, and all other appropriate equitable relief against Executive in order to enforce against Executive, or in order to prevent any breach or any threatened breach by Executive of, the covenants and agreements contained herein. In case of any breach of this Agreement, nothing herein contained shall be construed to prevent Employer from seeking such other remedy in the courts as it may elect or invoke. 10. MISCELLANEOUS. (a) NON-DELEGATION OF DUTIES. Executive may not delegate the performance of any of his obligations or duties hereunder, or assign any rights hereunder, without the prior written consent of Employer. Any such purported delegation or assignment in the absence of such 9 10 written consent shall be null and void with no force or effect. Notwithstanding the foregoing, nothing herein shall prevent Executive from delegating ministerial tasks to assistants of the type that are normally assigned by executives to assistants. (b) BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and permitted assigns and any receiver, trustee in bankruptcy or representative of the creditors of each such person. (c) SURVIVAL OF COVENANTS. Notwithstanding anything contained in this Agreement, in the event Executive's employment is terminated for any reason whatsoever, the covenants and agreements of Executive contained in Sections 4, 5, 6, 7 (to the extent set forth therein), 8, 9 and 10(c) and the covenants of Employer contained in Section 4 hereof shall survive any such termination and shall not lapse except as provided herein. (d) SEVERABILITY/MODIFICATION. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. (e) GOVERNING LAW. This Agreement is entered into in Ohio, and the construction, validity and interpretation of this Agreement shall be governed by the laws of the State of Ohio without regard to the laws of conflicts of laws thereof. (f) EFFECTIVENESS; ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire understanding and agreement between the parties relating to the subject matter hereof. Neither this Agreement nor any provision hereof may be waived, modified, amended, changed, discharged or terminated, except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge or termination is sought. (g) NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery if delivered personally to the party to whom notice is to be given (or to the appropriate address below), or on the third day after mailing if mailed to the party to whom notice is to be given by certified or registered mail, return receipt requested, postage prepaid, or by courier, addressed as follows, or to such other person at such other address as any party may request in writing to the other party to this Agreement: TO EXECUTIVE: Ronald E. Huff 6155 Tuscany Circle Canton, Ohio 44718 TO EMPLOYER: Belden & Blake Corporation 5200 Stoneham Road North Canton, Ohio 47720 10 11 with a copy to: Kelly, Hart & Hallman, P.C. 201 Main Street, Suite 2500 Fort Worth, Texas 76102 Attention: Kevin G. Levy Any party may change its address for purposes of this paragraph by giving the other parties written notice of the new address in the manner set forth above. (h) HEADINGS. The section headings herein are for convenience only and shall not be used in interpreting or construing this Agreement. (i) SEVERANCE AGREEMENT. Executive and Employer hereby acknowledge and agree that the Severance Agreement by and between them (the "Severance Agreement") remains in effect as of the Effective Date and that it will continue in effect following the Effective Date in accordance with its terms. In the event that Executive is employed by Employer at the expiration of the Severance Agreement, Executive and Employer shall enter into a new severance agreement containing substantially the same terms and conditions as the Severance Agreement (including, without limitation, provisions regarding non-competition and similar matters) and providing for a severance benefit in an amount equal to the sum of (1) three times the total compensation of Executive from Employer or its Affiliates as reported on Form W-2 by Employer and (2) all compensation of Executive deferred by Employer or its Affiliates for the calendar year immediately preceding the termination of Executive's employment, such severance benefit to be payable solely in the event of the termination of Executive's employment with Employer and its Affiliates under the circumstances described in the Severance Agreement as giving rise to payment of benefits under Section 4 of the Severance Agreement. (g) INDEMNIFICATION. Employer shall indemnify Executive as an officer and director of Employer to the same extent as the Employer's indemnification of its officers and directors as of the Effective Date. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement to be effective as of the Effective Date. EXECUTIVE: ------------------------------------------ RONALD E. HUFF EMPLOYER: BELDEN & BLAKE CORPORATION, an Ohio corporation By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 12 EX-10.5 20 EXHIBIT 10.5 1 Exhibit 10.5 BELDEN & BLAKE CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. PURPOSE. The purpose of this Nonqualified Stock Option Plan (hereinafter called the "Plan") is to further the success of Belden & Blake Corporation, an Ohio corporation (hereinafter called the "Company"), and certain of its affiliates by making available Common Stock of the Company for purchase by certain officers and employees of the Company and its affiliates, and thus to provide an additional incentive to such individuals to continue in the service of the Company or its affiliates and to give them a greater interest as stockholders in the success of the Company. Subject to compliance with the provisions of the Plan, nonqualified stock options (but not incentive stock options under Section 422A of the Code) are authorized and may be granted under the Plan. 2. DEFINITIONS. As used in this Plan the following terms shall have the meanings indicated as follows: (a) "Board" means the board of directors of the Company. (b) "Cause" means (i) the continued willful failure of the employee to perform his duties to his employer (other than any such failure resulting from disability); (ii) the engaging by the employee in willful, reckless or grossly negligent misconduct which is materially injurious to the employer or any of its subsidiaries, monetarily or otherwise; or (iii) the indictment of employee with a felony or crime involving moral turpitude. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Common Stock" means the Company's Common Stock, without par value. (e) "Date of Grant" means the date on which an option is granted under a written option agreement executed by the Company and a Participant pursuant to the Plan. (f) "Effective Date" means the effective date of this Plan specified in Paragraph 13 hereof. (g) "Good Reason" means (i) a substantial and adverse change in the employee's status or position as a key employee of his employer, or a substantial reduction in the duties and responsibilities previously exercised by the employee, or any failure to reappoint or reelect the employee to, such position, except in connection with the termination of the employee's employment for Cause or disability, or as a result of his death; (ii) a reduction (other than for Cause) by his employer in the employee's Base Salary; (iii) a relocation of the employee's principal place of work to any location that is more than 25 miles from Canton, Ohio; or (iv) a sale or other exchange or transfer (whether by merger, reorganization or otherwise) of substantially all of the shares or assets of the Company. (h) "Parent" means a parent corporation of the Company as defined in Section 425(e) of the Code. 2 (i) "Participants" means the employees, including officers, of the Company, its Subsidiaries and its Parents. (j) "Plan" means this Belden & Blake Corporation Nonqualified Stock Option Plan, as it may be amended. (k) "Subsidiary" means a subsidiary corporation of the Company as defined in Section 425(f) of the Code. 3. ADMINISTRATION OF PLAN. The Board shall have full and final authority in its discretion, subject to the provisions of the Plan, to determine the Participants to whom, and the time or times at which, options shall be granted, the vesting of options and the number of shares of Common Stock covered by each option. The Board shall also have full and final authority to construe and interpret the Plan and any agreements made pursuant to the Plan; to determine the terms and provisions (which need not be identical or consistent with respect to each Participant) of the respective option agreements and any agreements ancillary thereto including, but without limitation, terms covering the payment of the option price; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons. 4. OPTIONS AUTHORIZED. The options granted under this Plan shall be nonqualified stock options which do not qualify as incentive stock options under Section 422A of the Code. The Board shall have the full power and authority, in its sole discretion, to grant to the holder of an outstanding option, in exchange for the surrender and cancellation of such option, a new option having a purchase price lower than that provided in the option so surrendered and cancelled and containing such other terms and conditions as the Board may prescribe in accordance with the provisions of the Plan. No options may be granted under the Plan prior to the Effective Date. 5. COMMON STOCK SUBJECT TO OPTIONS. The aggregate number of shares of the Company's Common Stock which may be issued upon the exercise of options shall not exceed 824,195 shares of Common Stock of the Company, subject to adjustment under the provisions of Paragraph 8. The shares of Common Stock to be issued upon the exercise of options may be authorized but unissued shares, or shares issued and reacquired by the Company. In the event any option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such option shall again be available for options to be granted under the Plan, except that shares for which options (or portions thereof) relinquished pursuant to Paragraph 9 hereof are exercisable shall not again be available for grants of options under the Plan. 6. PARTICIPANTS. Except as may otherwise be provided herein, options may be granted under the Plan to any Participant. A Participant who has been granted an option under the Plan may be granted an additional option or options under the Plan, in the Board's discretion. 7. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan shall be evidenced by a written agreement executed by the Company and the applicable Participant and 2 3 shall contain such terms and be in such form as the Board may from time to time approve, subject to the following limitations and conditions: (a) OPTION PRICE. The option price per share with respect to each option shall be the fair value per share on the Date of Grant, as determined by the Board in its sole discretion. The Board may permit the option purchase price to be payable (i) in Common Stock previously owned by the optionee, valued at the fair value of such Common Stock, as determined by the Board in its sole discretion, or (ii) by the relinquishment of all or any part of the unexercised portion of the option for a number of shares of Common Stock as more fully set forth in Paragraph 9 hereof. (b) PERIOD OF OPTION. The expiration date of each option shall be fixed by the Board, but, notwithstanding any provision of the Plan to the contrary, such expiration date shall not be more than ten years from the Date of Grant. (c) VESTING OF STOCKHOLDER RIGHTS. Neither an optionee nor his successor in interest shall have any rights of a stockholder of the Company until the shares relating to an option hereunder are issued by the Company and properly delivered to such optionee. (d) VESTING AND FORFEITURE OF OPTIONS. Each option shall vest and be exercisable from time to time over such period and upon such terms and conditions as the Board shall determine, but not at any time as to less than 25 shares, unless the number purchased is the total number of shares remaining subject to the Option. After the death of the optionee, an option may be exercised as provided in Paragraph 14 hereof. Upon termination for any reason of an optionee's employment with the Company (and any of its subsidiaries or affiliates), in the event an option is not fully vested at the date of such termination, the portion of such option that is not fully vested shall be forfeited and cancelled without any payment therefor. An unvested option may also be forfeited at such other times and upon such terms as the Board may determine. (e) NONTRANSFERABILITY OF OPTION. No option shall be transferable or assignable by an optionee and each option shall be exercisable only by him or her or, upon death or during a legal disability, by his or her legal representative. No option shall be subject to execution, attachment, or similar process. (f) CODE SECTION 83(b) ELECTIONS. Any optionee hereunder who makes an election pursuant to Code Section 83(b) shall promptly provide a copy of such election to the Company, together with such other details concerning such election as the Company may request. 8. ADJUSTMENTS. The Board, in its discretion, may make such equitable adjustments in option price and the number of shares covered by outstanding options which are required to prevent any dilution or enlargement of the rights of the holders of such options, including, but not limited to, any such dilution or enlargement of rights that would otherwise result from any reorganization, recapitalization, stock split, stock dividend, combination, merger, consolidation, issuance of rights or any other change in the capital structure of the Company. 3 4 9. RELINQUISHMENT OF OPTIONS. (a) The Board, in granting options hereunder, shall have discretion to provide that an optionee, or his legal representative (to the extent entitled to exercise the option under the terms thereof), in lieu of purchasing the entire number of shares subject to purchase thereunder, shall have the right to relinquish all or any part of the unexercised portion of the option for a number of shares of Common Stock equal to the quotient of (i) the excess of (A) the aggregate current fair value of the shares of Common Stock covered by the unexercised portion of the option over (B) the aggregate purchase price for such shares specified in such option, divided by (ii) the then current fair value per share of such Common Stock. (b) The Board, in granting options hereunder, shall have discretion to determine the terms (including the fair value of the Common Stock covered by options) upon which such options shall be relinquishable, subject to the applicable provisions of the Plan. 10. RESTRICTIONS ON ISSUING SHARES. The exercise of each option shall be subject to the condition that if at any time the Company shall determine in its discretion that the listing, registration, or qualification of any shares otherwise deliverable upon such exercises upon any securities exchange or, under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 11. AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable in order that the options granted thereunder may conform to any changes in the law or in any other respect which the Board may deem to be in the best interests of the Company; provided, however, that without approval by the stockholders of the Company voting the legally required percentage of its voting power, no such amendment shall make any change in the plan for which stockholder approval is required of the Company by any applicable rule or law. Unless sooner terminated hereunder, the Plan shall terminate ten years after the Effective Date. No option may be granted during any suspension or after the termination of the Plan. Except as otherwise required by law, no amendment, suspension, or termination of the Plan shall, without an optionee's consent, impair or negate any of the rights or obligations under any option theretofore granted to such optionee under the Plan. 12. TAX WITHHOLDING. The Board may, in its sole discretion, (a) require an optionee to remit to the Company a cash amount sufficient to satisfy, in whole or in part, any federal, state and local withholding tax requirements prior to the delivery of any certificate for shares pursuant to the exercise of an option hereunder; (b) grant to an optionee the right to satisfy, in whole or in part, any such withholding tax requirements by electing to require that the Company, upon any exercise of the option, withhold from the shares of the Common Stock issuable to the optionee upon the exercise of the option, that number of full shares of Common Stock having a fair value (determined in the sole discretion of the Board) equal to the amount or portion of the amount required to be withheld; or (c) satisfy such withholding requirements through another lawful method. 4 5 13. EFFECTIVE DATE OF PLAN. This Plan shall become effective on the date (the "Effective Date") of the adoption of the Plan by the Board. 14. TERMINATION OF EMPLOYMENT. Unless the terms of an option granted to an employee under the Plan provide otherwise, in the event of (i) the retirement (with the written consent of the Company) of such employee, (ii) any other termination of the employment of such employee other than (a) a termination by the Company with Cause or (b) a termination by such employee without Good Reason, (iii) termination by reason of death during his employment by the Company or a Subsidiary or Parent, or (iv) disability, within the meaning of Code Section 422A(c)(7), the employee (or the executor or administrator of the employee's estate as the case may be) may exercise his option at any time within 60 days of such retirement or other termination of employment or within one year after termination of employment due to death (or in the event an employee dies during the 60 day period immediately following his termination of employment as set forth in (i) or (ii) above), or within such other time as the Board shall authorize, but in no event after 10 years from the date of granting thereof (or such lesser period as may be specified in the stock option agreement), but only to the extent of the number of shares for which his options were exercisable by him at the date of the termination of his employment. In the event of the termination of the employment of an employee to whom an option has been granted under the Plan by such employee without Good Reason or by the Company with Cause, options held by him under the Plan, to the extent not previously exercised, shall forthwith terminate on the date of such termination of employment. Options granted under the Plan shall not be affected by any change of employment so long as the holder continues to be an employee of the Company, a Subsidiary or a Parent. The option agreement may contain such provisions as the Board shall approve with respect to the effect of approved leaves of absence. Nothing in the Plan or in any option granted pursuant to the Plan shall confer on any individual any right to continue in the employ of the Company or any of its Subsidiaries or Parents or interfere in any way with the right of the Company or any of its Subsidiaries or Parents to terminate his employment at any time. 15. LOANS TO ASSIST IN EXERCISE OF OPTIONS. If approved by the Board, the Company or any Parent or Subsidiary may lend money or guarantee loans by third parties to an individual to finance the exercise of any option granted under the Plan. No such loan to finance the exercise of an option shall have an interest rate or other terms that would cause any part of the principal amount to be characterized as interest for purposes of the Code. 5 EX-12.1 21 EXHIBIT 12.1 1 Exhibit 12.1 BELDEN & BLAKE CORPORATION RATIOS OF EARNINGS TO FIXED CHARGES (CONTINUING OPERATION ONLY)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31 ----------------------------------------------------------- ---------------------- 1992 1993 1994 1995 1996 1996 1997 --------- -------- -------- -------- -------- -------- --------- Income from continuing operations before income taxes $ 1,585 $ 5,262 $ 6,510 $ 8,410 $ 21,760 $ 5,369 $ 7,289 Fixed charges: Interest expense 2,200 3,187 3,503 6,073 7,383 2,011 1,702 Interest portion of rent expense 360 344 215 464 500 120 175 Amortization of debt issuance costs 71 83 130 164 202 50 51 -------- -------- -------- -------- --------- -------- --------- Total fixed charges 2,631 3,614 3,848 6,701 8,085 2,181 1,928 -------- -------- -------- -------- --------- -------- --------- Earnings before income taxes and fixed charges $ 4,216 $ 8,876 $ 10,358 $ 15,111 $ 29,845 $ 7,550 $ 9,217 ======== ======== ======== ======== ========= ======== ========= Ratio of earnings to fixed charges 1.6x 2.5x 2.7x 2.3x 3.7x 3.5x 4.8x ======== ======== ======== ======== ========= ======== =========
EX-23.2 22 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS To the Board of Directors Belden & Blake Corporation We consent to the reference of our firm under the caption "Experts" and to the use of our report dated February 21, 1997, in the Registration Statement (Form S-4) and related Prospectus of Belden and Blake Corporation for the registration of $225,000,000 of Senior Subordinated Notes. ERNST & YOUNG LLP Cleveland, Ohio August 11, 1997 EX-23.3 23 EXHIBIT 23.3 1 Exhibit 23.3 CONSENT OF INDEPENDENT PETROLEUM ENGINEER We consent to the use in this Registration Statement of Belden & Blake Corporation on Form S-4 of our reserve estimates and to the references made to us in the Prospectus contained in this Registration Statement including the reference to us under the caption "Experts" in the Prospectus. J0HN G. REDIC, INC. By: /s/ John G. Redic, President ---------------------------- John G. Redic Date: August 11, 1997 -------------------------- EX-23.4 24 EXHIBIT 23.4 1 Exhibit 23.4 CONSENT OF INDEPENDENT PETROLEUM ENGINEER ------------------------------------------------ We consent to the use in this Registration Statement of Belden & Blake Corporation on Form S-4 of our reserve estimates and to the references made to us in the Prospectus contained in this Registration Statement including the reference to us under the caption "Experts" in the Prospectus. RYDER SCOTT COMPANY By:/s/Ryder Scott Company ---------------------- Petroleum Engineers Date: 8-11-97 EX-25.1 25 EXHIBIT 25.1 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ----------------------- LASALLE NATIONAL BANK (Exact name of trustee as specified in its charter) 36-1521370 (I.R.S. Employer Identification No.) 135 South LaSalle Street, Chicago, Illinois 60603 (Address of principal executive offices) (Zip Code) ----------------------- M. ROBERT K. QUINN Senior Vice President and General Counsel Telephone: (312) 904-2010 135 South LaSalle Street Chicago, Illinois 60603 (Name, address and telephone number of agent for service) ----------------------- BELDEN & BLAKE CORPORATION (Exact name of obligor as specified in its charter) Ohio 34-1686642 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 5200 Stoneham Road 44720 North Canton, Ohio (330) 497-5470 (Address of Principal Executive Offices) (Zip Code) ----------------------- 9 7/8% Senior Subordinated Notes due 2007 (Title of the indenture securities) 2 ITEM 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. 1. Comptroller of the Currency, Washington D.C. 2. Federal Deposit Insurance Corporation, Washington, D.C. 3. The Board of Governors of the Federal Reserve Systems, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. ITEM 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or any underwriter for the obligor is an affiliate of the trustee, describe each such affiliation. Neither the obligor nor any underwriter for the obligor is an affiliate of the trustee. ITEM 3. VOTING SECURITIES OF THE TRUSTEE. Furnish the following information as to each class of voting securities of the trustee: Not applicable ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: (a) Title of the securities outstanding under each other indenture. Not applicable (b) A brief statement of the facts relied upon as a basis for the claim that no conflicting interest within the meaning of Section 310(b)(1) of the Act arises as a result of the trusteeship under such other indenture, including a statement as to how the indenture securities will rank as compared with the securities issued under such other indenture. Not applicable 3 ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR UNDERWRITERS. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not applicable ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner and executive officer of the obligor. Not applicable ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner, and executive officer of each such underwriter. Not applicable ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE. Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: Not applicable ITEM 9. SECURITIES OF THE UNDERWRITER OWNED OR HELD BY THE TRUSTEE. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee. Not applicable ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting securities of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person. Not applicable 4 ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such person any of which are so owned or held by the trustee. Not applicable ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE. If the obligor is indebted to the trustee, furnish the following information. Not applicable ITEM 13. DEFAULTS BY THE OBLIGOR. a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. Not applicable b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not applicable ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS. If any underwriter is an affiliate of the trustee, describe each such affiliation. Not applicable ITEM 15. FOREIGN TRUSTEE. Identify the order or rule pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified. Not applicable ITEM 16. LIST OF EXHIBITS. List below all exhibits filed as part of this statement of eligibility and qualification. 1. A copy of the Articles of Association of LaSalle National Bank now in effect. 2. A copy of the certificate of authority to commence business. 3. A copy of the authorization to exercise corporate trust powers. 5 4. A copy of the existing By-Laws of LaSalle National Bank. 5. Not applicable. 6. The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. 6 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939,the trustee, LaSalle National Bank, a corporation organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago, State of Illinois, on the 6th day of August, 1997. LASALLE NATIONAL BANK By: /s/ Sarah H. Webb ----------------- Sarah H. Webb First Vice President 7 EXHIBIT 1 ARTICLES OF ASSOCIATION 8 ARTICLES OF ASSOCIATION LA SALLE NATIONAL BANK (LOGO) LA SALLE NATIONAL BANK CHICAGO, ILLINOIS 9 (LOGO) LaSalle National Bank ARTICLES OF ASSOCIATION FIRST. The title of this association, which shall carry on the business of banking under the laws of the United States shall be "LaSalle National Bank." SECOND. The place where the main banking house or office of this association shall be located, its operations of discount and deposit carried on, and its general business conducted, shall be Chicago, County of Cook, State of Illinois. THIRD. The Board of Directors of this association shall consist of such number of its shareholders, not less than five nor more than twenty-five, as from time to time shall be determined by a majority of the votes to which all of its shareholders are at the time entitled. A majority of the Board of Directors shall be necessary to constitute a quorum for the transaction of business. The Board of Directors, by vote of a majority of the full board, may, between annual meetings of shareholders increase the membership of the Board where the number of directors last elected by shareholders was 15 or less, by not more than two members, and where the number of directors last elected by shareholders was 16 or more, by not more than four members and by a like vote appoint qualified persons to fill the vacancies created thereby; provided that the number of Directors shall at no time exceed twenty-five. FOURTH. The regular annual meeting of the shareholders of this association shall be held at its main banking house, or other convenient place duly authorized by the board of directors on such day of each year as is specified therefor in the bylaws. FIFTH. The amount of capital stock which this association is authorized to issue shall be Twenty Million Dollars ($20,000,000.00) divided into 2,000,000 shares of common capital stock of the par value of $10.00 each; but said capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. If the capital stock is increased by the sale of additional shares thereof, other than to key officers and employees of the association upon the exercise of options granted pursuant to the terms of a stock option plan then in effect, as to which sales all pre-emptive rights are waived, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of said capital stock owned by him at the time the increase is authorized by the shareholders, unless another time subsequent to the date of the shareholders' meeting is specified in a resolution adopted by the shareholders at the time the increase is authorized. The board of directors shall have the power to prescribe a reasonable period of time within which the pre-emptive rights to subscribe to the new shares of capital stock may be exercised. The association, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. SIXTH. The board of directors shall appoint one of its members president of this association, who shall be chairman of the board, but the board of directors may appoint a director in lieu of the president to be chairman of the board, who shall perform such duties as may be designated by the board of directors. The board of directors shall have the power to appoint one or more vice presidents, a cashier and such other officers as may be required to transact the business of this association; to fix the salaries to be paid to all officers of this association; and to dismiss such officers, or any of them. 10 The board of directors shall have the power to define the duties of officers and employees of this association, to require bonds from them, and to fix the penalty thereof; to regulate the manner in which directors shall be elected or appointed, and to appoint judges of the election; to make all bylaws that it may be lawful for them to make for the general regulation of the business of this association and the management of its affairs; and generally to do and perform all acts that it may be lawful for a board of directors to do and perform. SEVENTH. This association shall have succession from the date of its organization certificate until such time as it be dissolved by act of its shareholders in accordance with the provisions of the banking laws of the United States, or until its franchise becomes forfeited by reason of violation of law, or until terminated by either a general or a special act of Congress, or until its affairs be placed in the hands of a receiver and finally wound up by him. EIGHTH. The board of directors of this association, or any three or more shareholders owning, in the aggregate, not less than ten per centum of the stock of this association, may call a special meeting of shareholders at any time: Provided, however, that, unless otherwise provided by law, not less than ten days prior to the date fixed for any such meeting, a notice of the time, place, and purpose of the meeting shall be given by first-class mail, postage prepaid, to all shareholders of record of this association at their respective addresses as shown upon the books of the association. These articles of association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the shareholders owning at least a majority of the stock of this association, subject to the provisions of the banking laws of the United States. The notice of any shareholders' meeting, at which an amendment to the articles of association of this association is to be considered, shall be given as herein-above set forth. NINTH. Any person, his heirs, executors, or administrators, may be indemnified or reimbursed by the association for reasonable expenses actually incurred in connection with any action, suit, or proceeding, civil or criminal, to which he or they shall be made a party by reason of his being or having been a director, officer, or employee of the association or of any firm, corporation, or organization which he served in any such capacity at the request of the association: Provided, however, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding as to which he shall finally be adjudged to have been guilty of or liable for negligence or wilful misconduct in the performance of his duties to the association: And, provided further, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of the association, or the board of directors, acting by vote of directors not parties to the same or substantially the same action, suit, or proceeding, constituting a majority of the whole number of the directors. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such person, his heirs, executors, or administrators, may be entitled as a matter of law. ******** May 17, 1982 Form No. 181, Rev 5/17/82 GW 11 EXHIBIT 2 CERTIFICATE OF AUTHORITY TO COMMENCE BUSINESS 12 STATE OF ILLINOIS AUDITOR'S OFFICE NO. 333 (LOGO) NATIONAL BANK TRUST CERTIFICATE Springfield, FEBRUARY 15th 1928 I, OSCAR NELSON, Auditor of Public Accounts of the State of Illinois, do hereby certify that the NATIONAL BUILDERS BANK OF CHICAGO located at CHICAGO, County of COOK and State of Illinois, a corporation organized under and by authority of the statutes of the United States governing National Banks and authority granted by the Federal Reserve Act for the purpose of accepting and executing trusts, has this day deposited in this office, securities in the sum of TWO HUNDRED THOUSAND Dollars, $200,000.00 of the character designated by Section 6 of the Act of the Legislature of the State of Illinois entitled "An Act to provide for and regulate the administration of trusts by trust companies," The said deposit is made for the benefit of the creditors of said NATIONAL BUILDERS BANK OF CHICAGO under and by virtue of the provisions of the Act above referred to and the said securities are now held by me in this office in my official capacity as such Auditor of Public Accounts, for the uses and purposes aforesaid. I further certify that by virtue of the Acts aforesaid, the NATIONAL BUILDERS BANK OF CHICAGO is hereby authorized to accept and execute trusts and receive deposits of trust funds under the provisions and limitations of "An Act to provide for and regulate the administration of trusts in Illinois. IN TESTIMONY WHEREOF, I hereunto subscribe my name and affix the (SEAL) seal of my office, the day and year first above written. /s/ Oscar Nelson ---------------- AUDITOR OF PUBLIC ACCOUNTS. STATE OF ILLINOIS. 13 NO. 13146. TREASURY DEPARTMENT (LOGO) OFFICE OF COMPTROLLER OF THE CURRENCY Washington, D.C., NOVEMBER 29, 1927. WHEREAS, by satisfactory evidence presented to the undersigned, it has been made to appear that "NATIONAL BUILDERS BANK OF CHICAGO" in the CITY of CHICAGO in the County of COOK and State of ILLINOIS has complied with all the provisions of the Statutes of the United States, required to be complied with before an association shall be authorized to commence the business of Banking; NOW THEREFORE I, J.W. MCINTOSH, Comptroller of the Currency, do hereby certify that "NATIONAL BUILDERS BANK OF CHICAGO" in the CITY of CHICAGO in the County of COOK and State of ILLINOIS is authorized to commence the business of Banking as provided in Section Fifty one hundred and sixty nine of the Revised Statutes of the United States. IN TESTIMONY WHEREOF witness my hand and Seal of (SEAL) office (SEAL) this TWENTY-NINTH day of NOVEMBER, 1927. /s/ J.W. McIntosh ----------------- Comptroller of the Currency 14 CERTIFICATE OF CHANGE OF CORPORATE TITLE (LOGO) NO. 13146. TREASURY DEPARTMENT OFFICE OF THE COMPTROLLER OF THE CURRENCY WASHINGTON, D.C., MAY 1, 1940. WHEREAS, by satisfactory evidence presented to me, it appears that under authority of sections 2, 3, and 4, of the Act of Congress approved May 1, 1886, entitled "An Act to enable national banking associations to increase their capital stock and to change their names or location," shareholders owning two-thirds of the stock of the national banking association heretofore known as-- "NATIONAL BUILDERS BANK OF CHICAGO," located in CHICAGO, County of COOK, State of ILLINOIS, have voted to change the name of said association to-"LASALLE NATIONAL BANK," and have complied with all the provisions of the said Act relative to national banking associations changing their name. NOW, THEREFORE, IT IS HEREBY CERTIFIED, that the name of the said association has been changed to-- "LASALLE NATIONAL BANK," and that such change of name is hereby approved under authority conferred by said Act. IN TESTIMONY WHEREOF, witness my hand and seal of office this (SEAL) FIRST day of MAY, 1940. /s/ ------------------------------------------- ACTING Comptroller of the Currency. 15 EXHIBIT 3 AUTHORIZATION TO EXERCISE CORPORATE TRUST POWERS 16 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [LETTERHEAD] WASHINGTON May 9, 1940 LaSalle National Bank, Chicago, Illinois. Gentlemen: The Board of Governors of the Federal Reserve System has been officially advised by the Comptroller of the Currency that on May 1, 1940, National Builders Bank of Chicago, Chicago, Illinois, changed its title to LaSalle National Bank, and accordingly there is enclosed herewith a certificate showing that LaSalle National Bank has authority to exercise the fiduciary powers enumerated therein. Kindly acknowledge receipt of this certificate. Very truly yours, S. R. Carpenter --------------- S. R. Carpenter, Assistant Secretary. Enclosure 17 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON I, S. R. Carpenter, Assistant Secretary of the Board of Governors of the Federal Reserve System (formerly known as the Federal Reserve Board), do hereby certify that it appears from the records of the Board of Governors of the Federal Reserve System that: (1) Pursuant to the authority vested in the Federal Reserve Board by an Act of Congress approved December 23, 1913, known as the Federal Reserve Act, as amended, the Federal Reserve Board on December 8, 1927, granted to National Builders Bank of Chicago, Chicago, Illinois, the right to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Illinois; (2) Under the provisions of an Act of Congress approved May 1, 1886, National Builders Bank of Chicago, Chicago, Illinois, on May 1, 1940, changed its title to LaSalle National Bank; and (3) By virtue of the foregoing, LaSalle National Bank, Chicago, Illinois, has authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Illinois, subject to regulations prescribed by the Board of Governors of the Federal Reserve System. IN WITNESS WHEREOF, I have hereunto subscribed my name and caused the seal of the Board of Governors of the Federal Reserve System to be affixed at the City of Washington in the District of Columbia. /s/ S. R. Carpenter ------------------- Assistant Secretary. Dated May 9, 1940 18 EXHIBIT 4 BY-LAWS OF LA SALLE NATIONAL BANK 19 BYLAWS OF LA SALLE NATIONAL BANK CHICAGO, ILLINOIS LA SALLE NATIONAL BANK (LOGO) Organized Under the National Banking Laws of the United States 20 BYLAWS of the LA SALLE NATIONAL BANK (a National Banking Association which association is herein referred to as the "bank") ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders for the election of directors and the transaction of whatever other business may properly come before the meeting, shall be held at the main office of the Bank, 135 South LaSalle Street, Chicago, Illinois, or such other place as the Board of Directors may designate, at 9:00 A.M., on the third Wednesday of March of each year. Notice of such meeting shall be mailed, postage prepaid, at least ten days prior to the date thereof, addressed to each shareholder at his address appearing on the books of the Bank. If for any cause, an election of directors is not made on the said day, the Board of Directors shall order the election to be held on some subsequent day as soon thereafter as practicable, according to the provisions of law; and notice thereof shall be given in the manner herein provided for the annual meeting. SECTION 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by statute, special meetings of the shareholders may be called for any purpose at anytime by the board of directors or by any three or more shareholders owning, in the aggregate, not less than ten percent of the stock of the bank. Every such special meeting, unless otherwise provided by law, shall be called by mailing, postage pre-paid, not less than ten days prior to the date fixed for such meeting, to each shareholder at his address appearing on the books of the bank, a notice stating the purpose of the meeting. SECTION 1.3. NOMINATIONS FOR DIRECTOR. Nominations for election to the board of directors may be made by the board of directors or by any shareholder of any outstanding class of capital stock of the bank entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of the bank, shall be made in writing and shall be delivered or mailed to the president of the bank and to the Comptroller of the Currency, Washington, D.C., not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors, provided, however, that if less than 21 days' notice of the meeting is given to the shareholders, such nomination shall be mailed or delivered to the president of the bank and to the Comptroller of the Currency not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of each proposed nominee; (d) the name and address of the notifying shareholder; and (e) the number of shares of capital stock of the bank owned by the notifying shareholder. Nominations not made in accordance herewith, may, in his discretion, be disregarded by the chairman of the meeting, and upon his instructions, the vote tellers may disregard all votes cast for each such nominee. SECTION 1.4. JUDGES OF ELECTION. Every election of directors shall be managed by three judges, who shall be appointed by the board of directors prior lo the time of said election. The judges of election shall hold and conduct the election at which they are appointed to serve; and after the election, they shall file with the cashier a certificate under their hands, certifying the result thereof and the names of the directors elected. The judges of 1 21 election. at the request of the chairman of the meeting, shall act as tellers of any other vote by ballot taken at such meeting, and shall certify the result thereof. SECTION 1.5. PROXIES. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of this bank shall act as proxy. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and shall be filed with the records of the meeting. SECTION 1.6. QUORUM. A majority of the outstanding capital stock, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders, unless otherwise provided by law; but less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law or by the articles of association. ARTICLE II DIRECTORS SECTION 2.1. BOARD OF DIRECTORS. The board of directors (hereinafter referred to as the "board"), shall have power to manage and administer the business affairs of the bank. Except as expressly limited by law, all corporate powers of the bank shall be vested in and may be exercised by said board. SECTION 2.2. NUMBER. The board shall consist of not less than five or more than twenty-five shareholders, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full board or by resolution of the shareholders at any meeting thereof; provided, however, that a majority of the full board may not increase the number of directors by more than two if the number of directors last elected by shareholders was fifteen or less and by not more than four where the number of directors last elected by shareholders was sixteen or more, provided that in no event shall the number of directors exceed twenty-five. SECTION 2.3. ORGANIZATION MEETING. The cashier, upon receiving the certificate of the judges, of the result of any election, shall notify the directors-elect of their election and of the time at which they are required to meet at the main office of the bank for the purpose of organizing the new board and electing and appointing officers of the bank for the succeeding year. Such meeting shall be appointed to be held on the day of election or as soon thereafter as practicable, and, in any event, within thirty days thereof. If, at the time fixed for such meeting, there shall not be a quorum present the directors present may adjourn the meeting, from time to time, until a quorum is obtained. SECTlON 2.4 REGULAR MEETINGS. The regular meetings of the board shall be held, without notice, on the third Wednesday of each month at the main office. When any regular meeting of the board falls upon a holiday, the meeting shall be held on the next banking business day unless the board shall designate some other day. SECTION 2.5 SPECIAL MEETINGS. Special meetings of the board may be called by the chairman of the board, the president, or at the request of three or more directors. Each member of the board shall be given notice stating the time and place, by telegram, letter or in person, of each such special meeting. SECTION 2.6. QUORUM. A majority of the directors shall constitute a quorum at any meeting, except when otherwise provided by law; but a less number may adjourn any meeting from time to time, and the meeting may be held, as adjourned, without further notice. 2 22 SECTION 2.7. VACANCIES. When any vacancy occurs among the directors, the remaining members of the board, in accordance with the laws of the United States, may appoint a director to fill such vacancy at any regular meeting of the board, or at a special meeting called for that purpose. SECTION 2.8. RETIREMENT POLICY. A retirement policy adopted by the board of directors shall be applicable to directors who are not active officers of the bank. ARTICLE III COMMITTEES OF THE BOARD SECTION 3.1. EXECUTIVE COMMITTEE. There shall be an executive committee of the board. The members of the executive committee shall be chosen by the board from time to time, shall hold office during its pleasure, and shall consist of the chairman of the board, the chairman of the executive committee selected by the board, who may but need not be the same person designated to be president, and the president, ex officio, and not less than seven additional members of the board who shall not be active officers of the bank. It shall be the duty of this committee to exercise such powers and perform such duties in respect to the making of loans and discounts as shall from time to time be specified by resolution of the board. During such periods as the board shall not be in session, the executive committee shall have and may exercise all the powers of the board except such as are by law or by these bylaws required to be exercised only by the board. The executive committee may make rules for holding and conducting its meetings and keep in the minute book of the bank a report of all action taken which shall be submitted for approval at each regular meeting of the board and the action of the board shall be recorded in the minutes of that meeting. A quorum of the executive committee shall consist of not less than five of its members, at least three of whom shall not be active officers of the bank. The chairman of the board, or in his absence in the order named if present, the chairman of the executive committee or the president, may designate any director who is not an active officer of the bank, or a designated member, to serve as a member of the executive committee at any specified meeting. Vacancies in the executive committee at any time existing may be filled by appointment by the board. The board may at anytime revise or change the membership and chairmanship of the executive committee and make new or additional appointments thereto. The chairman of the executive committee shall be ex officio a member of all committees except the examining committee and the trust audit committee, and shall have such other duties as may from time to time be assigned him by the board. SECTION 3.2. OFFICERS' COMPENSATION COMMITTEE. There shall be an officers' compensation committee of the board. The members of the officers' compensation committee shall consist of the members ex officio provided for in other sections of these bylaws and not less than three additional non-officer members of the board who shall be appointed by the board each year at its first meeting after the directors have been elected and qualified. It shall be the duty of this committee to study the compensation of all officers of the bank and from time to time report their recommendations to the board; and such other duties, if any, as may from time to time be assigned to it by the board. A majority of the committee, including at least two non-officer members, shall be necessary for the committee to keep records of its action. SECTION 3.3. EXAMINING COMMITTEE. There shall be an examining committee of the board. The members of the examining committee shall consist of the members ex officio provided for in other sections of these bylaws, but exclusive of any active officer of the bank and not less than three additional non-officer members of the board who shall be appointed by the board each year at its first meeting after the directors have been elected and qualified. It shall be the duty of this committee to make an examination at least twice each year into the affairs of the bank or to cause the examinations to be made by accountants (who may be the bank's own accountants) responsible only to the board in such examinations, and to report the result of such examinations in writing to the board at the next regular meeting thereafter, or it may, at its sole discretion, submit the reports of the national bank examiner or of the Chicago Clearing House Association examination, with or without additional comments by the committee itself, for, and in lieu of its personal examinations. Such reports shall state whether the bank is in sound 3 23 condition, whether adequate internal audit controls and procedures are being maintained and shall recommend to the board such changes in the manner of doing business or conducting the affairs of the bank as shall be deemed advisable. SECTION 3.4. OTHER COMMITTEES. The board may appoint, from time to time, from its own members, other committees of one or more persons, for such purposes and with such powers as the board may determine. ARTICLE IV OFFICERS AND EMPLOYEES SECTION 4.1. CHAIRMAN OF THE BOARD. The board shall appoint one of its members to be chairman of the board. The chairman of the board shall supervise the carrying out of the policies adopted or approved by the board. He shall have general executive powers, as well as the specific powers conferred by these bylaws. He shall be ex officio a member of all committees, except the examining committee and the trust audit committee. He shall have general supervision and direction of the business, affairs and personnel of the bank. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned to him by the board. SECTION 4. 2. VICE CHAIRMAN OF THE BOARD. The board may appoint one of its members to be vice chairman of the board. He shall perform such duties as may from time to time be assigned to him by the board. SECTION 4.3. PRESIDENT. The board shall appoint one of its members to be president of the bank. He shall be the chief executive officer and the chief administrative officer of the bank and in the absence of the chairman of the board, he shall preside at any meeting of the board at which he is present. The president shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice to the office of president, or imposed by these bylaws. He shall be ex officio a member of all committees, except the examining committee and trust audit committee. He shall have general supervision of the business, affairs and personnel of the bank and in the absence of the chairman of the board, shall exercise the powers and perform the duties of the chairman of the board. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the board. SECTION 4.4. SENIOR OFFICERS. The board may appoint one or more executive vice presidents and one or more senior vice presidents. Each such senior officer shall have such powers and duties as may be assigned to him by the board, the chairman of the board, or the president. SECTION 4.5. VICE PRESIDENT. The board may appoint one or more vice presidents. Each vice president shall have such powers and duties as may be assigned to him by the board, the chairman of the board, or the president. SECTION 4.6. CASHIER. The board shall appoint a cashier who shall have such powers and duties as may be assigned to him by the board, the chairman of the board, or the president. The cashier shall be custodian of the corporate seal, records, documents and papers of the bank. He shall provide for keeping of proper records of all transactions of the bank. SECTION 4.7. SECRETARY. The board shall appoint a secretary who shall be secretary of the bank. He shall also perform such duties as may be assigned to him from time to time by the board. The board may appoint a secretary of the board who shall keep accurate minutes of all meetings. He shall attend to the giving of all notices; he shall also perform such other duties as may be assigned to him from time to time by the board. 4 24 SECTION 4.8. OTHER OFFICERS. The board may appoint one or more assistant vice presidents, one or more trust officers, one or more assistant secretaries, one or more assistant cashiers, and such other officers and attorneys-in-fact as from time to time may appear to the board to be required or desirable to transact the business of the bank. Such officers, respectively, shall exercise such powers and perform such duties as pertain to their several offices or as may be conferred upon or assigned to them by the board the chairman of the board or the president. SECTION 4.9. CLERKS AND AGENTS. The chairman of the board, the president, or any other active officer of the bank authorized by the chairman of the board, or the president, may appoint and dismiss all or any paying tellers receiving tellers note tellers, vault custodians, bookkeepers and other clerks, agents and employees as they may deem advisable for the prompt and orderly transaction of the business of the bank, define their duties, fix the salaries to be paid them and the conditions of their employment. SECTION 4.10. RESPONSIBILITY FOR MONEYS, ETC. Each of the active officers and clerks of this bank shall be responsible for all moneys, funds valuables and property of every kind and description that may from time to time be entrusted to his care or placed in his hands by the board or others, or that otherwise may come into his possession as an active officer or clerk of this bank. SECTION 4.11. SURETY BONDS. All the active officers and clerks of this bank may be covered by one of the blanket form bonds customarily written by the surety companies, drawn for such an amount, and executed by such surety company, as the board may from time to time require, and duly approve; or at the discretion of the board, all such active officers and clerks shall, each for himself, give such bond, with such security, and in such denominations as the board may from time to time require and direct. All bonds approved by the board shall assure the faithful and honest discharge of the respective duties of such active officer or clerk and shall provide that such active officer or clerk shall faithfully apply and account for all moneys, funds, valuables and property of every kind and description that may from time to time come into his hands or be entrusted to his care, and pay over and deliver the same to the order of the board or to such other person or persons as may be authorized to demand and receive the same. SECTION 4.12. TERM OF OFFICE - OFFICER DIRECTOR. The chairman of the board, the vice chairman of the board and the president, together with any other active officers who may be duly elected members of the board, shall hold their respective offices for the current year for which the board (of which they shall be members) was elected and until their successors are appointed, unless they shall resign, be disqualified, or be removed; and any vacancy occurring in the office of the chairman of the board, the vice chairman of the board, the president, or in the board, shall, if required by these bylaws, be filled by the remaining members. SECTION 4.13. TERM OF OFFICE - OFFICER. The executive vice presidents, the senior vice presidents, the vice presidents, the assistant vice presidents, the cashier, the secretary, the trust officers and all other officers and attorneys-in-fact who are not duly elected members of the board, shall be appointed to hold their offices, respectively, during the pleasure of the board. ARTICLE V TRUST DEPARTMENT SECTION 5.1. TRUST DEPARTMENT. There shall be a department of the bank known as the trust department which shall perform the fiduciary responsibilities of the bank. SECTION 5.2. TRUST OFFICER. There shall be a senior vice president and trust officer, or vice president and trust officer of this bank, who shall be designated as the managing officer of the trust department and whose duties shall be to manage, supervise and direct all the activities of the trust department. He shall do, or cause 5 25 to be done, all things necessary or proper in carrying on the business of the trust department in accordance with provisions of law and regulations. He shall act pursuant to opinion of counsel where such opinion is deemed necessary. Opinions of counsel shall be retained on file in connection with all important matters pertaining to fiduciary activities. The trust officer shall be responsible for all assets and documents held by the bank in connection with fiduciary matters. The board may appoint such other officers of the trust department as it may deem necessary, with such duties as may be assigned to them by the board, the chairman of the board, or the president. SECTION 5.3. TRUST INVESTMENT COMMITTEE. There shall be appointed by the board a trust investment committee of this bank composed of not less than four members, including members ex officio provided for in other sections of these bylaws, who shall be capable and experienced officers or directors of the bank. All investments of funds held in a fiduciary capacity shall be made, retained or disposed of only with the approval of the trust investment committee; and the committee shall keep minutes of all its meetings, showing the disposition of all matters considered and passed upon by it. The committee shall, promptly after the acceptance of an account for which the bank has investment responsibilities, review the assets thereof, to determine the advisability of retaining or disposing of such assets. The committee shall conduct a similar review at least once during each calendar year thereafter and within fifteen months of the last such review. A report of all such reviews, together with the action taken as a result thereof, shall be noted in the minutes of the committee. Three members of the trust investment committee shall constitute a quorum, and any action approved by a majority of those present shall constitute the action of the committee. SECTION 5.4. TRUST AUDIT COMMITTEE. The board shall appoint a committee of not less than three directors, including members ex officio provided for in other sections of these bylaws, exclusive of any active officers of the bank, which shall at least once during each calendar year and within fifteen months of the last such audit make suitable audits of the trust department, or cause suitable audits to be made, by auditors responsible only to the board, and at such time shall ascertain whether the department has been administered in accordance with law, Regulation 9, and sound fiduciary principles. Notwithstanding the provisions of this Section, the board at any time may assign to the Examining Committee, in addition to the duties of the Examining Committee set forth in Section 3.3 of these bylaws, all of the duties of the Trust Audit Committee and during such time as the Examining Committee is performing the duties of both committees, the Trust Audit Committee shall cease to function as a committee of this board. The board at any time may reassign the duties provided for in this Section to the Trust Audit Committee. SECTION 5.5. TRUST DEPARTMENT FILES. There shall be maintained in the trust department, files containing all fiduciary records necessary to assure that its fiduciary responsibilities have been properly undertaken and discharged. SECTION 5.6. TRUST INVESTMENTS. Funds held in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. Where such instrument does not specify the character and class of investments to be made and does not vest in the bank a discretion in the matter, fund shield pursuant to such instrument shall be invested in investments in which corporate fiduciaries may invest under local law. ARTICLE VI STOCK AND STOCK CERTIFICATES SECTION 6.1. TRANSFERS. Shares of capital stock shall be transferable on the books of the bank and a transfer book shall be kept in which all transfers of stock shall be recorded. Every person becoming a shareholder 6 26 be such transfer shall in proportion to his shares, succeed to all rights and liabilities of the prior holder of such shares. SECTION 6.2. STOCK CERTIFICATES. Certificates of capital stock shall bear the signature of any one of, the chairman of the board, or the president (which may be engraved, printed or impressed) and shall be signed manually or by facsimile process by the secretary, assistant secretary, cashier, assistant cashier, or any other officer appointed by the board for that purpose, to be known as an authorized officer and the seal of the bank shall be engraven thereon. Each certificate shall recite on its face that the stock represented thereby is transferable, properly endorsed, only on the books of the bank. ARTICLE VII CORPORATE SEAL SECTION 7.1. CORPORATE SEAL. The chairman of the board, the president, the cashier, the secretary or any assistant cashier or assistant secretary, or other officer thereunto designated by the board, shall have authority to affix the corporate seal to any document requiring such seal, and to attest the same. Such seal shall be substantially in the form set forth herein. ARTICLE VIII INDEMNIFYING OFFICERS AND DIRECTORS SECTION 8.1. INDEMNIFYING OFFICERS AND DIRECTORS. Any person, his heirs, executors or administrators, may be indemnified or reimbursed by the bank for reasonable expenses actually incurred in connection with any action, suit or proceeding, civil or criminal, to which he or they shall be made a party by reason of his being or having been a director, officer or employee of the bank or of any firm, corporation or organization which he served in any such capacity at the request of the bank; provided, however, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit or proceeding as to which he shall finally be adjudged to have been guilty of or liable for negligence or willful misconduct in the performance of his duties to the bank; and, provided further, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit or proceeding which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of the bank, or the board, acting by vote of directors not parties to the same or substantially the same action suit or proceeding, constituting a majority of the whole number of the directors. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such person, his heirs, executors or administrators, may be entitled as a matter of law. ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1. FISCAL YEAR. The fiscal year of the bank shall be the calendar year. SECTION 9.2. EXECUTION OF INSTRUMENTS. All agreements, indentures mortgages, deeds, conveyances transfers certificates declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted for the bank by the chairman of the board, or the vice chairman of the board, or the president, or any executive vice president, or any senior vice president, or any vice 7 27 president, or the secretary or the cashier, or, if in connection with the exercise of fiduciary powers of the bank by any of said officers or by any officer in the trust department. Any such instruments may also be signed, executed, acknowledged, verified, delivered or accepted for the bank in such other manner and by such other officers as the board may from time to time direct. The provisions of this Section 9.2 are supplementary to any other provisions of these bylaws. SECTION 9.3. RECORDS. The articles of association, the bylaws, and the proceedings of all meetings of the shareholders and of the board shall be recorded in appropriate minute books provided for the purpose; where these bylaws so provide, the proceedings of standing committees of the board shall be recorded in appropriate minute books provided for the purpose. ARTICLE X EMERGENCIES SECTION 10.1. CONTINUATION OF BUSINESS. In the event of a state of emergency of sufficient severity to interfere with the conduct and management of the affairs of this bank, the officers and employees will continue to conduct the affairs of the bank under such guidance from the directors as may be available except as to matters which by statute require specific approval of the board of directors and subject to conformance with any governmental directives during the emergency. SECTION 10.2. DESIGNATION OF PLACE OF BUSINESS. The offices of the bank at which its business shall be conducted shall be the main office thereof located at 135 South LaSalle Street, Chicago, Illinois, and any other legally authorized location which may be leased or acquired by this bank to carry on its business. During an emergency resulting in any authorized place of business of this bank being unable to function, the business ordinarily conducted at such location shall be relocated elsewhere in suitable quarters, in addition to or in lieu of the locations heretofore mentioned, as may be designated by the board of directors or by the executive committee or by such persons as are then, in accordance with resolutions adopted from time to time by the board of directors dealing with the exercise of authority in the time of such emergency, conducting the affairs of this bank. Any temporarily relocated place of business of this bank shall be returned to its legally authorized location as soon as practicable and such temporary place of business shall then be discontinued. ARTICLE XI BYLAWS SECTION 11.1 INSPECTION. A copy of the bylaws with all amendments thereto, shall at all times be kept in a convenient place at the main office of the bank and shall be open for inspection to all shareholders, during banking hours. SECTION 11.2 AMENDMENTS. The bylaws may be amended, altered or repealed, at any regular meeting of the board, by a vote of a majority of the whole number of the directors. *** I........................................... hereby certify that I am the................................ Cashier/Secretary of LaSalle National Bank, Chicago, Illinois and that the foregoing is a true and correct copy of the bylaws of this bank as amended and that the same are in full force and effect ............. day of...................19........ 8 28 ............................... Cashier/Secretary. December 15, 1982 (SEAL) 9 29 EXHIBIT 5 NOT APPLICABLE 30 EXHIBIT 6 LaSalle National Bank hereby consents in accordance with the provisions of Section 321(b) of the Trust Indenture Act of 1939, that reports of examinations by Federal, State, Territorial and District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. LA SALLE NATIONAL BANK By: /s/ Sarah H. Webb ----------------- Sarah H. Webb First Vice President 31 EXHIBIT 7 Latest Report of Condition of Trustee published pursuant to law or the requirement of its surviving or examining authority. 32
LaSalle National Bank Call Date 06/30/97 ST-BK: 17-1520 FFIEC 031 135 South LaSalle Street Page RC-1 Chicago, IL 60603 Vendor ID: D CERT: 15407 11 Transit Number: 71000505 CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1997 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. SCHEDULE RC - BALANCE SHEET Dollar Amounts in Thousand - -------------------------------------------------------------------------------------------------------------------------------- ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD ---- a. Noninterest-bearing balances and currency and coin (1) 0081 744,692 1.a b. Interest-bearing balances (2) 0071 513 1.b 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 996,943 2.a b. Available-for-sale securities (from Schedule RC-B, column D) 1773 3,495,646 2.b 3. Federal funds sold and securities purchased under agreements to resell 1350 232,387 3. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income RCFD ---- (from Schedule RC-C) 2122 9,602,698 4.a b. LESS: Allowance for loan and lease losses 3123 189,763 4.b c. LESS: Allocated transfer risk reserve 3128 0 4.c d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 9,412,935 4.d 5. Trading assets (from Schedule RC-D) 3545 112,347 5. 6. Premises and fixed assets (including capitalized leases) 2145 44,456 6. 7. Other real estate owned (from Schedule RC-M) 2150 3,141 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 0 8. 9. Customers' liability to this bank on acceptances outstanding 2155 11,097 9. 10.Intangible assets (from Schedule RC-M) 2143 20,933 10. 11.Other assets (from Schedule RC-F) 2160 308,830 11. 12.Total assets (sum of items 1 through 11) 2170 15,383,920 12. - ---------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading.
33
LaSalle National Bank Call Date 06/30/97 ST-BK: 17-1520 FFIEC 031 135 South LaSalle Street Page RC-2 Chicago, IL 60603 Vendor ID: D CERT: 15407 12 Transit Number: 71000505 SCHEDULE RC - CONTINUED Dollar Amounts in Thousands - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES 13.Deposits: RCOM a. In domestic offices (sum of totals of ---- columns A and C from Schedule RC-E, part I) 2200 8,057,102 13.a RCON ---- (1) Noninterest-bearing (1) 6631 2,057,727 13.a.1 (2) Interest-bearing 6636 5,999,375 13.a.2 RCFN ---- b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II) 2200 2,006,523 13.b RCFN ---- (1) Noninterest-bearing 6631 0 13.b.1 (2) Interest-bearing 6636 2,006,523 13.b.2 RCFD ---- 14.Federal funds purchased and securities sold under agreements to repurchase 2800 1,556,756 14. RCON ---- 15.a. Demand notes issued to the U.S. Treasury 2840 692,219 15.a RCFD ---- b. Trading liabilities (from Schedule RC-D) 3548 58,221 15.b 16.Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases): a. With a remaining maturity of one year or less 2332 1,379,144 16.a b. With a remaining maturity of more than one year through three years A547 15,762 16.b c. With a remaining maturity of more than three years A548 16,512 16.c 17.Not applicable. 18.Bank's liability on acceptances executed and outstanding 2920 11,097 18. 19.Subordinated notes and debentures (2) 3200 396,250 19. 20.Other liabilities (from Schedule RC-G) 2930 212,679 20. 21.Total liabilities (sum of items 13 through 20) 2948 14,402,265 21. 22.Not applicable. EQUITY CAPITAL RCFD ---- 23.Perpetual preferred stock and related surplus 3838 0 23. 24.Common stock 3230 18,417 24. 25.Surplus (exclude all surplus related to preferred stock) 3839 275,636 25. 26.a. Undivided profits and capital reserves 3632 670,189 26.a b. Net unrealized holding gains (losses) on available-for-sale securities 8434 17,413 26.b 27.Cumulative foreign currency translation adjustments 3284 0 27. 28.Total equity capital (sum of items 23 through 27) 3210 981,655 28. 29.Total liabilities and equity capital (sum of items 21 and 28) 3300 15,383,920 29. MEMORANDUM TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION. 1. Indicate in the box at the right the number of the statement below that best describes RCFD Number the most comprehensive level of auditing work performed for the bank by independent ---- ------ external auditors as of any date during 1996 6724 N/A M.1 1 =Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 =Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by submits a report on the consolidated holding company (but external auditors not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 =Directors' examination of the bank conducted in accordance 8 = No external audit work with generally accepted auditing standards by a certified public accounting firm (may be required by state charter- ing authority) - ---------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus.
34 EXHIBIT 8 NOT APPLICABLE 35 EXHIBIT 9 NOT APPLICABLE EX-99.1 26 EXHIBIT 99.1 1 Exhibit 99.1 LETTER OF TRANSMITTAL BELDEN & BLAKE CORPORATION For Tender of 9 7/8% Series A Senior Subordinated Notes Pursuant to Offer For Any and All Outstanding 9 7/8% Series A Senior Subordinated Notes in Exchange for 9 7/8% Series B Senior Subordinated Notes Which Have Been Registered Under the Securities Act of 1933 As Described in the Prospectus dated ________, 1997 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _____________, 1997, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. The Exchange Agent For The Exchange Offer Is: LaSalle National Bank
By Hand or Overnight Delivery: Facsimile Transmissions By Registered Or Certified Mail: (Eligible Institutions Only): LaSalle National Bank LaSalle National Bank [address] (212) xxx-xxxx [address] [address] To Confirm by Telephone: [address] [address] (212) xxx-xxxx [address] For Information Call: (800) xxx-xxxx
Delivery of this letter of transmittal to an address other than as set forth above or transmission of this letter of transmittal via facsimile to a number other than as set forth above does not constitute a valid delivery. The undersigned acknowledges receipt of the Prospectus, dated ______, 1997, as may be amended from time to time (the "Prospectus"), of Belden & Blake Corporation, an Ohio corporation (the "Company"), and this Letter of Transmittal, which together constitute the Company's offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $225,000,000 of 9 7/8% Series B Senior Subordinated Notes due 2007, which have been registered under the Securities Act of 1933, as amended (the "Securities Act") (the "Exchange Notes"), of the Company for a like principal amount of the issued and outstanding 9 7/8% Series A Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") of the Company from the Holders thereof. 1 2 PLEASE READ THE INSTRUCTIONS CONTAINED HEREIN CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL. Capitalized terms used but not defined herein shall have the same meanings respectively given to them in the Prospectus. This Letter of Transmittal is to be completed by Holders of Senior Subordinated Notes either if certificates for Senior Subordinated Notes ("Certificates") are to be forwarded herewith or if tenders of Senior Subordinated Notes are to be made by book-entry transfer to an account maintained by LaSalle National Bank (the "Exchange Agent") at the Depository Trust Company (the "Book Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes" in the Prospectus. Holders of Senior Subordinated Notes whose Certificates are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Senior Subordinated Notes according to the guaranteed delivery procedures set forth in "The Exchanges Offer--Procedures for Tendering Senior Subordinated Notes" in the Prospectus. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. DESCRIPTION OF Senior Subordinated Notes
Principal Aggregate Amount of Principal Senior Subordinated Amount of Notes Name(s) and Address(es) of Holder(s): Certificate Senior Subordinated Tendered (Please fill in, if blank) Number(s)* Notes (if less than all)** - ----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- * Need not be completed if Senior Subordinated Notes are being tendered by book-entry Holders. ** Senior Subordinated Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples of $1,000 in excess thereof, provided that if any Senior Subordinated Notes are tendered for exchange in part, the untendered principal amount thereof must be $1,000 or any integral multiple of $1,000 in excess thereof. See Instruction 4. Unless otherwise indicated in the column, a Holder will be deemed to have tendered all Senior Subordinated Notes represented by the Senior Subordinated Notes indicated in Column 2. See Instruction 4. 2 3 (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) |_| CHECK HERE IF TENDERED SENIOR SUBORDINATED NOTES ARE BEING DELIVERED BY BOOKENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ------------------------------ Account Number: ------------------- Transaction Code Number: -------------- |_| CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED SENIOR SUBORDINATED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Holder(s): ------------------------------------- Window Ticket Number (if any): ------------------------- Date of Execution of Notice of Guaranteed Delivery: , 1997 ------------ Name of Institution that Guaranteed Delivery: ------------------------ If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution: ---------------------------------- Account Number: ------------------------ Transaction Code Number: --------------- |_| CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED SENIOR SUBORDINATED NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE. |_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE SENIOR SUBORDINATED NOTES FOR YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ---------------------------------------- Address: ------------------------------------- ------------------------------------- ------------------------------------- (include zip code) 3 4 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the above described aggregate principal amount of the Company's 9 7/8% Series A Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") in exchange for a like aggregate principal amount of the Company's 9 7/8% Series B Senior Subordinated Notes due 2007, which have been registered under the Securities Act (the "Exchange Notes"), upon the terms and subject to the conditions set forth in the Prospectus, receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the Exchange Offer). Subject to and effective upon the acceptance for exchange of all or any portion of the Senior Subordinated Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Senior Subordinated Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Senior Subordinated Notes, with full power of substitution (such power of attorney's being deemed to be an irrevocable power coupled with an interest) subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to be issued in exchange for such Senior Subordinated Notes, (ii) present Certificates for transfer, and to transfer the Senior Subordinated Notes on the books of the Company and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Senior Subordinated Notes, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE SENIOR SUBORDINATED NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE SENIOR SUBORDINATED NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. UPON REQUEST, THE UNDERSIGNED WILL EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE SENIOR SUBORDINATED NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. If they are not already set forth above, please print the name(s) and address(es) of the Holder(s) of the Senior Subordinated Notes tendered hereby as they appear on the Certificates. The undersigned should indicate the Certificate number(s) of the Senior Subordinated Notes that the undersigned wishes to tender in the appropriate boxes above. If any tendered Senior Subordinated Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Senior Subordinated Notes than are tendered or accepted for exchange, Certificates for such nonexchanged or nontendered Senior Subordinated Notes will be returned (or, in the case of Senior Subordinated Notes tendered by book-entry transfer, such Senior Subordinated Notes will be credited to an account maintained at DTC), without expense to the tendering Holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Senior Subordinated Notes pursuant to any one of the procedures described in "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes" in the Prospectus and in the instructions attached hereto will, upon the Company's acceptance for exchange of such 4 5 tendered Senior Subordinated Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Senior Subordinated Notes tendered hereby. Unless otherwise indicated under "Special Issuance Instructions" below, the undersigned hereby directs that the Exchange Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Senior Subordinated Notes, that such Exchange Notes be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Senior Subordinated Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," Exchange Notes will be delivered to the undersigned at the address shown below the undersigned's signature. BY TENDERING SENIOR SUBORDINATED NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER AND (IV), IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE NOTES. BY TENDERING SENIOR SUBORDINATED NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF SENIOR SUBORDINATED NOTES THAT IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) THE BROKER-DEALER HOLDS SUCH SENIOR SUBORDINATED NOTES ONLY AS A NOMINEE, OR (B) THE BROKER-DEALER ACQUIRED SUCH SENIOR SUBORDINATED NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND THAT IT WILL DELIVER A PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) MAY USE THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, IN CONNECTION WITH RESALES OF EXCHANGE NOTES THAT SUCH PARTICIPATING BROKER-DEALER ACQUIRED FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING [180] DAYS AFTER CONSUMMATION OF THE EXCHANGE OFFER OR, IF EARLIER, WHEN SUCH PARTICIPATING BROKER-DEALER HAS DISPOSED OF ALL SUCH EXCHANGE NOTES. IN THAT REGARD, EACH BROKER-DEALER THAT ACQUIRED SENIOR SUBORDINATED NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH SENIOR SUBORDINATED NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT THAT MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR THAT CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO 5 6 THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND THE COMPANY HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR UNTIL THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES NOTICE TO SUSPEND THE SALE OF THE EXCHANGE NOTES, IT SHALL EXTEND THE [180]-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF EXCHANGE NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. Holders of Senior Subordinated Notes whose Senior Subordinated Notes are accepted for exchange will not receive accrued interest on such Senior Subordinated Notes for any period from and after the last Interest Payment Date to which interest has been paid or duly provided for with respect to such Senior Subordinated Notes prior to the original issue date of the Exchange Notes or, if no such interest has been paid or duly provided for, such Holders will not receive any accrued interest on such Senior Subordinated Notes; and the undersigned hereby irrevocably waives the right to receive any interest on such Senior Subordinated Notes accrued from and after such Interest Payment Date or, if no such interest has been paid or duly provided for, from and after June 27, 1997. Upon request, the undersigned will execute and deliver any additional documents that the Company or the Exchange Agent may deem necessary or desirable to complete the sale, assignment and transfer of the Senior Subordinated Notes tendered hereby. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and all obligations of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, a tender of Senior Subordinated Notes is irrevocable. BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF SENIOR SUBORDINATED NOTES" ABOVE AND DULY SIGNING AND DELIVERING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED WILL BE DEEMED TO HAVE TENDERED THE SENIOR SUBORDINATED NOTES AS SET FORTH IN SUCH BOX. 6 7 HOLDER(S) SIGN HERE (SEE INSTRUCTIONS 2, 5 AND 6) (PLEASE COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREWITH) (NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2) Must be signed by Holder(s) exactly as name(s) appear(s) on Certificate(s) hereby tendered or on the Note Register, or by any person(s) authorized to become the Holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Company for the Senior Subordinated Notes to comply with the restrictions on transfer applicable to the Senior Subordinated Notes). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or a person acting in another fiduciary or representative capacity, please set forth the signatory's full title. See Instruction 5. SIGNATURE(S) OF HOLDER(S): - ------------------------------------------ - ------------------------------------------ Date: , 1997 ---------------------- Name(s): ------------------------------------ ------------------------------------ (please print) Capacity (full title): ---------------------- Address: ------------------------------------ ------------------------------------ ------------------------------------ (include zip code) Telephone Number (including area code): ------------------------------- Taxpayer Identification or Social Security Number(s): ----------------- 7 8 GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 2 AND 5): - ------------------------------------- (authorized signature) Date: , 1997 ---------------- Name of Firm: ---------------------------------- (please print) Capacity (full title): ------------------------- Address: --------------------------------------- --------------------------------------- --------------------------------------- (include zip code) Telephone Number (including area code): --------------------------- 8 9 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if the Exchange Notes or Senior Subordinated Notes not tendered are to be issued in the name of someone other than the Holder of the Senior Subordinated Notes whose name(s) appear(s) above. Please issue: |_| Senior Subordinated Notes not tendered to: |_| Exchange Notes to: Name(s): ----------------------------------------- ----------------------------------------- (please print) Capacity (full title): --------------------------- Address: ----------------------------------------- ----------------------------------------- ----------------------------------------- (include zip code) Telephone Number (including area code): ------------------------------- Taxpayer Identification or Social Security Number(s): ----------------- 9 10 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if Exchange Notes or Senior Subordinated Notes not tendered are to be sent to someone other than the Holder of the Senior Subordinated Notes whose name(s) appear(s) above, or to such Holder(s) at an address other than that shown above. Please mail: |_| Senior Subordinated Notes not tendered to: |_| Exchange Notes, to: Name(s): ---------------------------------------------- ---------------------------------------------- (please print) Capacity (full title): --------------------------------- Address: ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- (include zip code) Telephone Number (including area code): --------------------------- Taxpayer Identification or Social Security Number(s): ------------- 10 11 INSTRUCTIONS (FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER) 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed if either (a) Certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes" in the Prospectus. The Exchange Agent must receive Certificates, or timely confirmation of a book-entry transfer of such Senior Subordinated Notes into the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, at its address set forth herein on or prior to the Expiration Date. Senior Subordinated Notes may be tendered in whole or in part in the principal amount of $1,000 and integral multiples thereof; provided, however, that, if any Senior Subordinated Notes are tendered for exchange in part, the untendered principal amount thereof must be $1,000 or any integral multiple thereof. Holders who wish to tender their Senior Subordinated Notes (i) whose Senior Subordinated Notes are not immediately available, (ii) who cannot deliver their Senior Subordinated Notes, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Senior Subordinated Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) the Exchange Agent must receive a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form that the Company has made available, on or prior to the Expiration Date; and (iii) the Exchange Agent must receive the Certificates (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Senior Subordinated Notes, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal, within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Senior Subordinated Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a member of the Securities Agents Medallion Program, The New York Stock Exchanges Medallion Signature Program or The Stock Exchanges Medallion Program. THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN THE EXCHANGE AGENT ACTUALLY RECEIVES ALL OF SUCH DOCUMENTS. IF DELIVERY IS BY MAIL, THEN REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. The Company will not accept any alternative, conditional or contingent tenders. Each tendering Holder, by execution and delivery of this Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 11 12 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the Holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the Note Register as the owner of the Senior Subordinated Notes) of Senior Subordinated Notes tendered herewith, unless such Holder(s) has completed either "Special Issuance Instructions" or "Special Delivery Instructions" above, or (ii) such Senior Subordinated Notes are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Senior Subordinated Notes" is inadequate, the Certificate number(s) and/or the principal amount of Senior Subordinated Notes and any other required information should be listed on a separate signed schedule that is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Senior Subordinated Notes will be accepted only in the principal amount of $1,000 and integral multiples thereof; provided, however, that, if any Senior Subordinated Notes are tendered for exchange in part, the untendered principal amount thereof must be $1,000 or any integral multiple thereof. If less than all the Senior Subordinated Notes evidenced by any Certificate submitted are to be tendered, please indicate the principal amount of Senior Subordinated Notes that are to be tendered in the box entitled "Principal Amount of Senior Subordinated Notes Tendered (if less than all)." In such case, new Certificate(s) for the remainder of the Senior Subordinated Notes that were evidenced by the old Certificate(s) will only be sent to the Holder of the Senior Subordinated Notes, promptly after the Expiration Date. All Senior Subordinated Notes represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Senior Subordinated Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective on or prior to that time, the Exchange Agent must timely receive a written, telegraphic, telex or facsimile transmission of such notice of withdrawal at one of its addresses set forth above or in the Prospectus on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Senior Subordinated Notes to be withdrawn, the aggregate principal amount of Senior Subordinated Notes to be withdrawn and, if Certificates have been tendered, the name of the Holder of the Senior Subordinated Notes as set forth on the Certificate if different from that of the person who tendered such Senior Subordinated Notes. If Certificates have been delivered or otherwise identified to the Exchange Agent, then, prior to the physical release of such Certificates, the tendering Holder must submit the serial numbers shown on the particular Certificates to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Senior Subordinated Notes tendered for the account of an Eligible Institution. If Senior Subordinated Notes have been tendered pursuant to the procedures for book-entry transfer set forth in the Prospectus under "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Senior Subordinated Notes, in which case a notice of withdrawal will be effective if timely delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Senior Subordinated Notes may not be rescinded. Senior Subordinated Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering Senior Subordinated Notes." The Company will determine, in its sole discretion, all questions as to the validity, form and eligibility (including time of receipt) of any such withdrawal notice, and such determination shall be final and binding on all parties. None of the Company, any affiliates or assigns of the Company, the Exchange Agent or any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability 12 13 for failure to give any such notification. Any Senior Subordinated Notes that have been tendered but that are withdrawn will be returned to the Holder without cost to such Holder promptly after withdrawal. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the Holder(s) of the Senior Subordinated Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any tendered Senior Subordinated Notes are owned of record by two or more joint Holders, all such Holders must sign this Letter of Transmittal. If any tendered Senior Subordinated Notes are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in another fiduciary or representative capacity, such persons must so indicate when signing and must submit proper evidence satisfactory to the Company, in its sole discretion, of each such person's authority to act. If this Letter of Transmittal is signed by the Holder(s) of the Senior Subordinated Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless Exchange Notes are to be issued in the name of a person other than the Holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the Holder of the Senior Subordinated Notes listed and transmitted hereby, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the Holder(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Company or the Trustee may require in accordance with the restrictions on transfer applicable to the Senior Subordinated Notes. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be issued in the name of a person other than the signatory of this Letter of Transmittal, or if Exchange Notes are to be sent to someone other than the signatory of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal must be completed. Certificates for Senior Subordinated Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Senior Subordinated Notes. Such determination shall be final and binding on all parties. The Company reserves the absolute right to reject any and all tenders that it determines not to be in proper form or the acceptance of which, or exchange for which, may, in the view of counsel to the Company, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer--Certain Conditions to the Exchange Offer" or any conditions or irregularity in any tender of Senior Subordinated Notes by any particular Holder, whether or not the Company waives similar conditions or irregularities in the case of any other Holder. The Company's interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding on all parties. No tender of Senior Subordinated Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. None of the Company, any affiliates or assigns of the Company, the Exchange Agent or any other person shall be under any duty to give notification of any irregularities in tenders or shall incur any liability for failure to give such notification. 13 14 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front cover of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from a broker, dealer, commercial bank, trust company or other nominee. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. federal income tax law, a Holder whose tendered Senior Subordinated Notes are accepted for exchange is required to provide the Exchange Agent with such Holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the Holder or other payee to a $50 penalty. The box in Part 2 of the Substitute Form W-9 should be checked if the tendering Holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the Holder must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 has been checked and the Certificate of Awaiting Taxpayer Identification Number has been completed, the Exchange Agent will withhold 31% of all payments made prior to the time that a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the Holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the Holder and no further amounts shall be retained or withheld from payments made to the Holder thereafter. If, however, the Holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The Holder is required to give the Exchange Agent the TIN of the Holder of the Senior Subordinated Notes or of the last transferee appearing on the transfers attached to, or endorsed on, the Senior Subordinated Notes. If the Senior Subordinated Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain Holders (including, among others, corporations, financial institutions and certain foreign persons) may not be subject to these backup withholding and reporting requirements. Such Holders should nevertheless complete the attached Substitute Form W-9 below and write "exempt" on the face thereof to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8 signed under penalties of perjury attesting to its exempt status. Please consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which Holders are exempt from backup withholding. Backup withholding is not an additional U.S. federal income tax. Rather, the U.S. federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of tax, a refund may be obtained. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions to the Exchange Offer enumerated herein or in the Prospectus. 11. NO CONDITIONAL TENDERS. The Company will not accept any alternative, conditional, irregular or contingent tenders. By execution and delivery of this Letter of Transmittal, a tendering Holder of Senior Subordinated Notes shall be deemed to have irrevocably waived any right to receive notice of acceptance of such Senior Subordinated Notes for exchange. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Senior Subordinated Notes have been lost, destroyed or stolen, the Holder should promptly notify the Exchange Agent, which will instruct the Holder as to the steps that must be taken in order to replace the Certificate(s). In such event, 14 15 the Exchange Agent will be unable to process this Letter of Transmittal and related documents until the Holder has followed the procedures for replacing lost, destroyed or stolen Certificate(s). 13. SECURITY TRANSFER TAXES. Holders who tender their Senior Subordinated Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, a transfer tax is imposed because the Exchange Notes are to be delivered to, or are to be issued in the name of, any person other than the Holder of the Senior Subordinated Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Senior Subordinated Notes in connection with the Exchange Offer, then the tendering Holder must pay the amount of any such transfer tax (whether imposed on the Holder or any other person). If the tendering Holder submits satisfactory evidence of payment of such taxes or exemption therefrom with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. IMPORTANT: THE EXCHANGE AGENT MUST RECEIVE THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS ON OR PRIOR TO THE EXPIRATION DATE. 15 16
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS (See Instruction 9) PAYER'S NAME: LASALLE NATIONAL BANK PART 1-PLEASE PROVIDE YOUR TIN ON THE TIN:___________________________ LINE AT RIGHT AND CERTIFY BY SIGNING Social Security Number or AND DATING BELOW Employer Identification Number -------------------------------------------------------------------------------------------- PART 2 -- TIN Applied For |_| -------------------------------------------------------------------------------------------- SUBSTITUTE CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: Form W-9 (1) the number shown on this form is my correct taxpayer identification number (or I Department Of The am waiting for a number to be issued to me). Treasury Internal Revenue Service (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") Payor's Request For that I am subject to backup withholding as a result of a failure to report all interest Taxpayer or dividends, or (c) the IRS has notified me that I am no longer subject to backup Identification Number withholding, and ("TIN") and Certification (3) any other information provided on this form is true and correct. Signature Date , 1997 ----------------------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------
You must cross out Part (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me on account of the Exchange Notes shall be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. Signature Date , 1997 ------------------------------- --------------- 16 17 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - -------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals (joint The actual owner account) of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, guardian or committee for a or incompetent designated ward, minor, or person(3) incompetent person 7. a. The usual revocable savings The grantor- trust account (grantor is also trustee(1) trustee) b. So-called trust account that The actual owner(1) is not a legal or valid trust under State law. GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - -------------------------------------------------------------------- 8. Sole proprietorship account The owner(4) 9. A valid trust, estate, or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments (1)List first and circle the name of the person whose number you furnish. (2)Circle the minor's name and furnish the minor's social security number. (3)Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4)Show the name of the owner. (5)List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 18 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organizational exempt from tax under section 501(a), or an individual retirement plan - - The United States or any agency or instrumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - - An international organization or any agency, or instrumentality thereof. - - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a). - - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - - An entity registered at all times during the tax year under the Investment Company Act of 1940 - - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received in not paid in money. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to non-resident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT' ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under section 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.2 27 EXHIBIT 99.2 1 Exhibit 99.2 NOTICE OF GUARANTEED DELIVERY For Tender of Any and All Outstanding 9 7/8% Series A Senior Subordinated Notes Of Belden & Blake Corporation This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the Exchange Offer (as defined below) if (i) the Holder's certificates ("Certificates") for 9 7/8% Series A Senior Subordinated Notes due 2007 of the Company (the "Senior Subordinated Notes") are not immediately available, (ii) the Holder cannot deliver the Senior Subordinated Notes, Letter of Transmittal and all other required documents to LaSalle National Bank (the "Exchange Agent") on or prior to 5:00 p.m. New York City time, on the Expiration Date or (iii) the Holder cannot complete the procedures for delivery by book-entry transfer on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus. Capitalized terms not defined herein have the meanings respectively given to them in the Prospectus. The Exchange Agent For the Exchange Offer Is: LaSalle National Bank
By Hand or Overnight Facsimile Transmissions By Registered Or Certified Delivery: (Eligible Institutions Only): Mail: LaSalle National Bank (212) xxx-xxxx LaSalle National Bank [address] To Confirm by Telephone: [address] [address] (212) xxx-xxxx [address] [address] For Information Call: [address] (800) xxx-xxxx
2 Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of this Notice of Guaranteed Delivery via facsimile to a number other than as set forth above will not constitute a valid delivery. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS HERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to Belden & Blake Corporation, an Ohio corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus dated ____________________, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate principal amount of Senior Subordinated Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old Notes." Aggregate Principal Amount Tendered: $ --------------- (Must be in denominations of a principal amount of $1,000 and any integral multiple thereof.) Name(s) of Holder)s): --------------------------- Certificate No(s): ------------------------- Total Principal Amount Represented by Certificate(s): $ ------------ If Senior Subordinated Notes will be tendered by book-entry transfer, please provide the following information: DTC Account Number: ------------------------ Date: --------------------------- 2 3 - -------------------------------------------------------------------------------- All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. - -------------------------------------------------------------------------------- PLEASE SIGN BELOW: Signature(s) of Holder(s) or Authorized Signatory: Date: , 1997 - ------------------------------------- -------------- , 1997 - ------------------------------------- -------------- Telephone Number (including area code): ---------------------- Must be signed by Holder(s) of Senior Subordinated Notes exactly as name(s) appear(s) on tendered Certificates or on a security position listing, or by person(s) authorized to become Holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in another fiduciary or representative capacity, such person must set forth his or her full title below. Please print name(s) and address(es) below: Name(s): ------------------------------ ------------------------------ Capacity (full title): ---------------------------- Address(es): -------------------------- -------------------------- -------------------------- (include zip code) THE GUARANTEE ON THE FOLLOWING PAGE MUST BE COMPLETED 3 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of the Securities Agents Medallion Program, The New York Stock Exchanges Medallion Signature Program or The Stock Exchanges Medallion Program (each of the foregoing being referred to as an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either the Senior Subordinated Notes tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Senior Subordinated Notes to the Exchange Agent's account at The Depository Trust Company, pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimiles thereof) and any other required documents within five business days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal and the Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. - -------------------------------------------- ------------------------------- Name of Firm Authorized Signature - -------------------------------------------- ------------------------------- Address (including zip code) Title - -------------------------------------------- ------------------------------- (Please type or print name) - -------------------------------------------- Date: , 1997 ----------------------------- Telephone Number (including area code): ------------------ * * * * * DO NOT SEND CERTIFICATES WITH THIS FORM. CERTIFICATES SHOULD ONLY BE SENT WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL. 4 -----END PRIVACY-ENHANCED MESSAGE-----