-----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, HKpg7alEehsHz4XywDfV7AMrfdomaZZxNnCQdexyRO/fO6sVe1Q7qShGA0uxF53N FaymayqQupaHgOpLvkLBvA== 0000927356-96-000115.txt : 19960325 0000927356-96-000115.hdr.sgml : 19960325 ACCESSION NUMBER: 0000927356-96-000115 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN GAS RESOURCES INC CENTRAL INDEX KEY: 0000856716 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 841127613 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10389 FILM NUMBER: 96537613 BUSINESS ADDRESS: STREET 1: 12200 N PECOS ST CITY: DENVER STATE: CO ZIP: 80234-3439 BUSINESS PHONE: 3034525603 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the fiscal year ended December 31, 1995 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from _________________ to _________________ Commission file number 1-10389 ------- WESTERN GAS RESOURCES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 84-1127613 - -------------------------------------- ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12200 N. Pecos Street, Denver, Colorado 80234-3439 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (303) 452-5603 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code No Changes - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report). Title of each class Name of exchange on which registered - ----------------------------- ------------------------------------ Common Stock, $0.10 par value New York Stock Exchange $2.28 Cumulative Preferred Stock, $0.10 par value New York Stock Exchange $2.625 Cumulative Convertible Preferred Stock, New York Stock Exchange $0.10 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ ----- The aggregate market value of voting common stock held by non-affiliates of the registrant on March 1, 1996 was $183,434,693. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Report (Items 10, 11, 12 and 13) is incorporated by reference from the registrant's proxy statement to be filed pursuant to Regulation 14A with respect to the annual meeting of stockholders scheduled to be held on May 22, 1996. Indicate by check mark if disclosure of delinquent filers to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Reference is made to listing beginning on page 52 of all exhibits filed as a part of this report. ================================================================================ Western Gas Resources, Inc. Form 10-K Table of Contents
Part Item(s) Page ---- I. 1 and 2. Business and Properties........................................... 3 General......................................................... 3 Principal Facilities............................................ 4 Gas Gathering and Processing.................................... 5 Significant Acquisitions and Projects........................... 6 Marketing....................................................... 8 Producing Properties............................................ 9 Competition..................................................... 9 Regulation...................................................... 10 Insurance and Operational Risks................................. 10 Employees....................................................... 11 3. Legal Proceedings................................................. 11 4. Submission of Matters to a Vote of Security Holders............... 11 II. 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................... 12 6. Selected Financial Data........................................... 13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 14 8. Financial Statements and Supplementary Data....................... 25 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... 51 III. 10. Directors and Executive Officers of the Registrant................ 51 11. Executive Compensation............................................ 51 12. Security Ownership of Certain Beneficial Owners and Management...................................................... 51 13. Certain Relationships and Related Transactions.................... 51 IV. 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................................ 52
2 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES GENERAL Western Gas Resources, Inc. (the "Company") is an independent gas gatherer, processor and marketer with operations located in major oil- and gas-producing basins in the Rocky Mountain, Gulf Coast and Southwestern regions of the United States. The Company owns and operates natural gas gathering, processing and storage facilities and markets and transports natural gas and natural gas liquids ("NGLs"). The Company provides necessary services to the producers of natural gas and NGLs by connecting producers' wells to the Company's gathering system for delivery to its processing plants, processing the gas to remove NGLs and by-products and marketing the gas and NGLs throughout the United States. Most of the natural gas processed by the Company is associated gas from oil wells. The Company also owns certain producing properties, primarily in Louisiana and Texas. Historically, the Company has derived over 95% of its revenues from the sale of natural gas and NGLs. Set forth below are the Company's revenues by type of operation (000s):
Year Ended December 31, ---------------------------------------------------------------------- 1995 % 1994 % 1993 % ---------- --------- ---------- -------- --------- ------ Sale of residue gas............... $ 876,399 69.7 $ 707,869 66.6 $ 563,068 60.4 Sale of NGLs...................... 331,760 26.4 309,358 29.1 333,880 35.8 Processing, transportation and storage revenues................ 41,358 3.3 35,057 3.3 25,622 2.7 Other, net........................ 7,467 .6 11,205 1.0 9,768 1.1 ---------- --------- ---------- --------- --------- ------ $1,256,984 100.0 $1,063,489 100.0 $ 932,338 100.0 ========== ========= =========== ========= ========= ======
The Company expanded through acquisitions, internal project development and increased marketing activity. These activities have strengthened the Company's position in major producing basins and expanded its access to multiple natural gas markets. The table below illustrates the Company's growth from December 31, 1990 to December 31, 1995:
Average Average Average for the Year Ended -------------------------------------- Residue NGL Gas Gas NGL Gas Sales Sales Throughput Production Production (MMcf/D) (MGal/D) (MMcf/D) (MMcf/D) (MGal/D) --------- -------- ---------- ---------- ---------- December 31, 1990............ 220 630 217 164 680 December 31, 1995............ 1,572 2,890 1,020 779 2,181 % increase................... 615 359 370 375 221
The Company has developed a three-part business plan to increase profitability through expanding its gas marketing activities, acquiring or developing gas gathering and processing assets that meet the Company's target rates of return and increasing the efficiency of its existing facilities. As a part of its initial implementation of the business plan, the Company has (i) restructured its marketing department along more specialized lines designating separate managers for national accounts, end-use sales and electric power marketing, (ii) added business development personnel dedicated to acquiring gas supplies for its existing facilities, and (iii) reduced its operating expenses. See further discussion at "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Information." The Company's principal offices are located at 12200 North Pecos Street, Denver, Colorado 80234-3439, and its telephone number is (303) 452-5603. The Company was incorporated in Delaware in 1989. 3 PRINCIPAL FACILITIES The following table provides information concerning the Company's principal facilities. The Company also owns and operates several smaller treating and processing facilities located in the same areas as its other facilities.
Average for the year ended Gas Gas December 31, 1995 ------------------------------------------ Gathering Throughput Gas Gas NGL Year Placed Systems Capacity Throughput Production Production Facility (1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(4) - --------------------------------- ---------- -------- ----------- ----------- ----------- ----------- SOUTHERN REGION: Texas Midkiff /Benedum............... 1955 2,042 135 135 87 835 Giddings Gathering System...... 1979 651 80 71 62 99 Edgewood(5)(8)................. 1964 85 65 28 11 74 Perkins........................ 1975 2,564 40 21 12 146 MiVida (5)..................... 1972 286 150 44 41 - Gomez(13)...................... 1971 302 280 72 69 - Mitchell Puckett(13)........... 1972 86 140 - - - Crockett Gathering System...... 1973 136 - 27 27 1 Rosita Treating System......... - 60 56 56 - Katy(6)........................ 1994 17 - - - - Louisiana Black Lake..................... 1966 55 75 53 36 120 Toca(7)(8)..................... 1958 - 160 74 - 49 NORTHERN REGION: Oklahoma Chaney Dell/Lamont............. 1966 2,003 180 83 63 259 Arkoma......................... 1985 38 8 2 2 - Westana System(9).............. 1986 246 45 55 48 49 Wyoming Granger(8)..................... 1987 236 210 130 119 189 Red Desert(8).................. 1979 110 42 30 27 45 Lincoln Road(10)............... 1988 146 50 38 35 41 Hilight Complex(5)(8).......... 1969 619 80 34 29 86 Kitty and Amos Draw(8)......... 1969 304 17 11 8 47 Newcastle(8)................... 1981 144 5 3 2 19 Reno Junction(11).............. 1991 - - - - 49 New Mexico San Juan River(5).............. 1955 126 60 33 30 1 North Dakota Williston(12).................. 1981 381 - 8 6 28 Temple(5)...................... 1984 65 7 3 2 8 Teddy Roosevelt(12)............ 1979 332 - 3 2 14 Utah Four Corners................... 1988 97 15 4 4 10 Montana Baker(5)(8).................... 1981 8 3 2 1 12 ------ ----- ----- --- ----- Total......................... 11,079 1,907 1,020 779 2,181 ====== ===== ===== === =====
_____________________________ Footnotes on following page 4 (1) The Company's interest in all facilities is 100% except for Midkiff/Benedum (74%); Black Lake (69%); Lincoln Road (72%); Williston (50%); Westana (50%) and Newcastle (50%). All facilities are operated by the Company and all data include interests of the Company, other joint interest owners and producers of gas volumes dedicated to the facility. (2) Gas gathering systems miles and gas throughput capacity are as of December 31, 1995. (3) Aggregate wellhead natural gas volumes collected by a gathering system. (4) Volumes of residue gas and NGLs are allocated to a facility when a well is dedicated to that facility; volumes exclude NGLs fractionated for third parties. (5) Sour gas facility (capable of processing gas containing hydrogen sulfide). (6) Hub and gas storage facility. (7) Straddle plant (a plant located near a transmission pipeline which processes gas dedicated to or gathered by the pipeline company or another third-party). (8) Fractionation facility (capable of fractionating raw NGLs into end-use products). (9) Gas throughput and gas production in excess of gas throughput capacity is unprocessed gas delivered directly to an unaffiliated pipeline. (10) Commencing in March 1996, the Company and its joint venture partner at the Lincoln Road gas plant temporarily suspended processing operations at the Lincoln Road plant and began processing the related gas at the Company's Granger facility. If volumes increase substantially beyond Granger's capacity, the Lincoln Road plant might be re-started. The Company anticipates that this consolidation will result in lower overall plant operating expenses for the combined systems. (11) NGL production represents conversion of third-party feedstock to iso- butane. (12) Processing facility has been shut-in since August 1993. The gas dedicated to these facilities is processed by a third-party under a contractual arrangement. In January 1996, Koch Hydorcarbon Company ("Koch"), which operates the Teddy Roosevelt and Williston Gas Company's ("Williston") assets under a lease agreement, exercised its option to purchase certain gas gathering assets located in North Dakota from the Company and Williston. The closing of the sale is expected to occur on August 1, 1996. See further discussion at "Significant Acquisitions and Projects - Other." (13) Includes assets purchased in October and December 1995 that were combined with these existing facilities. Capital expenditures related to existing operations are expected to be approximately $76.1 million during 1996 consisting of the following: capital expenditures related to gathering, processing and pipeline assets are expected to be $63.2 million, of which $47.6 million will be used for new well connects, system expansions and asset consolidations and $15.6 million for maintaining existing facilities. The Company expects capital expenditures on the Katy Gas Storage Facility ("Katy Facility"), exploration and production activities and miscellaneous items to be $4.8 million, $3.8 million and $4.3 million, respectively. GAS GATHERING AND PROCESSING The Company contracts with producers to gather raw natural gas from individual wells located near its plants. Once a contract has been executed, the Company connects wells to gathering lines through which the natural gas is delivered to a processing plant. At the plant, the natural gas is compressed, unfractionated NGLs are extracted, and the remaining dry residue gas is treated to meet pipeline quality specifications. Eight of the Company's processing plants can further separate, or fractionate, the mixed NGL stream into ethane, propane, butane and natural gasoline to obtain higher value for the NGLs, and six of the Company's plants are able to process and treat natural gas containing hydrogen sulfide or other impurities which require removal prior to transportation. In addition, the Company has one facility which converts normal butane into iso- butane. The Company continually acquires additional natural gas supplies to maintain or increase throughput levels to offset natural production declines in dedicated volumes. Such natural gas supplies are obtained by purchasing existing systems from third parties or by connecting additional wells. The opportunity to connect new wells to existing facilities is primarily affected by levels of drilling activity near the Company's gathering systems. The Company believes it has expanded into areas which present significant potential for new drilling or purchases of existing systems. Historically, the Company has connected additional reserves which more than offset production from reserves dedicated to existing facilities. However, certain individual plants have experienced declines in dedicated reserves. In 1995, including the reserves associated with Westana Gathering Company ("Westana") and 1995 acquisitions, the Company connected new reserves to its gathering systems to replace approximately 94% of 1995 production. On a Company-wide basis, dedicated reserves, including certain proved undeveloped properties and revisions to previous estimates, decreased from 2.3 Tcf as of December 31, 1994 (as revised) to approximately 2.1 Tcf at December 31, 1995. The decrease is primarily due to decreased drilling in areas in which the Company operates and declines in reserves at the Company's Black Lake field. Substantially all gas flowing through the Company's facilities is supplied under long-term contracts providing for the purchase or processing of such gas for periods ranging from five to twenty years, using three basic contract types. Approximately 57% of the 5 Company's gas throughput (exclusive of the Toca straddle plant) for the year ended December 31, 1995 was purchased under percentage-of-proceeds agreements in which the Company is typically responsible for arranging for the transportation and marketing of the natural gas and NGLs. The price paid to producers is a specified percentage of the net proceeds received from the sale of the natural gas and the NGLs. This type of contract permits the Company and the producers to share proportionally in price changes. Approximately 24% of the Company's gas throughput for the year ended December 31, 1995 was gathered under contracts which are primarily fee-based whereby the Company receives a set fee for each Mcf of gas gathered. This type of contract provides the Company with a steady revenue stream that is not dependent on commodity prices, except to the extent that low prices may cause a producer to curtail production. Approximately 19% of the Company's gas throughput for the year ended December 31, 1995 was processed under contracts which combine gathering and compression fees with "keep-whole" arrangements or well-head purchases. Typically, producers are charged a gathering and compression fee based upon volume. In addition, the Company retains a predetermined percentage of the NGLs recovered by the processing facility and keeps the producers whole by returning to the producers at the tailgate of the plant an amount of residue gas equal on a Btu basis to the raw gas received at the plant inlet. The "keep-whole" component of the contracts permits the Company to benefit when the value of the NGLs is greater as a liquid than as a portion of the residue gas stream. However, when the value of the NGLs is lower as a liquid than as a portion of the residue gas stream, the Company may be affected unfavorably. SIGNIFICANT ACQUISITIONS AND PROJECTS The Company's significant acquisitions and projects since January 1, 1993 are: Northern Acquisition In July 1995, the Company entered into an agreement to purchase eight West Texas gathering systems, consisting of approximately 230 miles of gathering lines in the Permian Basin, from Transwestern Gathering Company and Enron Permian Gathering, Inc. In October 1995, the Company acquired and assumed the operations of the Transwestern Gathering Company assets for an adjusted purchase price of $4.0 million. Closing on the remaining assets occurred in December 1995 for a purchase price of $14.7 million. For the month ended January 31, 1996, throughput on the systems totaled approximately 150 MMcf per day from approximately 70 wells under fee-based contracts. Redman Smackover Joint Venture Effective January 1, 1995, the Company entered into the Redman Smackover Joint Venture ("Redman Smackover") agreement with DDD Energy, Inc., a wholly owned exploration and production subsidiary of Seitel, Inc., Redman Energy Corporation, and DDD 1995 Oil & Gas Partnership. Redman Smackover acquired working interests in three producing gas fields in East Texas in the Smackover formation with an estimated 25 Bcf of proved reserves from Union Oil Company of California for an adjusted purchase price of $11.0 million. The Company's contribution to Redman Smackover was approximately $5.4 million through December 31, 1995. The Company is the managing venturer with a 50% ownership interest. Oasis Effective December 1, 1994, the Company acquired the West Texas gathering and treating assets of Oasis Pipeline Company ("Oasis") for approximately $26.0 million. The Oasis purchase included 14 gathering systems in the Permian Basin comprising approximately 600 miles of gathering lines and two treating facilities. In addition, the Company entered into a long-term agreement with Oasis for 100 MMcf per day of firm transportation service on its intrastate pipeline. The Company has installed a 200 MMcf per day pipeline interconnection between this pipeline and the Katy Facility. Katy Facility The Company commenced operations of the Katy Facility in February 1994. The Katy Facility, which is located approximately 20 miles from Houston, Texas, utilizes a partially depleted natural gas reservoir with 19 Bcf of working gas capacity and a pipeline header system, currently connected to eleven pipelines, which has the capability to deliver up to 400 MMcf per day of natural gas from the reservoir. Lease acquisition and construction costs incurred through the commencement of operations, including pad gas, approximated $106.1 million. See "Marketing - Natural Gas" below. 6 Mountain Gas Effective January 1, 1993, the Company acquired the stock of Mountain Gas Resources, Inc. ("Mountain Gas") from Morgan Stanley Leveraged Equity Fund II, L.P. for total consideration of approximately $168.2 million, including the payment of certain transaction costs and the assumption and repayment of $35 million of long-term debt attributable to Mountain Gas. Mountain Gas owns the Red Desert and Granger facilities, both located near the Company's Lincoln Road gas processing plant and gathering system. The 22% interest in the Granger facility previously not owned by Mountain Gas was purchased by the Company in two separate transactions in November and December 1993 for an aggregate of $27.7 million. At the date of acquisition, the Red Desert facility consisted of a cryogenic plant and the Granger plant consisted of a refrigeration unit and a cryogenic unit. In December 1993, the Company completed construction of an additional cryogenic processing plant at Granger, at a total additional cost of approximately $4.8 million. Black Lake Effective January 1, 1993, the Company purchased the Black Lake gas processing plant and related reserves ("Black Lake") from Nerco Oil & Gas, Inc. for approximately $136.2 million. The acquisition included a 68.9% working interest in the Black Lake field in Louisiana and a gas processing plant. To increase the efficiency of Black Lake's processing capabilities, the Company installed a cryogenic processing plant at a cost of approximately $4.1 million. The cryogenic processing plant, which became fully operational in October 1994, has decreased fuel usage and plant operating expenses, and also provides flexibility to recover or reject ethane. Westana Joint Venture Effective August 1, 1993, the Company formed Westana, a general partnership, with PanEnergy. Westana provides gas gathering and processing services in the Anadarko Basin in Oklahoma and markets natural gas and NGLs for producers connected to its system. The Company is the principal operator, with each partner holding a 50% ownership interest. The Company contributed its Chester gas processing plant and gathering system, with a net book value of $13.8 million, to Westana. The Company also made additional partnership contributions of $7.2 million through December 31, 1995, which will be recouped through preferential distributions. In addition to the assets contributed by the Company, Westana operates PanEnergy's 400 mile gathering system and six compressor stations, which will be contributed to Westana by PanEnergy. PanEnergy has received and accepted abandonment approval by the Federal Energy Regulatory Commission ("FERC") and is now awaiting certain clarification of the abandonment approval. Upon clarification from the FERC on the abandonment approval, PanEnergy will contribute its gathering assets to Westana. The Company expects the contribution of the PanEnergy assets will occur in 1996. Other The Company continually monitors the economic performance of each of its operating facilities to ensure that a desired cash flow objective is achieved. If an operating facility is not generating desired cash flows or does not fit in with the Company's strategic plans, the Company will explore various options, such as consolidation with other Company-owned facilities, dismantlement, asset swap or outright sale. In 1995, the Company sold the Waha Header and certain non-strategic assets acquired in the Oasis acquisition and completed the consolidation of its Lamont gathering system with the Chaney Dell system. The Company anticipates completing the salvage of substantially all of the Lamont processing plant assets by the end of the first quarter of 1996. In 1994, the Company sold its Sligo plant, swapped its Pyote treating facilities for gathering assets in Kansas, which were subsequently disposed of during the second quarter of 1995, consolidated assets in the Powder River Basin and sold its Walnut Bend gathering system. The Company anticipates that the salvage of the Walnut Bend processing plant will be substantially completed by the end of the third quarter of 1996. Commencing in March 1996, the Company and its joint venture partner at the Lincoln Road gas plant temporarily suspended processing operations at that plant and began processing the associated gas at the Company's Granger facility. If volumes increase substantially beyond Granger's capacity, the Lincoln Road plant might be re-started. The Company anticipates that this consolidation will result in lower overall plant operating expenses for the combined systems. In January 1996, Koch, which operates the Teddy Roosevelt and Williston assets under a lease agreement, exercised its option to purchase certain gas gathering assets located in North Dakota from the Company and Williston. Proceeds from the sale of the gathering assets will be approximately $2.4 million, of which the Company is entitled to receive $1.5 million. The closing on the sale is expected to occur on August 1, 1996, at which time the operation of Williston and the Company's Teddy Roosevelt facility will cease and any remaining assets will be salvaged. 7 MARKETING Natural Gas The Company markets residue gas produced at its plants and purchased from third parties to end-users, local distribution companies ("LDCs"), pipelines and other marketing companies throughout the United States. Historically, the Company's gas marketing was an outgrowth of the Company's gas processing activities and was directed towards selling gas processed at its plants to ensure their efficient operation. As the Company expanded into new basins and the natural gas industry became deregulated and offered more opportunity, the Company began to increase its third-party gas marketing. Average gas sales increased to 1,572 MMcf per day for the year ended December 31, 1995 compared to 220 MMcf per day for the year ended December 31, 1990, primarily as a result of increased third-party sales and sales attributable to acquisitions and to the Katy Facility, which began operations in 1994. The Company has continued to increase sales to end-users and to achieve greater market penetration close to its facilities while also expanding into new markets throughout the United States. The Company sells gas under agreements with varying terms and conditions in order to match seasonal and other changes in demand. Most of the Company's current sales contracts are short-term, ranging from a few days to one year. At December 31, 1995, the Company's commitment under long-term contracts, several of which have an annual redetermination of prices and several of which are rebid prior to expiration, was approximately 300 MMcf per day. The Company intends to continue to expand its residue gas marketing and third- party sales, particularly to industrial and commercial end-users. The Company's marketing department has recently been restructured along more specialized lines to include separate managers for national accounts, end-use sales and electric power marketing. The Company has also expanded its marketing in areas beyond its traditional gas supply centers (Houston and the Gulf Coast) to demand centers, such as Chicago, New York and California. Third-party sales and residue gas storage, combined with the stable supply from Company facilities, enable the Company to respond quickly to changing market conditions and to take advantage of seasonal price variations and peak demand periods. The Company customarily stores residue gas in underground storage facilities to ensure an adequate supply for long-term sales contracts and for resale during periods when prices are favorable. In order to meet the peaking demand for residue gas in certain markets, the Company constructed the Katy Facility. The ability to withdraw gas from the Katy Facility on short notice positions the Company to market residue gas to LDCs and other customers that need a reliable yet variable supply of residue gas. The Katy Facility allows the Company to bypass certain transportation bottlenecks and enhances flexibility in its marketing operations. The complex utilizes a partially depleted natural gas reservoir with 19 Bcf of working gas capacity and a pipeline header system, currently connected to eleven pipelines, which has the capability to deliver up to 400 MMcf per day of residue gas from the reservoir. At December 31, 1995, the Company held approximately 12.8 Bcf of residue gas inventory in underground storage at an average cost of $1.82 per Mcf ($1.65 per MMBtu), primarily at the Katy Facility. At December 31, 1995, the Company had hedging contracts in place for anticipated sales for approximately 12.5 Bcf of stored gas at a weighted average price of $1.88 per MMBtu for the 1995-1996 winter heating season. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Note 5 - Risk Management" to the Company's Consolidated Financial Statements elsewhere in this Form 10-K. In December 1993, the Company entered into a three-year winter-peaking gas purchase and sales agreement with a major utility in East Texas which designates the Katy Facility as the primary delivery point. Under the agreement, which was amended in August 1994 to expire in March 1997, the utility has the right to purchase, during each year of the contract, up to approximately 50 MMcf of residue gas per day in November and March and approximately 140 MMcf of residue gas per day in December, January and February, at the Houston Ship Channel Index Price, determined daily, plus a demand charge. The agreement calls for a minimum demand charge to be paid to the Company for each contract term, whether or not delivery is taken. This minimum demand charge is calculated based upon five Bcf of available storage during each fiscal year of the contract term. In February 1995, the Company entered into a long-term firm storage and transportation agreement with a St. Louis-based LDC. Under the agreement, the Company has leased approximately three Bcf of storage capacity of the Katy Facility to the LDC. The gas will principally serve local distribution requirements of the LDC's customers in central Missouri. 8 During the year ended December 31, 1995, the Company sold residue gas to approximately 370 end-users, pipelines, LDCs and other customers. No single customer accounted for more than 3.5% of consolidated revenues for the year ended December 31, 1995. NGL Marketing The Company markets NGLs (ethane, propane, iso-butane, normal butane, natural gasoline, and condensate) produced at its plants and purchased from third parties in the Rocky Mountain, Gulf Coast and Southwestern regions of the United States. A majority of the Company's production of NGLs moves to the Gulf Coast area, which is the largest NGL market in the United States. Through the development of end-use markets and distribution capabilities, the Company seeks to ensure that production from the plants moves on a reliable basis, avoiding curtailment of production. Consumption of NGLs is primarily determined by various end-user markets including the petrochemical industry, the petroleum refining industry and the retail and industrial fuel markets. As an example, the petrochemical industry uses ethane, propane, normal butane and natural gasoline as feedstocks in the production of ethylene, which is used in the production of various plastics products. Over the last several years, the petrochemical industry has increased its use of NGLs as a major feedstock. Further, various NGLs are used for home heating and cooling, transportation and for certain agricultural applications. Demand is primarily affected by price, seasonality and the economy. The volatility of NGL prices in recent years has caused the Company to move to short-term contracts, with no prices set on a firm basis for more than a 30-day period. Although some existing contracts do commit the Company for periods as long as a year, prices are redetermined on a market-related basis. The Company leases NGL storage space at major trading locations near Houston and in central Kansas in order to store products so that they can be sold at higher prices on a seasonal basis. At December 31, 1995, approximately 15,800 MGal of NGLs were in storage at an average cost of $.31 per gallon. The Company generally intends that stored NGLs turn over on an annual basis. The Company from time to time enters into futures contracts to hedge a portion of its share of condensate and crude oil production. Although no such hedges were outstanding at December 31, 1995, the Company will continue to enter into futures contracts as management deems appropriate. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Note 5 - Risk Management" to the Company's Consolidated Financial Statements elsewhere in this Form 10-K. For the year ended December 31, 1995, NGL sales averaged 2,890 MGal per day, an increase from 630 MGal per day in 1990, primarily due to acquisitions during the five-year period. Sales were made to approximately 170 different customers, and no single customer accounted for more than 3% of the Company's consolidated revenues for the year ended December 31, 1995. Revenues are also derived from contractual marketing fees charged to some producers for NGL marketing services. For the year ended December 31, 1995, such fees were less than 1% of the Company's consolidated revenues. PRODUCING PROPERTIES Revenues derived from the Company's producing properties comprised approximately 2.6% of revenues for the year ended December 31, 1995. The producing properties are primarily working interests in a unit operated by the Company comprising the Black Lake field in Louisiana, which provides production to the Black Lake plant, and 20 gas properties producing from the Smackover formation of the East Texas Basin, which provide production to the Edgewood plant. The Company also has working interests in the Powder River Basin in northeastern Wyoming, the Sandwash Basin in northwestern Colorado, the Austin Chalk formation in southeast Texas and the San Juan Basin in southwest Colorado. The Company also owns various working interests in 13 wells in the Smackover formation through Redman Smackover. COMPETITION The Company competes with other companies in the gathering, processing and marketing business, both for supplies of natural gas and for customers to which natural gas and NGLs are sold. Competition for natural gas supplies is primarily based on efficiency, reliability, availability of transportation and ability to obtain a satisfactory price for the producers' natural gas. Competition for natural gas and NGL customers is primarily based upon reliability and price of deliverable natural gas and NGLs. For customers that have the capability of using alternative fuels, such as oil and coal, the Company also competes based primarily on price against companies capable of providing such alternative fuels. The Company's competitors for obtaining additional gas supplies, for gathering and processing gas and for marketing gas and NGLs include national and local gas gatherers, brokers, 9 marketers and distributors of various size, financial resources and experience. In recent years, the Company has also experienced narrowing margins due to the increasing availability of pricing information to the participants in the natural gas industry. REGULATION The purchase and sale of natural gas and the fees received for gathering and processing by the Company have generally not been subject to regulation, and therefore, except as constrained by competitive factors, the Company has considerable pricing flexibility. Many aspects of the gathering, processing, marketing and transportation of natural gas and NGLs by the Company, however, are subject to federal, state and local laws and regulations which can have a significant impact upon the Company's overall operations. As a processor and marketer of natural gas, the Company depends on the transportation and storage services offered by various interstate and intrastate pipeline companies for the delivery and sale of its own gas supplies as well as those it processes and/or markets for others. Both the performance of transportation and storage services by interstate pipelines, and the rates charged for such services, are subject to the jurisdiction of the FERC under the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). The availability of interstate transportation and storage service necessary to enable the Company to make deliveries and/or sales of residue gas can at times be pre-empted by other system users in accordance with FERC- approved methods for allocating the system capacity of "open access" pipelines. Moreover, the rates charged by pipelines for such services are often subject to negotiation between shippers and the pipelines within certain FERC-established parameters and will periodically vary depending upon individual system usage and other factors. An inability to obtain transportation and/or storage services at competitive rates can hinder the Company's processing and marketing operations and/or affect its sales margins. During the past ten years, the FERC has implemented a nondiscriminatory blanket transportation program which initially authorized, and ultimately mandated, interstate natural gas pipelines to perform "open access," self-implementing (i.e., not generally requiring case-specific certificate authorization) transportation services. Order Nos. 636, et seq., which constitute the FERC's ------- most recent issuances in this program, promulgated regulations that substantially restructure the services provided by interstate pipelines by "unbundling" (i.e., separating) and separately pricing pipeline gathering, transportation, storage and sales activities in an effort to enable non-pipeline merchants to compete with pipelines for gas purchasers on an equal basis. These regulations have largely been implemented by all interstate transporters utilized by the Company (as well as by the Company's own non-major interstate pipeline located in Wyoming) in numerous individual pipeline restructuring and rate proceedings. The conversion of pipelines from natural gas merchants to primarily transporters of gas through implementation of the FERC's open access transportation and restructuring programs has caused the pipelines to incur significant producer take-or-pay costs and other transition costs resulting from their abandonment of gas purchasing and sales activities. The FERC has allowed, and indicated in Order Nos. 636, et seq. that it will continue to allow, the ------ recovery of some or all of these and related costs from current shippers of gas. Pipeline flow-through of many of these costs is subject to the outcome of administrative and appellate proceedings in individual pipeline rate and restructuring cases, and Order Nos. 636, et seq. themselves are currently the ------ subject of numerous petitions for appellate review presently pending in the United States Court of Appeals for the District of Columbia Circuit. The outcome of these proceedings could affect the Company's operations and the costs of transporting and selling gas. Pursuant to Section 1(b) of the NGA, production and gathering activities are exempt from the FERC's jurisdiction; however, judicial precedent has held that where gathering is performed largely in connection with the delivery of gas in interstate commerce, such gathering can be considered merely an extension of the jurisdictional transportation of such gas and thus subject to NGA rate regulation itself. Recently, primarily as a result of the unbundling of interstate pipeline gathering services required by Order Nos. 636, et seq., many ------ pipelines have sought FERC authorization to abandon gathering operations and facilities previously held to be subject to the NGA. In response to those requests, the FERC has established a general policy permitting the abandonments but requiring a showing demonstrating that existing customers have been offered, for a two-year period, continued service through the abandoned facilities at the same rates and under the same terms as were previously offered by the pipeline. The Company has been active in acquiring and/or operating natural gas gathering facilities abandoned by interstate pipelines and, thus, certain of its operations and acquisitions have been affected by this FERC policy. The policy is currently being challenged at both agency and appellate levels, but at this stage the outcome of such challenges is too speculative to predict. INSURANCE AND OPERATIONAL RISKS The Company is subject to various hazards which are inherent in the industry in which it operates such as explosions, product spills, leaks and fires, each of which could cause personal injury and loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage, and may result in curtailment or suspension of operations at the affected facility. The Company maintains physical damage, comprehensive general liability, workers' compensation and business interruption insurance. Such insurance is subject to deductibles that the Company considers reasonable. The Company is not fully 10 insured against all risks in its business; however, the Company believes that the coverage it maintains is adequate and consistent with other companies in the industry. Consistent with insurance coverage typically available to the natural gas industry, the Company's insurance policies do not provide coverage for losses or liabilities relating to pollution, except for sudden and accidental occurrences. EMPLOYEES At December 31, 1995, the Company employed 862 full-time employees, none of whom was a union member. The Company considers relations with employees to be excellent. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 31, 1995. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of March 1, 1996, there were 25,773,051 shares of Common Stock outstanding held by 423 holders of record. The Common Stock is traded on the New York Stock Exchange under the symbol "WGR". The following table sets forth quarterly high and low closing sales prices as reported by the NYSE Composite Tape for the quarterly periods indicated.
HIGH LOW ------ ------ 1994 First Quarter........................................ $ 35 $ 26 1/8 Second Quarter....................................... 30 26 Third Quarter........................................ 28 1/2 18 1/2 Fourth Quarter....................................... 22 1/8 18 1/8 1995 First Quarter........................................ 22 1/8 16 3/4 Second Quarter....................................... 24 1/4 16 5/8 Third Quarter........................................ 18 1/4 15 1/2 Fourth Quarter....................................... $ 17 5/8 $ 15
The Company paid annual dividends on the Common Stock aggregating $.20 per share during the years ended December 31, 1995 and 1994. The Company has declared a dividend of $.05 per share of common stock for the quarter ending March 31, 1996 to holders of record as of March 29, 1996. Declarations of dividends on the Common Stock are within the discretion of the Board of Directors. In addition, the Company's ability to pay dividends is restricted by certain covenants in its financing facilities, the most restrictive of which prohibits declaring or paying dividends after December 31, 1995 that exceed, in the aggregate, the sum of $10 million plus 50% of the Company's cumulative consolidated net income earned after December 31, 1995 plus 50% of the net proceeds received by the Company after December 31, 1995 from the sale of any equity securities. The dividends declared in the fourth fiscal quarter of 1995, payable in 1996, are excluded from this calculation. At December 31, 1995, this threshold amounted to $10.0 million. 12 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial and operating data for the Company. Certain prior year amounts have been reclassified to conform to the presentation used in 1995. The data for the three years ended December 31, 1995 should be read in conjunction with the Company's Consolidated Financial Statements included elsewhere in this Form 10-K. The selected consolidated financial data for the two years ended December 31, 1991 is derived from the Company's historical Consolidated Financial Statements. See also Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended December 31, ------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ---------- ---------- ---------- --------- (000s, except per share amounts and operating data) STATEMENT OF OPERATIONS: Revenues................................... $1,256,984 $1,063,489 $932,338 $600,116 $358,242 Gross profit............................... 75,211 72,556 92,012 88,192 58,152 Income (loss) before taxes................. (8,266) (a) 11,524 (b) 55,631 58,445 32,783 Provision (benefit) for income taxes....... (2,158) 4,160 17,529 18,757 11,933 Net income (loss).......................... (6,108) (a) 7,364 (b) 38,102 39,688 20,850 Earnings (loss) per share of common stock.................................... (.84) (.19) 1.25 1.43 .94 CASH FLOW DATA:............................ Net cash provided by operating activities.. 86,373 31,866 107,116 96,655 36,228 Capital expenditures....................... 78,521 100,540 492,328 67,021 234,124 BALANCE SHEET DATA......................... (at period end): Total assets............................... 1,193,997 1,167,362 1,114,748 582,188 552,321 Long-term debt............................. 454,500 418,000 547,000 157,000 216,050 Stockholders' equity....................... 371,909 436,683 314,387 287,021 221,389 Dividends declared per share of common stock.................................... $ .20 $ .20 $ .20 $ .20 $ .15 OPERATING DATA:............................ Average gas sales (MMcf/D)................. 1,572 1,097 755 442 310 Average NGL sales (MGal/D)................. 2,890 2,970 2,941 2,400 1,097 Average gas volumes gathered (MMcf/D)...... 1,020 934 804 669 408 Facility capacity (MMcf/D)................. 1,907 1,560 1,586 1,177 1,183 Average gas prices ($/Mcf)................. 1.53 1.77 2.02 1.72 1.59 Average NGL prices ($/Gal)................. .31 .28 .31 .32 .36
(a) In 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No.121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which resulted in the recognition of a non-cash loss of $17.6 million. Also, the Company implemented a cost reduction program to reduce operating and selling and administrative expenses. As a result of this program, a $2.1 million restructuring charge was incurred, primarily related to employee severance costs. (b) In December 1993, a fire at the Granger facility's NGL tank farm required the facility to be shut down for one week. The new cryogenic processing plant as well as the smaller existing cryogenic unit were also damaged. Construction of a new tank farm and repairs to the cryogenic units were completed and fully operational in August 1994. Claims for physical damage to the Company's facilities totaled approximately $6.7 million. In addition, the Company recorded, as other revenue, $3.3 million relating to lost income covered under its business interruption insurance policy for the year ended December 31, 1994. As of December 31, 1995, the Company had resolved substantially all remaining issues and collected all remaining insurance proceeds. The total reimbursements the Company received under its insurance policies were $6.6 million for physical damage and $3.9 million related to business interruption. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis relates to factors which have affected the consolidated financial condition and results of operations of the Company for the three years ended December 31, 1995. Certain prior year amounts have been reclassified to conform to the presentation used in 1995. Reference should also be made to the Company's Consolidated Financial Statements and related Notes thereto and the Selected Financial Data included elsewhere in this Form 10-K. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 (000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
Year Ended December 31, Percent ------------------------- 1995 1994 Change ------------ ---------- ------ FINANCIAL RESULTS: Revenues................................... $ 1,256,984 $ 1,063,489 18.2 Gross profit............................... 75,211 72,556 3.7 Net (loss) income.......................... (6,108) 7,364 (182.9) Loss per share of common stock............. (.84) (.19) (342.1) Net cash provided by operating activities.. $ 86,373 $ 31,866 171.1 OPERATING DATA: Average gas sales (MMcf/D)................. 1,572 1,097 43.3 Average NGL sales (MGal/D)................. 2,890 2,970 (2.7) Average gas prices ($/Mcf)................. 1.53 1.77 (13.6) Average NGL prices ($/Gal)................. .31 .28 10.7
Net income decreased $13.5 million and net cash provided by operating activities increased $54.5 million for the year ended December 31, 1995 compared to 1994. The decrease in net income for the year was primarily due to a $17.6 million pre-tax impairment loss recorded in connection with the adoption of SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and a $2.1 million pre-tax restructuring charge the Company recorded in May 1995 relating to its cost reduction program. In addition, net income was adversely affected by higher product purchase costs associated with the Company's third-party residue gas sales and increased depreciation, depletion and amortization expense and interest expense, partially offset by higher residue gas volumes sold and higher NGL prices. Revenues from the sale of residue gas increased approximately $168.5 million for the year ended December 31, 1995 compared to 1994. Average gas sales volumes increased 475 MMcf per day to 1,572 MMcf per day for the year ended December 31, 1995 compared to 1994, largely due to an increase of approximately 460 MMcf per day in the sale of residue gas purchased from third parties. Average gas prices decreased $.24 per Mcf to $1.53 per Mcf for the year ended December 31, 1995 compared to 1994. The effect of the decrease in residue gas prices on the Company's net margin from equity production was partially offset by the Company's futures positions; approximately $10.0 million of gain was recognized in the year ended December 31, 1995 related to such contracts. The Company has entered into futures positions for a portion of its equity gas for 1996. See further discussion at "Forward Looking Information-Hedging." Revenues from the sale of NGLs increased approximately $22.4 million for the year ended December 31, 1995 compared to 1994. Average NGL sales volumes remained relatively constant at 2,890 MGal per day and average NGL prices increased $.03 per gallon to $.31 per gallon for the year ended December 31, 1995 compared to 1994. Processing, transportation and storage revenues increased $6.3 million for the year ended December 31, 1995 compared to 1994. Approximately $3.6 million of the increase was due to greater NGL revenues from the Company's Giddings system and increased treating revenue, primarily from gathering systems acquired in December 1994. The remaining increase was primarily due to a long-term firm storage and transportation agreement at the Katy Facility that the Company entered into in February 1995. 14 Other net revenue decreased $3.7 million for the year ended December 31, 1995 compared to 1994. The difference was primarily attributable to a $3.3 million insurance recovery recorded in 1994 for business losses associated with the December 1993 fire at the Company's Granger facility. The increase in product purchases corresponds to the increase in third-party residue gas sales. Combined product purchases as a percentage of residue gas and NGL sales increased two percentage points to 86% for the year ended December 31, 1995 compared to 1994. The rising gas purchase percentage is a continuing trend based upon the growth of third-party sales, which typically have lower margins than sales of the Company's equity production. Until recently, the Company had experienced narrowing margins related to third-party sales due to the increasing availability of pricing information in the natural gas industry. The Company believes by targeting end-use markets, these margins will be stabilized. However, there is no assurance that the Company will be successful in capturing these markets. Plant operating expense increased $2.5 million for the year ended December 31, 1995. The increase was attributable to assets purchased in the Oasis acquisition in December 1994, primarily for property taxes, and taxes on higher levels of inventory held at the Katy Facility, partially offset by cost savings resulting from the cost reduction plan initiated in May 1995. Selling and administrative expense decreased $3.0 million, primarily due to the cost reduction plan implemented in May 1995. Depreciation, depletion and amortization increased $1.8 million for the year ended December 31, 1995 compared to the prior year period. The increase was primarily attributable to the Oasis assets, additional depletion related to the Company's oil and gas production and various plant upgrades and equipment additions in 1995. Interest expense increased $5.7 million for the year ended December 31, 1995 compared to 1994, due to an increase in the Company's average borrowing rate from 6.6% to 7.5% per annum and higher average debt outstanding during 1995, primarily due to the redemption of the 7.25% Cumulative Perpetual Convertible Preferred Stock. The provision for income taxes for the year ended December 31, 1995 includes a $300,000 adjustment to reflect management's estimate of deferred taxes. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 (000s, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
Year Ended December 31, Percent ------------------------- 1994 1993 Change ------------ --------- ------- FINANCIAL RESULTS: Revenues................................... $ 1,063,489 $ 932,338 14.1 Gross profit............................... 72,556 92,012 (21.1) Net income................................. 7,364 38,102 (80.7) Earnings per share of common stock......... (.19) 1.25 (115.2) Net cash provided by operating activities.. $ 31,866 $ 107,116 (70.3) OPERATING DATA: Average gas sales (MMcf/D)................. 1,097 755 45.3 Average NGL sales (MGal/D)................. 2,970 2,941 1.0 Average gas prices ($/Mcf)................. 1.77 2.02 (12.4) Average NGL prices ($/Gal)................. .28 .31 (9.7)
Net income decreased $30.7 million and net cash provided by operating activities decreased $75.3 million for the year ended December 31, 1994 compared to the same period in 1993. Overall, throughput and sales volumes at the Company's facilities remained comparable to historical levels. The Company's decrease in net income and net cash provided by operating activities was primarily attributable to a decline in NGL and residue gas prices and higher interest, selling and administrative and depreciation, depletion and amortization costs associated with the Company's 1993 acquisitions of Black Lake and Mountain Gas, along with the completion of the Katy Facility construction. In addition, because of lower demand and lower than expected prices, the Katy Facility did not generate significant revenue. As a result, revenues from the Katy Facility in 1994 did not fully offset related depreciation, depletion and amortization, interest and operating costs. 15 Revenues from the sale of residue gas increased approximately $144.8 million for the year ended December 31, 1994 compared to the same period in 1993, as a volume increase of 342 MMcf per day was somewhat offset by a decrease in average residue gas sales prices of $.25 per Mcf. Approximately 300 MMcf per day of the volume increase was attributable to an increase in the sale of residue gas purchased from third-parties, primarily resulting from the acquisition of Citizens National Gas Company assets in the third quarter of 1993. The remaining volume increase was the result of increased production volumes at the Company's facilities, primarily due to the Mountain Gas and Black Lake acquisitions, new well connect activities and consolidations with smaller gathering systems. Revenues from the sale of NGLs decreased approximately $24.5 million for the year ended December 31, 1994 compared to 1993, as a volume increase of approximately 30 MGal per day was more than offset by a $.03 per gallon decrease in the average NGL sales price. Approximately 22 MGal per day of the volume increase was attributable to an increase in the sale of NGLs purchased from third-parties. The remaining volume increase was primarily attributable to the acquisitions of Mountain Gas and Black Lake, new well connect activity and consolidations with smaller gathering systems. This volume increase was somewhat offset by unfavorable economics of ethane and propane extraction in the first quarter of 1994 and by limited NGL volumes at the Granger facility, primarily as a result of the December 1993 fire. The curtailment of production while plant improvements were completed during the third quarter of 1994 at Black Lake also contributed to lower volumes. Processing, transportation and storage revenues increased $9.4 million for the year ended December 31, 1994 compared to the same period in 1993. The increase was due to additional gathering revenue associated with the Company's Granger gathering system acquired in the Mountain Gas acquisition in July 1993, increased gathering revenue at the Company's Lincoln Road facility and the recognition of demand fees associated with a winter-peaking gas purchase and sales contract at the Katy Facility during 1994. Other net revenue increased $1.4 million for the year ended December 31, 1994 compared to the same period in 1993. For the year ended December 31, 1994, the Company accrued approximately $3.3 million as an amount to be recovered under its business interruption insurance policy for business losses associated with the December 1993 fire at the Company's Granger facility and approximately $1.4 million in rate refunds from a pipeline company. These 1994 recoveries were somewhat offset by a $2.6 million gain recorded as a result of the termination of interest rate swap agreements in 1993. Historically, product purchases as a percentage of residue gas and NGL sales from the Company's plant production have approximated 70%. Product purchases as a percentage of residue gas and NGL sales from third-party purchases were substantially higher in 1994 and approximated 95%. Total product purchases as a percentage of residue gas and NGL sales increased approximately 2.5 percentage points to 84% for the year ended December 31, 1994 compared to the same period in 1993. The increase in the Company's combined percentage was primarily due to an increasing proportion of 1994 residue gas sales revenues resulting from products purchased from third parties. Plant operating expense and oil and gas exploration and production costs increased approximately $6.1 million and $2.2 million, respectively, for the year ended December 31, 1994 compared to the same period in 1993. The increase in plant operating expense was primarily due to the additional operating costs associated with three gas processing facilities acquired from Mountain Gas and Black Lake in July 1993 and the Katy Facility, which commenced operations in February 1994. The oil and gas exploration and production cost increase resulted primarily from costs associated with producing properties acquired in the Black Lake acquisition. Selling and administrative expense increased approximately $5.7 million for the year ended December 31, 1994 compared to the same period in 1993, primarily due to administrative expenses necessitated by the 1993 acquisitions, an overall increase in insurance expenditures and a reduction in overhead capitalized to the Company's construction projects. Depreciation, depletion and amortization expense increased approximately $19.6 million for the year ended December 31, 1994 compared to the same period in 1993. This increase was primarily due to the acquisitions of Mountain Gas and Black Lake in July 1993 and the commencement of Katy Facility operations in February 1994, and was partially offset by lower depreciation and depletion expense resulting from the addition of recoverable reserves at Black Lake and Edgewood during 1994. Interest expense increased approximately $19.0 million for the year ended December 31, 1994 compared to the same period in 1993, primarily due to additional borrowings necessitated by the Mountain Gas and Black Lake acquisitions, a reduction in the amount of interest capitalized to the Katy Facility and an increase in the Company's variable borrowing rate. 16 LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity and capital resources historically have been net cash provided by operating activities, funds available under its financing facilities and proceeds from offerings of equity securities. In the past, these sources have been sufficient to meet the needs and finance the growth of the Company's business. The Company can give no assurance that the historical sources of liquidity and capital resources will be available for future development and acquisition projects, and it may be required to investigate alternative financing sources. Net cash provided by operating activities has been primarily affected by product prices, the Company's success in increasing the number and efficiency of its facilities and the volumes of natural gas processed by such facilities, as well as the margin on third-party residue gas purchased for resale. The Company's continued growth will be dependent upon success in the areas of marketing, additions to dedicated plant reserves, acquisitions and new project development. The Company believes that the amounts available to be borrowed under the Revolving Credit Facility, together with cash provided by operating activities, will provide it with sufficient financing to connect new reserves, maintain its existing facilities and complete its current capital improvement projects. The Company also believes that cash provided by operating activities will be sufficient to meet its debt service and preferred stock dividend requirements. The Company's sources and uses of funds for the year ended December 31, 1995 are summarized as follows (000s):
SOURCES OF FUNDS: Borrowings under long-term debt agreements..... $ 717,400 Net cash provided by operating activities...... 86,373 Other.......................................... 13,445 ----------- Total sources of funds......................... $ 817,218 =========== USES OF FUNDS: Payments related to long-term debt agreements.. $ 682,784 Capital investments............................ 78,521 Redemption of the 7.25% Cumulative Senior Perpetual Convertible Preferred Stock 42,030 Payment of preferred dividends................. 11,643 Payment of common stock dividends.............. 5,153 ----------- Total uses of funds............................ $ 820,131 ===========
Additional sources of liquidity available to the Company are volumes of residue gas and NGLs in storage facilities. The Company stores residue gas and NGLs primarily to ensure an adequate supply for long-term sales contracts and for resale during periods when prices are favorable. The Company held residue gas in storage for such purposes of approximately 12.8 Bcf at an average cost of $1.82 per Mcf ($1.65 per MMBtu) at December 31, 1995 as compared to 21.9 Bcf at an average cost of $2.16 per Mcf ($1.94 per MMBtu) at December 31, 1994, primarily at the Katy Facility. The Company also held NGLs in storage of 15,816 MGal at an average cost of $.31 per gallon and 11,600 MGal at an average cost of $.30 per gallon at December 31, 1995 and December 31, 1994, respectively, at various third party storage facilities. At December 31, 1995, the Company had hedging contracts in place for anticipated sales for approximately 12.5 Bcf of stored gas at a weighted average price of $1.88 per MMBtu for the 1995-1996 winter heating season. As of December 31, 1995, the Company had shelf registrations available providing for the sale of up to $200 million of debt securities and preferred stock and up to four million shares of common stock. On February 13, 1996, the Company filed a registration statement registering an additional $100 million of debt securities or preferred or common stock, which the Company believes will be declared effective in April 1996. The Company has been successful overall in replacing production with new reserves. However, volumes of natural gas dedicated to some of the Company's plants have declined in recent years because additions to dedicated plant reserves have not fully offset production. In 1995, including the reserves associated with Westana Gathering Company ("Westana") and 1995 acquisitions, the Company connected new reserves to its gathering systems to replace approximately 94% of 1995 production. On a Company-wide 17 basis, dedicated reserves, including certain proved undeveloped properties and revisions to previous estimates, decreased from 2.3 Tcf as of December 31, 1994 (as revised) to approximately 2.1 Tcf at December 31, 1995. The decrease is primarily due to decreased drilling in all areas in which the Company operates and declines in reserves at the Company's Black Lake field. In May 1995, the Company redeemed all of the issued and outstanding shares of its 7.25% Cumulative Senior Perpetual Convertible Preferred Stock (liquidation preference of $40 million) pursuant to the provisions of the Certificate of Designation relating to such preferred stock, at an aggregate redemption price of approximately $42.0 million. Risk Management Activities The Company's policy is to utilize risk management tools primarily to reduce commodity price risk for its equity production and to lock in profit margins for its storage and marketing activities. It is the Company's objective to maintain a balanced portfolio of financial exposure between physical obligations (fixed price purchase and sales, storage inventories) and related financial instruments (futures, swaps, and options positions). This effectively allows the Company to fix its total margin because gains or losses in the physical market are offset by corresponding losses or gains in the financial instruments market. Hedging and related activities may expose the Company to the risk of financial loss in certain circumstances, including instances when (i) production is less than expected, (ii) the Company's customers fail to purchase or deliver the contracted quantities of natural gas or NGLs, or (iii) the Company's over-the- counter ("OTC") counterparties fail to perform. To the extent that the Company engages in hedging activities, it may be prevented from realizing the benefits of favorable price changes in the physical market. However, it is similarly insulated against decreases in such prices. In 1993, the Board of Directors adopted its Natural Gas Futures Trading Procedures and created a committee of officers to oversee the Company's risk management activities. As an additional control, the Company has developed information systems that allow daily monitoring of its risk management activities and its exposure related to futures, swaps and options positions resulting from changes in the market. The Company uses futures, swaps, and options to reduce price risk and basis risk. Basis is the difference in price between the physical commodity being hedged and the price of the futures contract used for hedging. Basis risk is the risk that an adverse change in the futures market will not be completely offset by an equal and opposite change in the cash price of the commodity being hedged. Basis risk exists in natural gas primarily due to the geographic price differentials between cash market locations and futures contract delivery locations. The Company enters into futures transactions on the New York Mercantile Exchange and the Kansas City Board of Trade and through OTC swaps with creditworthy counterparties consisting primarily of financial institutions and other natural gas companies. The Company conducts its standard credit review of OTC counterparties and has agreements with such parties which contain collateral requirements. OTC exposure is marked to market daily for the credit review process. The Company generally uses standardized swap agreements which allow for offset of positive and negative exposures. Gains and losses on hedges of product inventory are included in the carrying amount of the inventory and are ultimately recognized in residue and NGL sales when the related inventory is sold. Gains and losses related to qualifying hedges, as defined by SFAS No. 80, "Accounting for Futures Contracts", of firm commitments or anticipated transactions are recognized in residue and NGL sales when the hedged physical transaction occurs. The $1.9 million of losses deferred in inventory at December 31, 1995 were recognized in January 1996 and were more than offset by margins from the Company's related forward fixed price hedges and physical sales. As of December 31, 1995, the Company held a notional quantity of approximately 330 Bcf of natural gas futures, swaps, and options extending from January 1996 to February 1998. This was comprised of approximately 37 Bcf long and 31 Bcf short of exchange-traded futures and 126 long and 136 short Bcf of OTC swaps and options. As of December 31, 1994, the Company held a notional quantity of approximately 210 Bcf of futures, swaps, and options extending through December 1997. This was comprised of approximately 34 Bcf long and 58 Bcf short of exchange traded futures and 56 long and 62 short Bcf of OTC swaps and options. The Company enters into speculative futures trades on a very limited basis for purposes which include testing of hedging techniques. Company procedures contain strict guidelines for such trading including predetermined stop-loss requirements and net open positions limits (currently, a total position of 100 net contracts long or short). Speculative futures positions are marked to market at the end of each accounting period and any gain or loss is recognized in income for that period. Net gains from such speculative activities for the year ended December 31, 1995 were not material. See further discussion of hedging activities at 18 "Liquidity and Capital Resources - Forward Looking Information" and discussion of other hedging activities at "Interest Rate Swaps." Capital Investment Program Between January 1, 1993 and December 31, 1995, the Company expended approximately $672 million on new projects and acquisitions. For the years ended December 31, 1995, 1994 and 1993 the Company expended $79 million, $101 million and $492 million, respectively, on acquisitions, the construction of the Katy Facility, connection of new reserves, the acquisition of consolidating assets for existing systems and upgrades to existing and newly acquired facilities. Capital expenditures related to existing operations are expected to be approximately $76.1 million during 1996 consisting of the following: capital expenditures related to gathering, processing and pipeline assets are expected to be $63.2 million, of which $47.6 million will be used for new connects, system expansions and asset consolidations and $15.6 million for maintaining existing facilities. The Company expects capital expenditures on the Katy Gas Storage Facility ("Katy Facility"), exploration and production activities and miscellaneous items to be $4.8 million, $3.8 million and $4.3 million, respectively. Depending on the timing of the Company's future projects, it may be required to seek additional sources of capital. The Company's ability to secure such capital is restricted by its credit facilities, although it may request additional borrowing capacity from the banks, seek waivers from the banks to permit it to borrow funds from third parties, seek replacement credit facilities from other lenders or issue additional equity securities. While the Company believes that it would be able to secure additional financing, if required, no assurance can be given that it will be able to do so or as to the terms of any such financing. Financing Facilities Revolving Credit Facility. The Company's variable rate Revolving Credit Facility, as restated on September 2, 1994 and subsequently amended, with a syndicate of eight banks, provides for a maximum borrowing base of $300 million, of which $137.5 million was outstanding at December 31, 1995. If the facility is not renewed, its commitment period will terminate on October 1, 1997. Any outstanding balance thereunder at such time will convert to a three-year term loan, which shall be payable in 12 equal quarterly installments, commencing January 1, 1998. The Revolving Credit Facility bears interest, at the Company's option, at certain spreads over the Eurodollar rate, at the Federal Funds rate plus .50%, or at the agent bank's prime rate. The interest rate spreads are adjusted based on the Company's debt to capitalization ratio. At December 31, 1995, the spread was 1.25% over the Eurodollar rate, resulting in an interest rate of 7.21%. The Company pays a commitment fee on the unused commitment ranging from .15% to .375% based on the debt to capitalization ratio. At December 31, 1995, the Company's debt to capitalization ratio was .58 to 1 resulting in a commitment fee rate of .375%. Term Loan Facility. The Company also has a Term Loan Facility with four banks for $25 million which bears interest at 9.87%. Payments on the Term Loan Facility of $12.5 million are due in September 1996 and September 1997, respectively. The Company intends to finance the $12.5 million payment due in 1996 through amounts available under the Revolving Credit Facility. The agreements governing the Company's Revolving Credit and Term Loan Facilities (the "Credit Facilities Agreement") contain certain mandatory prepayment terms. If funded debt of the Company, which has a final maturity on or before October 1, 2000, exceeds four times (4.0 to 1.0) the sum of the Company's last four quarters' cash flow (as defined in the agreement) less preferred stock dividends projected to be paid during the next four quarters, the overage must be repaid in no more than six monthly payments, commencing 90 days from notification. This mandatory prepayment threshold will be reduced to 3.5 to 1.0 at September 1, 1998. At December 31, 1995, taking into account all the covenants contained in the Credit Facilities Agreement, the Company had approximately $50 million of available borrowing capacity. The Term Loan and Revolving Credit Facilities are unsecured. Pursuant to the Credit Facilities Agreement, the Company is required to maintain a current ratio (as defined therein) of at least 1.0 to 1.0, a minimum tangible net worth equal to the sum of $345.0 million plus 50% of consolidated net income earned after June 30, 1995 plus 75% of the net proceeds received after June 30, 1995 from the sale of equity securities, a debt to capitalization ratio (as defined therein) of no more than 60% through October 31, 1996 and 55% thereafter, and an EBITDA to interest ratio of not less than 3.00 to 1.0 through October 31, 1996, 3.25 to 1.0 from November 1, 1996 through October 31, 1997 and 3.75 to 1.0 thereafter. The Company is prohibited from declaring or paying dividends on or after December 31, 1995 that in the aggregate exceed the sum of $10 million plus 50% of consolidated net income earned after December 31, 1995 plus 50% of the cumulative net proceeds received by the Company after December 31, 1995 from the sale of any equity securities. The dividends declared in the fourth fiscal quarter of 1995, payable in 1996, are excluded from 19 this calculation. At December 31, 1995, $10 million was available under this limitation, which is sufficient to pay required preferred stock dividends in 1996. The Company generally utilizes excess daily funds to reduce any outstanding revolving credit balances and associated interest expense and it intends to continue such practice. The $5.8 million cash balance at December 31, 1995 is an overnight investment necessitated by the timing of cash receipts. Master Shelf Agreement. In December 1991, the Company entered into a Master Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of America ("Prudential") pursuant to which Prudential agreed to quote, from time- to-time, an interest rate at which Prudential or its nominee would be willing to purchase up to $100 million of the Company's senior promissory notes (the "Master Notes"). Any such Master Notes will mature in no more than 12 years, with an average life not in excess of 10 years, and are unsecured. The Master Shelf contains certain financial covenants which substantially conform with those contained in the Revolving Credit Facility, as restated and amended. In July 1993 and July 1995, Prudential and the Company amended the Master Shelf to provide for additional borrowing capacity (for a total borrowing capacity of $200 million) and to extend the term of the Master Shelf to October 31, 1995. The Master Shelf Agreement, as restated and amended, is fully utilized, as indicated in the following table (000s):
Interest Final Issue Date Amount Rate Maturity Principal Payments Due - --------------------- ------- --------- ------------------- -------------------------------------------- October 27, 1992 $25,000 7.51% October 27, 2000 $8,333 each on October 27, 1998 through 2000 October 27, 1992 25,000 7.99% October 27, 2003 $8,333 each on October 27, 2001 through 2003 September 22, 1993 25,000 6.77% September 22, 2003 single payment at maturity December 27, 1993 25,000 7.23% December 27, 2003 single payment at maturity October 27, 1994 25,000 9.05% October 27, 2001 single payment at maturity October 27, 1994 25,000 9.24% October 27, 2004 single payment at maturity July 28, 1995 50,000 7.61% July 28, 2007 10,000 each on July 28, 2003 through 2007 ------- $200,000 ========
1993 Senior Notes. On April 28, 1993 the Company sold $50 million of 7.65% Senior Notes due 2003 to a group of insurance companies. Annual principal payments of $7.1 million on the 1993 Senior Notes are due on April 30 of each year from 1997 through 2002, with any remaining principal and interest outstanding due on April 30, 2003. The 1993 Senior Notes contain certain financial covenants that substantially conform with those contained in the Master Shelf Agreement, as restated and amended. 1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a group of insurance companies in the fourth quarter of 1995, with an interest rate of 8.16% per annum and principal due in a single payment in December 2005. The 1995 Senior Notes contain certain financial covenants that conform with those contained in the Master Shelf Agreement, as restated and amended. The Company used the net proceeds from the sale to reduce borrowings under the Revolving Credit Facility. Receivables Facility. In April 1995, the Company entered into an agreement with Receivables Capital Corporation ("RCC"), as purchaser, and Bank of America National Trust and Savings Association ("BA"), as agent, pursuant to which the Company will sell to RCC at face value on a revolving basis an undivided interest in certain of the Company's trade receivables. As part of the sale, the Company granted to RCC a security interest in such receivables. The Company may sell up to $75 million of trade receivables under the Receivables Facility, at a rate equal to RCC's commercial paper rate plus .375%, of which $75 million was funded at a rate of 6.3% as of December 31, 1995. The Receivables Facility has a 364-day term and contains financial covenants similar to those in the Credit Facilities Agreement, as restated and amended, along with certain covenants regarding the quality of the trade receivables pool. On September 2, 1994, in anticipation of entering into the Receivables Facility, BA entered in a Master Note Agreement (the "Short-Term Note") with the Company and advanced the Company $75 million at the Eurodollar rate plus .50%, which resulted in an interest rate of 6.56% per annum at June 30, 1995. The Company used the $75 million drawn on the Receivables Facility to repay the Short-Term Note, which was then canceled. COVENANT COMPLIANCE. At December 31, 1995, the Company was in compliance with all covenants in its loan agreements. INTEREST RATE SWAP AGREEMENTS. Historically, the Company has entered into interest rate swap agreements to manage exposure to changes in interest rates. The transactions generally involve the exchange of fixed and floating interest payment obligations or the exchange of foreign and U.S. currencies, without the exchange of the underlying principal amounts. The net effect of interest 20 rate swap activity is reflected as an increase or decrease in interest expense. Any gains on termination of interest rate swap agreements and the effects of foreign currency positions that were marked to market are included in other income. At December 31, 1995 and 1994, the total notional principal amount of outstanding interest rate swap agreements was $0 and $50 million, respectively. In addition to the financial risk, which will vary during the life of these swap agreements in relation to the maturity of the underlying debt and market interest rates, the Company is subject to credit risk exposure from nonperformance of the counterparties to the swap agreements. In anticipation of issuing the 1995 Senior Notes in the fourth quarter of 1995, the Company entered into an interest rate lock on a notional amount of $50 million, linked to the ten-year U.S. Treasury Bill rate, with a creditworthy counterparty to hedge against the risk of rising interest rates while it completed the 1995 Senior Notes placement. At the time the Company terminated the rate lock, interest rates had decreased, which resulted in the realization of a $390,000 loss. The Company considered the loss to be a cost of obtaining the privately placed debt and is therefore amortizing it over the ten-year term of the 1995 Senior Notes. The following table summarizes the results of the Company's interest rate swap and foreign currency positions for each of the three years in the period ended December 31, 1995 (000s):
1995 1994 1993 ----- ------ ------- Net (increase) decrease to interest expense........... $ 358 $ (932) $ 1,769 ===== ====== ======= Interest rate swap losses capitalized................. $ 390 $ - $ - ===== ====== ======= Gains on swap termination............................. $ - $ - $ 2,590 ===== ====== ======= Losses on foreign currency positions.................. $ - $ (361) $(1,175) ===== ====== =======
Environmental The construction and operation of the Company's gathering lines, plants and other facilities used for the gathering, transporting, processing, treating or storing of residue gas and NGLs are subject to federal, state and local environmental laws and regulations, including those that can impose obligations to clean up hazardous substances at the Company's facilities or at facilities to which the Company sends wastes for disposal. In most instances, the applicable regulatory requirements relate to water and air pollution control or solid waste management procedures. The Company employs six environmental engineers to monitor environmental compliance and potential liabilities at its facilities. Prior to consummating any major acquisition, the Company's environmental engineers perform audits on the facilities to be acquired. In addition, on an ongoing basis, the environmental engineers perform systematic environmental assessments of the Company's existing facilities. The Company believes that it is in substantial compliance with applicable material environmental laws and regulations. Environmental regulation can increase the cost of planning, designing, constructing and operating the Company's facilities. The Company believes that the costs for compliance with current environmental laws and regulations have not had and will not have a material effect on the Company's financial position or results of operation. In 1990, the Congress enacted the Clean Air Act Amendments of 1990 (the "Clean Air Act") which impose more stringent standards on emissions of certain pollutants and require the permitting of certain existing air emissions sources. Many of the regulations have not yet been promulgated and until their promulgation, the Company cannot make a final assessment of the impact of the Clean Air Act. However, based upon its preliminary review of the proposed regulations, the Company does not anticipate that compliance with the Clean Air Act will require any material capital expenditures, although it will increase permitting costs in 1996 and may increase certain operating costs on an ongoing basis. The Company does not believe that such cost increases will have a material effect on the Company's financial position or results of operations. The Company believes that it is reasonably likely that the trend in environmental legislation and regulation will continue to be towards stricter standards. The Company is unaware of future environmental standards that are reasonably likely to be adopted that will have a material effect on the Company's financial position or results of operations, but it cannot rule out that possibility. The Company is in the process of voluntarily cleaning up substances at facilities that it operates. In addition, the former owner of certain facilities that the Company acquired in 1992 is conducting remediation at those facilities pursuant to contractual obligations. The Company's expenditures for environmental evaluation and remediation at existing facilities have not been 21 significant in relation to the results of operations of the Company and totaled approximately $1.3 million for the year ended December 31, 1995. For the year ended December 31, 1995, the Company paid an aggregate of approximately $757,000 in air emissions fees to the states in which it operates. Although the Company anticipates that such environmental expenses will increase over time, the Company does not believe that such increases will have a material effect on the Company's financial position or results of operations. FORWARD LOOKING INFORMATION The Company has developed a three-part business plan to increase profitability through continued growth of the Company's core businesses. The Company plans to expand its marketing activities, acquire or develop gas gathering and processing assets that meet the Company's target rates of return and increase the efficiency of its existing facilities. Marketing The Company's existing natural gas and NGL marketing was a by-product of the Company's processing activities and was directed towards selling natural gas and NGLs processed at its plants to ensure their efficient operation. As the Company expanded into new basins and the natural gas industry became deregulated, the Company began to increase its third-party marketing. The Company believes that the knowledge and understanding gained through its gas gathering and processing operations coupled with its understanding of the pipeline network are the basis for its success in marketing natural gas and NGLs. Average daily gas sales increased to 1,572 MMcf per day and NGL sales increased to 2,890 MGal per day for the year ended December 31, 1995 compared to 220 MMcf and 630 MGal, respectively, for the year ended December 31, 1990, a 615% and 359% increase, respectively. Natural Gas The Company plans to expand its gas marketing by (i) targeting special needs of end-users willing to pay higher margins, (ii) increasing its use of the Katy Facility and (iii) entering the recently deregulated electric power marketing sector. The Company's marketing department has recently been restructured along more specialized lines to include separate managers for national accounts, end- use sales and electric power marketing. In 1996, the Company plans to hire four experienced marketers who will primarily be involved in seeking national accounts with companies having multiple facilities throughout the country. There is no assurance that the Company will be successful in obtaining such accounts. The Company has also expanded its marketing activity to areas beyond its traditional gas supply centers (Houston and the Gulf Coast) to demand centers, such as Chicago, New York and California. The Katy Facility, which commenced operations in February 1994, utilizes a partially depleted natural gas reservoir with 19 Bcf of working gas capacity and a pipeline header system, currently connected to eleven pipelines. The Katy Facility has the capability to deliver up to 400 MMcf per day of natural gas from the reservoir. In the first two years of the facility's operation, the Company used a majority of the storage for its own account to take advantage of the price differential between summer and winter gas. As part of its marketing plans, the Company intends to increase its long-term firm storage agreements with local distribution companies from 45% to up to 75% of the available capacity. NGLs The Company's plans for NGL marketing are focused on increasing third-party sales. The Company is also pursuing industrial end-users of NGLs and recently entered into a long-term agreement for the sale of approximately two-thirds of the propane produced at the Granger Plant to a mining company through a transporter/wholesaler. In addition, the Company plans to spend approximately $5 million in 1996 to upgrade certain processing facilities which will allow for production of higher-value NGLs. For example, the Company is installing a butane splitter at the Granger Plant which will permit fractionation of field-grade butane into normal butane and iso-butane, products that receive a premium over the field-grade butane. Electric Power The Company believes that the anticipated deregulation by states of retail power marketing will offer the Company significant opportunities to offer both natural gas and electric power to its existing end-user customer base and to utilize the Company's demonstrated ability in the natural gas sector to respond quickly to changing regulatory and market conditions. In 1994, the Company received a certificate from the FERC to sell electric power at the wholesale level. The Company intends to dedicate six employees to power marketing by the end of 1996. The Company is in the process of developing the contractual infrastructure 22 necessary to market power and has already put into place 150 blanket transmission agreements with carriers and 150 tolling agreements with power generators to trade natural gas for electric power. There is no assurance that the retail electric power marketing industry will develop or that the Company will be successful if the industry develops. Business Development The Company's business development activities are oriented towards (i) identifying and acquiring gas gathering and processing assets and (ii) obtaining additional gas supplies to maintain or increase throughput levels at the Company's existing facilities to offset natural production declines. Historically, the Company has expanded primarily through acquisitions. Since December 31, 1990, the Company has had a net increase of 13 gas processing plants and has increased its gas gathering system miles by 188% to 11,079 miles, resulting in an increase in gas throughput of 370% for the five-year period ended December 31, 1995. As part of its business plan, the Company will continue to pursue aggressively gas gathering and processing assets which meet the Company's target rate of return, with an emphasis on acquisitions that complement its existing operations or provide growth in marketing. The Company's business plan assumes that the Company will spend $50 million in each of 1996, 1997 and 1998 on acquisitions and projects that complement its current asset base. One of the significant criteria for the Company in making acquisitions or entering into development projects is that such transactions have a projected internal rate of return of 20% per year, before income taxes and financing costs, for a 15-year period, although the Company will also consider lower return transactions if they provide other opportunities or benefits. The primary factor affecting internal rates of return is the price of natural gas, which also generally affects the volumes of natural gas produced by both the Company and third parties. Other assumptions underlying the Company's business plan are that for every $1 million in investment, the Company will (i) spend an additional $100,000 in each succeeding year for new well connects and related expansion (an aggregate of $5 million per year if the full $50 million is spent) and (ii) incur an additional $10,000 in general and administrative costs. The Company believes that the foregoing criteria and assumptions are reasonable under current industry and general economic and market conditions. However, the Company cannot predict the volumes and prices of natural gas and NGLs, and actual industry and general economic and market conditions could differ, perhaps significantly, from the conditions that the Company has assumed in projecting rates of return for transactions. Furthermore, there can be no assurance that the Company will identify any qualifying transactions or that it will ultimately be able to acquire assets or enter into such projects. Operations The Company continually monitors the economic performance of each of its operating facilities to ensure that it meets a desired cash flow objective. If an operating facility is not generating desired cash flows or does not fit in with the Company's strategic plans, the Company will explore various options, such as consolidation with other Company-owned facilities, dismantlement, asset swap or outright sale. In 1995, the Company sold the Waha Header and certain non-strategic assets acquired in the Oasis acquisition and completed the consolidation of its Lamont gathering system with the Chaney Dell system. The Company anticipates completing the salvage of substantially all of the Lamont processing plant by the end of the first quarter of 1996. In 1994, the Company sold its Sligo plant, swapped its Pyote treating facilities for gathering assets in Kansas which were subsequently disposed of during the second quarter of 1995, consolidated assets in the Powder River Basin and sold its Walnut Bend gathering system. The Company anticipates that the salvage of the Walnut Bend processing plant will be substantially completed by the end of the third quarter of 1996. Commencing in March 1996, the Company and its joint venture partner at the Lincoln Road gas plant temporarily suspended processing operations at that plant and began processing the associated gas at the Company's Granger facility. If volumes increase substantially beyond Granger's capacity, the Lincoln Road plant might be re-started. The Company anticipates that this consolidation will result in lower overall plant operating expenses for the combined systems. In January 1996, Koch, which operates the Teddy Roosevelt and Williston assets under a lease agreement, exercised its option to purchase certain gas gathering assets located in North Dakota from the Company and Williston. Proceeds from the sale of the gathering assets totaled $2.4 million of which the Company is entitled to receive $1.5 million. The closing on the sale is expected to occur on August 1, 1996, at which time the operations of Williston and the Company's Teddy Roosevelt facility will cease and any remaining assets will be salvaged. 23 Hedging In order to reduce the impact of commodity price fluctuations on its operating results, the Company enters into futures contracts and basis positions to hedge the majority of its natural gas equity production. The following table summarizes the Company's hedged equity position as of March 1, 1996:
Average Daily Volumes (MMcf/D) Weighted Average Price --------------------------------------- --------------------------------------- First Second Third Fourth First Second Third Fourth Basin Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - -------------------------- ------- ------- ------- ------- ------- ------- ------- ------- Permian 20,000 15,000 15,000 15,000 $ 1.76 $1.81 $1.81 $1.88 Rocky Mountain 3,407 - - - 1.37 - - - Gulf Coast 19,121 15,495 14,891 11,630 2.23 1.86 1.81 1.93 Mid-Continent 1,758 5,000 5,000 14,783 $ 1.85 $1.84 $1.85 $1.80
From time to time, the Company also hedges a portion of its share of condensate and crude oil production, although no such hedges were outstanding at December 31, 1995. The Company will continue hedging such production as deemed appropriate by management. 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Western Gas Resources, Inc.'s Consolidated Financial Statements as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995:
Page ---- Report of Management................................................................ 26 Report of Independent Accountants................................................... 27 Consolidated Balance Sheets......................................................... 28 Consolidated Statements of Cash Flows............................................... 29 Consolidated Statements of Operations............................................... 30 Consolidated Statements of Changes in Stockholders' Equity.......................... 31 Notes to Consolidated Financial Statements.......................................... 32
25 REPORT OF MANAGEMENT The financial statements and other financial information included in this Annual Report on Form 10-K are the responsibility of management. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on management's informed judgments and estimates. Management relies on the Company's system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal accounting control and that the cost of such systems should not exceed the benefits to be derived. The internal accounting controls, including internal audit, in place during the periods presented are considered adequate to provide such assurance. The Company's financial statements are audited by Price Waterhouse LLP, independent accountants. Their report states that they have conducted their audit in accordance with generally accepted auditing standards. These standards include an evaluation of the system of internal accounting controls for the purpose of establishing the scope of audit testing necessary to allow them to render an independent professional opinion on the fairness of the Company's financial statements. Oversight of Management's financial reporting and internal accounting control responsibilities is exercised by the Board of Directors, through an Audit Committee that consists solely of outside directors. The Audit Committee meets periodically with financial management, internal auditors and the independent accountants to review how each is carrying out its responsibilities and to discuss matters concerning auditing, internal accounting control and financial reporting. The independent accountants and the Company's internal audit department have free access to meet with the Audit Committee without Management present.
Signature Title - --------- ----- /s/ BILL M. SANDERSON - ----------------------------------- Bill M. Sanderson President, Chief Operating Officer and Director /s/ WILLIAM J. KRYSIAK - ----------------------------------- William J. Krysiak Vice President - Finance (Principal Financial and
Accounting Officer) 26 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of Western Gas Resources, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of cash flows, of operations, and of changes in stockholders' equity present fairly, in all material respects, the financial position of Western Gas Resources, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their cash flows and their operations for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 2 and 3 to the financial statements, the Company changed its method of accounting for the impairment of long-lived assets in 1995 to comply with the provisions of Statement of Financial Accounting Standards No. 121. PRICE WATERHOUSE LLP Denver, Colorado February 23, 1996 27 WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET (000s)
December 31, ------------------------------ ASSETS 1995 1994 ------ ----------- ----------- Current assets: Cash and cash equivalents.................................................... $ 5,795 $ 8,708 Trade accounts receivable, net............................................... 204,426 134,444 Product inventory............................................................ 28,154 51,139 Parts inventory.............................................................. 2,427 2,291 Other........................................................................ 1,524 1,367 ---------- ---------- Total current assets...................................................... 242,326 197,949 ---------- ---------- Property and equipment: Gas gathering, processing, storage and transmission.......................... 882,801 881,569 Oil and gas properties and equipment......................................... 140,691 140,601 Construction in progress..................................................... 26,314 40,076 ---------- ---------- 1,049,806 1,062,246 Less: Accumulated depreciation, depletion and amortization.................... (200,203) (179,537) ---------- ---------- Total property and equipment, net......................................... 849,603 882,709 ---------- ---------- Other assets: Gas purchase contracts (net of accumulated amortization of $19,273 and $14,872, respectively).................................................... 54,637 40,958 Other........................................................................ 47,431 45,746 ---------- ---------- Total other assets........................................................ 102,068 86,704 ---------- ---------- Total assets.................................................................... $1,193,997 $1,167,362 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable............................................................. $ 199,513 $ 145,244 Short-term debt.............................................................. 75,000 75,000 Accrued expenses............................................................. 19,204 13,448 Dividends payable............................................................ 3,898 3,895 Income taxes payable......................................................... - 843 ---------- ---------- Total current liabilities................................................. 297,615 238,430 Long-term debt.................................................................. 454,500 418,000 Deferred income taxes payable................................................... 69,973 68,727 Other long-term liabilities..................................................... - 5,522 ---------- ---------- Total liabilities......................................................... 822,088 730,679 ---------- ---------- Commitments and contingent liabilities.......................................... - - Stockholders' equity: Preferred Stock; 10,000,000 shares authorized: 7.25% cumulative senior perpetual convertible preferred stock, par value $.10; none and 400,000 shares issued and outstanding ($40,000 aggregate liquidation preference)...................................... - 40 $2.28 cumulative preferred stock, par value $.10; 1,400,000 shares issued and outstanding ($35,000 aggregate liquidation preference)............. 140 140 $2.625 cumulative convertible preferred stock, par value $.10; 2,760,000 and issued and outstanding, respectively ($138,000 aggregate liquidation preference)............................................... 276 276 Common stock, par value $.10; 100,000,000 shares authorized; 25,794,728 and 25,737,317 shares issued, respectively.................................... 2,580 2,574 Treasury stock, at cost; 25,016 shares in treasury........................... (788) (788) Additional paid-in capital................................................... 301,234 338,926 Retained earnings............................................................ 70,348 97,040 Notes receivable from key employees secured by common stock.................. (1,881) (1,525) ---------- ---------- Total stockholders' equity 371,909 436,683 ---------- ---------- Total liabilities and stockholders' equity...................................... $1,193,997 $1,167,362 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 28 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (000s)
Year Ended December 31, -------------------------------------- 1995 1994 1993 ---------- ----------- --------- Reconciliation of net income to net cash provided by operating activities - ------------------------------------------------------------------------- Net income (loss)................................................................ $ (6,108) $ 7,364 $ 38,102 Add income items that do not affect working capital: Depreciation, depletion and amortization....................................... 65,361 63,586 43,980 Deferred income taxes.......................................................... 1,246 2,246 7,439 Gain on the sale of property and equipment..................................... (939) - - Loss on the impairment of long-lived assets.................................... 17,642 - - Other non-cash items........................................................... (1,360) 452 77 ---------- --------- --------- 75,842 73,648 89,598 ---------- --------- --------- Adjustments to working capital to arrive at net cash provided by operating activities: (Increase) decrease in trade accounts receivable............................... (69,982) 7,892 (38,078) (Increase) decrease in product inventory....................................... 22,985 (30,289) (2,540) Increase in parts inventory.................................................... (136) (130) (490) (Increase) decrease in other current assets.................................... (157) 177 56 Increase in other assets and liabilities, net.................................. (391) (241) (2,845) Increase (decrease) in accounts payable........................................ 54,269 (15,712) 68,813 Increase (decrease) in accrued expenses........................................ 4,786 (4,322) (7,398) Increase (decrease) in income taxes payable.................................... (843) 843 - ----------- --------- --------- Total adjustments............................................................. 10,531 (41,782) 17,518 ----------- --------- --------- Net cash provided by operating activities........................................ 86,373 31,866 107,116 ----------- --------- --------- Cash flows from investing activities: Payments for business acquisitions............................................. (8,109) (24,685) (302,988) Payments for additions to property and equipment............................... (48,029) (67,148) (150,216) Proceeds from the disposition of property and equipment........................ 13,328 10,897 741 Contributions to investments for capital expenditures.......................... (4,237) (1,189) (11,647) Gas purchase contracts acquired................................................ (18,146) (7,518) (27,477) --------- --------- --------- Net cash used in investing activities............................................ (65,193) (89,643) (491,587) --------- --------- --------- Cash flows from financing activities: Net proceeds from issuance of preferred stock.................................. - 132,676 - Net proceeds from exercise of common stock options............................. 117 413 372 Debt issue costs paid.......................................................... (1,884) (827) (3,611) Proceeds from short-term borrowings............................................ - 75,000 - Proceeds from issuance of long-term debt....................................... 92,000 50,000 100,000 Payments on long-term debt..................................................... (25,000) - - Borrowings under revolving credit facility..................................... 625,400 347,400 594,350 Payments on revolving credit facility.......................................... (655,900) (526,400) (304,350) Dividends paid to holders of common stock...................................... (5,153) (5,140) (5,124) Dividends paid to holders of preferred stock................................... (11,643) (11,303) (5,660) Redemption of 7.25% Cumulative Senior Perpetual Convertible Preferred Stock......................................................................... (42,030) - - --------- --------- --------- Net cash provided by (used in) financing activities............................ (24,093) 61,819 375,977 --------- --------- --------- Net increase (decrease) in cash.................................................. (2,913) 4,042 (8,494) Cash and cash equivalents at beginning of period................................. 8,708 4,666 13,160 --------- --------- --------- Cash and cash equivalents at end of period....................................... $ 5,795 $ 8,708 $ 4,666 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 29 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (000s, except share and per share amounts)
Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ------------ ----------- ------------ Revenues: Sale of residue gas................................................ $ 876,399 $ 707,869 $ 563,068 Sale of natural gas liquids........................................ 331,760 309,358 333,880 Processing, transportation and storage revenue..................... 41,358 35,057 25,622 Other, net......................................................... 7,467 11,205 9,768 ----------- ----------- ------------ Total revenues................................................. 1,256,984 1,063,489 932,338 ----------- ----------- ------------ Costs and expenses: Product purchases.................................................. 1,040,265 853,398 730,676 Plant operating expense............................................ 71,030 68,500 62,387 Oil and gas exploration and production cost........................ 5,117 5,449 3,283 Selling and administrative expense................................. 26,610 29,598 23,925 Depreciation, depletion and amortization........................... 65,361 63,586 43,980 Interest expense................................................... 37,160 31,434 12,456 Restructuring charge............................................... 2,065 - - Loss on the impairment of long-lived assets........................ 17,642 - - ----------- ----------- ------------ Total costs and expenses....................................... 1,265,250 1,051,965 876,707 ----------- ----------- ------------ Income (loss) before taxes............................................ (8,266) 11,524 55,631 Provision (benefit) for income taxes: Current............................................................ (3,404) 1,913 10,090 Deferred........................................................... 1,246 2,247 7,439 ----------- ----------- ------------ Total provision (benefit) for income taxes...................... (2,158) 4,160 17,529 ----------- ----------- ------------ Net income (loss)..................................................... (6,108) 7,364 38,102 Preferred stock requirements.......................................... (15,431) (12,212) (6,092) ----------- ----------- ------------ Income (loss) attributable to common stock............................ $ (21,539) $ (4,848) $ 32,010 =========== =========== ============ Earnings (loss) per share of common stock............................. $(.84) $ (.19) $ 1.25 =========== =========== ============ Weighted average shares of common stock outstanding................... 25,753,738 25,695,760 25,608,503 =========== =========== ============
The accompanying notes are an integral part of the consolidated financial statements. 30 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (000s, except share amounts)
Shares of 7.25% 7.25% Cumulative Shares of Cumulative Senior Shares of $2.625 Senior Perpetual $2.28 Cumulative Shares Perpetual $2.28 Convertible Cumulative Convertible Shares of Common Convertible Cumulative Preferred Preferred Preferred of Common Stock Preferred Preferred Stock Stock Stock Stock in Treasury Stock Stock ---------- --------- ----------- ----------- ----------- ---------- ---------- Balance at December 31, 1992...................... 400,000 1,400,000 - 25,522,575 - $ 40 $ 140 Net income, 1993........... - - - - - - - Stock options exercised.... - - - 129,147 - - - Dividends declared on common stock.............. - - - - - - - Dividends declared on 7.25% cumulative.......... senior perpetual convertible preferred stock..................... - - - - - - - Dividends declared on $2.28 cumulative.......... preferred stock........... - - - - - - - --------- --------- ---------- ----------- --------- ---------- ----------- Balance at December 31, 1993...................... 400,000 1,400,000 - 25,651,722 - 40 140 Net income, 1994........... - - - - - - - Stock options exercised.... - - - 85,595 - - - Treasury stock, at cost.... - - - (25,016) 25,016 - - Proceeds from issuance of $2.625 cumulative......... convertible preferred stock - - 2,760,000 - - - - Dividends declared on common stock.............. - - - - - - - Dividends declared on 7.25% cumulative.......... senior perpetual convertible preferred stock..................... - - - - - - - Dividends declared on $2.28 cumulative.......... preferred stock........... - - - - - - - Dividends declared on $2.625 cumulative......... convertible preferred stock - - - - - - - --------- --------- ---------- ----------- --------- ---------- ----------- Balance at December 31, 1994...................... 400,000 1,400,000 2,760,000 25,712,301 25,016 40 140 Net loss, 1995............. - - - - - - - Stock options exercised.... - - - 57,411 - - - Redemption of 7.25% cumulative senior......... (400,000) - - - - (40) - perpetual convertible preferred stock........... - - - - - - - Dividends declared on common stock.............. - - - - - - - Dividends declared on 7.25% cumulative senior perpetual convertible preferred stock........... - - - - - - - Dividends declared on $2.28 cumulative.......... preferred stock........... - - - - - - - Dividends declared on $2.625 cumulative......... convertible preferred stock - - - - - - - --------- --------- ---------- ----------- --------- ---------- ----------- Balance at December 31, 1995...................... - 1,400,000 2,760,000 25,769,712 25,016 $ - $ 140 ========= ========= ========== =========== ========= ========== =========== $2,625 Cumulative Notes Total Convertible Additional Receivable Stock- Preferred Common Treasury Paid-In Retained from Key holders' Stock Stock Stock Capital Earnings Employees Equity ----------- ------ --------- ---------- --------- ---------- --------- Balance at December 31, 1992...................... - $ 2,552 - $ 204,720 $ 81,047 $ (1,478) $ 287,021 Net income, 1993........... - - - - 38,102 - 38,102 Stock options exercised.... - 13 - 974 - (507) 480 Dividends declared on common stock.............. - - - - (5,124) - (5,124) Dividends declared on 7.25% cumulative.......... senior perpetual convertible preferred stock..................... - - - - (2,900) - (2,900) Dividends declared on $2.28 cumulative.......... preferred stock........... - - - - (3,192) - (3,192) ---------- ---------- ------- ---------- -------- ---------- -------- Balance at December 31, 1993...................... - 2,565 - 205,694 107,933 (1,985) 314,387 Net income, 1994........... - - - - 7,364 - 7,364 Stock options exercised.... - 9 - 831 - (328) 512 Treasury stock, at cost.... - - (788) - - 788 - Proceeds from issuance of $2.625 cumulative convertible preferred stock 276 - - 132,401 - - 132,677 Dividends declared on common stock.............. - - - - (5,140) - (5,140) Dividends declared on 7.25% cumulative.......... senior perpetual convertible preferred stock..................... - - - - (2,900) - (2,900) Dividends declared on $2.28 cumulative.......... preferred stock........... - - - - (3,192) - (3,192) Dividends declared on $2.625 cumulative......... convertible preferred stock - - - - (7,025) - (7,025) ---------- ---------- ------- ---------- -------- ---------- -------- Balance at December 31, 1994...................... 276 2,574 (788) 338,926 97,040 (1,525) (436,683) Net loss, 1995............. - - - - (6,108) - (6,108) Stock options exercised.... - 6 - 514 - (356) 164 Redemption of 7.25% cumulative senior......... perpetual convertible preferred stock........... - - - (38,206) (3,784) - (42,030) Dividends declared on common stock.............. - - - - (5,153) - (5,153) Dividends declared on 7.25% cumulative.......... senior perpetual convertible preferred stock..................... - - - - (1,208) - (1,208) Dividends declared on $2.28 cumulative.......... preferred stock........... - - - - (3,194) - (3,194) Dividends declared on $2.625 cumulative......... convertible preferred stock - - - - (7,245) - (7,245) ---------- ---------- ------- ----------- --------- ---------- --------- Balance at December 31, 1995...................... $ 276 $ 2,580 $ (788) $ 301,234 $ 70,348 $ (1,881) $371,909 ========== ========== ======= ========== ======== ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 31 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF ORGANIZATION - ------------------------------ Western Gas Resources, Inc., a Delaware corporation, is an independent gas gatherer, processor and marketer with operations in major oil and gas-producing basins in the Rocky Mountain, Gulf Coast and Southwestern regions of the United States, Western Gas Resources, Inc. owns and operates natural gas gathering, processing and storage facilities and markets and transports natural gas and natural gas liquids ("NGLs"). Western Gas Resources, Inc, was formed in October 1989 to acquire a majority interest in Western Gas Processors, Ltd. (the "Partnership") and to assume the duties of WGP Company, the general partner of the Partnership. The Partnership had been a Colorado limited partnership formed in 1977 to engage in the gathering and processing of natural gas. The reorganization was accomplished in December 1989 through an exchange for common stock of partnership units held by the former general partners of WGP Company (the "Principal Stockholders") and an initial public offering of Western Gas Resources, Inc. common stock. On May 1, 1991, a further restructuring ("Restructuring") of the Partnership and Western Gas Resources, Inc. (together with its predecessor, WGP Company, collectively, the "Company") was approved by a vote of the security holders. The combinations were reorganizations of entities under common control and have been accounted for at historical cost in a manner similar to poolings of interests. In October 1991, the Company issued 400,000 shares of 7.25% Cumulative Senior Perpetual Convertible Preferred Stock ("7.25% Preferred Stock") with a liquidation preference of $100 per share to an institutional investor. In May 1995, the Company redeemed all of the issued and outstanding shares of its 7.25% Preferred Stock pursuant to the provisions its Certificate of Designation relating to such preferred stock, at an aggregate redemption price of approximately $42.0 million, including a redemption premium of $2.0 million. In November 1991, the Company issued 4,115,000 shares of common stock at a public offering price of $18.375 per share. In November 1992, the Company issued 1,400,000 shares of $2.28 Cumulative Preferred Stock with a liquidation preference of $25 per share, at a public offering price of $25 per share, redeemable at the Company's option on or after November 15, 1997. In February 1994, the Company issued 2,760,000 shares of $2.625 Cumulative Convertible Preferred Stock with a liquidation preference of $50 per share, at a public offering price of $50 per share, redeemable at the Company's option on or after February 16, 1997. SIGNIFICANT BUSINESS ACQUISITIONS AND DISPOSITIONS Northern Acquisition In July 1995, the Company entered into an agreement to purchase eight West Texas gathering systems from Transwestern Gathering Company and Enron Permian Gathering, Inc. In October 1995, the Company acquired and assumed the operations of the Transwestern Gathering Company assets being sold pursuant to the agreement for an adjusted purchase price of $4.0 million. Closing on the remaining assets occurred in December 1995 for a purchase price of $14.7 million Redman Smackover Joint Venture Effective January 1, 1995, the Company entered into the Redman Smackover Joint Venture ("Redman Smackover") agreement with DDD Energy, Inc., a wholly owned exploration and production subsidiary of Seitel, Inc., Redman Energy Corporation, and DDD 1995 Oil & Gas Partnership. Redman Smackover acquired working interests in three producing gas fields in East Texas in the Smackover formation from Union Oil Company of California for an adjusted purchase price of $11.0 million. The Company's contribution to the venture was approximately $5.4 million through December 31, 1995. The Company is the managing venturer with a 50% ownership interest. 32 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Oasis Effective December 1, 1994, the Company acquired the West Texas gathering and treating assets of Oasis Pipe Line Company ("Oasis") for approximately $26.0 million. The Oasis purchase included 14 gathering systems in the Permian Basin comprising approximately 600 miles of gathering lines and two treating facilities. In addition, the Company entered into a long-term agreement with Oasis for 100 MMcf per day of firm transportation service on its intrastate pipeline. The Company has installed a 200 MMcf per day pipeline interconnection between this pipeline and the Katy Facility. Throughout 1995, the Company disposed of various assets associated with this acquisition for an aggregate of $8.9 million. The aggregate difference of $677,000 between the respective sales price and book value of assets sold was accounted for as a purchase price adjustment. Mountain Gas Effective January 1, 1993, the Company acquired the stock of Mountain Gas Resources, Inc. ("Mountain Gas") from Morgan Stanley Leveraged Equity Fund II, L.P. for total consideration of approximately $168.2 million, including the payment of certain transaction costs and the assumption and repayment of $35 million of long-term debt of Mountain Gas. Mountain Gas owns the Red Desert and Granger facilities. The 22% interest in the Granger facility previously not owned by Mountain Gas was purchased by the Company in two separate transactions in November and December 1993 for an aggregate of $27.7 million. At the date of acquisition, the Red Desert facility consisted of a cryogenic plant and the Granger plant consisted of a refrigeration unit and a cryogenic unit. In December 1993, the Company completed construction of an additional cryogenic processing plant at Granger, at a total additional cost of approximately $4.8 million. Black Lake Effective January 1, 1993, the Company purchased the Black Lake gas processing plant and related reserves ("Black Lake") from Nerco Oil & Gas, Inc. ("Nerco") for approximately $136.2 million. The acquisition included a 68.9% working interest in the Black Lake field in Louisiana and a gas processing plant. The purchase also included 50% of the stock of Black Lake Pipeline Company, which owns a 240 mile liquids pipeline extending from Cotton Valley, Louisiana to Mont Belvieu, Texas and transports NGLs for Black Lake and three unaffiliated gas processing plants. In May 1994, the Company sold its 50% of the stock in Black Lake Pipeline Company for approximately $5.4 million. The difference of approximately $2.5 million between the book value and the sales price was treated as a purchase price adjustment. Westana Joint Venture Effective August 1, 1993, the Company formed Westana Gathering Company ("Westana"), a general partnership, with PanEnergy. Westana provides gas gathering and processing services in the Anadarko Basin in Oklahoma and markets natural gas and NGLs for producers connected to its system. The Company is the principal operator with each partner holding a 50% ownership interest. The Company contributed its Chester gas processing plant and gathering system, with a net book value of $13.8 million, to Westana. The Company also made additional contractual partnership contributions of $7.2 million through December 31, 1995 which are expected to be recouped through preferential distributions. In addition to the assets contributed by the Company, Westana operates PanEnergy's 400 mile gathering system and six compressor stations, assets which will be contributed to Westana by PanEnergy. PanEnergy has received and accepted abandonment approval by the FERC and is now awaiting certain clarification of the abandonment approval. Upon clarification from the Federal Energy Regulatory Commission ("FERC") on the abandonment approval, PanEnergy will contribute their gathering assets to Westana. The Company expects the contribution of the PanEnergy assets to occur in 1996. 33 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- The significant accounting policies followed by the Company and its wholly owned subsidiaries are presented herein to assist the reader in evaluating the financial information contained herein. The Company's accounting policies are in accordance with generally accepted accounting principles. Principles of Consolidation The consolidated financial statements include the accounts of the Company and the Company's wholly owned subsidiaries. All material intercompany transactions have been eliminated in consolidation. The Company's interest in certain investments is accounted for by the equity method. Revenue Recognition Revenue for sales or services is recognized at the time the natural gas or NGLs is delivered or at the time the service is performed. Earnings (Loss) Per Share of Common Stock Earnings (loss) per share of common stock is computed by dividing net income (loss) attributable to shares of common stock by the weighted average number of shares of common stock outstanding. Net income (loss) attributable to shares of common stock is net income (loss) less preferred stock dividends. The Company declared preferred stock dividends of $11.6 million, $12.2 million and $6.1 million for the years ended December 31, 1995, 1994 and 1993, respectively. In addition, net income (loss) for the year ended December 31, 1995 attributable to common stock was reduced by the $2.0 million redemption premium and certain up- front costs of $1.8 million paid on the 7.25% Preferred Stock. The computation of fully diluted earnings per share of common stock for each of the three years in the period ended December 31, 1995 was not dilutive; therefore, only primary earnings per share of common stock is presented. Inventories Product inventory includes $23.3 million and $47.5 million of residue gas and $4.8 million and $3.5 million of NGLs at December 31, 1995 and 1994, respectively. The cost of residue gas and NGL inventories is determined by the weighted average cost and last-in, first-out (LIFO) methods, respectively, on a location- by-location basis. Residue inventory covered by hedging contracts is accounted for on a specific identification basis. Property and Equipment Property and equipment is recorded at the lower of cost or estimated realizable value, including interest on funds borrowed to finance the construction of new projects. Interest incurred during the construction period of new projects is capitalized and amortized over the life of the associated assets. Such capitalized interest was $1.5 million, $1.5 million and $4.9 million, respectively, for the years ended December 31, 1995, 1994 and 1993. Depreciation is provided using the straight-line method based on the estimated useful life of each facility which ranges from three to 35 years. Useful lives are determined based on the shorter of the life of the equipment or the reserves serviced by the equipment. The cost of certain gas purchase contracts is amortized using the units-of-production method. Oil and Gas Properties and Equipment The Company follows the successful efforts method of accounting for oil and gas exploration and production activities. Acquisition costs, development costs and successful exploration costs are capitalized. Exploratory dry hole costs, lease rentals and geological and geophysical costs are charged to expense as incurred. Upon surrender of undeveloped properties, the original cost is charged 34 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) against income. Producing properties and related equipment are depleted and depreciated by the units-of-production method based on estimated proved reserves for producing properties and proved developed reserves for lease and well equipment. Impairment of Long-Lived Assets As of October 1, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires that an impairment loss be recognized when the carrying amount of an asset exceeds the expected future undiscounted net cash flows. This test is to be performed at the lowest level at which cash flows can be identified. Historically, the Company had performed this test for its oil and gas producing properties on a Company-wide basis. Upon adoption of SFAS No. 121, the Company reviewed its assets at the plant facilities and oil and gas producing properties levels. In order to determine whether an impairment existed, the Company compared its net book value of the asset to the undiscounted expected future cash flows, determined by applying future prices estimated by management over the shorter of the lives of the facilities or the reserves supporting the facilities. If impairment existed, write-downs of assets were based upon expected discounted cash flows using an interest rate commensurate with the risk associated with the underlying asset. Income Taxes Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. These temporary differences are determined in accordance with SFAS No. 109, "Accounting for Income Taxes." Hedging Activities Gains and losses on hedges of product inventory are included in the carrying amount of the inventory and are ultimately recognized in residue and NGL sales when the related inventory is sold. Gains and losses related to qualifying hedges, as defined by SFAS No. 80, "Accounting for Futures Contracts", of firm commitments or anticipated transactions are recognized in residue and NGL sales when the hedged physical transaction occurs. The $1.9 million of losses deferred in inventory at December 31, 1995, recognized in January 1996, was more than offset by margins from the Company's related forward fixed price hedges and physical sales. Interest Rate Swap Agreements The Company enters into interest rate swap agreements to manage exposure to changes in interest rates. The transactions generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. The net effect of interest rate swap activity is reflected as an increase or decrease in interest expense. Any gains on termination of interest rate swap agreements and the effects of foreign currency positions that were marked to market are included in other income. In addition to the financial risk that will vary during the life of these swap agreements in relation to the maturity of the underlying debt and market interest rates, the Company is subject to credit risk exposure from nonperformance of the counterparties to the swap agreements. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. The risk is limited due to the large number of entities comprising the Company's customer base and their dispersion across industries and geographic locations. At December 31, 1995, the Company had no significant concentrations of credit risk. Cash and Cash Equivalents Cash and cash equivalents includes all cash balances and highly liquid investments with an original maturity of three months or less. 35 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Supplementary Cash Flow Information Interest paid was $38.8 million, $32.8 million and $16.4 million, respectively, for the years ended December 31, 1995, 1994 and 1993. Income taxes paid were $1.6 million, $1.1 million and $10.2 million, respectively, for the years ended December 31, 1995, 1994 and 1993. In February 1994, the President and Chief Operating Officer of the Company, surrendered 25,016 shares of the Company's common stock, which were valued at $31.50 per share based upon the February 22, 1994 closing price, as repayment of a loan and all accrued interest of approximately $788,000. In 1994, the Company exchanged its Pyote Treating Facility for the Jayhawk gathering system in a transaction valued at approximately $800,000. In 1993, the Company exchanged its Fairview Gas Processing Plant for various gas gathering and processing equipment located in Utah and Kansas in a transaction valued at approximately $3.7 million. Use of Estimates and Significant Risks The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of estimates relate to oil and gas reserves, fair value of financial instruments, future cash flows associated with assets, and useful lives for depreciation, depletion and amortization. Actual results could differ from those estimates. The Company is subject to a number of risks inherent in the industry in which it operates, primarily fluctuating prices and gas supply. The Company's financial condition and results of operations will depend significantly upon the prices received for natural gas and NGLs. These prices are subject to fluctuations in response to changes in supply, market uncertainty and a variety of additional factors that are beyond the control of the Company. In addition, the Company must continually connect new wells to its gathering systems in order to maintain or increase throughput levels to offset natural declines in dedicated volumes. The number of new wells drilled will depend upon, among other factors, prices for gas and oil, the energy policy of the federal government and the availability of foreign oil and gas, none of which is within the Company's control. Reclassification Certain prior years' amounts in the consolidated financial statements and related notes have been reclassified to conform to the presentation used in 1995. Stock Compensation In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," with an effective date for fiscal years beginning after December 15, 1995. As permitted under SFAS No. 123, the Company has elected to continue to measure compensation costs for stock-based employee compensation plans as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company will comply with the pro forma disclosure requirements of SFAS No. 123 in 1996 as required under the pronouncement. 36 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - SPECIAL ITEMS - ---------------------- In May 1995, the Company implemented a cost reduction program to reduce operating and selling and administrative expenses. As a result of this program, a $2.1 million restructuring charge was incurred, primarily related to employee severance costs. This cost reduction program has not affected adversely the overall operations of the Company. In September 1995, the Company sold its 50% interest in the Waha Header, a pipeline header in West Texas, resulting in an after-tax gain of $596,000. As a result of the adoption of SFAS No. 121, the Company recognized a non-cash loss on the impairment of long-lived assets of $15.1 million and $2.5 million related to its property and equipment and oil and gas properties, respectively. In December 1993, a fire at the Granger facility's NGL tank farm required the facility to be shut down for one week. The new cryogenic processing plant as well as the smaller existing cryogenic unit were also damaged. Construction of a new tank farm and repairs to the cryogenic units were completed and fully operational in August 1994. Claims for physical damage to the Company's facilities totaled approximately $6.7 million. In addition, the Company recorded, as other revenue, $3.3 million relating to lost income covered under its business interruption insurance policy for the year ended December 31, 1994. As of December 31, 1995, the Company had resolved substantially all remaining issues and collected all remaining insurance proceeds. The total reimbursements the Company received under its insurance policies were $6.6 million for physical damage and $3.9 million related to business interruption. NOTE 4 - RELATED PARTIES - ------------------------ The Company purchases a significant portion of production from Williston Gas Company ("Williston"), a joint venture of which the Company owns 50%, Westana and Redman Smackover for resale to unrelated third parties. In addition, the Company performs various operational and administrative functions for Williston and Westana and charges each entity a monthly overhead fee to cover such services. The Company records receivable and payable balances at the end of each accounting period related to the above referenced transactions and to payments made by the Company on behalf of Williston and Westana that are typically reimbursed in the next subsequent month. The following table summarizes account balances reflected in the financial statements (in 000s):
As of or for the Year Ended December 31, ------------------------------------------ 1995 1994 1993 -------- -------- --------- Purchases: Williston.......................................... $ 6,533 $ 8,185 $ 8,578 Westana............................................ 14,012 16,290 6,866 Redman Smackover................................... 7,651 - - Administrative Costs: Williston.......................................... 60 60 112 Westana............................................ 605 831 264 Accounts Receivable: Williston.......................................... 968 1,121 1,006 Westana............................................ 544 555 1,111 Redman Smackover................................... 37 - - Accounts Payable: Williston.......................................... 943 1,507 2,092 Westana............................................ 1,522 1,526 5,816 Redman Smackover................................... $ 2,514 $ - $ -
37 WESTERN GAS RESOURCES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In July 1990, the Company loaned Bill M. Sanderson, President, Chief Operating Officer and a Director, approximately $748,000 to purchase 294,524 shares of common stock in the Company. In February 1994, the loan and all accrued interest was repaid in full by Mr. Sanderson through surrender of 25,016 shares of the Company's Common Stock, which were valued at $31.50 per share based upon the February 22, 1994 closing price. The Company has entered into agreements committing the Company to loan to certain key employees an amount sufficient to exercise their options as each portion of their options vests under the Key Employees' Incentive Stock Option Plan and the Employee Option Plan (See Note 10). The Company will forgive the loan and accrued interest if the employee has been continuously employed by the Company for periods specified under the agreements. As of December 31, 1995 and 1994, loans, including accrued interest, totaling $2.1 million and $1.6 million, respectively, were outstanding to key employees under these programs. The loans are secured by a portion of the common stock issued upon exercise of the options and are accounted for as a reduction of stockholders' equity. During 1995 and 1994, the Board of Directors approved the forgiveness of loans to key employees totaling approximately $59,000 and $130,000, respectively, after resignation and prior to satisfaction of the continuous service requirements of the loan agreement. NOTE 5 - RISK MANAGEMENT - ------------------------ NATURAL GAS AND NGL HEDGES The Company's policy is to utilize risk management tools primarily to reduce commodity price risk for its equity production and to lock in profit margins for its storage and marketing activities. It is the Company's objective to maintain a balanced portfolio of financial exposure between physical obligations (fixed price purchase and sales, storage inventories) and related financial instruments (futures, swaps, and options positions). This effectively allows the Company to fix its total margin because gains or losses in the physical market are offset by corresponding losses or gains in the financial instruments market. Hedging and related activities may expose the Company to the risk of financial loss in certain circumstances, including instances when (i) production is less than expected, (ii) the Company's customers fail to purchase or deliver the contracted quantities of natural gas or NGLs, or (iii) the Company's over-the- counter ("OTC") counterparties fail to perform. To the extent that the Company engages in hedging activities, it may be prevented from realizing the benefits of favorable price changes in the physical market. However, it is similarly insulated against decreases in such prices. In 1993, the Board of Directors adopted its Natural Gas Futures Trading Procedures and created a committee of officers to oversee the Company's risk management activities. As an additional control, the Company has developed information systems that allow daily monitoring of its risk management activities and its exposure related to futures, swaps and options positions resulting from changes in the market. The Company uses futures, swaps, and options to reduce price risk and basis risk. Basis is the difference in price between the physical commodity being hedged and the price of the futures contract used for hedging. Basis risk is the risk that an adverse change in the futures market will not be completely offset by an equal and opposite change in the cash price of the commodity being hedged. Basis risk exists in natural gas primarily due to the geographic price differentials between cash market locations and futures contract delivery locations. The Company enters into futures transactions on the New York Mercantile Exchange and the Kansas City Board of Trade and through OTC swaps with creditworthy counterparties consisting primarily of financial institutions and other natural gas companies. The Company conducts its standard credit review of OTC counterparties and has agreements with such parties which contain collateral requirements. OTC exposure is marked to market daily for the credit review process. The Company generally uses standardized swap agreements which allow for offset of positive and negative exposures. As of December 31, 1995, the Company held a notional quantity of approximately 330 Bcf of natural gas futures, swaps, and options extending from January 1996 to February 1998. This was comprised of approximately 37 Bcf long and 31 Bcf short of 38 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) exchange-traded futures and 126 long and 136 short Bcf of OTC swaps and options. As of December 31, 1994, the Company held a notional quantity of approximately 210 Bcf of futures, swaps, and options extending through December 1997. This was comprised of approximately 34 Bcf long and 58 Bcf short of exchange-traded futures and 56 long and 62 short Bcf of OTC swaps and options. The Company enters into speculative futures trades on a very limited basis for purposes which include testing of hedging techniques. Company procedures contain strict guidelines for such trading including predetermined stop-loss requirements and net open positions limits (currently, a total of 100 net contracts long or short). Speculative futures positions are marked to market at the end of each accounting period and any gain or loss is recognized in income for that period. Net gains from such speculative activities for the year ended December 31, 1995 were not material. INTEREST RATE SWAPS In anticipation of issuing the 1995 Senior Notes in the fourth quarter of 1995, the Company entered into an interest rate lock on a notional amount of $50 million, linked to the ten-year U.S. Treasury Bill rate, with a creditworthy counterparty to hedge against the risk of rising interest rates while it completed the 1995 Senior Notes placement. At the time the Company terminated the rate lock, interest rates had decreased, which resulted in the realization of a $390,000 loss. The Company considered the loss to be a cost of obtaining the privately placed debt and is therefore amortizing it over the ten-year term of the 1995 Senior Notes. At December 31, 1995 and 1994, the total notional principal amount of outstanding interest rate swap agreements was $0 and $50 million, respectively. The following table summarizes the results of the Company's interest rate swap and foreign currency positions for the years ended December 31, 1995, 1994 and 1993 (000s):
1995 1994 1993 ----- ------- -------- Net (increase) decrease to interest expense.......... $ 358 $ (932) $ 1,769 ======= ======= ======= Interest rate swap losses capitalized................ $ 390 $ - $ - ======= ======= ======= Gains on swap termination............................ $ - $ - $ 2,590 ======= ======= ======= Losses on foreign currency positions................. $ - $ (361) $(1,175) ======= ======= =======
NOTE 6 - FINANCIAL INSTRUMENTS - ------------------------------ The estimated fair values of the Company's financial instruments have been determined using appropriate market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amount that the Company could realize upon the sale or refinancing of such financial instruments.
December 31, 1995 December 31, 1994 -------------------- ----------------------- Carrying Fair Carrying Fair Value Value Value Value -------- -------- -------- --------- (000s) (000s) Cash and cash equivalents................. $ 5,795 $ 5,795 $ 8,708 $ 8,708 Trade accounts receivable................. 204,426 204,426 134,444 134,444 Accounts payable.......................... 199,513 199,513 145,244 145,244 Short-term debt........................... 75,000 75,000 75,000 75,000 Long-term debt............................ $ 454,500 $ 453,176 $ 418,000 $ 408,578
39 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: Cash and cash equivalents, trade accounts receivable and accounts payable Due to the short-term nature of these instruments, the carrying value approximates the fair value. Short-term debt The short-term debt is borrowed on a revolving basis at a variable interest rate; as a result, the carrying value approximates the fair value of the outstanding debt. Long-term debt A portion of the long-term debt was borrowed under a revolving credit facility which accrues interest at current rates; as a result, carrying value approximates fair value. The remaining portion of the Company's long-term debt is comprised of fixed rate facilities; for this portion, fair market value was estimated using discounted cash flows based upon the Company's current borrowing rates for debt with similar maturities. NOTE 7 - DEBT - ------------- The following summarizes the Company's consolidated debt at the dates indicated (000s):
December 31, ----------------------- 1995 1994 -------- -------- Variable rate revolving credit facility... $137,500 $168,000 Master shelf and senior notes............. 292,000 200,000 Bank term loan facility................... 25,000 50,000 -------- -------- Total long-term debt.................... 454,500 418,000 -------- -------- Short-term debt........................... 75,000 75,000 -------- -------- Total debt.............................. $529,500 $493,000 ======== ========
Financing Facilities Revolving Credit Facility. The Company's variable rate Revolving Credit Facility, as restated on September 2, 1994 and subsequently amended, with a syndicate of eight banks, provides for a maximum borrowing base of $300 million, of which $137.5 million was outstanding at December 31, 1995. If the facility is not renewed, its commitment period will terminate on October 1, 1997. Any outstanding balance thereunder at such time will convert to a three-year term loan, which shall be payable in 12 equal quarterly installments, commencing January 1, 1998. The Revolving Credit Facility bears interest, at the Company's option, at certain spreads over the Eurodollar rate, at the Federal Funds rate plus .50%, or at the agent bank's prime rate. The interest rate spreads are adjusted based on the Company's debt to capitalization ratio. At December 31, 1995, the spread was 1.25% over the Eurodollar rate, resulting in an interest rate of 7.21%. The Company pays a commitment fee on the unused commitment ranging from .15% to .375% based on the debt to capitalization ratio. At December 31, 1995, the Company's debt to capitalization ratio was .58 to 1 resulting in a commitment fee rate of .375%. Term Loan Facility. The Company also has a Term Loan Facility with four banks for $25 million which bears interest at 9.87%. Payments on the Term Loan Facility of $12.5 million are due in September 1996 and September 1997, respectively. The Company intends to finance the $12.5 million payment due in 1996 through amounts available under the Revolving Credit Facility. The agreements governing the Company's Revolving Credit and Term Loan Facilities (the "Credit Facilities Agreement") contain certain mandatory prepayment terms. If funded debt of the Company, which has a final maturity on or before October 1, 2000, 40 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) exceeds four times (4.0 to 1.0) the sum of the Company's last four quarters' cash flow (as defined in the agreement) less preferred stock dividends projected to be paid during the next four quarters, the overage must be repaid in no more than six monthly payments, commencing 90 days from notification. This mandatory prepayment threshold will be reduced to 3.5 to 1.0 at September 1, 1998. At December 31, 1995, taking into account all the covenants contained in the Credit Facilities Agreement, the Company had approximately $50 million of available borrowing capacity. The Term Loan and Revolving Credit Facilities are unsecured. Pursuant to the Credit Facilities Agreement, the Company is required to maintain a current ratio (as defined therein) of at least 1.0 to 1.0, a minimum tangible net worth equal to the sum of $345.0 million plus 50% of consolidated net income earned after June 30, 1995 plus 75% of the net proceeds received after June 30, 1995 from the sale of equity securities, a debt to capitalization ratio (as defined therein) of no more than 60% through October 31, 1996 and 55% thereafter, and an EBITDA to interest ratio of not less than 3.00 to 1.0 through October 31, 1996, 3.25 to 1.0 from November 1, 1996 through October 31, 1997 and 3.75 to 1.0 thereafter. The Company is prohibited from declaring or paying dividends on or after December 31, 1995 that in the aggregate exceed the sum of $10 million plus 50% of consolidated net income earned after December 31, 1995 plus 50% of the cumulative net proceeds received by the Company after December 31, 1995 from the sale of any equity securities. The dividends declared in the fourth fiscal quarter of 1995, payable in 1996, are excluded from this calculation. At December 31, 1995, $10 million was available under this limitation, which is sufficient to pay required preferred stock dividends in 1996. The Company generally utilizes excess daily funds to reduce any outstanding revolving credit balances and associated interest expense and it intends to continue such practice. The $5.8 million cash balance at December 31, 1995 is an overnight investment necessitated by the timing of cash receipts. Master Shelf Agreement. In December 1991, the Company entered into a Master Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of America ("Prudential") pursuant to which Prudential agreed to quote, from time- to-time, an interest rate at which Prudential or its nominee would be willing to purchase up to $100 million of the Company's senior promissory notes (the "Master Notes"). Any such Master Notes will mature in no more than 12 years, with an average life not in excess of 10 years, and are unsecured. The Master Shelf contains certain financial covenants which substantially conform with those contained in the Revolving Credit Facility, as restated and amended. In July 1993 and July 1995, Prudential and the Company amended the Master Shelf to provide for additional borrowing capacity (for a total borrowing capacity of $200 million) and to extend the term of the Master Shelf to October 31, 1995. The Master Shelf Agreement, as restated and amended, is fully utilized, as indicated in the following table (000s):
Interest Final Issue Date Amount Rate Maturity Principal Payments Due - --------------------- -------- ----- ------------------ -------------------------------------------- October 27, 1992 $25,000 7.51% October 27, 2000 $8,333 each on October 27, 1998 through 2000 October 27, 1992 25,000 7.99% October 27, 2003 $8,333 each on October 27, 2001 through 2003 September 22, 1993 25,000 6.77% September 22, 2003 single payment at maturity December 27, 1993 25,000 7.23% December 27, 2003 single payment at maturity October 27, 1994 25,000 9.05% October 27, 2001 single payment at maturity October 27, 1994 25,000 9.24% October 27, 2004 single payment at maturity July 28, 1995 50,000 7.61% July 28, 2007 $10,000 each on July 28, 2003 through 2007 ------- $200,000 ========
1993 Senior Notes. On April 28, 1993 the Company sold $50 million of 7.65% Senior Notes due 2003 to a group of insurance companies. Annual principal payments of $7.1 million on the 1993 Senior Notes are due on April 30 of each year from 1997 through 2002, with any remaining principal and interest outstanding due on April 30, 2003. The 1993 Senior Notes contain certain financial covenants that substantially conform with those contained in the Master Shelf Agreement, as restated and amended. 1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a group of insurance companies in the fourth quarter of 1995, with an interest rate of 8.16% per annum and principal due in a single payment in December 2005. The 1995 Senior Notes contain certain financial covenants that conform with those contained in the Master Shelf Agreement, as restated and amended. The Company used the net proceeds from the sale to reduce borrowings under the Revolving Credit Facility. 41 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Receivables Facility. In April 1995, the Company entered into an agreement with Receivables Capital Corporation ("RCC"), as purchaser, and Bank of America National Trust and Savings Association ("BA"), as agent, pursuant to which the Company will sell to RCC at face value on a revolving basis an undivided interest in certain of the Company's trade receivables. As part of the sale, the Company granted to RCC a security interest in such receivables. The Company may sell up to $75 million of trade receivables under the Receivables Facility, at a rate equal to RCC's commercial paper rate plus .375%, of which $75 million was funded at a rate of 6.3% as of December 31, 1995. The Receivables Facility has a 364-day term and contains financial covenants similar to those in the Credit Facilities Agreement, as restated and amended, along with certain covenants regarding the quality of the trade receivables pool. On September 2, 1994, in anticipation of entering into the Receivables Facility, BA entered in a Master Note Agreement (the "Short-Term Note") with the Company and advanced the Company $75 million at the Eurodollar rate plus .50%, which resulted in an interest rate of 6.56% per annum at June 30, 1995. The Company used the $75 million drawn on the Receivables Facility to repay the Short-Term Note, which was then canceled. COVENANT COMPLIANCE. At December 31, 1995, the Company was in compliance with all covenants in its loan agreements. Approximate future maturities of long-term debt at the date indicated are as follows at December 31, 1995 (in 000s): 1996........................................ $ 12,500 1997........................................ 54,019 1998........................................ 49,852 1999........................................ 49,852 2000........................................ 49,849 Thereafter.................................. 238,428 -------- $454,500 ========
NOTE 8 - INCOME TAXES - --------------------- The provision (benefit) for income taxes for the years ended December 31, 1995, 1994 and 1993 is comprised of (000s):
1995 1994 1993 -------- ------ ------- Current: Federal............................................... $(3,404) $1,913 $10,090 State................................................. - - - ------- ------ ------- Total Current......................................... (3,404) 1,913 10,090 ------- ------ ------- Deferred: Federal............................................... 1,192 2,113 6,411 State................................................. 54 134 1,028 ------- ------ ------- Total Deferred........................................ 1,246 2,247 7,439 ------- ------ ------- Total tax provision.................................. $(2,158) $4,160 $17,529 ======= ====== =======
42 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Temporary differences and carryforwards which give rise to the deferred tax (assets) liabilities at December 31, 1995 and 1994 are as follows (000s):
1995 1994 -------- -------- Property and equipment.................................................. $113,796 $ 91,633 Differences between the book and tax basis of acquired assets........... 21,235 22,750 -------- -------- Total deferred tax liabilities....................................... 135,031 114,383 -------- -------- Alternative Minimum Tax ("AMT") credit carryforward..................... (25,450) (25,059) Net Operating Loss ("NOL") carryforwards................................ (39,608) (20,597) -------- -------- Total deferred tax assets............................................ (65,058) (45,656) -------- -------- Net deferred income taxes............................................ $ 69,973 $ 68,727 ======== ========
The differences between the provision for income taxes at the statutory rate and the actual provision for income taxes for the years ended December 31, 1995, 1994 and 1993 are summarized as follows (000s):
1995 % 1994 % 1993 % ------- ------ ------- ----- -------- ----- Income tax (benefit) at statutory rate................. $ (2,893) (35.0) $ 4,033 35.0 $ 19,471 35.0 State income taxes, net of federal benefit............................................. (99) (1.2) 158 1.4 656 1.2 Permanent differences on asset write-downs............. 1,173 14.2 - - - - Increase in deferred income taxes to reflect the change in the federal tax rate...................... - - - - 2,100 3.8 Reduction of deferred income taxes to reflect NOL and AMT benefit carryforwards........................... - - - - (3,779) (6.8) Adjustment to prior year income taxes.................. (300) (3.6) - - - - Other.................................................. (39) (.5) (31) (0.3) (919) (1.7) ------- ----- ------ ---- ------- ---- Total.................................................. $ (2,158) (26.1) $ 4,160 36.1 $ 17,529 31.5 ======= ===== ====== ==== ======= ====
At December 31, 1995, the Company had NOL and AMT credit carryforwards for Federal and State income tax purposes of approximately $108.6 million and $25.5 million, respectively. These carryforward expire as follows (000s):
Expiration Dates NOL AMT ----------------------------- -------- -------- 2003......................... $ 170 $ - 2004......................... 412 - 2005......................... 943 - 2006......................... 478 - 2007......................... 1,080 - 2008......................... 6,561 - 2009......................... 51,115 - 2010......................... 47,835 - No expiration................ - 25,450 -------- -------- Total........................ $108,594 $25,450 ======== ========
43 WESTERN GAS RESOURCES, INC. NOTES TO COSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company believes that the carryforwards will be utilized prior to their expiration because they are substantially offset by existing taxable temporary differences reversing within the carryforward period or are expected to be realized by achieving future profitable operations based on the Company's dedicated and owned reserves, past earnings history, projections of future earnings and current assets. NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES - ----------------------------------------------- Katy Condemnation Commencing in March 1993 and continuing through July 1993, Western Gas Resources Storage, Inc. ("Storage"), a wholly owned subsidiary of the Company, filed a total of 165 condemnation actions in the County Court at Law No. 1 and No. 2 of Fort Bend County, Texas, to obtain certain storage rights and rights-of-way relating to its Katy Gas Storage Facility and the related underground reservoir ("Katy"). The County Court appointed panels of Special Commissioners which awarded compensation to the owners whose rights were condemned. Condemnation awards are a capital cost of the Katy project. A majority of the land and mineral owners involved in the condemnation proceedings appealed to County Court, seeking a declaration that Storage did not possess the right to condemn or, in the alternative, that they should be awarded more compensation than previously awarded by the Special Commissioners. In all of those appeals, the right to condemn issue has been resolved in favor of Storage, although factual issues in individual cases remain open as to whether that right was exercised properly. Trials in four of the appeals to County Court have now been concluded. The first trial involved a parcel adjacent to the 82 acre site where the compression facilities are located, the second trial involved a parcel within 1,000 feet of the 82 acre site, and the third and fourth trials involved parcels further than one mile from the 82 acre site. The jury verdicts compared with the awards of the Special Commissioners were, respectively, as follows: $214,000 versus $2,000; $38,000 versus $600; $553 versus $553; and $1,000 versus $500. The Company believes that several reversible errors were committed in the first two trials and appeals of those cases are now pending in the Texas Court of Appeals. Internal Revenue Service The Internal Revenue Service ("IRS") has completed its examination of the Company's returns for the years 1990 and 1991 and has proposed adjustments to taxable income reflected in such returns which would shift the recognition of certain items of income and expense from one year to another ("Timing Adjustments"). To the extent taxable income in a prior year is increased by proposed Timing Adjustments, taxable income may be reduced by a corresponding amount in other years. However, the Company would incur an interest charge as a result of such adjustment. The Company currently is protesting certain of these proposed adjustments through the IRS appeals process. In the opinion of management, adequate provision has been made for the additional income taxes and interest which may result from the proposed adjustments. However, it is reasonably possible that the ultimate resolution could result in an amount which differs materially from amounts provided. Other The Company is involved in various other litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities (net of insurance) that may result from these claims, as well as the specific claim discussed above, will not, individually or in the aggregate, have a material adverse effect on the Company's financial position or results of operations. 44 WESTERN GAS RESOURCES, INC. NOTES TO COSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - EMPLOYEE BENEFIT PLANS - -------------------------------- Profit Sharing Plan A discretionary profit sharing plan (a defined contribution plan) exists for all Company employees meeting certain service requirements. The Company makes annual contributions to the plan as determined by the Board of Directors and provides for a match of 1% up to 4% of employee contributions. Contributions are made to common/collective trusts for which Fidelity Management Trust Company acts as trustee. The discretionary contributions were $1.3 million, $1.3 million and $2.2 million, for the years ended December 31, 1995, 1994 and 1993, respectively. The matching contributions were $227,000, $264,000 and $272,000 for the years ended December 31, 1995, 1994 and 1993, respectively. $5.40 Stock Option Plan In April 1987, the Partnership adopted an employee option plan ("$5.40 Plan") that authorizes granting options to employees to purchase 430,000 common units in the Partnership. Pursuant to the Restructuring, the Company assumed the Partnership's obligation under the employee option plan. The plan was amended upon the Restructuring to allow each holder of existing options to exercise such options and acquire one share of common stock for each common unit they were originally entitled to purchase. The exercise price and all other terms and conditions for the exercise of such options issued under the amended plan were the same as under the plan, except that the Restructuring accelerated the time upon which certain options may be exercised. In February 1994, the Board of Directors retroactively approved, adopted and ratified approximately 53,000 options granted to employees in excess of the 430,000 options originally authorized. No additional options may be granted under this plan. Options may be exercised only at the rate of 20% of the shares of common stock subject to such option for each year of continuous service by the optionee commencing from the later of July 2, 1987 or the optionee's employment commencement date. The Company has entered into agreements committing the Company to loan to certain key employees an amount sufficient to exercise their options, provided that the Company will not loan in excess of 25% of the total amount available to the employee in any one year. The Company will forgive any associated loan and accrued interest on July 2, 1997, if the employee is then employed by the Company. As of December 31, 1995 and 1994, loans and accrued interest related to 100,374 and 96,963 shares of common stock, respectively, totaling $637,000 and $545,000, were outstanding under these terms. Key Employees' Incentive Stock Option Plan and Non-employee Director Stock Option Plan Effective April 1987, the Board of Directors of the Company adopted a Key Employees' Incentive Stock Option Plan ("Key Employee Plan") and a Non-Employee Director Stock Option Plan ("Directors' Plan") that authorize the granting of options to purchase 250,000 and 20,000 shares of the Company's common stock, respectively Under the plans, each of these options became exercisable as to 25% of the shares covered by it on the later of January 1, 1992 or one year from the date of grant, subject to the continuation of the optionee's relationship with the Company, and became exercisable as to an additional 25% of the covered shares on the latter of each subsequent January 1 through 1995 or on each subsequent date of grant anniversary, subject to the same condition. The Company has entered into agreements committing the Company to loan certain key employees an amount sufficient to exercise their options as each portion of their options vests. The Company will forgive the associated loan and accrued interest if the employee has been continuously employed by the Company for four years after the date of each loan increment. As of December 31, 1995 and 1994, loans and accrued interest related to 125,000 and 93,750 shares of common stock, respectively, totaling $1.5 million and $1.1 million, were outstanding under these terms. 1993 Stock Option Plan The 1993 Stock Option Plan (the "1993 Plan") became effective on May 24, 1993 after approval by the Company's stockholders. The 1993 Plan is intended to be an incentive stock option plan in accordance with the provisions of Section 422 of the Internal Revenue Code of 1986, as amended. The Company has reserved 1,000,000 shares of Common Stock for issuance upon exercise of options under the 1993 Plan. The 1993 Plan will terminate on the earlier of March 28, 2003 or the date on which all options granted under the 1993 Plan have been exercised in full. 45 WESTERN GAS RESOURCES, INC. NOTES TO COSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Board of Directors of the Company determines and designates from time to time those employees of the Company to whom options are to be granted. If any option terminates or expires prior to being exercised, the shares relating to such option shall be released and may be subject to reissuance pursuant to a new option. The Board of Directors has the right to, among other things, fix the price, terms and conditions for the grant or exercise of any option. The purchase price of the stock under each option shall be the fair market value of the stock at the time such option is granted. Options granted will vest 20% each year on the anniversary of the date of grant commencing with the first anniversary. The employee must exercise the option within five years of the date each portion vests. At December 31, 1995 approximately 170,344 options were vested. No options have been exercised under the 1993 plan. The following table summarizes the stock option activity under the Company's employee benefit plans:
Per Share Number of Shares ---------------------------------------------------------- Price Key Employee Director's Range $5.40 Plan Plan Plan 1993 Plan ---------------- ------------- ------------ ----------- ----------- Balance 1/1/93.............. 214,456 112,500 15,000 - Granted................. $26.50 - $35.50 - 75,000 - 385,394 Exercised............... 5.40 - 10.71 (90,147) (37,500) (1,500) - Forfeited or canceled... 5.40 - 35.00 (3,924) - - (16,760) ------------ ---------- ----------- ----------- Balance 12/31/93............ 120,385 150,000 13,500 368,634 Granted................. 18.63 - 32.50 - - 5,000 321,464 Exercised............... 5.40 - 10.71 (44,345) (37,500) (3,750) - Forfeited or canceled... 5.40 - 35.00 (692) (6,250) (1,250) (52,512) ------------ ---------- ----------- ----------- Balance 12/31/94............ 75,348 106,250 13,500 637,586 Granted................. 16.13 - 23.50 - - - 137,567 Exercised............... 5.40 - 15.00 (26,161) (31,250) - Forfeited or canceled... $5.40 - $35.00 (1,616) - - (87,092) ------------ ---------- ----------- ----------- Balance 12/31/95............ 47,571 75,000 13,500 688,061 ============ ========== =========== ===========
46 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - ---------------------------------------------------------------------- (UNAUDITED): - ----------- Costs The following tables set forth capitalized costs at December 31, 1995, 1994 and 1993 and costs incurred for oil and gas producing activities for the years ended December 31, 1995, 1994 and 1993 (000s):
1995 1994 1993 --------- --------- --------- Capitalized costs: Proved properties.............................................. $136,499 $136,861 $130,783 Unproved properties............................................ 6,279 7,448 3,855 -------- -------- -------- Total............................................................ 142,778 144,309 134,638 Less accumulated depletion..................................... (46,792) (35,346) (17,877) -------- -------- -------- Net capitalized costs............................................ $ 95,986 $108,963 $116,761 ======== ======== ======== The Company's share of Redman Smackover's net capitalized costs.. $ 5,216 $ - $ - ======== ======== ======== Costs incurred: Acquisition of properties Proved......................................................... $ 1,591 $ 2,523 $ 95,518 Unproved....................................................... 128 1,617 2,428 Development costs................................................ 3,035 3,555 1,106 Exploration costs................................................ 1,102 2,465 320 -------- -------- -------- Total costs incurred............................................. $ 5,856 $ 10,160 $ 99,372 ======== ======== ======== The Company's share of Redman Smackover's costs incurred......... $ 5,540 $ - $ - ======== ======== ========
Results of Operations The results of operations for oil and gas producing activities, excluding corporate overhead and interest costs, for the years ended December 31, 1995, 1994 and 1993 are as follows (000s):
1995 1994 1993 --------- --------- --------- Revenues from sale of oil and gas: Sales............................................... $ 2,490 $ 3,402 $ 4,112 Transfers........................................... 29,739 37,335 27,567 -------- -------- -------- Total............................................ 32,229 40,737 31,679 Production costs...................................... (4,160) (4,960) (2,963) Exploration costs..................................... (956) (489) (320) Depreciation, depletion and amortization.............. (15,081) (17,469) (10,857) Income tax expense.................................... (4,429) (6,030) (6,321) -------- -------- -------- Results of operations................................. $ 7,603 $ 11,789 $ 11,218 ======== ======== ======== The Company's share of Redman Smackover's operations.. $ 324 $ - $ - ======== ======== ========
47 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Reserve Quantity Information Reserve estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgement. Results of subsequent drilling, testing and production may cause either upward or downward revisions of previous estimates. Further, the volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. Reserve estimates, by their nature, are generally less precise than other financial statement disclosures. The following table sets forth information for the years ended December 31, 1995, 1994 and 1993 with respect to changes in the Company's proved reserves, all of which are in the United States. The Company has no significant undeveloped reserves.
Natural Crude Gas Oil (MMcf) (MBbls) -------- ------- Proved reserves: December 31, 1992........................................................ 39,475 381 Revisions of previous estimates.......................................... 11,084 (42) Purchases of reserves in place*.......................................... 100,886 261 Production............................................................... (15,854) (107) -------- ------- December 31, 1993........................................................ 135,591 493 Revisions of previous estimates.......................................... 19,562 35 Purchases of reserves in place........................................... 977 121 Production............................................................... (21,589) (171) -------- ------- December 31, 1994........................................................ 134,541 478 Revisions of previous estimates.......................................... (8,846) 437 Production............................................................... (16,875) (200) -------- ------- December 31, 1995........................................................ 108,820 715 ======== ======= The Company's share of Redman Smackover's proved reserves - December 31, 1995 12,647 - ======== =======
(*) Primarily represents acquisition of Black Lake oil and gas properties effective January 1, 1993 from Nerco (See Note 1). Standardized Measures of Discounted Future Net Cash Flows Estimated discounted future net cash flows and changes therein were determined in accordance with SFAS No. 69. Certain information concerning the assumptions used in computing the valuation of proved reserves and their inherent limitations are discussed below. The Company believes such information is essential for a proper understanding and assessment of the data presented. Future cash inflows are computed by applying year-end prices of oil and gas relating to the Company's proven reserves to the year-end quantities of those reserves. Future price changes are considered only to the extent provided by contractual arrangements, including futures contracts, in existence at year-end. The assumptions used to compute estimated future net revenues do not necessarily reflect the Company's expectations of actual revenues or costs, nor their present worth. In addition, variations from the expected production rate also could result directly or indirectly from factors outside of the Company's control, such as unintentional delays in development, changes in prices or 48 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) regulatory controls. The reserve valuation further assumes that all reserves will be disposed of by production. However, if reserves are sold in place, additional economic considerations could also affect the amount of cash eventually realized. Future development and production costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Future income tax expenses are computed by applying the appropriate year-end statutory tax rates, with consideration of future tax rates already legislated, to the future pretax net cash flows relating to the Company's proved oil and gas reserves. Permanent differences in oil and gas related tax credits and allowances are recognized. An annual discount rate of 10% was used to reflect the timing of the future net cash flows relating to proved oil and gas reserves. Information with respect to the Company's estimated discounted future cash flows from its oil and gas properties for the years ended December 31, 1995, 1994 and 1993 is as follows (000s):
1995 1994 1993 --------- --------- --------- Future cash inflows........................................................ $230,986 $239,188 $261,497 Future production costs.................................................... (52,442) (50,214) (36,978) Future development costs................................................... (3,564) (9,230) (12,623) Future income tax expense.................................................. (32,125) (26,811) (35,856) -------- -------- -------- Future net cash flows...................................................... 142,855 152,933 176,040 10% annual discount for estimated timing of cash flows..................... (61,093) (57,202) (51,915) -------- -------- -------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves........................................... $ 81,762 $ 95,731 $124,125 ======== ======== ======== The Company's share of Redman Smackover's standardized measure of discounted future net cash flows relating to proved oil and gas reserves $ 4,665 $ - $ - ======== ======== ========
Principal changes in the Company's estimated discounted future net cash flows for the years ended December 31, 1995, 1994 and 1993 are as follows (000s):
1995 1994 1993 --------- --------- --------- January 1................................................................. $ 95,731 $124,125 $ 35,922 Sales and transfers of oil and gas produced, net of production costs..... (28,069) (35,777) (28,716) Net changes in prices and production costs related to future production.. 14,499 (33,909) 2,318 Development costs incurred during the period............................. 3,035 3,555 1,106 Changes in estimated future development costs............................ 2,631 (162) (12,623) Revisions of previous quantity estimates................................. (12,147) 14,830 17,819 Purchases of reserves in place........................................... - 3,882 118,894 Accretion of discount.................................................... 9,573 12,413 3,592 Net change in income taxes............................................... (5,314) 9,045 (13,470) Other.................................................................... 1,823 (2,271) (717) -------- -------- -------- December 31............................................................... $ 81,762 $ 95,731 $124,125 ======== ======== ========
49 NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): - ------------------------------------------------------ The following summarizes certain quarterly results of operations (000s except per share amounts):
Earnings (Loss) Per Net Share of Operating Gross Income Common Revenues Profit(a) (Loss) Stock -------- --------- --------- ----- 1995 quarter ended: March 31................................. $ 303,701 $18,444 $ 1,941 $(.05) June 30.................................. 304,408 17,671 (403) (.28) September 30............................. 286,705 16,518 462 (.08) December 31.............................. 362,170 22,578 (8,108) (b) (.43) ---------- ------- ------- ----- $1,256,984 $75,211 $(6,108) (b) $(.84) ========== ======= ======= ===== 1994 quarter ended: March 31................................. $ 275,704 $16,562 $ 1,011 $(.05) June 30.................................. 244,470 14,851 181 (.12) September 30............................. 259,669 19,585 2,706 (.02) December 31.............................. 283,646 21,558 3,466 - ---------- ------- ------- ---- $1,063,489 $72,556 $ 7,364 $(.19) ========== ======= ======= =====
(a) Excludes selling and administrative, interest, restructuring and income tax expenses. (b) Includes a non-cash expense resulting from the adoption of SFAS No. 121 of $17.6 million. As a result of the reclassification of labor overhead from selling and administrative expense to plant operating expense in accordance with the percentage established by the Council of Petroleum Accountants Society guidelines, gross profit varies from the amounts reported on prior Forms 10-Q and Form 10-K for years ended December 31, 1994. 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to instruction G(3) to Form 10-K, Items 10, 11, 12 and 13 are omitted because the Company will file a definitive proxy statement (the "Proxy Statement") pursuant to Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days after the close of the fiscal year. The information required by such Items will be included in the definitive proxy statement to be so filed for the Company's annual meeting of stockholders scheduled for May 22, 1996 and is hereby incorporated by reference. 51 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements: Reference is made to the listing on page 25 for a list of all financial statements filed as a part of this report. (2) Financial Statement Schedules: None required (3) Exhibits: 3.1 Certificate of Incorporation of Western Gas Resources, Inc. (Filed as exhibit 3.1 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-31604 and incorporated herein by reference). 3.2 Certificate of Amendment to the Certificate of Incorporation of Western Gas Resources, Inc. (Filed as exhibit 3.2 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-31604 and incorporated herein by reference). 3.3 Bylaws of Western Gas Resources, Inc. (Filed as exhibit 3.3 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-31604 and incorporated herein by reference). 3.4 Assistant Secretary's Certificate regarding amendment to bylaws of Western Gas Resources, Inc. (Filed as exhibit 3.4 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 3.5 Certificate of Designation of 7.25% Cumulative Senior Perpetual Convertible Preferred Stock of the Company (Filed as exhibit 3.5 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-43077 dated November 14, 1991 and incorporated herein by reference). 3.6 Certificate of Designation of $2.28 Cumulative Preferred Stock of the Company. (Filed as exhibit 3.6 to Western Gas Resources, Inc.'s Registration Statement of Form S-1, Registration No. 33-53786 dated November 12, 1992 and incorporated herein by reference). 3.7 Amendments of the By-Laws of Western Gas Resources, Inc. as adopted by the Board of Directors on December 13, 1993 (Filed as exhibit 3.7 to Western Gas Resources, Inc.'s Form 10-K for the year ended December 31, 1993 and incorporated herein by reference). 3.8 Certificate of Designation of the $2.625 Cumulative Convertible Preferred Stock of the Company (Filed under cover of Form 8-K dated February 24, 1994 and incorporated herein by reference). 4.1 Subscription Agreements between the respective Founders and Western Gas Resources, Inc. regarding such Founders' initial subscription for shares of common stock (Filed as exhibit 10.31 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 4.2 Amendment No. 1 to Registration Rights Agreement as of May 1, 1991 between Western Gas Resources, Inc., Bill Sanderson, WGP, Inc., Dean Phillips, Inc., Heetco, Inc. NV, Sauvage Gas Company and Sauvage Gas Service, Inc. (Filed as exhibit 4.2 to Western Gas Resources, Inc.'s Form 10-Q for the quarter ended June 30, 1991 and incorporated herein by reference). 10.1 Restated Profit-Sharing Plan and Trust Agreement of Western Gas Resources, Inc. (Filed as exhibit 10.8 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 52 10.2 Employees Common Units Option Plan of Western Gas Processors, Ltd. (Filed as exhibit 10.9 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 10.3 Amendment to Employees Common Units Option Plan of Western Gas Processors, Ltd. (Filed as exhibit 10.10 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 10.4 Western Gas Resources, Inc. Non-Employee Director Stock Option Plan (Filed as exhibit 10.12 Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 10.5 Western Gas Resources, Inc. Key Employees' Incentive Stock Option Plan (Filed as exhibit 10.13 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 10.6 Registration Rights Agreement among Western Gas Resources, Inc., WGP, Inc., Heetco, Inc., NV, Dean Phillips, Inc., Sauvage Gas Company and Sauvage Gas Service, Inc. (Filed as exhibit 10.14 to Western Gas Resources, Inc.'s Registration Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991 and incorporated herein by reference). 10.7 Second Amendment and First Restatement of Western Gas Processors, Ltd. Employees' Common Units Option Plan (Filed as exhibit 10.6 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-43077 dated November 14, 1991 and incorporated herein by reference). 10.8 Agreement to provide loans to exercise key employees' common stock options (Filed as exhibit 10.26 to Western Gas Resources, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference). 10.9 Agreement to provide loans to exercise employees' common stock options (Filed as exhibit 10.27 to Western Gas Resources, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference). 10.10 Agreement and Plan of Restructuring among the Company, the Partnership and the Founders (Filed as exhibit 10.10 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-43077 dated November 14, 1991 and incorporated herein by reference). 10.11 Stock Purchase Agreement dated October 23, 1991 between the Company and The 1818 Fund, L.P. (Filed as exhibit 10.19 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-43077 dated November 14, 1991 and incorporated herein by reference). 10.12 Registration Rights Agreement dated October 23, 1991 between the Company and The 1818 Fund, L.P. (Filed as exhibit 10.20 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-43077 dated November 14, 1991 and incorporated herein by reference). 10.13 Letter Agreement dated June 10, 1992 amending the Stock Purchase Agreement dated October 23, 1991 between the Company and the 1818 Fund, L.P. (Filed as exhibit 10.36 to Western Gas Resources, Inc.'s Form 10-Q for the quarter ended June 30, 1992 and incorporated herein by reference). 10.14 $100,000,000 Senior Notes Master Shelf Agreement dated as of December 19, 1991 by and between the Company and the Prudential Insurance Company of America (Filed as exhibit 10.23 to Western Gas Resources, Inc.'s Registration Statement on Form S-1, Registration No. 33-53786 dated November 12, 1992 and incorporated herein by reference). 10.15 Letter Amendment No. 1 dated October 22, 1992 to $100,000,000 Senior Notes Master Shelf Agreement (Filed as exhibit 10.40 to Western Gas Resources, Inc's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 53 10.16 Stock Purchase Agreement (without exhibits) dated March 30, 1993 by and between the Company and The Morgan Stanley Leveraged Equity Fund II, L.P. (Filed as exhibit 10.45 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.17 Amendment No. 1 (without exhibits) to Stock Purchase Agreement dated as of March 30, 1993 by and between the Company and The Morgan Stanley Leveraged Equity Fund II, L.P. (Filed as exhibit 10.46 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.18 $150,000,000 Amended and Restated Master Shelf Agreement (without exhibits) effective as of July 22, 1993 by and between the Company and Prudential Insurance Company of America (Filed as exhibit 10.47 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.19 Note Purchase Agreement (without exhibits) dated as of April 1, 1993 by and between the Company and the Purchasers for $50,000,000, 7.65% Senior Notes Due April 30, 2003 (Filed as exhibit 10.48 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.20 General Partnership Agreement (without exhibits), dated August 10, 1993 for Westana Gathering Company by and between Western Gas Resources -Oklahoma, Inc. (a subsidiary of the Company) and Panhandle Gathering Company (Filed as exhibit 10.50 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.21 Amendment to General Partnership Agreement dated August 10, 1993 by and between Western Gas Resources -Oklahoma, Inc. (a subsidiary of the Company) and Panhandle Gathering Company (Filed as exhibit 10.51 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.22 Operating and Maintenance Agreement (without exhibits) dated August 10, 1993 by and between Western Gas Resources - Oklahoma, Inc. (a subsidiary of the Company) and Panhandle Gathering Company (Filed as exhibit 10.52 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.23 Amendment to Operating and Maintenance Agreement dated August 10, 1993 by and between Western Gas Resources - Oklahoma, Inc. (a subsidiary of the Company) and Panhandle Gathering Company (Filed as exhibit 10.53 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.24 Pipeline Operating Agreement (without exhibits) dated August 10, 1993 by and between Westana Gathering Company and Panhandle Eastern Pipe Line Company (Filed as exhibit 10.56 to Western Gas Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and incorporated herein by reference). 10.25 Letter Amendment No. 1 to the Amended and Restated Master Shelf Agreement effective as of June 30, 1993 by and between the Company and Prudential Insurance Company of America (Filed as exhibit 10.59 to Western Gas Resources Inc.'s Form 10-Q for the nine months ended September 30, 1993 and incorporated herein by reference). 10.26 Asset Purchase Agreement (without exhibits) dated July 18, 1993 by and between the Company and Nerco Oil & Gas, Inc. (Filed as exhibit 10.60 to Western Gas Resources Inc.'s Form 10-Q for the nine months ended September 30, 1993 and incorporated herein by reference). 10.27 Amendment No. 1 to Note Purchase Agreement dated as of August 31, 1993 by and among the Company and the Purchasers (Filed as exhibit 10.61 to Western Gas Resources Inc.'s Form 10-Q for the nine months ended September 30, 1993 and incorporated herein by reference). 10.28 First Amendment to Stock Purchase Agreement, amending the Stock Purchase Agreement dated October 23, 1991 between Western Gas Resources, Inc. and the 1818 Fund, L.P. (Filed as exhibit 10.62 to Western Gas Resources, Inc.'s Form 10-K for the year ended December 31, 1993 and incorporated herein by reference). 54 10.29 First Restated Loan Agreement (Revolver) (without exhibits) as of September 2, 1994 among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit 10.65 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1994 and incorporated herein by reference). 10.30 Second Amendment to Third Restated Loan Agreement (Term) as of September 2, 1994 among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit 10.66 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1994 and incorporated herein by reference). 10.31 Letter Amendment No. 2 to the Amended and Restated Master Shelf Agreement effective as of August 31, 1994 by and between Western Gas Resources, Inc. and Prudential Insurance Company of America. (Filed as exhibit 10.67 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1994 and incorporated herein by reference). 10.32 Amendment No. 2 to Note Purchase Agreement dated as of August 31, 1994 by and among Western Gas Resources, Inc. and the Purchasers. (Filed as exhibit 10.68 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1994 and incorporated herein by reference). 10.33 Master Note dated September 2, 1994 between Western Gas Resources, Inc. and Bank of America National Trust and Savings Association. (Filed as exhibit 10.69 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1994 and incorporated herein by reference). 10.34 First Amendment to First Restated Loan Agreement (Revolver) as of December 2, 1994 by and among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit 10.34 to Western Gas Resources, Inc.'s Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.35 Third Amendment to Third Restated Loan Agreement (Term) as of December 2, 1994 by and among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit 10.35 to Western Gas Resources, Inc.'s Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.36 Second Amendment to First Restated Loan Agreement (Revolver) as of February 23, 1995 among Western Gas Resources, Inc. and Nations Bank of Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit 10.36 to Western Gas Resources, Inc.'s Form 10-Q for the three months ended March 31, 1995 and incorporated herein by reference). 10.37 Fourth Amendment to Third Restated Loan Agreement (Term) as of February 23, 1995 among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit 10.37 to Western Gas Resources, Inc.'s Form 10-Q for the three months ended March 31, 1995 and incorporated herein by reference). 10.38 Amendment No. 3 to Note Purchase Agreement as of March 22, 1995 by and among Western Gas Resources, Inc. and the Purchasers. (Filed as exhibit 10.38 to Western Gas Resources, Inc.'s Form 10-Q for the three months ended March 31, 1995 and incorporated herein by reference). 10.39 Letter Amendment No. 3 To the Amended and Restated Master Shelf Agreement effective as of April 1, 1995 by and between Western Gas Resources, Inc. and Prudential Insurance Company of America. (Filed as exhibit 10.39 to Western Gas Resources, Inc.'s Form 10-Q for the three months ended March 31, 1995 and incorporated herein by reference). 10.40 Form of Employment Agreement by and between Western Gas Resources, Inc. and certain Executive Officers. (Filed as exhibit 10.40 to Western Gas Resources, Inc.'s Form 10-Q for the three months ended March 31, 1995 and incorporated herein by reference). 10.41 Receivables Purchase Agreement dated as of February 28, 1995 among Western Gas Resources, Inc. (as seller) and Receivables Capital Corporation (as purchaser) and Bank of America National Trust and Savings Association (as agent). (Filed as exhibit 10.41 to Western Gas Resources, Inc.'s Form 10-Q for the six months ended June 30, 1995 and incorporated herein by reference). 10.42 Joint Venture Agreement of Redman-Smackover Joint Venture. (Filed as exhibit 10.42 to Western Gas Resources, Inc.'s Form 10-Q for the six months ended June 30, 1995 and incorporated herein by reference). 10.43 Amendment No. 4 to Note Purchase Agreements as of July 14, 1995 by and among Western Gas Resources, Inc. and the Purchasers. (Filed as exhibit 10.43 to Western Gas Resources, Inc.'s Form 10-Q for the six months ended June 30, 1995 and incorporated herein by reference). 10.44 Amendment No. 1 to Receivables Purchase Agreement as of July 1, 1995 by and among Western Gas Resources, Inc., Receivables Capital Corporation and Bank of America National Trust and Savings Association. (Filed as exhibit 10.44 to Western Gas Resources, Inc.'s Form 10-Q for the six months ended June 30, 1995 and incorporated herein by reference). 10.45 Third Amendment to First Restated Loan Agreement (Revolver) dated July 19, 1995. (Filed as exhibit 10.45 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1995 and incorporated herein by reference). 10.46 Letter Amendment No. 4 to Amended and Restated Master Shelf Agreement dated July 28, 1995. (Filed as exhibit 10.46 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1995 and incorporated herein by reference). 55 10.47 Fifth Amendment to Third Restated Loan Agreement (Term) dated July 19, 1995 (Filed as Exhibit 10.47 to Western Gas Resources, Inc.'s Form 10-Q for the nine months ended September 30, 1995). 10.48 Fifth Amendment to the Master Shelf Agreement dated November 30, 1995 by and between Western Gas Resources, Inc. and Prudential Insurance Company of America. 10.49 Second Amended and Restated Master Shelf Agreement effective January 31, 1996 by and between Western Gas Resources, Inc. and Prudential Insurance Company of America. 10.50 Sixth Amendment to Third Restated Loan Agreement (Term) dated November 29, 1995 by and among Western Gas Resources, Inc. and NationsBank, as agent, and the Lenders. 10.51 Fourth Amendment to First Restated Loan Agreement (Revolver) dated November 29, 1995 by and among Western Gas Resources, Inc. and NationsBank, as agent, and the Lenders. 10.52 Senior Note Purchase Agreeement dated November 29, 1995 by and among Western Gas Resources, Inc. and the Purchasers identified therein. 10.53 Fifth Amendment to First Restated Loan Agreement (Revolver) dated March 22, 1996 by and among Western Gas Resources, Inc. and NationsBank, as agent, and the Lenders. 10.54 Seventh Amendment to Third Restated Loan Agreement (Term) dated March 22, 1996 by and among Western Gas Resources, Inc. and NationsBank, as agent, and the Lenders. 10.55 First Amendment to Third Restated Loan Agreement (Term) as of December 31, 1993 among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as agent and certain banks as Lenders (filed as Exhibit 10.63 to Western Gas Resources, Inc.'s Form 10-K for the year ended December 31, 1993). 11.1 Statement regarding computation of per share earnings. 21.1 List of Subsidiaries of Western Gas Resources, Inc. 23.1 Consent of Price Waterhouse LLP, independent accountants. (b) Reports on Form 8-K: A report on Form 8-K was filed on January 11, 1996 to notify the Securities and Exchange Commission and the Company's stockholders of the retirement of Bill M. Sanderson as President and Chief Operating Officer and the election of Lanny F. Outlaw to those positions as of April 1, 1996. (c) Exhibits required by Item 601 of Regulation S-K. See (a) (3) above. 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado on March 22, 1996. WESTERN GAS RESOURCES, INC. --------------------------- (Registrant) By: /s/ Brion G. Wise ------------------------- Brion G. Wise Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Brion G. Wise - ------------------------- Chairman of the Board, Chief March 22, 1996 Brion G. Wise Executive Officer and Director /s/ Bill M. Sanderson - ------------------------- President, Chief Operating March 22, 1996 Bill M. Sanderson Officer and Director /s/ Walter L. Stonehocker - ------------------------- Vice Chairman of the Board March 22, 1996 Walter L. Stonehocker and Director - ------------------------- Director March 22, 1996 Richard S. Robinson /s/ Dean Phillips - ------------------------- Director March 22, 1996 Dean Phillips /s/ Ward Sauvage - ------------------------- Director March 22, 1996 Ward Sauvage /s/ James A. Senty - ------------------------- Director March 22, 1996 James A. Senty - ------------------------- Director March 22, 1996 Joseph E. Reid /s/ William J. Krysiak - ------------------------- Vice President--Finance March 22, 1996 William J. Krysiak (Principal Financial and Accounting Officer) 57 EX-10.48 2 LTR. AMD. #5 TO AMD. & RESTATED MASTER SHELF AGMT [Execution Copy] LETTER AMENDMENT NO. 5 to AMENDED AND RESTATED MASTER SHELF AGREEMENT November 30, 1995 The Prudential Insurance Company of America Pruco Life Insurance Company c/o Prudential Capital Group 1201 Elm Street, Suite 4900 Dallas, Texas 75270 Ladies and Gentlemen: We refer to the Amended and Restated Master Shelf Agreement dated as of December 19, 1991 among the undersigned and The Prudential Insurance Company of America ("Prudential"), as amended by Letter Amendment No. 1, dated October 22, 1992, Letter Amendment No. 2, dated August 31, 1994, Letter Amendment No. 3, dated April 1, 1995 and Letter Amendment No. 4, dated July 28, 1995 (such agreement, as amended, being referred to as the "AGREEMENT"). Unless otherwise defined herein, the terms defined in the Agreement shall be used herein as therein defined. The Company has requested that you amend certain covenants and definitions in the Agreement in anticipation of the Company entering into a Note Purchase Agreement (the "1995 Note Purchase Agreement") relating to the issuance and sale of the Company's 8.02% Senior Notes due November 2005 in an aggregate principal amount of $42,000,000. In addition, the Company has requested that you waive compliance with certain provisions of Paragraph 6C(3) and Paragraph 6C(8). You have indicated your willingness to so amend and waive. Accordingly, it is hereby agreed by you and us as follows: I. AMENDMENTS TO THE AGREEMENT. The Agreement is, effective the date --------------------------- first above written, hereby amended as follows: A. Paragraph 5A(v) is hereby deleted in its entirety and replaced, in lieu thereof with the following: "(v) prior to April 30 in each year, a projection of the consolidated cash flows of the Company, its Subsidiaries and the joint ventures in which the Company or its Subsidiaries has an investment for the current fiscal year, in the form of EXHIBIT 1 attached to Letter Amendment No. 5;" Exhibit 10.48 B. The last paragraph of Paragraph 5A is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "The Company also covenants that forthwith upon the chief executive officer, chief financial officer, Vice President-Finance, Executive Vice President-General Counsel, Treasurer or President of the Company obtaining knowledge of an Event of Default or Default, it will deliver to each holder of any Notes an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposed to take with respect thereto." C. Paragraph 6A(2) is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "6A(2) CURRENT RATIO. The ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.0 to 1.0 at any time. For purpose of determining compliance with this paragraph 6A(2), (x) "Consolidated Current Liabilities" will be calculated without including any payments of principal of any Funded Debt of the Company which are required to be repaid within one year of the date of calculation and (y) Consolidated Current Assets shall include the amount of funds that are available to be borrowed under the NCNB Agreement, where "available" means, as of the date of the determination, the bank parties to the NCNB Agreement are committed to advance such funds, no default exists under the NCNB Agreement and all conditions to such banks advancing such funds would be satisfied. Prudential acknowledges that the Company currently calculates the current ratio only as of the end of each calendar month." D. Paragraph 6A(3) is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "6A(3). DEBT MAINTENANCE. Adjusted Consolidated Debt to exceed (i) from August 31, 1994 through October 31, 1996, 60% of Consolidated Net Tangible Assets and (ii) at any time after October 31, 1996, 55% of Consolidated Net Tangible Assets. In any event, for purposes of determining compliance with this paragraph 6A(3), Adjusted Consolidated Debt shall include without limitation all indebtedness included in determining compliance with the similar covenant in the NCNB Agreement." E. Paragraph 6C(3) is hereby deleted in its entirety and replaced, in lieu thereof, with the following:: "6C(3) LIMITATION ON INVESTMENTS AND NEW BUSINESSES. (i) Make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by -2- clause (iii) or clause (iv) of this paragraph 6C(3)); (ii) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to its present businesses and operations (which shall be deemed to include electric power generation and marketing and expenditures, commitments, obligations and transactions permitted by clause (iii) or clause (iv) of this paragraph 6C(3)); (iii) make any acquisitions of, capital contributions to, or other investments in, any Persons which exceed in the aggregate $500,000 other than (a) capital contributions to and investments in any joint venture described in EXHIBIT 2 to Letter Amendment No. 5 or in the Wholly Owned Subsidiaries, (b) acquisitions of equity in corporations or partnerships having as their primary business gas processing, transmission and gathering, oil and gas production and storage or gas marketing and related activities or electric power generation and marketing which do not exceed in the aggregate 10% of Consolidated Net Tangible Assets and (c) deposits with, investments in, obligations of and time deposits in any domestic bank or domestic branches of foreign banks which, at the time such deposit or investment is made, are rated A or better by Standard & Poor's Rating Group or Moody's Investors Service, Inc. or B or better by Thompson Bank Watch and investments maturing within one year from the date of acquisition in direct obligations of or obligations supported by, the full faith and credit of, the United States of America; or (iv) make any acquisition or investment in any properties other than gas processing, transmission and gathering facilities, domestic oil and gas properties, gas storage facilities, gas inventory and electric power generation facilities which exceeds $5,000,000; PROVIDED, however, that the loans referred to in paragraph 6C(7) may be outstanding." F. Paragraph 6C(5)(iv) is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "(iv) any non Wholly Owned Subsidiary may merge or consolidate with any other corporation, provided that immediately after giving effect to such merger or consolidation (a) the continuing or surviving corporation of such merger or consolidation shall constitute a Subsidiary, and (b) no Event of Default or Default shall exist." G. The dollar amount "$2,000,000" set forth in Paragraph 6C(6) shall be deleted and replaced, in lieu thereof with "$4,000,000". H. Paragraph 6C(8) is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "6C(8) CONTRACTS; TAKE-OR-PAY AGREEMENTS. Enter into any "take-or-pay" contract or other contract which requires it to pay for oil, gas, other hydrocarbons or other minerals prior to taking delivery thereof, PROVIDED that the Company may enter into such contracts so long as the aggregate maximum -3- direct and contingent liability of the Company under such contracts does not exceed $500,000 at any one time, and PROVIDED FURTHER that the Company may enter into contracts with gas producers requiring the Company to make payments if the Company has not connected the producer's well to the Company's gathering system within a specified period of time, so long as the maximum direct or contingent liability of the Company under such contract does not exceed $500,000. The Company and its Subsidiaries may enter into: (a) Short Hedge Futures to sell natural gas or liquid hydrocarbons or to offset a Long Hedge Future; and (b) Long Hedge Futures to purchase natural gas or liquid hydrocarbons or to offset a Short Hedge Future; PROVIDED, however, that at the time of entering into a Short Hedge Future, the Company shall own and have available to it sufficient amounts of natural gas or liquid hydrocarbons, as the case may be, or shall own pursuant to firm contracts to deliver natural gas or liquid hydrocarbons, as the case may be, pursuant to such Short Hedge Future; PROVIDED, further, that at the time of entering into a Long Hedge Future, the Company shall have sufficient agreements from Counterparties to purchase natural gas or liquid hydrocarbons, as the case may be, from the Company so that the Company can resell natural gas or liquid hydrocarbons, as the case may be, delivered pursuant to such Long Hedge Future." I. Paragraph 6F shall be deleted in its entirety and replaced, in lieu thereof, with the following: "6F. Other Agreements. Without the prior written consent of the Required Holder(s) of the Notes of each Series, the Company will not amend, modify or waive (i) any provision of the Term Loan Agreement which would shorten the maturity or average life of any loan thereunder, (ii) any provision of the Revolving Loan Agreement which would shorten any commitment thereunder, or (iii) any provision of the 1993 Note Purchase Agreement or the 1995 Note Purchase Agreement which would shorten the maturity or average life of any note issued thereunder." J. The definition of "Reinvestment Yield" set forth in paragraph 10A is hereby amended by amending the last sentence thereof in its entirety to read as follows: "Such implied yield shall be determined, (i) if necessary, by (x) - converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (y) - interpolating linearly between yields reported for various maturities and, (ii) if interest on such Notes is paid quarterly, by converting all such implied yields to a quarterly payment basis in accordance with accepted financial practice." K. The definition of "Adjusted Consolidated Debt" set forth in Paragraph 10B is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "`ADJUSTED CONSOLIDATED DEBT' shall mean Consolidated Debt (excluding Debt in the amount of the Receivables Investment relating to the Permitted Securitization Program) PLUS Excess Working Capital Deficit." L. The definition of "Consolidated Current Liabilities" set forth in Paragraph 10B is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "`CONSOLIDATED CURRENT LIABILITIES' shall mean the consolidated current liabilities (including, without limitation, the Debt in respect of the Permitted Securitization Program) of the Company and its Subsidiaries, as determined in -4- accordance with generally accepted accounting principles." -5- M. The definition of "Consolidated Net Tangible Assets" set forth in Paragraph 10B is hereby amended by adding the following clause: "`CONSOLIDATED NET TANGIBLE ASSETS' shall mean the consolidated assets of the Company and its Subsidiaries, LESS, without duplication (i) Consolidated Current Liabilities MINUS Excess Working Capital Deficit, (ii) asset, liability, contingency and other reserves of the Company and its Subsidiaries, including reserves for depreciation and for deferred income taxes, (iii) all other liabilities of the Company and its Subsidiaries, except liabilities for Funded Debt of the types described in clauses (i), (ii) and (iii) of the definition of Debt, and (iv) treasury stock, unamortized debt discount and expense, goodwill, trademarks, brand names, patents, organizational expenses and any other intangible assets of the Company and its Subsidiaries, and any write-up of the values of any assets after June 30, 1991, all as determined in accordance with generally accepted accounting principles; PROVIDED, HOWEVER, that the term "Consolidated Net Tangible Assets" shall include the book value of long-term gas contracts with producers that the Company assumes in connection with acquisitions and that are reflected on the books of the Company as assets." N. The following definition is hereby added to Paragraph 10B: "`COUNTERPARTY' shall mean (i) any Person described in EXHIBIT 3 to the Letter Amendment No. 5, (ii) any Person that is not an Affiliate of the Company and that has senior debt securities rated at least A by Standard & Poor's Rating Group or Moody's Investors Service, Inc. or whose obligations in respect of agreements described in the final proviso to paragraph 6C(8) or in the definition of Long Hedge Future or Short Hedge Future, as the case may be, are fully guaranteed by an affiliate of such Person whose senior debt securities are so rated, and (iii) any other Person that is not an Affiliate of the Company and with whom the Company has agreements of the nature described in the final proviso to paragraph 6C(8) or in the definition of Long Hedge Future or Short Hedge Future, so long as (a) the aggregate amount of all such agreements with such Person outstanding at any time shall not exceed $1,000,000 and (b) the Company has such agreements outstanding with no more than nine other such Persons at any time." O. The definition of "Long Hedge Future" set forth in Paragraph 10B is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "`LONG HEDGE FUTURE' shall mean an agreement, purchased on a commodities exchange or entered into with a Counterparty, that obligates the Company to purchase natural gas or liquid hydrocarbons, as the case may be, at a pre-determined price at a pre-determined time." P. The definition of "NCNB Agreement" set forth in Paragraph 10B is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "`NCNB AGREEMENT' shall mean (i) from the date hereof to August 31, 1993, the First Restated Loan Agreement, dated as of October 31, 1991, between the Company and NCNB, as Agent and NCNB and Bankers Trust Company as Co-Managers of the Acquisition Loan and Certain Banks as Lenders, and (ii) from and after August 31, 1993, Term Loan Agreement and the Revolving Loan Agreement." -6- Q. The definition of "Short Hedge Future" set forth in Paragraph 10B is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "`SHORT HEDGE FUTURE' shall mean an agreement, purchased on a commodities exchange or entered into with a Counterparty, that obligates the Company to sell natural gas or liquid hydrocarbons, as the case may be, at a pre-determined price at a pre-determined time." R. Paragraph 10B is hereby amended by adding the following new definitions in alphabetical order: "`REVOLVING LOAN AGREEMENT' shall mean the Loan Agreement (Revolver) dated August 31, 1993 between the Company and NationsBank of Texas, N.A. (formerly known as NCNB Texas National Bank), as the provisions thereof have been or may be from time to time amended or waived in compliance with paragraph 6F. `TERM LOAN AGREEMENT' shall mean the Third Restated Loan Agreement (Term) dated August 31, 1993 between the Company and NationsBank of Texas, N.A. (formerly known as NCNB Texas National Bank), as Agent and Certain Banks as Lenders. `1993 NOTE PURCHASE AGREEMENT' shall mean, collectively, those certain separate Note Purchase Agreements each dated as of April 1, 1993, between the Company and each of the purchasers listed on Annex 1 thereto, respectively, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6F. `1995 NOTE PURCHASE AGREEMENT' shall mean, the Note Purchase Agreement dated as of November 29, 1995 between the Company and the Purchasers listed on the signature page thereto, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6F." II. WAIVERS; COMPLIANCE WITH PARAGRAPH 6(G). ---------------------------------------- A. Prior to the date hereof, the Company has entered into certain futures transactions outside of a commodities exchange (the "OTC Transactions") relating to the sale or purchase of natural gas or liquid hydrocarbons. Prudential, as the Required Holder of the Notes, hereby waives any and all violations of Paragraph 6C(8) of the Agreement resulting from OTC Transactions which have been entered into prior to the effective date of this Letter Amendment No. 5. B. Prior to the date hereof, the Company has made certain capital contributions to the joint ventures described in EXHIBIT 2 to Letter Amendment No. 5 (the "Contributions"). Prudential, as the Required Holder of the Notes, hereby waives any and all violations of Paragraph 6C(3) resulting from the Contributions which have been made prior to the effective date of this Letter Amendment No. 5. C. Prudential hereby acknowledges that the Company has, in compliance with Paragraph 6G of the Agreement, offered to amend this Agreement so as to provide the holders of the Notes with the benefits of certain financial covenants set forth in the 1995 Note Purchase Agreement which are more restrictive than the covenants set forth in the Agreement. The Company hereby agrees that it will, on or before January 31, 1996, execute and deliver an amendment to this Agreement providing for such more restrictive covenants. III. MISCELLANEOUS; EFFECTIVENESS. ----------------------------- A. On and after the effective date of this letter amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", or words of like import referring to the Agreement, and each reference in the Notes to "the Agreement", "thereunder", "thereof", or words of like import referring to the Agreement, shall mean the Agreement as amended by this letter amendment. The Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this letter amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of any provision of the Agreement. B. This letter amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter -7- amendment. C. If you agree to the terms and provisions hereof, please evidence your agreement by executing and returning at least a counterpart of this letter amendment to the Company at its address at 12200 N. Pecos Street, Denver, CO 80234, Attention: Vice President-General Counsel. This letter amendment shall become effective as of the date first above written when and if (i) counterparts of this letter amendment shall have been executed by us and you, and (ii) the consent attached hereto shall have been executed by each Guarantor. Very truly yours, WESTERN GAS RESOURCES, INC. By: /s/ JOHN C. WALTER --------------------------------- Title: Executive Vice President Agreed as of the date first above written: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ----------------------------------------------- Vice President PRUCO LIFE INSURANCE COMPANY By: /s/ PRUCO LIFE INSURANCE COMPANY -------------------------------- Vice President -8- CONSENT TO AMENDMENT Each of the undersigned is a Guarantor ("GUARANTOR" and, collectively, "GUARANTORS") under separate guaranties (each being a "GUARANTY") dated as of October 27, 1992 or August 31, 1993 in favor of The Prudential Insurance Company of America ("PRUDENTIAL"), for itself and on behalf of affiliates of Prudential with respect to the obligations of Western Gas Resources, Inc. (the "COMPANY") under a Master Shelf Agreement dated as of December 19, 1991, as amended (the "ORIGINAL AGREEMENT"). The terms used herein have the meaning specified in each Guaranty unless otherwise defined herein. Prudential and the Company entered into an Amended and Restated Master Shelf Agreement dated as of December 19, 1991 (as subsequently amended, the "AMENDED AGREEMENT") which amended the Original Agreement. Prudential and the Company are entering into a Letter Amendment No. 5 to Amended and Restated Master Shelf Agreement dated November 30, 1995 to which this consent is attached (the "LETTER AMENDMENT"). Each of the undersigned hereby consents to the Letter Amendment and each hereby confirms and agrees that its Guaranty is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects except that, upon the effectiveness of, and on and after the date of this consent, all references in the Guaranty of the undersigned to the "Shelf Agreement", "thereunder", "thereof" or words of like import referring to the Shelf Agreement shall mean the Amended Agreement as amended by the Letter Amendment. Dated as of November 30, 1995. MGTC, INC. WESTERN GAS RESOURCES STORAGE, INC. MOUNTAIN GAS RESOURCES, INC. WESTERN GAS RESOURCES - TEXAS, INC. WESTERN GAS RESOURCES OKLAHOMA, INC. MIGC, INC. By: /s/ JOHN C. WALTER ------------------ Title: EX-10.49 3 2ND AMD. & RESTATED MASTER SHELF AGMT. [Execution Copy] ================================================================================ WESTERN GAS RESOURCES, INC. $200,000,000 SENIOR NOTES SECOND AMENDED AND RESTATED MASTER SHELF AGREEMENT Dated as of December 19, 1991 (EFFECTIVE AS OF JANUARY 31, 1996) ================================================================================ Exhibit 10.49 TABLE OF CONTENTS (Not Part of Agreement)
RESTATEMENT AND AMENDMENT; AUTHORIZATION OF ISSUE OF NOTES............... -1- 1A. RESTATEMENT AND AMENDMENT OF EXISTING AGREEMENT................ -1- 1B. AUTHORIZATION OF ISSUE OF NOTES................................ -1- PURCHASE AND SALE OF NOTES............................................... -2- 2A. FACILITY....................................................... -2- 2B. ISSUANCE PERIOD................................................ -2- 2C. SPREAD INFORMATION............................................. -2- 2D. REQUEST FOR PURCHASE........................................... -3- 2E. RATE QUOTES.................................................... -3- 2F. ACCEPTANCE..................................................... -3- 2G. MARKET DISRUPTION.............................................. -4- 2H. CLOSING........................................................ -4- 2I. FEES........................................................... -5- 2I(1) FACILITY FEE............................................ -5- 2I(2) DELAYED DELIVERY FEE.................................... -5- 2I(3) CANCELLATION FEE........................................ -6- 2I(4) STRUCTURING FEE......................................... -6- 2I(5) EXTENSION FEE........................................... -6- CONDITIONS PRECEDENT..................................................... -6- 3A. CERTAIN DOCUMENTS.............................................. -6- 3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT..................... -7- 3C. PURCHASE PERMITTED BY APPLICABLE LAWS.......................... -8- 3D. LEGAL MATTERS.................................................. -8- 3E. PROCEEDINGS.................................................... -8- 3F. AMENDMENT OF CREDIT AGREEMENTS................................. -8- 3G. FACILITY FEE PAYMENT........................................... -8- 3H. CONSENT OF BANKS............................................... -8- PREPAYMENTS.............................................................. -8- 4A. REQUIRED PREPAYMENTS........................................... -8- 4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT.............. -9- 4C. NOTICE OF OPTIONAL PREPAYMENT.................................. -9- 4D. APPLICATION OF PREPAYMENTS..................................... -9- 4E. RETIREMENT OF NOTES............................................ -9- AFFIRMATIVE COVENANTS................................................... -10-
i 5A. FINANCIAL STATEMENTS.......................................... -10- 5B. INSPECTION OF PROPERTY........................................ -12- 5C. COVENANT TO SECURE NOTES EQUALLY.............................. -12- 5D. AGREEMENT ASSUMING LIABILITY ON NOTES......................... -12- 5E. NOTICE OF MATERIAL EVENTS..................................... -13- 5F. MAINTENANCE OF PROPERTIES..................................... -13- 5G. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS................... -13- 5H. INSURANCE..................................................... -13- 5I. COMPLIANCE WITH AGREEMENTS AND LAW............................ -14- 5J. COMPLIANCE WITH ENVIRONMENTAL LAWS............................ -14- 5K. INFORMATION REQUIRED BY RULE 144A............................. -15- 5L. ERISA......................................................... -15- 5M. GUARANTIES.................................................... -15- NEGATIVE COVENANTS...................................................... -15- 6A. FINANCIAL COVENANTS........................................... -15- 6A(1). CONSOLIDATED TANGIBLE NET WORTH....................... -15- 6A(2). CURRENT RATIO......................................... -16- 6A(3). DEBT MAINTENANCE...................................... -16- 6A(4). FIXED CHARGE COVERAGE RATIO........................... -16- 6B. DIVIDEND LIMITATION........................................... -16- 6C. LIEN, DEBT, AND OTHER RESTRICTIONS............................ -16- 6C(1). LIENS................................................. -16- 6C(2). DEBT.................................................. -18- 6C(3). LIMITATION ON INVESTMENTS AND NEW BUSINESSES.......... -18- 6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES................ -19- 6C(5). MERGER AND SALE OF ASSETS............................. -19- 6C(6). LEASE RENTALS......................................... -20- 6C(7). LIMITATION ON CREDIT EXTENSIONS....................... -21- 6C(8). CONTRACTS; TAKE-OR-PAY AGREEMENTS..................... -21- 6C(9). SALE OR DISCOUNT OF RECEIVABLES....................... -21- 6C(10). GUARANTIES........................................... -21- 6C(11). TRANSACTIONS WITH AFFILIATES......................... -22- 6C(12). PANHANDLE JOINT VENTURE DEBT......................... -23- 6D. ISSUANCE OF STOCK BY SUBSIDIARIES............................. -23- 6E. OTHER AGREEMENTS.............................................. -23- EVENTS OF DEFAULT....................................................... -23- 7A. ACCELERATION.................................................. -23- 7B. RESCISSION OF ACCELERATION.................................... -26- 7C. NOTICE OF ACCELERATION OR RESCISSION.......................... -27- 7D. OTHER REMEDIES................................................ -27-
ii REPRESENTATIONS, COVENANTS AND WARRANTIES............................... -27- 8A. ORGANIZATION.................................................. -27- 8B. FINANCIAL STATEMENTS.......................................... -27- 8C. ACTIONS PENDING............................................... -28- 8D. OUTSTANDING DEBT.............................................. -28- 8E. ENVIRONMENTAL COMPLIANCE...................................... -28- 8F. TAXES......................................................... -28- 8G. CONFLICTING AGREEMENTS AND OTHER MATTERS...................... -29- 8H. OFFERING OF NOTES............................................. -29- 8I. REGULATION G, ETC............................................. -29- 8J. ERISA......................................................... -30- 8K. GOVERNMENTAL CONSENT.......................................... -30- 8L. TITLE TO PROPERTIES........................................... -30- 8M. HOSTILE TENDER OFFERS......................................... -30- 8N. DISCLOSURE.................................................... -31- 8O. DELIVERY OF NCNB AGREEMENT.................................... -31- 8P. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT......... -31- REPRESENTATIONS OF THE PURCHASERS....................................... -31- 9A. NATURE OF PURCHASE............................................ -31- 9B. SOURCE OF FUNDS............................................... -31- DEFINITIONS............................................................. -32- 10A. YIELD-MAINTENANCE TERMS....................................... -32- 10B. OTHER TERMS................................................... -33- 10C. ACCOUNTING TERMS AND DETERMINATIONS........................... -44- MISCELLANEOUS........................................................... -44- 11A. NOTE PAYMENTS................................................. -44- 11B. EXPENSES...................................................... -44- 11C. CONSENT TO AMENDMENTS......................................... -45- 11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.................................................... -46- 11E. PERSONS DEEMED OWNERS; PARTICIPATIONS......................... -46- 11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.............................................. -46- 11G. SUCCESSORS AND ASSIGNS........................................ -47- 11H. DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY.................. -47- 11I. NOTICES....................................................... -47- 11J. PAYMENTS DUE ON NON-BUSINESS DAYS............................. -48- 11K. SATISFACTION REQUIREMENT...................................... -48- 11L. GOVERNING LAW................................................. -48- 11M. SEVERABILITY.................................................. -48- 11N. DESCRIPTIVE HEADINGS.......................................... -48- 11O. COUNTERPARTS.................................................. -48-
iii 11P. BINDING AGREEMENT............................................ -49-
PURCHASER SCHEDULE SCHEDULE 5A -- FORM OF PROJECTIONS SCHEDULE 6C(2) -- EXISTING DEBT AND LIENS SCHEDULE 6C(3) -- JOINT VENTURES SCHEDULE 6C(8) -- COUNTERPARTIES EXHIBIT A -- FORM OF NOTE EXHIBIT B -- FORM OF REQUEST FOR PURCHASE EXHIBIT C -- FORM OF CONFIRMATION OF ACCEPTANCE EXHIBIT D -- FORM OF OPINION OF COMPANY'S COUNSEL EXHIBIT E -- LIST OF AGREEMENTS RESTRICTING DEBT EXHIBIT F -- FORM OF CONFIDENTIALITY LETTER EXHIBIT G -- FORM OF GUARANTY EXHIBIT H -- FORM OF INTERCREDITOR AGREEMENT iv WESTERN GAS RESOURCES, INC. 12200 N. PECOS STREET DENVER, CO 80234 As of December 19, 1991 To: The Prudential Insurance Company of America ("PRUDENTIAL") c/o Prudential Capital Group Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102 SENIOR NOTES ------------ Ladies and Gentlemen: The undersigned, Western Gas Resources, Inc. (the "COMPANY"), hereby agrees with each Purchaser as follows: PARAGRAPH 1. RESTATEMENT AND AMENDMENT; AUTHORIZATION OF ISSUE OF NOTES. 1A. RESTATEMENT AND AMENDMENT OF EXISTING AGREEMENT. The Company and Prudential entered into a Master Shelf Agreement dated as of December 19, 1991 as amended by Letter Amendment No. 1 dated October 22, 1992 (the "ORIGINAL AGREEMENT"). On July 22, 1993, the Company and Prudential entered into an Amended and Restated Master Shelf Agreement which Amended and Restated the Original Agreement in its entirety. Such Amended and Restated Master Shelf Agreement has been amended by Letter Amendment No. 1 dated June 30, 1993, Letter Amendment No. 2 dated August 31, 1994, Letter Amendment No. 3 dated April 1, 1995, Letter Amendment No. 4 dated July 28, 1995 and Letter Amendment No. 5 dated November 30, 1995. (The Amended and Restated Master Shelf Agreement, as amended, is referred to herein as the "EXISTING AGREEMENT"). The Company has issued to Prudential or Prudential Affiliates $200,000,000 aggregate principal amount of Senior Notes pursuant to the Existing Agreement. The Company and Prudential are entering into this Agreement to, among other things, incorporate the amendments into the agreement and amend other provisions of the Existing Agreement. Accordingly, the Company, Prudential and each Purchaser agrees that the Existing Agreement is hereby amended and restated in its entirety to read as provided in this Agreement. 1B. AUTHORIZATION OF ISSUE OF NOTES. The Company has authorized and issued its senior promissory notes (the "NOTES") in the aggregate principal amount of $200,000,000, dated the date of issue thereof, maturing, in the case of each Note so issued, no more than 12 years after the date of original issuance thereof (with an average life not in excess of 10 years), bearing interest on the unpaid balance thereof from the date thereof at the rate per annum, and having such other particular terms, as set forth, in the case of each Note so issued, in the Confirmation of Acceptance with respect to such Note delivered pursuant to paragraph 2F, and substantially in the form of Exhibit A attached hereto. The term "NOTES" as used herein shall include each Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. Notes which have (i) the same final maturity, (ii) the same installment payment - -- dates, (iii) the same installment payment amounts (as a percentage of the --- original principal amount of each Note), (iv) the same interest rate, and (v) -- - the same interest payment periods, are herein called a "SERIES" of Notes. Capitalized terms used herein have the meanings specified in paragraph 10. - ------------------------------------------------------------------------- PARAGRAPH 2. PURCHASE AND SALE OF NOTES. 2A. FACILITY. Prudential is willing to consider, in its sole discretion and within limits which may be authorized for purchase by Prudential and Prudential Affiliates from time to time, the purchase of Notes pursuant to this Agreement. The willingness of Prudential to consider such purchase of Notes is herein called the "FACILITY". At any time, the aggregate principal amount of Notes stated in paragraph 1, minus (i) the aggregate principal amount ----- of Notes purchased and sold pursuant to this Agreement prior to such time (including the Existing Notes) and (ii) the aggregate principal amount of Accepted Notes which have not yet been purchased and sold hereunder prior to such time, is herein called the "AVAILABLE FACILITY AMOUNT" at such time. Notwithstanding the willingness of Prudential to consider purchases of Notes, this Agreement is entered into on the express understanding that neither Prudential nor any other Prudential Affiliate shall be obligated to make or accept offers to purchase Notes, or to quote rates, spreads or other terms with respect to specific purchases of Notes, and the Facility shall in no way be construed as a capital commitment by Prudential or any other Prudential Affiliate. 2B. ISSUANCE PERIOD. Notes may be issued and sold pursuant to this Agreement until the earlier of (i) the Termination Date (or if such day is not a Business Day, the Business Day next preceding such day) and (ii) the thirtieth day after Prudential shall have given to the Company, or the Company shall have given to Prudential, a notice stating that it elects to terminate the issuance and sale of Notes pursuant to this Agreement (or if such thirtieth day is not a Business Day, the Business Day next preceding such thirtieth day). The period during which Notes may be issued and sold pursuant to this Agreement is herein called the "ISSUANCE PERIOD". The "TERMINATION DATE" shall be October 31, 1995. 2C. SPREAD INFORMATION. Upon request by the Company on any Business Day during the Issuance Period if there is an Available Facility Amount on such Business Day, Prudential will, to the extent reasonably practicable, provide to the Company information (by telecopier or telephone) with respect to various spreads at which Prudential or Prudential Affiliates might be interested in purchasing Notes of different average lives. The amount and content of -2- information so provided shall be in the sole discretion of Prudential, but it is the intent of Prudential to provide information which will be of use to the Company in determining whether to initiate procedures for use of the Facility. Information so provided shall not constitute an offer to purchase Notes, and neither Prudential nor any other Prudential Affiliate shall be obligated to purchase Notes at the spreads specified. Information so provided shall be representative of potential interest only for the period commencing on the day such information is provided and ending on the earlier of the fifth Business Day after such day and the first day after such day on which further spread information is provided. Prudential may suspend or terminate providing information pursuant to this paragraph 2C if, in its sole discretion, it determines that there has been an adverse change in the credit quality of the Company after the date of this Agreement. 2D. REQUEST FOR PURCHASE. The Company may from time to time during the Issuance Period make requests for purchases of Notes (each such request being a "REQUEST FOR PURCHASE"). Each Request for Purchase shall be made to Prudential by telecopier and confirmed by nationwide overnight delivery service, and shall (i) specify the aggregate principal amount of Notes covered thereby, which shall not be less than $10,000,000 and not be greater than the Available Facility Amount at the time such Request for Purchase is made, (ii) specify the principal amounts, final maturities, and installment payment dates and amounts of the Notes covered thereby, (iii) specify the use of proceeds of such Notes, (iv) specify the proposed day for the closing of the purchase and sale of such Notes, which shall be a Business Day during the Issuance Period not less than 10 Business Days and not more than 25 Business Days after the making of such Request for Purchase, (v) specify the number of the account and the name and address of the depository institution to which the purchase prices of such Notes are to be transferred on the Closing Day for such purchase and sale, (vi) certify that the representations and warranties contained in paragraph 8 are true on and as of the date of such Request for Purchase except to the extent of changes caused by the transactions herein contemplated and that there exists on the date of such Request for Purchase no Event of Default or Default, and (vii) be substantially in the form of Exhibit B attached hereto. Each Request for Purchase shall be in writing and shall be deemed made when received by Prudential. 2E. RATE QUOTES. Not later than five Business Days after the Company shall have given Prudential a Request for Purchase pursuant to paragraph 2D, Prudential may provide (by telephone promptly thereafter confirmed by telecopier, in each case no earlier than 9:30 A.M. and no later than 1:00 P.M. New York City local time) interest rate quotes for the several principal amounts, maturities and installment payment schedules (for Notes with average lives not to exceed 10 years) of Notes specified in such Request for Purchase. Each quote shall represent, the fixed interest rate per annum, payable on the outstanding principal balance of such Notes until such balance shall have become due and payable, at which Prudential would be willing to purchase such Notes at 100% of the principal amount thereof. 2F. ACCEPTANCE. Within 30 minutes after Prudential shall have provided any interest rate quotes pursuant to paragraph 2E or such shorter period as Prudential may specify to the Company at any time, including the time at which the rate is quoted (such period being the "ACCEPTANCE WINDOW"), the Company may, subject to paragraph 2G, elect to accept such interest -3- rate quotes as to not less than $10,000,000 aggregate principal amount of the Notes specified in the related Request for Purchase. Such election shall be made by an Authorized Officer of the Company notifying Prudential by telephone or telecopier within the Acceptance Window (but not earlier than 9:30 A.M. or later than 2:00 P.M., New York City local time) that the Company elects to accept such interest rate quotes, specifying the Notes (each such Note being an "ACCEPTED NOTE") as to which such acceptance (an "ACCEPTANCE") relates. The day the Company gives, and Prudential receives, notice of an Acceptance with respect to any Accepted Notes is herein called the "ACCEPTANCE DAY" for such Accepted Notes. Any interest rate quotes as to which Prudential does not receive an Acceptance within the Acceptance Window shall expire, and no purchase or sale of Notes hereunder shall be made based on such expired interest rate quotes. Subject to paragraph 2G and the other terms and conditions hereof, (i) the Company agrees to sell to Prudential or a Prudential Affiliate, and Prudential agrees to purchase, or to cause the purchase by a Prudential Affiliate of, the Accepted Notes (the "PRUDENTIAL ACCEPTED NOTES") as to which interest rate quotes shall have been provided to the Company for purchases by Prudential or Prudential Affiliates at 100% of the principal amount of such Notes. Prior to the close of business on the Business Day next following the Acceptance Day, the Company and Prudential will execute a confirmation of such Acceptance substantially in the form of Exhibit C attached hereto (a "CONFIRMATION OF ACCEPTANCE"). 2G. MARKET DISRUPTION. Notwithstanding the provisions of paragraph 2F, if Prudential shall have provided interest rate quotes pursuant to paragraph 2E and thereafter prior to the time notice of an Acceptance with respect to such quotes shall have been received by Prudential in accordance with paragraph 2F there shall occur a general suspension, material limitation, or significant disruption of trading in securities generally on the New York Stock Exchange or in the market for U.S. Treasury securities and other financial instruments, then such interest rate quotes shall expire, and no purchase or sale of Notes hereunder shall be made based on such expired interest rate quotes. If the Company thereafter notifies Prudential of the Acceptance of any such interest rate quotes, such Acceptance shall be ineffective for all purposes of this Agreement, and Prudential shall promptly notify the Company that the provisions of this paragraph 2G are applicable with respect to such Acceptance. 2H. CLOSING. Not later than 11:30 A.M. (New York City local time) on the Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at the offices of Prudential Capital Group, 1201 Elm St., Suite 4900, Dallas, Texas 75270 the Notes to be purchased by such Purchaser in the form of a single Accepted Note for the Accepted Notes which have exactly the same terms (or such greater number of Notes in authorized denominations as such Purchaser may request) dated the Closing Day and registered in such Purchaser's name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the Company's account specified in the Request for Purchase of such Notes. If the Company fails to tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on the scheduled Closing Day for such Accepted Notes as provided above in this paragraph 2H, or any of the conditions specified in paragraph 3 shall not have been fulfilled by the time required on such scheduled Closing Day, the Company shall, prior to 1:00 P.M., New York City local time, on such scheduled Closing Day notify such Purchaser in writing whether (x) such closing is to be - rescheduled (such rescheduled date to -4- be a Business Day during the Issuance Period not less than one Business Day and not more than 30 Business Days after such scheduled Closing Day (the "RESCHEDULED CLOSING DAY") and certify to such Purchaser that the Company reasonably believes that it will be able to comply with the conditions set forth in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the Delayed Delivery Fee in accordance with paragraph 2I(2) or (y) such closing is - to be canceled as provided in paragraph 2I(3). In the event that the Company shall fail to give such notice referred to in the preceding sentence, such Purchaser may at its election, at any time after 1:00 P.M., New York City local time, on such scheduled Closing Day, notify the Company in writing that such closing is to be canceled as provided in paragraph 2I(3). 2I. FEES. 2I(1) FACILITY FEE. The Company paid to Prudential in immediately available funds a fee (the "FACILITY FEE") on each Closing Day, in an amount equal to (i) .30% of the aggregate principal amount of Notes sold on such Closing Day for the first $150,000,000 of Notes issued pursuant to this Agreement and (ii) .10% of the aggregated principal amount of Notes sold on such Closing Day with respect to the remaining $50,000,000 of Notes issued pursuant to this Agreement. 2I(2) DELAYED DELIVERY FEE. If the closing of the purchase and sale of any Accepted Note is delayed for any reason (other than, with respect to any Accepted Note, because the Purchaser of such Accepted Note is prohibited by law from purchasing an Accepted Note or the Purchaser of such Accepted Notes shall request a delay in writing) beyond the original Closing Day for such Accepted Note, the Company will pay to the Purchaser which shall have agreed to purchase such Accepted Note, on the last Business Day of each calendar month, commencing with the first such day to occur more than 30 days after the Acceptance Day for such Accepted Note and ending with the last such day to occur prior to the Cancellation Date or the actual closing date of such purchase and sale, and on the Cancellation Date or actual closing date of such purchase and sale (if such Cancellation Date or closing date occurs more than 30 days after the Acceptance Day for such Accepted Note), a fee (the "DELAYED DELIVERY FEE") equal to the product of (i) the amount determined by Prudential to be the amount by which the - bond equivalent yield per annum of such Accepted Note exceeds the average investment rate per annum on alternative investments (this rate (on a bond equivalent basis) would be, as of the date of this Agreement, the 30-60-90 day Commercial Paper rate for Prudential, with the exact period being a function of the actual number of days elapsed) having a maturity date or dates the same as, or closest to, the Rescheduled Closing Day or Rescheduled Closing Days from time to time fixed for the delayed delivery of such Accepted Note, (ii) the principal -- amount of such Accepted Note, and (iii) a fraction the numerator of which is --- equal to the number of actual days elapsed from and including the 31st day after the Acceptance Day for such Accepted Note (in the case of the first such payment with respect to such Accepted Note) or from and including the date of the next preceding payment (in the case of any subsequent payment with respect to such Accepted Note) to but excluding the date of such payment, and the denominator of which is 360. In no case shall the Delayed Delivery Fee be less than zero. Nothing contained herein shall obligate any Purchaser to purchase any Accepted Note on any day other than the Closing Day for such Accepted Note, as the same may be rescheduled from time to time in compliance with paragraph 2H. -5- 2I(3) CANCELLATION FEE. If the Company at any time notifies the Purchaser obligated to purchase any Accepted Note in writing that the Company is canceling the closing of the purchase and sale of such Accepted Note, or if the Purchaser obligated to purchase any Accepted Note notifies the Company in writing under the circumstances set forth in the last sentence of paragraph 2H that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period (the date of any such notification, or the last day of the Issuance Period, as the case may be, being the "CANCELLATION DATE"), the Company will, upon demand by such Purchaser pay such Purchaser in immediately available funds an amount (the "CANCELLATION FEE") equal to the price increase described in the next sentence (the "PRICE MOVEMENT") divided by 100 and multiplied by the principal amount of such Accepted Note. The Price Movement (expressed in decimals) shall be calculated by subtracting (a) the bid price at the time of the Acceptance on the - Acceptance Day for such Accepted Note of U.S. Treasury securities having a maturity equal to or closest to the average life of such Accepted Note (as determined by Prudential) as reported on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service), from (b) the ask price at 10:00 A.M. (New York City local - time) on the Cancellation Date of such U.S. Treasury securities (as determined by Prudential in (a) above) as reported on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service). Each price shall be based on a U.S. Treasury security having a par value of $100.00 and shall be rounded to the second decimal place. In no case shall the Cancellation Fee be less than zero. 2I(4) STRUCTURING FEE. The Company paid Prudential a structuring fee of $75,000 on October 18, 1991 for structuring the Facility. 2I(5) EXTENSION FEE. The Company paid Prudential the first $50,000 installment of the extension fee on June 4, 1993 for extending the Facility. PARAGRAPH 3. CONDITIONS PRECEDENT. 3. CONDITIONS OF CLOSING. The obligation of any Purchaser to purchase and pay for any Accepted Notes, and the respective obligations of Prudential to cause the purchase of and payment for any Prudential Accepted Notes, are subject to the satisfaction, on or before the Closing Day for such Accepted Notes, of the following conditions: 3A. CERTAIN DOCUMENTS. Each Purchaser shall have received the following, each dated the Closing Day unless otherwise indicated: (i) The Notes to be purchased by such Purchaser. (ii) A certificate of the Secretary or Assistant Secretary of the Company certifying (a) the resolutions of the Board of Directors of each of the Company and the Guarantors approving this Agreement, the Notes and the Guaranties, respectively, and of all documents evidencing other necessary corporate action and -6- governmental approvals, if any, with respect to this Agreement, the Notes and the Guaranties, and (b) the names and true signatures of the officers of the Company authorized to sign this Agreement and the Notes and the other documents to be delivered hereunder. (iii) Certified copies of the Certificate of Incorporation and bylaws of the Company. (iv) A favorable opinion of John C. Walter, General Counsel of the Company, reasonably satisfactory to such Purchaser and substantially in the form of Exhibit D attached hereto and as to such other matters as you may reasonably request. The Company hereby directs such counsel to deliver such opinion, agrees that the issuance and sale of any Accepted Notes will constitute a reconfirmation of such direction, and understands and agrees that each Purchaser receiving such an opinion will and is hereby authorized to rely on such opinion. (v) A certified copy of the NCNB Agreement and all amendments, modifications, consents or waivers with respect thereto. (vi) A certified copy of the 1993 Note Purchase Agreement and the 1995 Note Purchase Agreement and all amendments, modifications, consents or waivers with respect thereto. (vii) A certified copy of the Receivables Purchase Agreement and all amendments, modifications, consents or waivers with respect thereto. (viii) A certified copy of each guaranty or security agreement guarantying or securing the obligations of the Company under the NCNB Agreement and all amendments, modifications, consents or waivers with respect thereto. (ix) A copy of each Guaranty dated the date of issue thereof, duly executed by each Guarantor, and a Consent of Guarantors to Amendment and Restatement if requested by Prudential. (x) A copy of the Intercreditor Agreement dated the date of issue thereof, duly executed by each bank that is the beneficiary of a Bank Guaranty. 3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph 8 shall be true on and as of such Closing Day, except to the extent of changes caused by the transactions herein contemplated; there shall exist on such Closing Day no Event of Default or Default and no Default or Event of Default would result from the issuance of the Notes to be purchased on such Closing Day; and the Company shall have delivered to such Purchaser an Officer's Certificate, dated such Closing Day, to both such effects. -7- 3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Accepted Notes to be purchased by such Purchaser on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as it may reasonably request to establish compliance with this condition. 3D. LEGAL MATTERS. Counsel for such Purchaser, including any special counsel for the Purchasers retained in connection with the purchase and sale of such Accepted Notes, shall be satisfied as to all legal matters relating to such purchase and sale, and such Purchaser shall have received from such counsel favorable opinions as to such legal matters as it may reasonably request. 3E. PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in substance and form to such Purchaser, and it shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. 3F. AMENDMENT OF CREDIT AGREEMENTS. The NCNB Agreement shall not require (or if so required, such conditions shall simultaneously terminate) (i) the grant of a Lien on any property of the Company or any Subsidiary or (ii) the delivery of any security agreement or the guaranty or agreement to provide guaranties of the obligations of the Company under such agreements other than any Bank Guaranty which is subject to the Intercreditor Agreement and for which such Purchaser shall have received a Guaranty from the same Guarantor. In addition, such agreements shall not require that any lenders party thereto, or an agent or representative thereof, be named as beneficiary or loss payee on any insurance policy and all insurance policies of the Company and its Subsidiaries shall not name any such lender or agent as beneficiary or loss payee. 3G. FACILITY FEE PAYMENT. Prudential shall have received, within one Business Day of such Closing Day, the applicable Facility Fee for Notes to be issued on such Closing Day. 3H. CONSENT OF BANKS. The Company shall have received any consent required by the NCNB Agreement and delivered a copy thereof to each Purchaser. PARAGRAPH 4. PREPAYMENTS. 4. PREPAYMENTS. The Notes shall be subject to prepayment only with respect to the required prepayments specified in paragraph 4A and the optional prepayments permitted by paragraph 4B. 4A. REQUIRED PREPAYMENTS. Until the Notes of each Series shall be paid in full, -8- the Company shall apply to the prepayment of the Notes of such Series, without premium, the principal amounts specified, if any, in each Note of such Series and such principal amounts of such Notes, together with interest thereon to the prepayment dates specified in such Notes, shall become due on such prepayment dates. The remaining principal amount of such Notes, together with interest accrued thereon, shall become due on the maturity date of such Notes. 4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes of each Series shall be subject to prepayment on or after 90 days from the date of issuance thereof, in whole at any time or from time to time in part (in multiples of $1,000,000), at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield- Maintenance Amount, if any, with respect to each such Note. If the Company and the holder of any Note shall prior to the prepayment date designate in writing a different amount, the amount so designated shall be payable on the prepayment date in lieu of the Yield-Maintenance Amount with respect to such Note. Any partial prepayment of any such Notes pursuant to this paragraph 4B shall be applied in satisfaction of required payments of principal of such Notes in inverse order of their scheduled due dates. 4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of each Note to be prepaid pursuant to paragraph 4B irrevocable written notice of such prepayment not less than 10 Business Days prior to the prepayment date, specifying such prepayment date, specifying the aggregate principal amount of the Notes of the same Series as such Note to be prepaid on such date, identifying each Note held by such holder, and the principal amount of each such Note, to be prepaid on such date and stating that such prepayment is to be made pursuant to paragraph 4B. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, herein provided, shall become due and payable on such prepayment date. 4D. APPLICATION OF PREPAYMENTS. In the case of each partial prepayment pursuant to paragraph 4A or 4B of all outstanding Notes of any Series, the principal amount to be prepaid shall be allocated to all Notes of such Series at the time outstanding (including, for the purpose of this paragraph 4D only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A or 4B) in proportion to the respective outstanding principal amounts thereof. 4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated installment or final maturities (other than by prepayment pursuant to paragraph 4A or 4B or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or -9- Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, except as provided in paragraph 4D. PARAGRAPH 5. AFFIRMATIVE COVENANTS. 5. AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid, the Company covenants that: 5A. FINANCIAL STATEMENTS. The Company will deliver to the holder of each Note in duplicate: (i) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, a consolidating and consolidated statement of operations and statement of cash flows of the Company and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidating and consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to -------- ------- clause (iv) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i) with respect to consolidated financial statements; (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, a consolidating and consolidated statement of income and statement of cash flows of the Company and its Subsidiaries for such year, and a consolidating and consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and reasonably satisfactory in scope to the Required Holder(s) and, as to the consolidated statements, certified to the Company by independent public accountants of recognized standing selected by the Company whose certificate shall be in scope and substance reasonably satisfactory to the Required Holder(s) and, as to the consolidating statements, certified by an authorized financial officer of the Company; provided, however, that delivery -------- ------- pursuant to clause (iv) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii) with respect to consolidated financial statements; (iii) as soon as practicable, and in any event within 105 days after the end of each fiscal year of MIGC, complete consolidated and consolidating (if applicable) financial statements of each of MIGC, MGTC and any other Subsidiary that owns -10- or operates pipelines subject to state or federal rate regulation and has annual revenues in excess of $5,000,000 together with all notes thereto, prepared in reasonable detail in accordance with regulations promulgated by the Federal Energy Regulatory Commission in the case of MIGC and regulations promulgated by the Wyoming Public Service Commission in the case of MGTC, together with an opinion regarding MIGC, based on audits using generally accepted auditing standards, of independent certified public accountants of recognized standing stating that such consolidated financial statements have been so prepared; such consolidated financial statements shall contain a balance sheet as of the end of such fiscal year and statements of operations and cash flows, and of changes in stockholders' equity for such fiscal year, each setting forth in comparative form the corresponding figures for the preceding fiscal year; (iv) promptly upon transmission thereof, copies of all such financial statements, proxy statements, press releases, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (v) prior to April 30 in each year, a projection of the consolidated cash flows of the Company, its Subsidiaries and the joint ventures in which the Company or its Subsidiaries has an investment for the current fiscal year, in the form of Schedule 5A hereto; (vi) as soon as delivered to such persons, all other reports, statements and notices delivered to (a) the agent, or the other lenders under the NCNB Agreement or (b) if the NCNB Agreement is no longer in effect, the lenders under the Company's major bank credit facility; and (vii) as soon as practicable after receipt thereof, a copy of each other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company at any time during which the Company is not required to file periodic reports with the Securities and Exchange Commission pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934, as amended; (viii) with reasonable promptness, such other information as the holder of any Note may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to the holder of each Note an Officer's Certificate demonstrating (with computations in reasonable detail) compliance by the Company and its Subsidiaries with the provisions of paragraphs 6A(1), 6A(2), 6A(3), 6A(4), 6B, 6C(1), 6C(2), 6C(3), 6C(4), 6C(5), 6C(6) -11- and 6C(7) and stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each holder of any Notes a certificate of such accountants stating that, in making the audit necessary to the certification of such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Company also covenants that forthwith upon the chief executive officer, chief financial officer, Vice President -- Finance, Executive Vice President -- General Counsel, Treasurer or President of the Company obtaining knowledge of an Event of Default or Default, it will deliver to each holder of any Notes an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. 5B. INSPECTION OF PROPERTY. The Company will permit any Person designated by the holder of any Note in writing, at such holder's expense, to visit and inspect any of the properties of the Company and its Subsidiaries while accompanied by personnel of the Company or a Subsidiary, to examine the corporate books and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times and as often as such holder may reasonably request; provided, that each Person so -------- designated by any holder to visit and inspect any properties shall, by virtue of such designation, be deemed to have agreed to comply with the Company's on-site safety procedures that are applicable to such properties. If at the time of any such inspection a Default or an Event of Default exists, the Company shall pay all reasonable out of pocket costs incurred by each holder in connection with such inspection. 5C. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it or any Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6C(1) (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. 5D. AGREEMENT ASSUMING LIABILITY ON NOTES. The Company covenants that, if at any time any Person should become liable (as co-obligor, endorser, guarantor or surety), on any other obligation of the Company or any obligation of any Subsidiary, (other than (i) obligations incurred in the ordinary course of business evidencing guaranties of gas purchases, transportation fees and construction contracts, (ii) surety bonds, appeal bonds and construction bonds (including bonds necessary for right-of-way condemnation and bonds issuable upon appeals of judgments or -12- in relation to injunctions or temporary restraining orders (incurred in the ordinary course of business, (iii) letter of credit reimbursement obligations with respect to letters of credit issued in the ordinary course of business but not for borrowed money, and (iv) endorsements of negotiable instruments for collection in the ordinary course of business), the Company will, at the same time, cause such Person to deliver to each holder of Notes an agreement as shall be approved by the Required Holders of the Notes of each Series pursuant to which such Person becomes similarly liable on the Notes. 5E. NOTICE OF MATERIAL EVENTS. The Company will promptly notify each holder of the Notes of (i) any material adverse change in the Company's business, property or assets, financial condition or results of operations or the Company's consolidated financial condition, (ii) the acceleration of the maturity of any indebtedness owed by the Company or any of its Subsidiaries or any default by the Company or any of its Subsidiaries under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such acceleration or default would have a material adverse effect upon the Company's consolidated business, property or assets, financial condition or results of operations, (iii) any material adverse claim (or any claim of $5,000,000 or more) asserted against the Company or any of its Subsidiaries or with respect to the Company's or any Subsidiary's properties, (iv) the occurrence of any Termination Event or of any event or condition known to the Company which might adversely affect the enforceability of this Agreement or any Note and (v) the filing of any suit or proceeding against the Company or any of its Subsidiaries in which an adverse decision could have a material adverse effect upon the Company's or any Subsidiary's business, property or assets, financial condition, or results of operations. Upon the occurrence of any of the foregoing the Company will, and will cause each such Subsidiary to, take all necessary or appropriate steps to remedy promptly any such material adverse change, Default, Event of Default or default, to protect against any such adverse claim, to defend any such suit or proceeding, to remedy any such Termination Event or event affecting enforceability, and to resolve all controversies on account of any of the foregoing. 5F. MAINTENANCE OF PROPERTIES. The Company will, and will cause each of its Subsidiaries to, maintain, preserve, protect and keep all material property used or useful in the conduct of its business in good condition and in compliance with all applicable laws, rules and regulations and will from time to time make all repairs, renewals and replacements needed to enable the business and operations carried on in connection therewith to be promptly and advantageously conducted at all times. 5G. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. The Company will, and will cause each of its Subsidiaries to, maintain and preserve its corporate existence and its rights and franchises in full force and effect and will qualify to do business as a foreign corporation in all states or jurisdictions where required by applicable law, except where the failure so to qualify will not have any material adverse effect on the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. 5H. INSURANCE. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, maintain insurance -13- with responsible and reputable insurance companies or associations in such amounts covering such risks as is usually carried by companies of similar size as the Company engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Subsidiary or Affiliates operates. 5I. COMPLIANCE WITH AGREEMENTS AND LAW. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, perform all material obligations it is required to perform under the terms of each indenture, mortgage, deed of trust, security agreement, lease, franchise, agreement, contract or other instrument or obligation to which it is a party or by which it or any of its properties is bound. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, conduct its business and affairs in compliance with all laws, regulations, and orders applicable thereto, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles except where noncompliance would not materially adversely affect the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. 5J. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that are controlled by the Company or its Subsidiaries to, comply in a timely fashion with, or operate pursuant to valid waivers of the provisions of, all applicable federal, state and local environmental or pollution-control laws, regulations, orders and decrees governing, without limitation, the emission of wastewater effluent, solid and hazardous waste and air pollution, and setting forth general environmental conditions together with any other applicable requirements for conducting, on a timely basis, periodic tests and monitoring for contamination of ground water, surface water, air and land and for biological toxicity of the aforesaid, and diligently comply with the applicable regulations (except to the extent such regulations are waived by appropriate governmental authorities) of the Environmental Protection Agency or other relevant federal, state or local governmental authority except where noncompliance would not materially adversely affect the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. The Company shall not be deemed to have breached or violated the preceding sentence of this paragraph 5J if the Company, any Subsidiary or any Affiliate of the Company is challenging in good faith by appropriate proceedings diligently pursued the application or enforcement of any such governmental requirements for which adequate reserves have been established in accordance with generally accepted accounting principles. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES TO INDEMNIFY AND HOLD EACH HOLDER OF NOTES AND THEIR RESPECTIVE OFFICERS, AGENTS AND EMPLOYEES HARMLESS FROM ANY LOSS, LIABILITY, CLAIM OR EXPENSES THAT SUCH HOLDER MAY INCUR OR SUFFER AS A RESULT OF A BREACH BY THE COMPANY, ITS SUBSIDIARIES OR AFFILIATES, AS THE CASE MAY BE, OF THIS COVENANT. -14- 5K. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to and in compliance with the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5K, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act. 5L. ERISA. The Company will promptly pay and discharge, and will cause its Subsidiaries promptly to pay and discharge, all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a lien against any of its property and will promptly notify the holder of each Note of (i) the occurrence of any reportable event (as defined in ERISA) which might result in the termination by the PBGC of any Plan covering any officers or employees of the Company of any Subsidiary, any benefits of which are, or are required to be, guaranteed by the PBGC, (ii) receipt of any notice from the PBGC of its intention to seek termination of any such Plan or appointment of a trustee therefor, and (iii) its intention to terminate or withdraw from any Plan. The Company will not, and will not permit any Subsidiary to, terminate any such Plan or withdraw therefrom unless it shall be in compliance with all of the terms and conditions of this Agreement after giving effect to any liability to the PBGC resulting from such termination or withdrawal. 5M. GUARANTIES. The Company shall require each Subsidiary that guarantees any obligations of the Company under the NCNB Agreement the 1993 Note Purchase Agreement or the 1995 Note Purchase Agreement to immediately execute and deliver to any holder of Notes a Guaranty. The Company will cause each such Subsidiary to deliver to each holder of the Notes, simultaneously with its delivery of such a Guaranty, written evidence satisfactory to the Required Holder(s) and their counsel that such Subsidiary has taken all corporate or partnership action necessary to duly approve and authorize its execution, delivery and performance of such Guaranty and other documents which it is required to execute. PARAGRAPH 6. NEGATIVE COVENANTS. 6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, the Company covenants that: 6A. FINANCIAL COVENANTS. The Company will not permit: 6A(1). CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth at any time on or after June 30, 1995 to be less than the sum of (i) $345,000,000 plus (ii) an amount equal to 50% of Consolidated Net Earnings earned from June 30, 1995 (to the extent such amount is a positive number) plus ---- (iii) an amount equal to 75% of the net proceeds of any equity offerings after June 30, 1995. -15- 6A(2). CURRENT RATIO. The ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.0 to 1.0 at any time. For the purposes of determining compliance with this paragraph 6A(2), (x) "Consolidated Current Liabilities" will be calculated without including any ------- payments of principal of any Funded Debt of the Company which are required to be repaid within one year from the time of calculation and (y) "Consolidated Current Assets" shall include the amount of funds that are available to be borrowed under the NCNB Agreement, where "available" means, as of the date of the determination, the bank parties to the NCNB Agreement are committed to advance such funds, no default exists under the NCNB Agreement and all conditions to such banks advancing such funds would be satisfied. Prudential acknowledges that the Company currently calculates the current ratio only as of the end of each calendar month. 6A(3). DEBT MAINTENANCE. Adjusted Consolidated Debt at any time to exceed (i) from August 31, 1994 through October 31, 1996, 60% of Consolidated Net Tangible Assets and (ii) at any time after October 31, 1996, 55% of Consolidated Net Tangible Assets. In any event, for purposes of determining compliance with this paragraph 6A(3), Adjusted Consolidated Debt shall include without limitation all indebtedness included in determining compliance with the similar covenant in the NCNB Agreement. 6A(4). FIXED CHARGE COVERAGE RATIO. For each fiscal quarter of the Company, the ratio of (i) the sum of (a) the Consolidated Net Earnings of the Company for the four immediately preceding fiscal quarters of the Company plus ---- (b) the Company's consolidated interest expense and provision for income taxes, depreciation and amortization for the four immediately preceding fiscal quarters of the Company that were taken into account in determining such consolidated earnings plus (c) for each calculation that includes the Company's fiscal ---- quarter ending June 30, 1995, that certain $2,000,000 restructuring charge taken by the Company in its fiscal quarter ending June 30, 1995 as a result of the Company's general and administrative reductions to (ii) the Company's -- consolidated accrued interest expense for the four immediately preceding fiscal quarters to be less than (x) 3.00 to 1.00 for the period commencing August 31, 1994 and ending October 31, 1996, (y) 3.25 to 1.00 for the period commencing November 1, 1996 and ending October 31, 1997 and (z) 3.75 to 1.00 at any time after October 31, 1997. 6B. DIVIDEND LIMITATION. The Company will not make any Restricted Payment except out of Consolidated Net Earnings Available for Restricted Payments and unless no Default or Event of Default exists before such Restricted Payment is made and no Default or Event of Default would exist immediately after such Restricted Payment is made. 6C. LIEN, DEBT, AND OTHER RESTRICTIONS. The Company will not and will not permit any Subsidiary to: 6C(1). LIENS. Create, assume or suffer to exist any Lien upon any of its properties or assets, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of Paragraph 5C), except ------ (i) Liens for taxes not yet due or which are being actively contested in good -16- faith by appropriate proceedings, (ii) other statutory Liens incidental to the conduct of its business or the ownership of its property and assets (including landlord liens) that are not incurred in connection with the borrowing of money or the obtaining of advances or credit or guaranteeing the obligations of a Person, and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business, (iii) Liens on property or assets of a Subsidiary to secure obligations of such Subsidiary to the Company or a Wholly Owned Subsidiary, (iv) existing Liens on property of the Company described in Schedule 6C(2) attached hereto and securing Debt permitted by clause (iii) of Paragraph 6C(2), (v) in the case of transactions that occur after the date hereof, Liens existing on any real property of any corporation at the time it becomes a Subsidiary, or existing prior to the time of acquisition upon any property acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the Company or such Subsidiary, or placed on property at the time of acquisition by the Company or any Subsidiary to secure all or a portion of (or to secure Debt incurred to pay all or a portion of) the purchase price thereof, provided that (a) all of -------- such property is not or shall not thereby become encumbered in any amount in excess of the lesser of the cost thereof or Fair Market Value thereof and (b) any such Lien shall not encumber any other property of the Company or such Subsidiary, (vi) Liens on deposit and other bank accounts of the Company created by the right of a lender party to the NCNB Agreement to offset obligations of the Company owing under such agreements, respectively, against such accounts if, and only if, there is no agreement between any such lender and the Company which requires the Company to maintain any deposit or other funds in any account with such lender other than as provided in (vii) below, (vii) Liens on deposits of the Company under the NCNB Agreement to secure the face amount of outstanding letters of credit issued pursuant to the NCNB Agreement, (viii) Liens on the Pledged Accounts Receivable securing sales or transfers of accounts receivable pursuant to the Permitted Securitization Program, and (ix) other Liens on the property of the Company, provided that the aggregate amount of Debt secured by Liens permitted by clauses - -------- (iv), (v), (viii) -16- (to the extent of the Over-Collateralization Amount) and (ix), together with the amount of undrawn letters of credit subject to the obligation to provide deposits referred to in clause (vii), whether or not such deposits have been provided, does not exceed at any time an amount in excess of 5% of Consolidated Tangible Net Worth. 6C(2). DEBT. Create, incur, assume or suffer to exist any Debt, except - ------ (i) Debt of the Company represented by the Notes, (ii) Debt of the Company and any Subsidiary secured by Liens permitted by the provisions of clause (v) of paragraph 6C(1) provided -------- that the aggregate amount of such Debt together with all other Debt secured by Liens permitted by paragraphs 6C(1)(iv), 6C(1)(ix) and the amount of undrawn letters of credit permitted by 6C(1)(viii) does not exceed at any time an amount equal to 5% of Consolidated Tangible Net Worth, (iii) Debt of the Company described in Schedule 6C(2) attached hereto which shall not be renewed, extended or permitted to remain outstanding after the stated maturities thereof, (iv) Debt of any Subsidiary to the Company or any other Wholly Owned Subsidiary, provided that such Debt shall not be -------- subordinated to any other obligation of such Subsidiary, (v) other Debt of the Company not prohibited by 6A(3), and (vi) Debt of the Guarantors represented by the Bank Guaranties and the Guaranties. 6C(3). LIMITATION ON INVESTMENTS AND NEW BUSINESSES. (i) Make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by clause (iii) or clause (iv) of this paragraph 6C(3)); (ii) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to its present businesses and operations (which shall be deemed to include electric power generation and marketing and expenditures, commitments, obligations and transactions permitted by clause (iii) or clause (iv) of this paragraph 6C(3)); (iii) make any acquisitions of, capital contributions to, or other investments in, any Persons which exceed in the aggregate $500,000 other than (a) capital contributions to and investments in any joint venture described in Schedule 6C(3) or in the Wholly Owned Subsidiaries, (b) acquisitions of equity in corporations or partnerships having as their primary business gas processing, transmission and gathering, oil and gas production and storage or gas marketing and related activities or electric power generation or marketing which do not exceed in the aggregate 10% of Consolidated Net Tangible Assets and (c) deposits with, investments in obligations of and time deposits in any domestic bank or domestic -18- branches of foreign banks which, at the time such deposit or investment is made, are rated A or better by Standard & Poor's Rating Group or Moody's Investor Service, Inc. or B or better by Thompson Bank Watch and investments maturing within one year from the date of acquisition in direct obligations of or obligations supported by, the full faith and credit of, the United States of America or (iv) make any significant acquisitions or investments in any properties other than gas processing, transmission and gathering facilities, domestic oil and gas properties, gas storage facilities, gas inventory and electric power generation facilities which exceeds $5,000,000; provided, -------- however, that the loans referred to in clause (iv) of paragraph 6C(7) may be - ------- outstanding. 6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose of, or part with control of, any shares of stock or Debt of any Subsidiary, except to the Company or another Wholly Owned Subsidiary, and except that all shares of stock and Debt of any Subsidiary at the time owned by or owed to the Company and all Subsidiaries may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Board of Directors of the Company) at the time of sale of the shares of stock and Debt so sold, provided that (i) the assets of such Subsidiary together -------- with (ii) the assets of all other Subsidiaries the stock or Debt of which was sold or otherwise disposed of in the preceding 12-month period and (iii) the assets of the Company and its Subsidiaries sold, leased, transferred or otherwise disposed of pursuant to clause (v) of paragraph 6C(5) in the preceding 12-month period (in each transaction measured by the greater of book value or Fair Market Value), do not represent more than 15% of Consolidated Net Tangible Assets as reflected on the most recent annual or quarterly consolidated balance sheet, and provided further that, at the time of such sale, such Subsidiary -------- ------- shall not own, directly or indirectly, any shares of stock or Debt of, or any other continuing investment in any other Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary owned, directly or indirectly, by the Company and all Subsidiaries are simultaneously being sold as permitted by this paragraph 6C(4)), or any shares of stock or Debt of the Company. 6C(5). MERGER AND SALE OF ASSETS. Merge or consolidate with or into any other Person or sell, convey, lease, transfer or otherwise dispose of all or any part of its assets, except that: ------ (i) (a) any Subsidiary may merge with the Company (provided, -------- that the Company shall be the continuing or surviving corporation) and (b) any Subsidiary may merge with a Wholly Owned Subsidiary (provided -------- that the Wholly Owned Subsidiary shall be the continuing or surviving corporation), (ii) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Company or to Wholly Owned Subsidiary, (iii) the Company may merge with any other corporation, provided -------- that (a) the Company shall be the continuing or surviving corporation, and (b) immediately after giving effect to such merger no Event of Default or Default shall exist, (iv) any non Wholly Owned Subsidiary may merge or consolidate with any other corporation, provided, that immediately after giving -------- effect to such merger or -19- consolidation (a) the continuing or surviving corporation of such merger or consolidation shall constitute a Subsidiary, and (b) no Event of Default or Default shall exist, (v) the Company or any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to any Person, provided, that -------- (a) such assets together with (b) all other assets of the Company and its Subsidiaries sold, leased, transferred or otherwise disposed of during the preceding 12-month period, and (c) the assets of all Subsidiaries the stock or Debt of which has been sold or otherwise disposed of during the preceding 12-month period pursuant to the first proviso of paragraph 6C(4) (in each transaction measured by the greater of book value or Fair Market Value), do not represent more that 15% of Consolidated Net Tangible Assets as reflected on the most recent annual or quarterly consolidated balance sheet, (vi) the Company may merge into or consolidate with any solvent corporation if (x) the surviving corporation is a corporation organized under the laws of any State of the United States of America, (y) such corporation shall expressly assume by an agreement satisfactory in substance and form to the Required Holders of all Series of Notes (which agreement may require the delivery in connection with such assumption of such opinions of counsel as the Required Holders may reasonably require), all of the obligations of the Company under this Agreement and the Notes, including all covenants herein and therein contained, and such successor or acquiring corporation shall succeed to and be substituted for the Company with the same effect as if it had been named herein as a party hereto (it being agreed that such assumption shall, upon the request of the holder of any outstanding Note and at the expense of such successor corporation, be evidenced by the exchange of such Note for another Note executed by such successor corporation, with such changes in phraseology and form as may be appropriate but in substance of like terms as the Note surrendered for such exchange and of like unpaid principal amount, and that each Note executed pursuant to paragraph 11D after such assumption shall be executed by and in the name of such successor corporation) and (z) after giving effect to such merger or consolidation no Event of Default or Default shall exist, (vii) the Company and any Subsidiary may sell or otherwise dispose of property (including inventory) in the ordinary course of business, and (viii) the Company may sell Pledged Accounts Receivables pursuant to the Permitted Securitization Program in an aggregate amount not to exceed $75,000,000. 6C(6). LEASE RENTALS. Except for oil, gas and mineral leases or permits or similar agreements entered into in the ordinary course of business, and except for leases for transportation equipment, including over-the-road trucks and tankers, data processing and other office equipment used in the ordinary course of business, enter into or permit to remain in effect, any agreements to rent or lease (as lessee) any real or personal property for terms (including options to renew or extend -20- any term, whether or not exercised) of more than three years if after giving effect thereto the aggregate amount of all sums payable in any fiscal year by the Company and all Subsidiaries under all such leases would exceed $4,000,000. 6C(7). LIMITATION ON CREDIT EXTENSIONS. Extend credit, make advances or make loans other than (i) normal and prudent extensions of credit in the ordinary course of business, which extensions shall not be for longer periods than those extended by similar businesses operated in a normal and prudent manner, (ii) loans from Wholly Owned Subsidiaries to the Company, and loans from Wholly Owned Subsidiaries or the Company to any Subsidiary, in each case made in the ordinary course of business and, in the case of loans from Wholly Owned Subsidiaries that have not executed a Guaranty which are made to the Company or a Subsidiary that has executed a Guaranty, subordinated to the principal of, interest on and Yield-Maintenance Amount, if any, with respect to the Notes, and (iii) loans made by the Company to its employees pursuant to the Stock Option Agreements; provided that the aggregate amount of all such loans permitted by -------- this clause (iii) outstanding at any time shall not exceed $10,000,000. 6C(8). CONTRACTS; TAKE-OR-PAY AGREEMENTS. Enter into any "take-or- pay" contract or other contract which requires it to pay for oil, gas, other hydrocarbons or other minerals prior to taking delivery thereof, provided that -------- the Company may enter into such contracts so long as the aggregate maximum direct and contingent liability of the Company under such contracts does not exceed $500,000 at any one time, and provided further that the Company may enter -------- ------- into contracts with gas producers requiring the Company to make payments if the Company has not connected the producer's well to the Company's gathering system within a specified period of time so long as the maximum direct or contingent liability of the Company under such contract does not exceed $500,000. The Company and its Subsidiaries may enter into: (a) Short Hedge Futures to sell natural gas or liquid hydrocarbons or to offset a Long Hedge Future; and (b) Long Hedge Futures to purchase natural gas or liquid hydrocarbons or to offset a Short Hedge Future; provided, however, that at the time of entering into a Short -------- ------- Hedge Future, the Company shall own and have available to it sufficient amounts of natural gas or liquid hydrocarbons, as the case may be, or shall own pursuant to firm contracts to deliver natural gas or liquid hydrocarbons, as the case may be, pursuant to such Short Hedge Future; provided, further, that at the time of -------- ------- entering into a Long Hedge Future, the Company shall have sufficient agreements from Counterparties to purchase natural gas or liquid hydrocarbons, as the case may be, from the Company so that the Company can resell natural gas or liquid hydrocarbons, as the case may be, delivered pursuant to such Long Hedge Future. 6C(9). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or discount (other than to the extent of finance and interest charges included therein) or otherwise sell for less than face value thereof, any of its notes or accounts receivable except (i) notes or accounts receivable the collection of ------ which is doubtful in accordance with generally accepted accounting principles and (ii) pursuant to the Permitted Securitization Program; provided, however, -------- ------- that the Company and its Subsidiaries may not have more than one Permitted --- Securitization Program outstanding at any time. 6C(10). GUARANTIES. Enter into or be party to: -21- (i) any contract for the purchase of materials, supplies or other property or services if such contract (or any related document) requires that payment for such materials, supplies or other property or services shall be made regardless of whether or not delivery of such materials, supplies or other property or services is ever made or tendered, or (ii) any contract to rent or lease (as lessee) any real or personal property if such contract (or any related document) provides that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use or requires that the lessee purchase or otherwise acquire securities or obligations of the lessor, or (iii) any contract for the sale or use of materials, supplies or other property, or the rendering of services, if such contract (or any related document) requires that payment for such materials, supplies or other property, or the use thereof, or payment for such services, shall be subordinated to any indebtedness (of the purchaser or user of such materials, supplies or other property or the Person entitled to the benefit of such services) owed or to be owed to any Person, or (iv) any other contract that is a guaranty, an endorsement or another form of contingent liability in respect of the obligations, stock or dividends of any Person or that, in economic effect, is substantially equivalent to a guaranty (other than the guaranties permitted by clause (vi) of paragraph 6C(2)); provided, that the -------- foregoing provisions shall not apply to endorsements of negotiable instruments for collection in the ordinary course of business; provided, that, notwithstanding the foregoing, any contract of the type - -------- specified in any of the provisions of this paragraph 6C(10) shall be permitted if the obligations of the Company thereunder constitute Debt of the type described in clause (iv) of the definition thereof and such Debt were permitted by the Debt limitations contained in paragraph 6A(3). 6C(11). TRANSACTIONS WITH AFFILIATES. Directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or otherwise deal with, in the ordinary course of business or otherwise (i) any Affiliate, (ii) any Person owning, beneficially or of record, directly or indirectly, either individually or together with all other Persons to whom such Person is related by blood, adoption or marriage, stock of the Company (of any class having ordinary voting power for the election of directors) aggregating 5% or more of such voting power or (iii) any Person related by blood, adoption or marriage to any Person described or coming within the provisions of clause (i) or (ii) of this paragraph 6C(11), provided that the Company may sell to, or purchase (within the limitations of paragraph 6B) from, any such Person shares of the Company's stock and except for transactions that are otherwise permitted by this Agreement and that are in the ordinary course of the Company's or a Subsidiary's business, and are also upon fair and reasonable terms no less favorable to the Company or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. -22- 6C(12). PANHANDLE JOINT VENTURE DEBT. Permit the Panhandle Joint Venture to create, incur, assume or suffer to exist any Debt. 6D. ISSUANCE OF STOCK BY SUBSIDIARIES. The Company covenants that it will not permit any Subsidiary to issue, sell or dispose of any shares of its stock of any class except to the Company or a Wholly Owned Subsidiary, and except to the extent that holders of minority interests may be entitled to purchase stock by reason of preemptive rights. 6E. OTHER AGREEMENTS. Without the prior written consent of the Required Holder(s) of each Series of Notes, the Company will not amend, modify or waive (i) any provision of the Term Loan Agreement which would shorten the maturity or average life of any loan thereunder, (ii) any provision of the Revolving Loan Agreement which would shorten any commitment thereunder, or (iii) any provision of the 1993 Note Purchase Agreement or the 1995 Note Purchase Agreement which would shorten the maturity or average life of any note issued thereunder. PARAGRAPH 7. EVENTS OF DEFAULT. 7A. ACCELERATION. If any of the following events shall occur for any reason whatsoever and be continuing (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or Yield Maintenance Amount payable with respect to any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than 10 Business Days after the date due; or (iii) the Company or any Subsidiary defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be repurchased by the Company or any Subsidiary) prior to any stated maturity, provided that the -------- aggregate amount of all obligations as to which such a payment default shall occur -23- and be continuing or such a failure or other event causing or permitting acceleration (or resale to the Company or any Subsidiary) shall occur and be continuing exceeds $10,000,000; or (iv) any representation or warranty made by the Company herein, by any Guarantor in a Guaranty or by the Company, any Guarantor or any of their respective officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or (v) the Company fails to perform or observe any term, covenant or agreement contained in paragraph 6; or (vi) the Company fails to perform or observe any other agreement, covenant, term or condition contained herein and such failure shall not be remedied within 30 days after the Chief Executive Officer, President, Chief Financial Officer, Vice President -- Finance, Treasurer or the Executive Vice President -- General Counsel of the Company obtains actual knowledge thereof; or (vii) the Company or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "BANKRUPTCY LAW"), of any jurisdiction; or (ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Subsidiary, or of any substantial part of the assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days; or -24- (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing a split-up of the Company or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary whose assets represent a substantial part, of the consolidated assets of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of the Consolidated Net Earnings of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xiii) any judgment or order, or series of judgments or orders, for the payment of money in an amount in excess of $5,000,000 is rendered against the Company or any Subsidiary and either (i) enforcement proceedings have been commenced by any creditor upon such judgment or order or (ii) within 30 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 30 days after the expiration of any such stay, such judgment is not discharged; or (xiv) (a) the Company or any other Person who is a member of the Company's "control group" (as such term is defined under ERISA) fails to make all or any portion of a required installment payment under 29 U.S.C. (S)1082(e) with respect to any Plan, (b) the aggregate unpaid balance of such installment together with the unpaid balance of all prior installments and other payments due under 29 U.S.C. (S)1082 (including any accrued interest on such amounts) exceeds $1,000,000, and (c) such amounts remain unpaid for more than 30 days after the due date of the installment referred to in clause (a); or (xv) the Company or any of its Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $1,000,000; or (xvi) the Company or any Affiliate breaches or defaults in the performance of any agreement or instrument creating or evidencing any Permitted Securitization Program or breaches or defaults in the performance of any prefunding facility associated therewith, and any such breach or default continues beyond any applicable period of grace provided therefor, or any early or accelerated amortization of any -25- obligations or rights commences to occur under any such facility without a replacement facility (on terms consistent with those set forth in paragraph 6C(9) being effective to provide for replacement funding therefore; then (a) if such event is an Event of Default specified in clause (viii), (ix) - or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate and notice of acceleration of maturity), all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in - clause (i) or (ii) of this paragraph 7A, any Significant Holder that holds a Note other than the Company or any of its Subsidiaries or Affiliates) as to which such an Event of Default shall have occurred may at its option during the continuance of such Event of Default, by notice in writing to the Company, declare such Note to be, and such Note shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate), all of which are hereby waived by the Company, (c) if such event is any other Event of Default, the Required - Holder(s) of the Notes of any Series may at its or their option during the continuance of such Event of Default, by notice in writing to the Company, declare all of the Notes of such Series to be, and all of the Notes of such Series shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note of such Series, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate), all of which are hereby waived by the Company, and (d) if any Note - shall have been declared to be due and payable pursuant to clause (b) or (c) above, any holder of any other Note may at any time thereafter, regardless of whether any Event of Default shall at such time be continuing, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of the Notes held by such holder shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate), all of which are hereby waived by the Company. The Company acknowledges and the parties hereto agree, that the holder of each Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and the provisions for payment of the Yield-Maintenance Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, are intended to provide compensation for the deprivation of such right under such circumstances. 7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes of any Series are declared immediately due and payable and have not been paid in full, the Required Holder(s) of such Series of Notes may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company has paid all overdue interest on the Notes, the principal of and Yield Maintenance Amount, if any, payable with respect to any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes, (ii) all Events -26- of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration have been cured or waived pursuant to paragraph 11C, and (iii) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom. 7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note at the time outstanding. 7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. PARAGRAPH 8. REPRESENTATIONS, COVENANTS AND WARRANTIES. 8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants as follows: 8A. ORGANIZATION. The Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware, each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and the Company has and each Subsidiary has the corporate power to own its respective property and to carry on its respective business as now being conducted. The execution, delivery and performance by the Company of this Agreement and the Notes are within the Company's corporate powers and have been duly authorized by all necessary corporate action. 8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser of any Accepted Notes with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of - the Company and its Subsidiaries as at December 31 in each of the three fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to such Purchaser (other than fiscal years completed within 90 days prior to such date for which audited financial statements have not been released) and a consolidated statement of income and statement of cash flows of the Company and its Subsidiaries for each such year, all certified by the Company's then-current nationally recognized independent auditing firm; and (ii) consolidated balance sheets of the Company and its -- Subsidiaries -27- as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 45 days prior to such date for which financial statements have not been released) and the comparable quarterly period in the preceding fiscal year and consolidated statements of income and statements of cash flows for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed (except as set forth in the notes thereto if consistent with generally accepted accounting principles and generally accepted auditing standards) throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the statements of income and statements of cash flows fairly present the results of the operations of the Company and its Subsidiaries for the periods indicated. There has been no material adverse change in the business, condition or operations (financial or otherwise) of the Company and its Subsidiaries taken as a whole since the end of the most recent fiscal year for which such audited financial statements have been furnished. 8C. ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which might result in any material adverse change in the business, condition or operations of the Company and its Subsidiaries taken as a whole. There is no action, suit, investigation or proceeding pending or threatened against the Company or any of its Subsidiaries which purports to affect the validity or enforceability of this Agreement or any Note. 8D. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries has outstanding any Debt except as permitted by paragraph 6C(2). There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. 8E. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local and regional statutes, laws, ordinances and judicial and administrative orders, judgments, rulings and regulations relating to protection of the environment except, in any such case, where failure to comply would not result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 8F. TAXES. The Company has and each of its Subsidiaries has filed all Federal, State and other income tax returns which, to the best knowledge of the officers of the Company and its Subsidiaries, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings and for which adequate reserves -28- have been established in accordance with generally accepted accounting principles. 8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, or financial condition. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Exhibit E attached hereto. 8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of Section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8I. REGULATION G, ETC. The proceeds of the sale of the Notes will be used to refinance existing indebtedness or for general corporate purposes. None of the proceeds of the sale of any Notes will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock") or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is then currently a margin stock or for any other purpose which might constitute the purchase of such Notes a "purpose credit" within the meaning of such Regulation G, unless the Company shall have delivered to the Purchaser which is purchasing such Notes, on the Closing Day for such Notes, an opinion of counsel satisfactory to such Purchaser stating that the purchase of such Notes does not constitute a violation of such Regulation G. After applying the proceeds of the sale of the Notes, not more than 25% of the value of the assets subject to the terms of paragraph 5C, 6C(1), 6C(4) or 6C(5) will be "margin stock." Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. -29- 8J. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company or any of its Subsidiaries which is or would be materially adverse to the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the Company and its Subsidiaries taken as a whole. No Plan providing welfare benefits to retired former employees of the Company or any of its Subsidiaries has been established or is maintained for which the present value of future benefits payable, in excess of irrevocably designated funds for such purpose, is materially adverse to the financial condition of the Company and its Subsidiaries taken as a whole. Either PTE 84-14 or PTE 90-1 applies to the purchase of the Notes to be purchased by the Purchasers, and the execution and delivery of this Agreement and the issuance and sale of the Notes will not involve any transaction which is subject to the prohibitions of section 406 of ERISA or in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of your representation in paragraph 9B. 8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental or regulatory body (other than routine filings after the Closing Day for any Notes with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 8L. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has good and defensible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6C(1) except that (i) with respect to easements and rights of way associated with the Company's gas gathering systems: (a) the Company has such title as is customary and appropriate in accordance with applicable industry standards and (b) the costs of curing defects in such title, if any, would not exceed $10,000,000 in the aggregate and (ii) no representation or warranty is made with respect to any gas or mineral property or interest to which no proved oil or gas reserves are properly attributed. All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid and subsisting and are in full force and effect. 8M. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any Notes will -30- be used to finance a Hostile Tender Offer. 8N. DISCLOSURE. Neither this Agreement nor the Offering Materials nor any other document, certificate or statement furnished to any Purchaser by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, property or assets, or financial condition of the Company and its Subsidiaries taken as a whole and which has not been set forth in this Agreement or with respect to any Purchaser, in the Offering Materials furnished to such Purchaser by or on behalf of the Company prior to the Request for Purchase of the Accepted Notes to be purchased by such Purchaser. The financial projections contained in the Offering Materials are reasonable based on the assumptions stated therein and the best information available to the officers of the Company. 8O. DELIVERY OF NCNB AGREEMENT. The Company has delivered to each Purchaser prior to the date hereof a true, correct and complete copy of the NCNB Agreement, including all amendments and waivers of any provision thereof. 8P. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT. Neither the Company nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or a "public utility company" as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or, except for ------ Western Power Services, Inc., a "public utility" as such term is defined in the Federal Power Act, as amended. PARAGRAPH 9. REPRESENTATIONS OF THE PURCHASERS. 9. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents as follows: 9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to be purchased by it hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of such Purchaser's property shall at all times be and remain within its control. 9B. SOURCE OF FUNDS. Each Purchaser represents that at least one of the following statements concerning each source of funds to be used by it to purchase any Notes (respectively, the "SOURCE") is accurate as of the Closing Day with respect to such Notes: (i) The Source is not an "employee benefit plan" as defined in Title I, Section 3(3) of ERISA; (ii) The Source is a "governmental plan" as defined in Title I, Section 3(32) of ERISA; -31- (iii) The Source is an insurance company, but is not a "separate account" as defined in Title I, Section 3(17) of ERISA; (iv) The Source is either (a) an insurance company pooled - separate account, and the purchase is exempt in accordance with Prohibited Transaction Exemption (PTE) 90-1 (issued January 29, 1990), or (b) an - insurance company "guaranteed contract separate account" entitled to the exemption granted by PTE 81-82 (issued September 18, 1981) and described in Department of Labor Advisory Opinion F-2584A (issued September 21, 1983); (v) The Source is an "investment fund" managed by a "qualified professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), and the purchase is exempt under PTE 84-14; provided that no other party to the transactions described in this Agreement and no "affiliate" of such other party (as defined in Section V(c) of PTE 84-14) has at this time, and during the immediately preceding one year, exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified to the Company in writing pursuant to this clause (v) or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans; or (vi) The Source is a plan or a separate account comprised of plans identified in writing by such Purchaser to the Company pursuant to this clause (vi). PARAGRAPH 10. DEFINITIONS. 10. DEFINITIONS. For the purpose of this Agreement, the terms defined in the introductory sentence and in paragraphs 1 and 2 shall have the respective meanings specified therein, and the following terms shall have the meanings specified with respect thereto below (such meanings to be equally applicable to both the singular and plural forms of the terms defined): 10A. YIELD-MAINTENANCE TERMS. "CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a quarterly basis) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by (a) the yields reported, as of - 10:00 A.M. (New York City local time) -32- on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (b) the Treasury Constant Maturity - Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, (i) if necessary, by (x) converting U.S. Treasury bill - quotations to bond-equivalent yields in accordance with accepted financial practice and (y) interpolating linearly between yields reported for various - maturities and, (ii) if interest on such Notes is paid quarterly, by converting all such implied yields to a quarterly payment basis in accordance with accepted financial practice. "REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one- twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum - -- of the products obtained by multiplying (a) each Remaining Scheduled Payment of - such Called Principal (but not of interest thereon) by (b) the number of years - (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4A or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) - -- interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 10B. OTHER TERMS. "ACCEPTANCE" shall have the meaning specified in paragraph 2F. "ACCEPTANCE DAY" shall have the meaning specified in paragraph 2F. -33- "ACCEPTANCE WINDOW" shall have the meaning specified in paragraph 2F. "ACCEPTED NOTE" shall have the meaning specified in paragraph 2F. "ADJUSTED CONSOLIDATED DEBT" shall mean Consolidated Debt (excluding Debt in the amount of the Receivables Investment relating to the Permitted Securitization Program) plus Excess Working Capital Deficit. "AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its - Chief Executive Officer, its Chief Financial Officer, its President or the Executive Vice President-General Counsel of the Company or its Vice President- Finance or Treasurer and (ii) in the case of Prudential, any officer of -- Prudential designated as its "Authorized Officer" in the Purchaser Schedule or any officer of Prudential designated as its "Authorized Officer" for the purpose of this Agreement in a certificate executed by one of its Authorized Officers. Any action taken under this Agreement on behalf of the Company by any individual who on or after the date of this Agreement shall have been an Authorized Officer of the Company and whom Prudential in good faith believes to be an Authorized Officer of the Company at the time of such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company, and any action taken under this Agreement on behalf of Prudential by any individual who on or after the date of this Agreement shall have been an Authorized Officer of Prudential, and whom the Company in good faith believes to be an Authorized Officer of Prudential at the time of such action shall be binding on Prudential even though such individual shall have ceased to be an Authorized Officer of Prudential. "AVAILABLE FACILITY AMOUNT" shall have the meaning specified in paragraph 2A. "BANK GUARANTY" shall mean each guaranty of a Guarantor in favor of the banks parties to the NCNB Agreement for which a similar guaranty shall have been issued to each holder of Notes. "BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 7A. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CANCELLATION DATE" shall have the meaning specified in paragraph 2I(3). -34- "CANCELLATION FEE" shall have the meaning specified in paragraph 2I(3). "CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which, under generally accepted accounting principles, is or will be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expenses) in accordance with such principles. "CLOSING DAY" for any Accepted Note shall mean the Business Day specified for the closing of the purchase and sale of such Note in the Request for Purchase of such Note, provided that (i) if the Acceptance Day for such - Accepted Note is less than five Business Days after the Company shall have made such Request for Purchase and the Company and the Purchaser which is obligated to purchase such Note agree on an earlier Business Day for such closing, the "CLOSING DAY" for such Accepted Note shall be such earlier Business Day, and (ii) if the closing of the purchase and sale of such Accepted Note is -- rescheduled pursuant to paragraph 2H, the Closing Day for such Accepted Note, for all purposes of this Agreement except paragraph 2I(3), shall mean the Rescheduled Closing Day with respect to such Closing. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" shall mean any material non-public information regarding the Company and its Subsidiaries that is provided to any holder of any Note, any Person who purchases a participation in a Note and any offeree of a Note or participation therein pursuant to this Agreement other than information (i) which was publicly known or otherwise known to such holder, such Person or such offeree at the time of disclosure, (ii) which subsequently becomes publicly known through no act or omission of such holder, such Person or such offeree or (iii) which otherwise becomes known to such holder, such Person or such offeree, other than through disclosure by the Company or any Subsidiary. "CONFIRMATION OF ACCEPTANCE" shall have the meaning specified in paragraph 2F. "CONSOLIDATED CURRENT ASSETS" shall mean the consolidated current assets of the Company and its Subsidiaries, as determined in accordance with generally accepted accounting principles. "CONSOLIDATED CURRENT LIABILITIES" shall mean the consolidated current liabilities (including, without limitation, the Debt in respect of the Permitted Securitization Program) of the Company and its Subsidiaries, as determined in accordance with generally accepted accounting principles. "CONSOLIDATED DEBT" shall mean the consolidated Debt of the Company and its Subsidiaries, determined in accordance with generally accepted accounting principles. "CONSOLIDATED NET EARNINGS" shall mean consolidated gross revenues of the Company and its Subsidiaries including any gains (net of expenses and taxes applicable thereto) -35- resulting from the sale, conversion or other disposition of capital assets (i.e., assets other than current assets), less all operating and non-operating ---- ---- expenses of the Company and its Subsidiaries including all losses resulting from the sale, conversion or other disposition of capital assets (i.e., assets other ---- than current assets) and all charges of a proper character (including current and deferred taxes on income, provision for taxes on unremitted foreign earnings that are included in gross revenues, and current additions to reserves), but not including in gross revenues any gains resulting from the write-up of assets, any equity of the Company or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary, any earnings of any Person acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise for any period prior to the time of acquisition, or any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary, all determined in accordance with generally accepted accounting principles. "CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" shall mean an amount equal to (1) the sum of $50,000,000 plus (2) 50% (or minus 100% ---- in case of a deficit) of Consolidated Net Earnings for the period commencing on July 1, 1995 and terminating at the end of the last fiscal quarter preceding the date of any proposed Restricted Payment (taken as one accounting period), provided, however, that with respect to the fiscal quarter ended December 31, - -------- ------- 1995, solely for the purpose of determining the Consolidated Net Earnings Available for Restricted Payments, there shall be added to Consolidated Net Earnings the amount of $12,400,000, representing the non-cash loss recognized by the Company as a result of the adoption of Statement of Financial Accounting Standard No. 121, less (3) the sum of all Restricted Payments made or declared ---- after June 30, 1995, plus (4) the aggregate amount received by the Company after ---- June 30, 1995, as the net cash proceeds of the sale of any shares of its stock. There shall not be included in Restricted Payments or in any computation of Consolidated Net Earnings Available for Restricted Payments (x) dividends paid, or distributions made, in stock of the Company; or (y) exchanges of stock of one or more classes of the Company, except to the extent that cash or other value is involved in such exchange. The term "STOCK" as used in this definition and in the definition of "Restricted Payments" shall include warrants or options to purchase stock. "CONSOLIDATED NET TANGIBLE ASSETS" shall mean the consolidated assets of the Company and its Subsidiaries, less, without duplication, (i) Consolidated ---- Current Liabilities minus Excess Working Capital Deficit, (ii) asset, liability, contingency and other reserves of the Company and its Subsidiaries, including reserves for depreciation and for deferred income taxes, (iii) all other liabilities of the Company and its Subsidiaries, except liabilities for Funded Debt of the types described in clauses (i), (ii) and (iii) of the definition of Debt, and (iv) treasury stock, unamortized debt discount and expense, goodwill, trademarks, brand names, patents, organizational expenses and any other intangible assets of the Company and its Subsidiaries, and any write-up of the value of any assets after June 30, 1991, all as determined in accordance with generally accepted accounting principles; provided, however, that the term -------- ------- "Consolidated Net Tangible Assets" shall include the book value of long-term gas contracts with producers that the Company assumes in connection with acquisitions and that are reflected on the books of the Company as assets. "CONSOLIDATED TANGIBLE NET WORTH" shall mean consolidated stockholders' equity -36- of the Company and its Subsidiaries, less goodwill, trademarks, brand names, patents, organizational expenses and any other intangible assets of the Company and its Subsidiaries, all as determined in accordance with generally accepted accounting principles; provided, however, that the term "Consolidated Tangible -------- ------- Net Worth" shall include the book value of long-term gas contracts with producers that the Company assumes in connection with acquisitions and that are reflected on the books of the Company as assets. "COUNTERPARTY" shall mean (i) any Person described in Schedule 6C(8), (ii) any Person that is not an Affiliate of the Company and that has senior debt securities rated at least A by Standard & Poor's Rating Group or Moody's Investors Service, Inc. or whose obligations in respect of the agreements described in the final proviso to paragraph 6C(8) or in the definition of Long Hedge Future or Short Hedge Future, as the case may be, are fully guaranteed by an affiliate of such Person whose senior debt securities are so rated, and (iii) any other Person that is not an Affiliate of the Company and with whom the Company has agreements of the nature described in the final proviso to paragraph 6C(8) or in the definition of Long Hedge Future or Short Hedge Future, so long as (a) the aggregate amount of all such agreements with such Person outstanding at any time shall not exceed $1,000,000 and (b) the Company has such agreements outstanding with no more than nine other such Persons at any time. "DEBT" shall mean, without duplication: (i) any obligation that, under generally accepted accounting principles, is shown on the balance sheet as a liability (including, without limitation, any obligation for borrowed money, any notes payable and drafts accepted representing extensions of credit, whether or not representing obligations for borrowed money, and Capitalized Lease Obligations but excluding accounts payable and accrued expenses in the ordinary course of business, reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation), (ii) any obligation secured by a Lien on, or payable out of the proceeds of production from, property, whether or not the obligation secured thereby shall have been assumed by the owner of such property, (iii) liabilities in respect of unfunded vested benefits under Plans and liabilities in respect of postretirement benefits that, under generally accepted accounting principles in effect at the time in question, are shown on the balance sheet as a liability, and (iv) any obligation described in paragraph 6C(10) (Guaranties) for which a maximum amount is quantifiable. "DELAYED DELIVERY FEE" shall have the meaning specified in paragraph 2I(2). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as -37- amended. "EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "DEFAULT" shall mean any of such events, whether or not any such requirement has been satisfied. "EXCESS WORKING CAPITAL DEFICIT" shall mean (i) if the Company's Working Capital is greater than or equal to negative $10,000,000, zero, or (ii) if the Company's Working Capital is less than negative $10,000,000, the product of (A) the amount of such Working Capital plus $10,000,000 multiplied by (B) ---- ------------- negative one (for example, if Working Capital equals negative $15,000,000, the Excess Working Capital Deficit would equal $5,000,000). For purposes of this definition, "WORKING CAPITAL" means the remainder of the Company's Consolidated Current Assets minus the Company's Consolidated Current Liabilities, excluding ----- current maturities of Funded Debt. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXISTING NOTES" shall have the meaning specified in paragraph 1A. "FACILITY" shall have the meaning specified in paragraph 2A. "FACILITY FEE" shall have the meaning specified in paragraph 2I(1). "FAIR MARKET VALUE" shall mean, at any time with respect to any property of any kind or character, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller, under no compulsion to buy or sell, respectively. "FUNDED DEBT" shall mean any Debt payable more than one year from the date of creation thereof. "GUARANTOR" shall mean each of Western Gas Resources Storage, Inc., a Texas corporation; Western Gas Resources Texas, Inc., a Texas corporation; Western Gas Resources-Oklahoma, Inc., a Delaware corporation; Mountain Gas Resources, Inc., a Delaware corporation; MGTC, MIGC and each other Subsidiary of the Company that issues a Guaranty to all of the holders of Notes. "GUARANTY" shall mean each guaranty of a Guarantor in substantially the form of Exhibit G hereto. "HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of any Note, any offer to purchase, or any purchase of, shares of capital stock of any corporation or equity interests in any other entity, or securities convertible into or representing the beneficial ownership -38- of, or rights to acquire, any such shares or equity interests, if such shares, equity interests, securities or rights are of a class which is publicly traded on any securities exchange or in any over-the-counter market, other than purchases of such shares, equity interests, securities or rights representing less than 5% of the equity interests or beneficial ownership of such corporation or other entity for portfolio investment purposes, and such offer or purchase has not been duly approved by the board of directors of such corporation or the equivalent governing body of such other entity prior to the date on which the Company makes the Request for Purchase of such Note. "INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement substantially in the form of Exhibit H hereto. "ISSUANCE PERIOD" shall have the meaning specified in paragraph 2B. "LIEN" shall mean any mortgage, pledge, priority, security interest, encumbrance, deposit arrangement, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "LONG HEDGE FUTURE" shall mean an agreement, purchased on a commodities exchange or entered into with a Counterparty, that obligates the Company to purchase natural gas or liquid hydrocarbons, as the case may be, at a pre-determined price at a pre-determined time. "MGTC" shall mean MGTC, Inc., a Wyoming corporation. "MIGC" shall mean MIGC, Inc., a Delaware corporation. "MULTIEMPLOYER PLAN" shall mean any plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NCNB" shall mean NationsBank of Texas, N.A., and its successors and assigns. "NCNB AGREEMENT" shall mean (i) from the date hereof to August 31, 1993, the First Restated Loan Agreement, dated as of October 31, 1991, between the Company and NCNB, as Agent and NCNB and Bankers Trust Company as Co-Managers of the Acquisition Loan and Certain Banks as Lenders, and (ii) from and after August 31, 1993, Term Loan Agreement and the Revolving Loan Agreement. "NOTES" shall have the meaning specified in paragraph 1B. "OFFERING MATERIALS" shall mean, at the time any representation is made or deemed made with respect thereto under or pursuant to this Agreement by the Company, the most recent -39- Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission prior to such time, the most recent Annual Report to stockholders sent to stockholders of the Company prior to such time, all Quarterly Reports on Form 10-Q of the Company filed with the Securities and Exchange Commission prior to such time for quarterly periods completed after the completion of the fiscal year covered by such Annual Report on Form 10-K, all quarterly reports to stockholders sent to stockholders of the Company prior to such time for quarterly periods completed after the completion of the fiscal year covered by such annual report to stockholders, all proxy statements, notices and other reports sent by the Company to its public stockholders prior to such time and after the end of such fiscal year, all registration statements (without exhibits) and all reports (including, without limitation, reports on Form 8-K) filed by the Company with the Securities and Exchange Commission or any securities exchange or other organization or association supervising trading in the Company's securities prior to such time and after the end of such fiscal year, and all press releases issued by the Company prior to such time and after the end of such fiscal year. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by an Authorized Officer of the Company. "OVER-COLLATERALIZATION AMOUNT" shall have the meaning specified in the definition of "Permitted Securitization Program." "PANHANDLE JOINT VENTURE" shall mean the joint venture formed between the Company and Panhandle Eastern Pipe Line Company. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor entity serving a similar function. "PERMITTED SECURITIZATION PROGRAM" shall mean a transaction executed pursuant to documentation that contemplates a commitment which is for a period of not more than 364 days and which is not extendible at the option of the Company or any of its Subsidiaries and pursuant to which each of the following conditions is satisfied: (a) the Company and the Subsidiaries sell, transfer or otherwise dispose of, at not less than face value, on a revolving basis, an undivided interest in a pool of the Company's and the Subsidiaries' accounts receivable to a special purpose entity (the "SPECIAL PURPOSE ENTITY"), in an amount not to exceed, at any time $75,000,000 and grants a security interest of connection therewith with respect to such accounts receivable which secures an amount not greater than 10% of the aforesaid amount sold or transferred at such time for the purpose of providing the purchaser with over-collateralization (the "OVER-COLLATERALIZATION AMOUNT"); and, as a part of such transaction. (b) the Company and the Subsidiaries grant a security interest (the "SECURITY INTEREST") in all or a portion of their accounts receivable (the "PLEDGED ACCOUNTS RECEIVABLE") to a the Special Purpose Entity for the purpose of providing -40- the Special Purpose Entity with a basis of recourse for its investment (i.e., the aforesaid amount not to exceed $75,000,000) in the Pledged Accounts Receivable (the "RECEIVABLES INVESTMENT"), provided that: -------- (i) the maximum recourse to the Pledged Accounts Receivable shall be equal to the purchase price of the Receivables Investment plus 10%, in an aggregate amount not to exceed Eighty-Two Million Five Hundred Thousand Dollars ($82,500,000) (the "RECOURSE AMOUNT"). (ii) the Security Interest shall apply to each Pledged Accounts Receivable in an amount not to exceed the proportion that the Recourse Amount bears to the face value of the Pledged Accounts Receivable; and (iii) the Company and the Subsidiaries shall be entitled to share (with the Special Purpose Entity), on a pari passu and pro rata basis (based upon the Special Purpose Entity's share described in clause (ii)), all proceeds (if any) derived from each Pledged Accounts Receivable. "PERPETUAL PREFERRED STOCK" shall mean any class of preferred stock of the Company which has no mandatory provision for partial or complete redemption at any time. "PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "PLAN" shall mean an "employee pension benefit plan" (as defined in section 3 of ERISA) that is or has been established or maintained, or to which contributions are or have been made, by the Company or by any trade or business, whether or not incorporated, that, together with the Company, is under common control, as described in section 414(b) or (c) of the Code. "PLEDGED ACCOUNTS RECEIVABLE" shall have the meaning specified in the definition of "Permitted Securitization Program." "PRICE MOVEMENT" shall have the meaning specified in paragraph 2I(3). "PRUDENTIAL" shall mean The Prudential Insurance Company of America. "PRUDENTIAL ACCEPTED NOTES" shall have the meaning specified in paragraph 2F. "PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all of the Voting Stock (or equivalent voting securities or interests) of which is owned by Prudential either directly or through Prudential Affiliates. "PTE 84-14" shall mean Prohibited Transaction Exemption 84-14 granted by the -41- Department of Labor pursuant to ERISA. "PTE 90-1" shall mean Prohibited Transaction Exemption 90-1 granted by the Department of Labor pursuant to ERISA. "PURCHASERS" shall mean Prudential and each Prudential Affiliate that purchases or agrees to purchase any Note. "RECEIVABLE INVESTMENT" shall have the meaning specified in the definition of "Permitted Securitization Program". "RECEIVABLES PURCHASE AGREEMENT" shall mean that certain Receivables Purchase Agreement dated as of February 28, 1995, among the Company, Receivables Capital Corporation and Bank of America National Trust and Savings Association, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived. "RENEWAL FEE" shall have the meaning specified in paragraph 2B. "REQUEST FOR PURCHASE" shall have the meaning specified in paragraph 2D. "REQUIRED HOLDER(S)" shall mean, with respect to the Notes of any Series, at any time, the holder or holders of at least 66 2/3% of the aggregate principal amount of the Notes of such Series outstanding at such time. "RESCHEDULED CLOSING DAY" shall have the meaning specified in paragraph 2H. "RESTRICTED PAYMENT" shall mean (a) any dividend paid or declared by the Company or any Subsidiary on any class of the Company's stock (other than a dividend payable in shares of stock of the Company), or any other distribution made by the Company or any Subsidiary on account of any class of the Company's stock, or (b) any cash or other consideration applied, directly or indirectly, by the Company or any Subsidiary to the redemption, purchase or other acquisition of any shares of the Company's stock or (c) any payment of principle of, or retirement, redemption, purchase or other acquisition of any subordinated debt. "REVOLVING LOAN AGREEMENT" shall mean the Loan Agreement (Revolver) dated August 31, 1993 between the Company and NationsBank of Texas, N.A. (formerly known as NCNB Texas National Bank), as the provisions thereof have been or may be from time to time amended or waived in compliance with paragraph 6F. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SERIES" shall have the meaning specified in paragraph 1B. "SHORT HEDGE FUTURE" shall mean an agreement, purchased on a commodities -42- exchange or entered into with a Counterparty, that obligates the Company to sell natural gas or liquid hydrocarbons, as the case may be, at a pre-determined price at a pre-determined time. "SIGNIFICANT HOLDER" shall mean (i) each Purchaser, so long as such Purchaser shall hold any Note, (ii) each affiliate of a Purchaser, so long as such affiliate shall hold any Note, or (iii) any other holder of a Note that, together with its affiliates, shall hold at least 5% of the aggregate principal amount of the Notes from time to time outstanding. "STOCK OPTION AGREEMENTS" shall mean, collectively those certain Agreements to Provide Loan(s) to exercise key employees' Stock Options by and among the Company and certain key employees. "SUBSIDIARY" shall mean any corporation organized under the laws of any state of the United States of America, Canada, or any province of Canada, which conducts the major portion of its business in and makes the major portion of its sales to Persons located in the United States of America or Canada, and at least a majority of the combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Company either directly or through Subsidiaries. A "WHOLLY OWNED SUBSIDIARY" shall be a Subsidiary all of the stock of every class of which, except directors' qualifying shares shall, at the time at which any determination is being made, be owned by the Company either directly or through wholly owned subsidiaries. "TERMINATION DATE" shall have the meaning specified in paragraph 2B. "TERMINATION EVENT" shall mean (i) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), or (ii) the withdrawal of the Company or any of its ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC, or (v) any other event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "TERM LOAN" shall mean the $50,000,000 of "Term Loans" outstanding under the NCNB Agreement as of the date of this Agreement under the terms existing as of the date of this Agreement. "TERM LOAN AGREEMENT" shall mean the Third Restated Loan Agreement (Term) dated August 31, 1993 between the Company and NationsBank of Texas, N.A. (formerly known as NCNB Texas National Bank) as Agent and Certain Banks as Lenders. "TRANSFEREE" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement. -43- "VOTING STOCK" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "1993 NOTE PURCHASE AGREEMENT" shall mean, collectively, those certain separate Note Purchase Agreements each dated as of April 1, 1993, between the Company and each of the purchasers listed on Annex 1 thereto, respectively, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6F. "1995 NOTE PURCHASE AGREEMENT" shall mean, the Note Purchase Agreements dated as of November 29, 1995, between the Company and the Purchasers listed on the signature page thereto, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6F. 10C. ACCOUNTING TERMS AND DETERMINATIONS. All references in this Agreement to "generally accepted accounting principles" shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof, subject to the next sentence. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles, applied on a basis consistent with the audited consolidated financial statements of the Company and its Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such statements have been delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. PARAGRAPH 11. MISCELLANEOUS. 11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City time, on the date due) to the account or accounts of such Purchaser, if any, as are specified in the Purchaser Schedule attached hereto, or, in the case of any Purchaser not named in the Purchaser Schedule or any Purchaser wishing to change the account specified for it in the Purchaser Schedule such account or accounts in the United States as such Purchaser may from time to time designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, it will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as the Purchasers have made in this paragraph 11A. -44- 11B. EXPENSES. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save each Purchaser and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all - document production and duplication charges and the fees and expenses of any special counsel engaged by the Purchasers or any Transferee in connection with any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including reasonable -- attorneys' fees, incurred by any Purchaser or any Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of any Purchaser's or any Transferee's having acquired any Note (other than costs and expenses incurred in acquiring or merely holding a Note or interest therein), including without limitation costs and expenses incurred in any bankruptcy case. The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or any Transferee and the payment of any Note. 11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) of the Notes of each Series except that, (i) with the written consent of the holders of - all Notes of a particular Series, and if an Event of Default shall have occurred and be continuing, of the holders of all Notes of all Series, at the time outstanding (and not without such written consents), the Notes of such Series may be amended or the provisions thereof waived to change the maturity thereof, to change or affect the principal thereof, or to change or affect the rate or time of payment of interest on or any Yield-Maintenance Amount payable with respect to the Notes of such Series, (ii) without the written consent of the -- holder or holders of all Notes at the time outstanding, no amendment to or waiver of the provisions of this Agreement shall change or affect the provisions of paragraph 7A or this paragraph 11C insofar as such provisions relate to proportions of the principal amount of the Notes of any Series, or the rights of any individual holder of Notes, required with respect to any declaration of Notes to be due and payable or with respect to any consent, (iii) with the --- written consent of Prudential (and not without the written consent of Prudential) the provisions of paragraph 2 may be amended or waived (except insofar as any such amendment or waiver would affect any rights or obligations with respect to the purchase and sale of Notes which shall have become Accepted Notes prior to such amendment or waiver) and (iv) with the written consent of -- all of the Purchasers which shall have become obligated to purchase Accepted Notes of any Series (and not without the written consent of all such Purchasers), any of the provisions of paragraphs 2 and 3 may be amended or waived insofar as such amendment or waiver would affect only rights or obligations with respect to the purchase and sale of the Accepted Notes of such Series or the terms and provisions of such Accepted Notes. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights -45- hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein and in the Notes, the term "THIS AGREEMENT" and references thereto shall mean this Amended and Restated Master Shelf Agreement as it may from time to time be amended or supplemented. 11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The Notes are issuable as registered notes without coupons in denominations of at least $100,000, except as may be necessary to reflect any principal amount not evenly divisible by $100,000. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees; provided that the Company shall not be required to register any -------- transfer that was made in violation of the legend appearing on such Note. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Each installment of principal payable on each installment date upon each new Note issued upon any such transfer or exchange shall be in the same proportion to the unpaid principal amount of such new Note as the installment of principal payable on such date on the Note surrendered for registration of transfer or exchange bore to the unpaid principal amount of such Note. No reference need be made in any such new Note to any installment or installments of principal previously due and paid upon the Note surrendered for registration of transfer or exchange. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest on and any Yield-Maintenance Amount payable with respect to such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion. -46- 11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. 11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. 11H. DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. EXCEPT AS PROVIDED IN THIS PARAGRAPH 11H, EACH HOLDER AND EACH PERSON WHO PURCHASES A PARTICIPATION IN A NOTE OR ANY PART THEREOF AGREES THAT, PRIOR TO THE OCCURRENCE OF A DEFAULT, IT WILL USE ITS BEST EFFORTS TO HOLD IN CONFIDENCE AND NOT TO DISCLOSE THE CONFIDENTIAL INFORMATION. The Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder, by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement to (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Person to which such holder offers to sell such Note or any part thereof, (iv) any Person to which such holder sells or offers to sell a participation in all or any part of such Note, (v) any federal or state regulatory authority having jurisdiction over such holder, (vi) the National Association of Insurance Commissioners or any similar organization or (vii) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process or informal investigative demand, (c) in connection with any litigation to which such holder is a party or (d) in order to protect such holder's investment in such Note; PROVIDED THAT PRIOR TO DISCLOSING CONFIDENTIAL -------- INFORMATION TO ANY OFFEREE REFERRED TO IN CLAUSE (III) AND (IV) ABOVE, SUCH HOLDER WILL USE ITS BEST EFFORTS TO HAVE SUCH OFFEREE DELIVER TO THE COMPANY A CONFIDENTIALITY AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT F HERETO. 11I. NOTICES. All written communications provided for hereunder (other than communications provided for under paragraph 2) shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to any Person listed in the Purchaser Schedule attached hereto, - addressed to it at the address specified for such communications in the Purchaser Schedule, or at such other address as it shall have specified in writing to the Person sending such communication, and (ii) if to any Purchaser -- or holder of any Note which is not a Person listed in the Purchaser Schedule, addressed to it at such address as it shall have specified in writing to the Person sending such communication or, if any such holder shall not have so specified an address, then addressed to such holder in care of the last holder of such Note which shall have -47- so specified an address to the Person sending such communication, and (iii) if --- to the Company, addressed to it at 12200 N. Pecos Street, Denver, Colorado 80234, Attention: John C. Walter, Vice President-General Counsel, Telecopy No. (303) 252-3362 or at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such -------- ------- communication to the Company may also, at the option of the Person sending such communication, be delivered by any other means either to the Company at its address specified above or to any Authorized Officer of the Company. Any communication pursuant to paragraph 2 shall be made by the method specified for such communication in paragraph 2, and shall be effective to create any rights or obligations under this Agreement only if, in the case of a telephone communication, an Authorized Officer of the party conveying the information and of the party receiving the information are parties to the telephone call, and in the case of a telecopier communication, the communication is signed by an Authorized Officer of the party conveying the information, addressed to the attention of an Authorized Officer of the party receiving the information, and in fact received at the telecopier terminal the number of which is listed for the party receiving the communication in the case of the Company, as provided above, and in the case of any Purchaser, as provided in the Purchaser Schedule or at such other telecopier terminal as the party receiving the information shall have specified in writing to the party sending such information. 11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. 11K. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser, to any holder of Notes or to the Required Holder(s), the determination of such satisfaction shall be made by such Purchaser, such holder or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. 11M. 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. 11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs -48- of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11O. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 11P. BINDING AGREEMENT. When this Agreement is executed and delivered by the Company and Prudential, it shall become a binding agreement between the Company and Prudential. This Agreement shall also inure to the benefit of each other Purchaser which shall have executed and delivered a Confirmation of Acceptance, and each such other Purchaser shall be bound by this Agreement to the extent provided in such Confirmation of Acceptance. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterparts of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between the Company and Prudential effective as of January 31, 1996. Very truly yours, WESTERN GAS RESOURCES, INC. By: /s/ WILLIAM J. KRYSIAK ---------------------- Vice President-Finance The foregoing Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ----------------------------------------------- Vice President PRUCO LIFE INSURANCE COMPANY By /s/ PRUCO LIFE INSURANCE COMPANY -------------------------------- Vice President -49- EX-10.50 4 6TH AMD. TO 3RD RESTATED LOAN AGMT. SIXTH AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM) THIS SIXTH AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM) (herein called the "Amendment") made as of the 29th day of November 1995, by and among Western Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas, N.A., a national banking association, as Agent ("Agent"), and NationsBank of Texas, N.A., Bankers Trust Company, Bank of Montreal and CIBC Inc. (herein, collectively referred to as "Lenders"), W I T N E S S E T H: WHEREAS, Borrower, Agent and Lenders have entered into that certain Third Restated Loan Agreement (Term) dated as of August 31, 1993, as amended by that certain First Amendment to Third Restated Loan Agreement (Term) dated as of December 31, 1993, that certain Second Amendment to Third Restated Loan Agreement (Term) dated as of September 2, 1994, that certain Third Amendment to Third Restated Loan Agreement (Term) dated as of December 2, 1994, that certain Fourth Amendment to Third Restated Loan Agreement (Term) dated as of February 23, 1995, and that certain Fifth Amendment to Third Restated Loan Agreement (Term) dated as of July 19, 1995, among Borrower, Agent and Lenders (as amended to the date hereof, the "Original Agreement") for the purpose and consideration therein expressed, whereby Lenders made loans to Borrower as therein provided; and WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement as expressly set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement and in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. Definitions and References -------------------------- Section 1.1. Terms Defined in the Original Agreement. Unless the context --------------------------------------- otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. Section 1.2. Other Defined Terms. Unless the context otherwise requires, ------------------- the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Loan Agreement" shall mean the Original Agreement as amended hereby. - 1 - Exhibit 10.50 ARTICLE II. Amendments ---------- Section 2.1. Definitions. Section 1.1 of the Original Agreement is hereby ----------- amended by adding a new definition of "1995 Note Purchasers Group" to read as follows: "'1995 Note Purchasers Group' means, collectively, The Variable ---------------------------- Annuity Life Insurance Company, American General Life Insurance Company, Gulf Life Insurance Company, First Allmerica Financial Life Insurance Company, Allmerica Financial Life Insurance and Annuity Company, and The Mutual Life Insurance Company of New York." The definition of "Debt Securities" contained in Section 1.1 of the Original Agreement is hereby amended in its entirety to read as follows: "'Debt Securities' means collectively, (i) those senior notes dated October --------------- 27, 1992, September 22, 1993, December 27, 1993 and October 27, 1994 issued by Borrower pursuant to that certain Master Shelf Agreement dated as of December 19, 1991 between Borrower and The Prudential Insurance Company of America (as amended and restated from time to time, the "Shelf Agreement") and any additional notes issued pursuant to the Shelf Agreement (ii) the 7.65% senior notes due April 30, 2003 in the aggregate principal amount of $50,000,000 issued by Borrower pursuant to various note purchase agreements among Borrower, MIGC, MGTC, WGRS, WGRT and each member of the CIGNA Group, as amended and restated from time to time, (iii) the 8.02% senior notes due November 29, 2005 in the aggregate principal amount of $42,000,000 issued by Borrower pursuant to a note purchase agreement among Borrower and members of the 1995 Note Purchasers Group (as amended and restated from time to time, the "1995 Note Purchase Agreement") and (iv) all other notes issued pursuant to note purchase agreements among any Related Person and any member of the CIGNA Group, the members of the 1995 Note Purchasers Group, Prudential Insurance Company of America, or any other institutional investor." Section 2.2. Books, Financial Statements and Reports. Section 5.1(b) of --------------------------------------- the Original Agreement is hereby amended by adding a new clause (vi), to read as follows: "(vi) as soon as delivered to such Persons, all other reports, statements and notices delivered to any holder of Debt Securities." Section 2.3 Insurance. Section 5.1(h) of the Original agreement is hereby --------- amended by deleting the second sentence thereof. - 2 - Section 2.4. Events of Default. Section 7.1(l) of the Original Agreement ----------------- is hereby amended in its entirety to read as follows: "(l) Without (i) the express prior written consent of all Lenders, Borrower amends or modifies the terms of any of the documents or instruments governing, or otherwise executed in connection with, any of the Debt Securities (a) shortening the maturity of such Debt Securities, (b) increasing the interest rate or fees payable under such Debt Securities or with respect to such Debt Securities, or (c) increasing the maximum principal amount of such Debt Securities, or (ii) the express prior written consent of Majority Lenders, Borrower amends or modifies any terms of any of the documents or instruments governing, or otherwise executed in connection with, any of the Debt Securities other than as set forth in the foregoing clause (i) of this subsection (l); or" ARTICLE III. Conditions of Effectiveness --------------------------- Section 3.1. Effective Date. This Amendment shall become effective as of -------------- the date first above written when, and only when, Agent shall have received, at Agent's office, (i) a counterpart of this Amendment executed and delivered by Borrower and all Lenders and (ii) each of the following, each document (unless otherwise indicated) being dated the date of receipt thereof by Agent, duly authorized, executed and delivered, and in form and substance satisfactory to Agent: (a) a certificate of the Secretary of Borrower dated the date of this Amendment certifying that: (A) the resolutions adopted by the Board of Directors of Borrower attached as Exhibit 1 to the Omnibus Certificate of Borrower dated September 2, 1994 (the "Original Certificate") have not been amended or revoked, and continue in full force and effect, (B) the incumbency and authorization of the officers of Borrower authorized to sign Loan Documents, with signature specimens of such officers, contained in the Original Certificate has not been amended and continues in full force and effect, (C) copies of the certified charter documents of Borrower (including by-laws), attached as Exhibits H and O to the Original Certificate have not been amended or revoked since the date of the Original Certificate, and continue in full force and effect, (D) no Default that has not been expressly waived by Lenders exists on and as of the date hereof and (E) all of the representations and warranties set forth in Article IV hereof and Article IV of the Original Agreement are true and correct at and as of their respective times of effectiveness; - 3 - (b) a favorable opinion from Messr. John Walter, Esq., counsel for Borrower in a form acceptable to Lender; and (c) such supporting documents as Agent may reasonably request. ARTICLE IV. Representations and Warranties ------------------------------ Section 4.1. Representations and Warranties of Borrower. In order to ------------------------------------------ induce each Lender to enter into this Amendment, Borrower represents and warrants to each Lender that: (a) The representations and warranties contained in each subsection of Section 4.1 of the Original Agreement are true and correct at and as of the time of the effectiveness hereof, except for representations and warranties relating to rights of way and easements for the Katy Gas Storage Facility modified as set forth in Schedule 1 hereto. (b) Borrower is duly authorized to execute and deliver this Amendment and is and will continue to be duly authorized to borrow monies and to perform its obligations under the Loan Agreement. Borrower has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of Borrower hereunder and thereunder. (c) The execution and delivery by Borrower of this Amendment, the performance by Borrower of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the articles of incorporation and bylaws of Borrower, or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower, or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of this Amendment or to consummate the transactions contemplated hereby. (d) When duly executed and delivered, this Amendment and the Loan Agreement will be a legal and binding obligation of Borrower, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. (e) The audited annual Consolidated financial statements of Borrower dated as of December 31, 1994 and the - 4 - unaudited quarterly Consolidated financial statements of Borrower dated as of September 30, 1995 fairly present Borrower's Consolidated financial position at such dates and the Consolidated results of Borrower's operations and changes in Borrower's Consolidated cash flow for the respective periods thereof. Copies of such financial statements have heretofore been delivered to each Lender. Since September 30, 1995, no material adverse change has occurred in the financial condition or businesses or in the Consolidated financial condition or businesses of Borrower. ARTICLE V. Miscellaneous ------------- Section 5.1. Consent to 1995 Note Purchase Agreement. Each Lender --------------------------------------- consents and agrees that the 8.02% senior notes issued by Borrower pursuant to the 1995 Note Purchase Agreement comply with the provision of Section 5.2(b)(viii) of the Loan Agreement. Section 5.2. Consent to Amendment to Shelf Agreement. Each Lender --------------------------------------- consents and agrees that the Shelf Agreement as modified by the amendment dated November 29, 1995 complies with the provisions of Section 5.2(b)(viii) of the Loan Agreement and each Lender further consents to such modifications for purposes of Section 7.1(i) of the Loan Agreement. Section 5.3. Ratification of Agreements. The Original Agreement as hereby -------------------------- amended and each other Loan Document affected hereby are ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Agent or Lenders under the Loan Agreement or any other Loan Document nor constitute a waiver of any provision of the Loan Agreement or any other Loan Document. Section 5.4. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of Borrower herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower or any Related Person hereunder or under the Loan Agreement to any Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower under this Amendment and under the Loan Agreement. Section 5.5. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Loan Agreement pertaining to Loan Documents apply hereto. - 5 - Section 5.6. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. Section 5.7. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their duly authorized officers. WESTERN GAS RESOURCES, INC. By:/s/ John C. Walter ------------------ Name: John C. Walter Title: Executive Vice President NATIONSBANK OF TEXAS, N.A. By:/s/ Michele L. Jones --------------------- Name: Michele L. Jones Title: Vice President BANKERS TRUST COMPANY By:/s/ Mary Jo Jolly --------------------- Name: Mary Jo Jolly Title: Assistant Vice President BANK OF MONTREAL By:/s/ Michael P. Stuckey ------------------------- Name: Michael P. Stuckey Title: Director, U.S. Corporate Banking - 6 - CIBC INC. By:/s/ Gary C. Gaskill ----------------------- Name: Gary C. Gaskill Title: Vice President - 7 - SCHEDULE 1 Borrower hereby represents and warrants that, with respect to Western Gas Resources Storage, Inc.'s Katy Hub and Gas Storage Facility: (a) the condemnation process relating to certain storage rights, rights-of-way and well easements has not been completed and therefore, as of the date hereof, Western Gas Resources Storage, Inc. has, with respect to such storage rights, rights-of- way and well easements, only the right to the possession thereof (such right to possession being sufficient to enable Western Gas Resources Storage, Inc. to conduct its business and operations at the Katy Hub and Gas Storage Facility as is currently conducted and as proposed to be conducted) and (b) when such condemnation process is completed and Western Gas Resources Storage, Inc. has paid all amounts determined to be due to the condemnee with respect thereto, Western Gas Resources Storage, Inc. will obtain good and defensible title to said storage rights, rights-of-way and well easements. - 8 - CONFIRMATION, ACKNOWLEDGEMENT AND CONSENT OF GUARANTORS Each of the undersigned (collectively "Guarantors") hereby (i) acknowledges and consents to the foregoing Sixth Amendment to Third Restated Loan Agreement (Term); (ii) confirms the Restated Guaranty dated as of August 31, 1993 executed by such Guarantor in favor of Agent and the Lenders pursuant to the Original Agreement; and (iii) agrees that each of such Guarantor's obligations and covenants with respect to such Restated Guaranty shall remain in full force and effect after the execution of such Amendment. William J. Krysiak, Vice President-Finance of Western Gas Resources Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas Resources Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC, Inc., is executing this Confirmation, Acknowledgment and Consent of Guarantors in his capacity of officer of each such corporation. Dated as of the 29th day of November, 1995. WESTERN GAS RESOURCES OKLAHOMA, INC. WESTERN GAS RESOURCES TEXAS, INC. WESTERN GAS RESOURCES STORAGE, INC. MOUNTAIN GAS RESOURCES, INC. MGTC, INC. MIGC, INC. By:/s/ William J. Krysiak ---------------------- William J. Krysiak, Vice President-Finance - 9 - EX-10.51 5 4TH AMD. TO 1ST RESTATED LOAN AGMT. FOURTH AMENDMENT TO FIRST RESTATED LOAN AGREEMENT (REVOLVER) THIS FOURTH AMENDMENT TO FIRST RESTATED LOAN AGREEMENT (REVOLVER) (herein called the "Amendment") made as of the 29th day of November, 1995, by and among Western Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas, N.A., a national banking association, as Agent ("Agent"), and NationsBank of Texas, N.A., Bank of Montreal, CIBC Inc., Societe Generale, Southwest Agency, The First National Bank of Boston, Colorado National Bank, Bank of America National Trust and Savings Association and Credit Lyonnais Cayman Island Branch, (herein, collectively referred to as "Lenders"). W I T N E S S E T H: WHEREAS, Borrower, Agent and Lenders have entered into that certain First Restated Loan Agreement (Revolver) dated as of September 2, 1994, as amended by that certain First Amendment to First Restated Loan Agreement (Revolver) dated as of December 2, 1994, that certain Second Amendment to First Restated Loan Agreement (Revolver) dated as of February 23, 1995 and that certain Third Amendment to First Restated Loan Agreement (Revolver) dated as of July 19, 1995 (as amended to the date hereof, the "Original Agreement") for the purpose and consideration therein expressed, whereby Lenders became obligated to make loans to Borrower as therein provided; and WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement as expressly set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement and in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. -- Definitions and References -------------------------- Section 1.1. Terms Defined in the Original Agreement. Unless the context --------------------------------------- otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. -1- Exhibit 10.51 Section 1.2. Other Defined Terms. Unless the context otherwise requires, ------------------- the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Loan Agreement" shall mean the Original Agreement as amended hereby. ARTICLE II. -- Amendments ---------- Section 2.1. Definitions. Section 1.1 of the Original Agreement is ----------- hereby amended by adding a new definition of "1995 Note Purchasers Group" to read as follows: "'1995 Note Purchasers Group' means, collectively, The Variable ---------------------------- Annuity Life Insurance Company, American General Life Insurance Company, Gulf Life Insurance Company, First Allmerica Financial Life Insurance Company, Allmerica Financial Life Insurance and Annuity Company, and The Mutual Life Insurance Company of New York." The definition of "Debt Securities" contained in Section 1.1 of the Original Agreement is hereby amended in its entirety to read as follows: "'Debt Securities' means collectively, (i) those senior notes dated October --------------- 27, 1992, September 22, 1993, December 27, 1993 and October 27, 1994 issued by Borrower pursuant to that certain Master Shelf Agreement dated as of December 19, 1991 between Borrower and The Prudential Insurance Company of America (as amended and restated from time to time, the "Shelf Agreement") and any additional notes issued pursuant to the Shelf Agreement (ii) the 7.65% senior notes due April 30, 2003 in the aggregate principal amount of $50,000,000 issued by Borrower pursuant to various note purchase agreements among Borrower, MIGC, MGTC, WGRS, WGRT and each member of the CIGNA Group, as amended and restated from time to time, (iii) the 8.02% senior notes due November 29, 2005 in the aggregate principal amount of $42,000,000 issued by Borrower pursuant to a note purchase agreement among Borrower and members of the 1995 Note Purchasers Group (as amended and restated from time to time, the members of the "1995 Note Purchase Agreement") and (iv) all other notes issued pursuant to note purchase agreements among any Related Person and any member of the CIGNA Group, the 1995 Note Purchasers Group, Prudential Insurance Company of America, or any other institutional investor." Section 2.2. Books, Financial Statements and Reports. Section 6.1(b) of --------------------------------------- the Original Agreement is hereby amended by adding a new clause (vi), to read as follows: -2- "(vi) as soon as delivered to such Persons, all other reports, statements and notices delivered to any holder of Debt Securities." Section 2.3 Insurance. Section 6.1(h) of the Original agreement is hereby --------- amended by deleting the second sentence thereof. Section 2.4. Events of Default. Section 8.1(l) of the Original Agreement ----------------- is hereby amended in its entirety to read as follows: "(l) Without (i) the express prior written consent of all Lenders, Borrower amends or modifies the terms of any of the documents or instruments governing, or otherwise executed in connection with, any of the Debt Securities (a) shortening the maturity of such Debt Securities, (b) increasing the interest rate or fees payable under such Debt Securities or with respect to such Debt Securities, or (c) increasing the maximum principal amount of such Debt Securities, or (ii) the express prior written consent of Majority Lenders, Borrower amends or modifies any terms of any of the documents or instruments governing, or otherwise executed in connection with, any of the Debt Securities other than as set forth in the foregoing clause (i) of this subsection (l); or" ARTICLE III. -- Conditions of Effectiveness --------------------------- Section 3.1. Effective Date. This Amendment shall become effective as of -------------- the date first above written when, and only when, Agent shall have received, at Agent's office, (i) a counterpart of this Amendment executed and delivered by Borrower and all Lenders and (ii) each of the following, each document (unless otherwise indicated) being dated the date of receipt thereof by Agent, duly authorized, executed and delivered, and in form and substance satisfactory to Agent: (a) a certificate of the Secretary of Borrower dated the date of this Amendment certifying that: (A) the resolutions adopted by the Board of Directors of Borrower attached as Exhibit 1 to the Omnibus Certificate of Borrower dated September 2, 1994 (the "Original Certificate") have not been amended or revoked, and continue in full force and effect, (B) the incumbency and authorization of the officers of Borrower authorized to sign Loan Documents, with signature specimens of such officers, contained in the Original Certificate has not been amended and continues in full force and effect, (C) copies of the certified charter documents of Borrower (including by-laws), attached as Exhibits H and O to the Original Certificate have not been amended or revoked since the date of the Original -3- Certificate, and continue in full force and effect, (D) no Default that has not been expressly waived by Lenders exists on and as of the date hereof and (E) all of the representations and warranties set forth in Article IV hereof and Article V of the Original Agreement are true and correct at and as of their respective times of effectiveness; (b) a favorable opinion from Messr. John Walter, Esq., counsel for Borrower in a form acceptable to Lender; and (c) such supporting documents as Agent may reasonably request. ARTICLE IV. -- Representations and Warranties ------------------------------ Section 4.1. Representations and Warranties of Borrower. In order to ------------------------------------------ induce each Lender to enter into this Amendment, Borrower represents and warrants to each Lender that: (a) The representations and warranties contained in each subsection of Section 5.1 of the Original Agreement are true and correct at and as of the time of the effectiveness hereof, except for the representations and warranties relating to rights of way and easements for the Katy Gas Storage facility modified as set forth in Schedule 1 hereto. (b) Borrower is duly authorized to execute and deliver this Amendment and is and will continue to be duly authorized to borrow monies and to perform its obligations under the Loan Agreement. Borrower has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of Borrower hereunder and thereunder. (c) The execution and delivery by Borrower of this Amendment, the performance by Borrower of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the articles of incorporation and bylaws of Borrower, or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower, or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of this Amendment or to consummate the transactions contemplated hereby. (d) When duly executed and delivered, this Amendment and the Loan Agreement will be a legal and binding obligation of Borrower, enforceable in accordance with its -4- terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. (e) The audited annual Consolidated financial statements of Borrower dated as of December 31, 1994 and the unaudited quarterly Consolidated financial statements of Borrower dated as of September 30, 1995 fairly present Borrower's Consolidated financial position at such dates and the Consolidated results of Borrower's operations and changes in Borrower's Consolidated cash flow for the respective periods thereof. Copies of such financial statements have heretofore been delivered to each Lender. Since September 30, 1995, no material adverse change has occurred in the financial condition or businesses or in the Consolidated financial condition or businesses of Borrower. ARTICLE V. -- Miscellaneous ------------- Section 5.1. Consent to 1995 Note Purchase Agreement. Each Lender --------------------------------------- consents and agrees that the 8.02% senior notes issued by Borrower pursuant to the 1995 Note Purchase Agreement comply with the provision of Section 6.2(b)(viii) of the Loan Agreement. Section 5.2. Consent to Amendment to Shelf Agreement. Each Lender --------------------------------------- consents and agrees that the Shelf Agreement as modified by the amendment dated November 29, 1995 complies with the provisions of section 6.2(b)(viii) of the Loan Agreement and each Lender further consents to such modifications for purposes of Section 8.1(i) of the Loan Agreement. Section 5.3. Ratification of Agreements. The Original Agreement as hereby -------------------------- amended and each other Loan Document affected hereby are ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Agent or Lenders under the Loan Agreement or any other Loan Document nor constitute a waiver of any provision of the Loan Agreement or any other Loan Document. Section 5.4. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of Borrower herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower or any Related Person hereunder or under the Loan Agreement to any Lender shall be deemed to constitute representations and -5- warranties by, and/or agreements and covenants of, Borrower under this Amendment and under the Loan Agreement. Section 5.5. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Loan Agreement pertaining to Loan Documents apply hereto. Section 5.6. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. Section 5.7. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. -6- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their duly authorized officers. WESTERN GAS RESOURCES, INC. By:/s/ John C. Walter ------------------ Name: John C. Walter Title: Executive Vice President NATIONSBANK OF TEXAS, N.A., as Agent, Issuing Bank and Lender By:/s/ Michele L. Jones -------------------- Name: Michele L. Jones Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:/s/ Gary Tsuyuki ----------------- Name: Gary Tsuyuki Title: Vice President BANK OF MONTREAL By:/s/ Michael P. Stuckey ---------------------- Name: Michael P. Stuckey Title: Director, U.S. Corporate Banking THE FIRST NATIONAL BANK OF BOSTON By:/s/ Carol E. Holley ------------------- Name: Carol E. Holley Title: Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:/s/ Xavier Ratouis ------------------ Name: Xavier Ratouis Title: Authorized Signature -7- CIBC INC. By:/s/ Gary C. Gaskill -------------------- Name: Gary C. Gaskill Title: Vice President COLORADO NATIONAL BANK By:/s/ Monte E. Deckerd -------------------- Name: Monte E. Deckerd Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By:/s/ Richard A. Erbert --------------------- Name: Richard A. Erbert Title: Vice President -8- SCHEDULE 1 Borrower hereby represents and warrants that, with respect to Western Gas Resources Storage, Inc.'s Katy Hub and Gas Storage Facility: (a) the condemnation process relating to certain storage rights, rights-of-way and well easements has not been completed and therefore, as of the date hereof, Western Gas Resources Storage, Inc. has, with respect to such storage rights, rights-of- way and well easements, only the right to the possession thereof (such right to possession being sufficient to enable Western Gas Resources Storage, Inc. to conduct its business and operations at the Katy Hub and Gas Storage Facility as is currently conducted and as proposed to be conducted) and (b) when such condemnation process is completed and Western Gas Resources Storage, Inc. has paid all amounts determined to be due to the condemnee with respect thereto, Western Gas Resources Storage, Inc. will obtain good and defensible title to said storage rights, rights-of-way and well easements. CONFIRMATION, ACKNOWLEDGEMENT AND CONSENT OF GUARANTORS Each of the undersigned (collectively "Guarantors") hereby (i) acknowledges and consents to the foregoing Fourth Amendment to First Restated Loan Agreement (Revolver) of even date herewith; (ii) confirms the Restated Guaranty dated as of September 2, 1994 executed by such Guarantor in favor of Agent and the Lenders pursuant to the Original Agreement; and (iii) agrees that each of such Guarantor's obligations and covenants with respect to such Restated Guaranty shall remain in full force and effect after the execution of such Amendment. William J. Krysiak, Vice President-Finance of Western Gas Resources Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas Resources Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC, Inc., is executing this Confirmation, Acknowledgment and Consent of Guarantors in his capacity of officer of each such corporation. Dated as of the 29th day of November, 1995. WESTERN GAS RESOURCES OKLAHOMA, INC. WESTERN GAS RESOURCES TEXAS, INC. WESTERN GAS RESOURCES STORAGE, INC. MOUNTAIN GAS RESOURCES, INC. MGTC, INC. MIGC, INC. By:/s/ William J. Krysiak ---------------------- William J. Krysiak, Vice President-Finance EX-10.52 6 SENIOR NOTE PURCHASE AGMT. DATED 11/29/95 ================================================================================ WESTERN GAS RESOURCES, INC. $42,000,000 8.02% SENIOR NOTES DUE DECEMBER 1, 2005 NOTE PURCHASE AGREEMENT Dated as of November 29, 1995 ================================================================================ Exhibit 10.52 TABLE OF CONTENTS (Not Part of Agreement)
Page ---- AUTHORIZATION OF ISSUE OF NOTES............................................... 1 1. Authorization of Issue of Notes..................................... 1 PURCHASE AND SALE OF NOTES.................................................... 1 2. Purchase and Sale of Notes.......................................... 1 CONDITIONS PRECEDENT.......................................................... 2 3. Conditions of Closing............................................... 2 3A. Certain Documents................................................... 2 3B. Representations and Warranties; No Default.......................... 2 3C. Purchase Permitted by Applicable Laws............................... 3 3D. Legal Matters....................................................... 3 3E. Proceedings......................................................... 4 3F. Amendment of Other Agreements....................................... 4 3G. Consent of Lenders.................................................. 4 3H. Fees Payable at Closing............................................. 4 3I. Private Placement Number............................................ 4 3J. Sale of Notes to Other Purchasers................................... 5 PREPAYMENTS................................................................... 5 4. Prepayments......................................................... 5 4A. Optional Prepayment With Yield-Maintenance Amount................... 5 4B. Notice of Optional Prepayment....................................... 5 4C. Application of Prepayments.......................................... 5 4D. Retirement of Notes................................................. 5 AFFIRMATIVE COVENANTS......................................................... 6 5. Affirmative Covenants............................................... 6 5A. Financial Statements................................................ 6 5B. Inspection of Property.............................................. 8 5C. Covenant to Secure Notes Equally.................................... 8 5D. Agreement Assuming Liability on Notes............................... 9 5E. Notice of Material Events........................................... 9 5F. Maintenance of Properties...........................................10 5G. Maintenance of Existence and Qualifications.........................10 5H. Insurance...........................................................10
i 5I. Compliance with Agreements and Law..................................10 5J. Compliance with Environmental Laws..................................10 5K. Information Required by Rule 144A...................................11 5L. ERISA...............................................................11 5M. Guaranties..........................................................11 NEGATIVE COVENANTS............................................................12 6. Negative Covenants..................................................12 6A. Financial Covenants.................................................12 6A(1) Consolidated Tangible Net Worth...........................12 6A(2) Current Ratio.............................................12 6A(3) Debt Maintenance..........................................12 6A(4) Fixed Charge Coverage Ratio...............................12 6B. Dividend Limitation.................................................13 6C. Lien, Debt, and Other Restrictions..................................13 6C(1) Liens.....................................................13 6C(2) Debt......................................................14 6C(3) Limitation on Investments and New Businesses..............15 6C(4) Sale of Stock and Debt of Subsidiaries....................15 6C(5) Merger and Sale of Assets.................................16 6C(6) Lease Rentals.............................................17 6C(7) Limitation on Credit Extensions...........................17 6C(8) Contracts; Take-or-Pay Agreements.........................18 6C(9) Sale or Discount of Receivables...........................18 6C(10) Guaranties................................................18 6C(11) Transactions With Affiliates..............................19 6C(12) Panhandle Joint Venture Debt..............................19 6D. Issuance of Stock by Subsidiaries...................................19 6E. Other Agreements....................................................20 EVENTS OF DEFAULT.............................................................20 7A. Acceleration........................................................20 7B. Rescission of Acceleration..........................................23 7C. Notice of Acceleration or Rescission................................24 7D. Other Remedies......................................................24 REPRESENTATIONS, COVENANTS AND WARRANTIES.....................................24 8. Representations, Covenants and Warranties...........................24 8A. Organization........................................................24 8B. Financial Statements................................................24 8C. Actions Pending.....................................................25 8D. Outstanding Debt....................................................25 8E. Environmental Compliance............................................25
ii 8F. Taxes...............................................................26 8G. Conflicting Agreements and Other Matters............................26 8H. Offering of Notes...................................................26 8I. Regulation G, etc...................................................26 8J. ERISA...............................................................27 8K. Governmental Consent................................................27 8L. Title to Properties.................................................28 8M. Disclosure..........................................................28 8N. Delivery of Other Agreements........................................28 8O. Public Utility Holding Company Act; Federal Power Act...............28 8P. Investment Company Act..............................................29 8Q. Rank of Notes.......................................................29 REPRESENTATIONS OF THE PURCHASERS.............................................29 9. Representations of the Purchasers...................................29 9A. Nature of Purchase..................................................29 9B. Source of Funds.....................................................29 DEFINITIONS...................................................................30 10. Definitions.........................................................30 10A. Yield-Maintenance Terms.............................................30 10B. Other Terms.........................................................31 10C. Accounting Terms and Determinations.................................40 MISCELLANEOUS.................................................................40 11A. Note Payments.......................................................40 11B. Expenses............................................................41 11C. Consent to Amendments...............................................42 11D Solicitation of Noteholders.........................................43 11E. Form, Registration, Transfer and Exchange of Notes; Lost Notes......43 11F. Persons Deemed Owners; Participations...............................44 11G. Survival of Representations and Warranties; Entire Agreement........44 11H. Successors and Assigns..............................................44 11I. Disclosure to Other Persons; Confidentiality........................45 11J. Notices.............................................................45 11K. Payments Due on Non-Business Days...................................45 11L. Satisfaction Requirement............................................46 11M. GOVERNING LAW.......................................................46 11N. Limitation on Interest..............................................46 11O. Severability........................................................46 11P. Descriptive Headings................................................46 11Q. Counterparts........................................................46 11R. Binding Agreement...................................................46
iii PURCHASER SCHEDULE SCHEDULE 6C(2) EXISTING DEBT SCHEDULE 6C(8) EXISTING COUNTERPARTIES SCHEDULE 8A SUBSIDIARIES EXHIBIT A FORM OF NOTE EXHIBIT B FORM OF OPINION OF COMPANY'S COUNSEL EXHIBIT C LIST OF AGREEMENTS RESTRICTING DEBT EXHIBIT D FORM OF CONFIDENTIALITY LETTER EXHIBIT E FORM OF GUARANTY EXHIBIT F FORM OF INTERCREDITOR AGREEMENT EXHIBIT G FORM OF ANNUAL CASH FLOW PROJECTION iv WESTERN GAS RESOURCES, INC. 12200 N. Pecos Street Denver, CO 80234 As of November 29, 1995 To Each of the Purchasers Identified on the Signature Pages of this Agreement 8.02% SENIOR NOTES Ladies and Gentlemen: The undersigned, Western Gas Resources, Inc. (the "COMPANY"), hereby agrees with each Purchaser as follows: PARAGRAPH 1. AUTHORIZATION OF ISSUE OF NOTES. 1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue of its senior promissory notes (the "NOTES") in the aggregate principal amount of $42,000,000, to be dated the date of issue thereof, to mature December 1, 2005, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of 8.02% per annum and on overdue payments at the rate specified therein, and to be substantially in the form of EXHIBIT A attached hereto. The term "NOTES" as used herein shall include each Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. CAPITALIZED TERMS USED HEREIN HAVE THE MEANINGS SPECIFIED IN PARAGRAPH 10. PARAGRAPH 2. PURCHASE AND SALE OF NOTES. 2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to each Purchaser and, subject to the terms and conditions herein set forth, each Purchaser severally agrees to purchase from the Company, the aggregate principal amount of Notes set forth opposite such Purchaser's name in the PURCHASER SCHEDULE attached hereto at 100% of such aggregate principal amount. The Company will deliver to each Purchaser, at the offices of Baker & Botts, L.L.P., 2001 Ross Avenue, Suite 800, Dallas, Texas 75201, one or more Notes registered in such Purchaser's name or (if so specified) in the name of such Purchaser's nominee, evidencing the aggregate principal amount of the Notes to be purchased by such Purchaser and in the denomination or denominations specified with respect to such Purchaser's in the PURCHASER SCHEDULE attached hereto, against payment of the purchase price thereof by wire transfer of immediately available funds for credit to the Company's account #0180352922 at NationsBank of Texas, N.A., ABA No. 1110-0002-5, 901 Main Street, Dallas, Texas 75202, on the date of closing, which shall be December 1, 1995 (the "CLOSING" or the "DATE OF CLOSING"). PARAGRAPH 3. CONDITIONS PRECEDENT. 3. CONDITIONS OF CLOSING. Each Purchaser's obligation to purchase and pay for the Notes to be purchased by such Purchaser hereunder is subject to the satisfaction, on or before the Date of Closing, of the following conditions: 3A. CERTAIN DOCUMENTS. Each Purchaser shall have received the following, each dated the Date of Closing unless otherwise indicated: (i) The Notes to be purchased by such Purchaser; (ii) A certificate of the Secretary or Assistant Secretary of each of the Company and each Guarantor certifying (a) the resolutions of the Board of Directors of each of the Company and the Guarantors approving this Agreement, the Notes and the Guaranties, respectively, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes and the Guaranties, and (b) the names and true signatures of the officers of the Company and the Guarantors authorized to sign this Agreement, the Notes and the Guaranties, respectively, and the other documents to be delivered hereunder; (iii) Certified copies of the Certificate of Incorporation and bylaws of each of the Company and each Guarantor; (iv) A favorable opinion of John C. Walter, General Counsel of the Company, reasonably satisfactory to such Purchaser and substantially in the form of EXHIBIT B attached hereto and as to such other matters as such Purchaser may reasonably request. The Company hereby directs such counsel to deliver such opinion, and understands and agrees that each Purchaser receiving such opinion will and is hereby authorized to rely on such opinion; (v) A certified copy of the NationsBank Agreement and all amendments, modifications, consents or waivers with respect thereto; (vi) A certified copy of the Master Shelf Agreement and all amendments, modifications, consents or waivers with respect thereto; 2 (vii) A certified copy of the 1993 Note Purchase Agreement and all amendments, modifications, consents or waivers with respect thereto; (viii) A certified copy of the Receivables Purchase Agreement and all amendments, modifications, consents or waivers with respect thereto; (ix) A certified copy of each guaranty or security agreement guaranteeing or securing the obligations of the Company under the NationsBank Agreement, the Master Shelf Agreement, the 1993 Note Purchase Agreement or the Receivables Purchase Agreement and all amendments, modifications, consents or waivers with respect thereto; (x) A copy of each Guaranty dated the date of issue thereof, duly executed by each Guarantor; (xi) A copy of the Intercreditor Agreement dated the date of issue thereof, duly executed by each Person that is the beneficiary of an Existing Guaranty; and (xii) A letter from NationsBanc Capital Markets, Inc., in form, scope and substance satisfactory to such Purchaser, regarding the limited nature of the offering of the Notes. 3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph 8 and in each Guaranty shall be true on and as of the Date of Closing; there shall exist on the Date of Closing no Event of Default or Default and no Default or Event of Default would result from the issuance of the Notes on the Date of Closing; and the Company and each Guarantor shall have delivered to such Purchaser an Officer's Certificate, dated the Date of Closing, to both such effects. 3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Notes to be purchased by such Purchaser on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as it may reasonably request to establish compliance with this condition. 3D. LEGAL MATTERS. Counsel to such Purchaser, including any special counsel retained in connection with the purchase and sale of the Notes, shall be satisfied as to all legal matters relating to such purchase and sale, and such Purchaser shall have received from such counsel favorable opinions as to such legal matters as such Purchaser may reasonably request. 3 3E. PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in substance and form to such Purchaser, and such Purchaser shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser may reasonably request. 3F. AMENDMENT OF OTHER AGREEMENTS. Neither the NationsBank Agreement, the Master Shelf Agreement, the 1993 Note Purchase Agreement nor the Receivables Purchase Agreement shall require (or if so required, such conditions shall simultaneously terminate) (i) the grant of a Lien on any property of the Company or any Subsidiary (other than (a) Liens permitted by clauses (vi) and (vii) of paragraph 6C(1) and (b) in the case of the Receivables Purchase Agreement, Liens on the Pledged Accounts Receivable (subject to the proviso set forth in the definition of "Permitted Securitization Program")) or (ii) the delivery of any security agreement or the guaranty or agreement to provide guaranties of the obligations of the Company under such agreements other than (a) any Existing Guaranty which is subject to the Intercreditor Agreement and for which such Purchaser shall have received a Guaranty from the same Guarantor and (b) any other guaranty or agreement to provide guaranties of the obligations of the Company under such agreements delivered after the Closing Date which becomes subject to the Intercreditor Agreement (as the same may hereafter be amended or otherwise modified) and for which such Purchaser shall have received a Guaranty pursuant to paragraph 5M from the same Guarantor. In addition, such agreements shall not require that any lender or purchaser party thereto, or an agent or representative thereof, be named as beneficiary or loss payee on any insurance policy and all insurance policies of the Company and its Subsidiaries shall not name any such lender or agent as beneficiary or loss payee. 3G. CONSENT OF LENDERS. The Company shall have received any consents required in connection with the execution, delivery and performance of this Agreement, the Notes and the Guaranties by the NationsBank Agreement, the Master Shelf Agreement, the 1993 Note Purchase Agreement or the Receivables Purchase Agreement and shall have delivered to such Purchaser a copy thereof and a copy of any amendment thereto (which must be satisfactory to such Purchaser) that is entered into in connection with the transactions contemplated hereby. 3H. FEES PAYABLE AT CLOSING. Without limiting the generality of paragraph 11B, the Company shall have paid on or before the Date of Closing the fees, charges and disbursements of such Purchaser's special counsel referred to in paragraph 3D to the extent reflected in a statement of such counsel rendered to the Company at least three Business Days prior to the Closing. 3I. PRIVATE PLACEMENT NUMBER. The Company shall have obtained or caused to be obtained a private placement number for the Notes from the CUSIP Service Bureau of Standard & Poor's Corporation and such Purchaser shall have been informed of such private placement numbers. 4 3J. SALE OF NOTES TO OTHER PURCHASERS. The Company shall have sold to the other Purchasers the Note(s) to be purchased by them at the Closing and shall have received payment in full therefor. PARAGRAPH 4. PREPAYMENTS. 4. PREPAYMENTS. The Notes shall be subject to prepayment only with respect to the optional prepayments permitted by paragraph 4A. 4A. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall be subject to prepayment on any Business Day on or after 90 days from the date of issuance thereof, in whole at any time or from time to time in part (in multiples of $1,000,000), at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield- Maintenance Amount, if any, with respect to each such Note. 4B. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of each Note to be prepaid pursuant to paragraph 4A irrevocable written notice of such prepayment not less than 30 days, and not more than 60 days, prior to the prepayment date (which shall be a Business Day), specifying such prepayment date, specifying the aggregate principal amount of the Notes to be prepaid on such date, identifying each Note held by such holder, and the principal amount of each such Note, to be prepaid on such date, providing an estimate (utilizing a Reinvestment Yield calculated as if the date of such notice were the Settlement Date) of the Yield-Maintenance Amount, if any, to become due on such prepayment date and the calculation of such estimate, and stating that such prepayment is to be made pursuant to paragraph 4A. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, herein provided, shall become due and payable on such prepayment date and, on the Business Day next preceding such prepayment date, the Company shall transmit by facsimile and by overnight courier to the holder of each Note to be so prepaid the calculation of the Yield-Maintenance Amount, if any, to be due on such prepayment date. 4C. APPLICATION OF PREPAYMENTS. In the case of each partial prepayment pursuant to paragraph 4A of all outstanding Notes, the principal amount to be prepaid shall be allocated to all Notes at the time outstanding (including, for the purpose of this paragraph 4C only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by any Subsidiaries or Affiliates of the Company other than by prepayment pursuant to paragraph 4A) in proportion to the respective outstanding principal amounts thereof. 4D. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their final maturities (other than by prepayment pursuant to paragraph 4A or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay 5 or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, except as provided in paragraph 4C. PARAGRAPH 5. AFFIRMATIVE COVENANTS. 5. AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid, the Company covenants that: 5A. FINANCIAL STATEMENTS. The Company will deliver to the holder of each Note in duplicate: (i) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, a consolidating and consolidated statement of operations and statement of cash flows of the Company and its Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidating and consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; PROVIDED, however, that delivery pursuant to clause (iv) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i) with respect to consolidated financial statements if such Quarterly Report contains such financial statements; (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, a consolidating and consolidated statement of operations and statement of cash flows of the Company and its Subsidiaries for such year, and a consolidating and consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and reasonably satisfactory in scope to the Required Holder(s) and, as to the consolidated statements, certified to the Company by independent public accountants of recognized national standing selected by the Company whose certificate shall be in scope and substance reasonably satisfactory to the Required Holder(s) and, as to the consolidating statements, certified by an authorized financial officer of the Company; PROVIDED, however, that delivery pursuant to clause (iv) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the 6 Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii) with respect to consolidated financial statements if such Annual Report contains such financial statements; (iii) as soon as practicable, and in any event within 105 days after the end of each fiscal year of MIGC, complete consolidated and consolidating (if applicable) financial statements of each of MIGC, MGTC and any other Subsidiary that owns or operates pipelines subject to state or federal rate regulation and has annual revenues in excess of $5,000,000, together with all notes thereto, prepared in reasonable detail in accordance with regulations promulgated by the Federal Energy Regulatory Commission in the case of MIGC and regulations promulgated by the Wyoming Public Service Commission in the case of MGTC, together with an opinion regarding MIGC, based on audits using generally accepted auditing standards, of independent certified public accountants of recognized national standing stating that such consolidated financial statements have been so prepared; such consolidated financial statements shall contain a balance sheet as of the end of such fiscal year and statements of operations and cash flows, and of changes in stockholders' equity for such fiscal year, each setting forth in comparative form the corresponding figures for the preceding fiscal year; (iv) promptly upon transmission thereof, copies of all such financial statements, proxy statements, press releases, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (v) prior to April 30 in each year, a projection of the consolidated cash flows of the Company, its Subsidiaries and the joint ventures in which the Company or its Subsidiaries has an investment for the current fiscal year, in the form of EXHIBIT G attached hereto; (vi) as soon as delivered to such Persons, all other reports, statements and notices delivered to (a) the agent, or the other lenders under the NationsBank Agreement or (b) if the NationsBank Agreement is no longer in effect, the lenders under the Company's major bank credit facility; and (vii) as soon as practicable after receipt thereof, a copy of each other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company at any time during which the Company is not required to file periodic reports with the Securities and Exchange Commission pursuant to section 13 or 15(d) of the Exchange Act; and 7 (viii) with reasonable promptness, such other information as the holder of any Note may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to the holder of each Note an Officer's Certificate demonstrating (with computations in reasonable detail) compliance by the Company and its Subsidiaries with the provisions of paragraphs 6A(l), 6A(2), 6A(3), 6A(4), 6B, 6C(l), 6C(2), 6C(3), 6C(4), 6C(5), 6C(6), and 6C(7) and stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to the holder of each Note a certificate of such accountants stating that, in making the audit necessary to the certification of such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Company also covenants that forthwith upon the chief executive officer, chief financial officer, Vice President-Finance, Executive Vice President-General Counsel, Treasurer or President of the Company obtaining knowledge of an Event of Default or Default, it will deliver to the holder of each Note an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. 5B. INSPECTION OF PROPERTY. The Company will permit any Person designated by the holder of any Note in writing, at such holder's expense, to visit and inspect any of the properties of the Company and its Subsidiaries while accompanied by personnel of the Company or a Subsidiary, to examine the corporate books and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times and as often as such holder may reasonably request, PROVIDED, that each Person so designated by any holder to visit and inspect any properties shall, by virtue of such designation, be deemed to have agreed to comply with the Company's on-site safety procedures that are applicable to such properties. If at the time of any such inspection a Default or an Event of Default exists, the Company shall pay all reasonable out of pocket costs incurred by each holder in connection with such inspection. 5C. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it or any Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6C(l) (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any 8 such other Debt shall be so secured pursuant to such agreements and instruments as shall be approved by the Required Holder(s), and the Company will cause to be delivered to each holder of a Note an opinion of independent counsel to the effect that such agreements and instruments are enforceable in accordance with their terms, and in any such case the Notes shall have the benefit, to the full extent that, and with such priority as, the holders of Notes may be entitled under applicable law, of an equitable Lien on such property or assets securing the Notes. A violation of paragraph 6C(1) will constitute an Event of Default hereunder, whether or not any such provision is made pursuant to this paragraph 5C. 5D. AGREEMENT ASSUMING LIABILITY ON NOTES. The Company covenants that, if at any time any Person should become liable (as co-obligor, endorser, guarantor or surety), on any other obligation of the Company or any obligation of any Subsidiary (other than (i) obligations incurred in the ordinary course of business evidencing guaranties of gas purchases, transportation fees and construction contracts, (ii) surety bonds, appeal bonds and construction bonds (including bonds necessary for right-of-way condemnation and bonds issuable upon appeals of judgments or in relation to injunctions or temporary restraining orders) incurred in the ordinary course of business, (iii) letter of credit reimbursement obligations with respect to letters of credit issued in the ordinary course of business but not for borrowed money, and (iv) endorsements of negotiable instruments for collection in the ordinary course of business), the Company will, at the same time, cause such Person to deliver to each holder of Notes an agreement as shall be approved by Required Holder(s) pursuant to which such Person becomes similarly liable on the Notes. 5E. NOTICE OF MATERIAL EVENTS. The Company will promptly notify the holder of each Note of (i) any material adverse change in the Company's business, property or assets, financial condition or results of operations or the Company's consolidated business, property or assets, financial condition or results of operations, (ii) the acceleration of the maturity of any Debt owed by the Company or any of its Subsidiaries or any default by the Company or any of its Subsidiaries under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such acceleration or default would have a material adverse effect upon the Company's consolidated business, property or assets, financial condition or results of operations, (iii) any material adverse claim (or any claim of $5,000,000 or more) asserted against the Company or any of its Subsidiaries or with respect to the Company's or any Subsidiary's properties, (iv) the occurrence of any Termination Event or of any event or condition known to the Company which might adversely affect the enforceability of this Agreement or any Note and (v) the filing of any suit or proceeding against the Company or any of its Subsidiaries in which an adverse decision could have a material adverse effect upon the Company's or any Subsidiary's business, property or assets, financial condition, or results of operations. Upon the occurrence of any of the foregoing the Company will, and will cause each such Subsidiary to, take all necessary or appropriate steps to remedy promptly any such material adverse change, Default, Event of Default or default, to protect against any such adverse claim, to defend any such suit or proceeding, to remedy any such Termination Event or event affecting enforceability, and to resolve all controversies on account of any of the foregoing. 9 5F. MAINTENANCE OF PROPERTIES. The Company will, and will cause each of its Subsidiaries to, maintain, preserve, protect and keep all material property used or useful in the conduct of its business in good condition and in compliance with all applicable laws, rules and regulations and will from time to time make all repairs, renewals and replacements needed to enable the business and operations carried on in connection therewith to be promptly and advantageously conducted at all times. 5G. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. The Company will, and will cause each of its Subsidiaries to, maintain and preserve its corporate existence and its rights and franchises in full force and effect and will qualify to do business as a foreign corporation in all states or jurisdictions where required by applicable law, except where the failure so to qualify will not have any material adverse effect on the business, property or assets, financial condition or result of operations of the Company and its Subsidiaries, taken as a whole. 5H. INSURANCE. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, maintain insurance with responsible and reputable insurance companies or associations in such amounts covering such risks as is usually carried by companies of similar size as the Company engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Subsidiary or Affiliate operates. 5I. COMPLIANCE WITH AGREEMENTS AND LAW. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, perform all material obligations it is required to perform under the terms of each indenture, mortgage, deed of trust, security agreement, lease, franchise, agreement, contract or other instrument or obligation to which it is a party or by which it or any of its properties is bound. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, conduct its business and affairs in compliance with all laws, regulations, and orders applicable thereto, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles except where noncompliance would not materially adversely affect the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. 5J. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and will cause each of its Subsidiaries and each of its Affiliates that is controlled by the Company or its Subsidiaries to, comply in a timely fashion with, or operate pursuant to valid waivers of the provisions of, all applicable federal, state and local environmental, or pollution-control laws, regulations, orders and decrees governing, without limitation, the emission of wastewater effluent, solid and hazardous waste and air pollution, and setting forth general environmental conditions together with any other applicable requirements for conducting, on a timely basis, periodic tests and monitoring for contamination of ground water, surface water, air and land and for biological toxicity of the aforesaid, 10 and diligently comply with the applicable regulations (except to the extent such regulations are waived by appropriate governmental authorities) of the Environmental Protection Agency or other relevant federal, state or local governmental authority except where noncompliance would not materially adversely affect the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. The Company shall not be deemed to have breached or violated the preceding sentence of this paragraph 5J if the Company, any Subsidiary or any Affiliate of the Company is challenging in good faith by appropriate proceedings diligently pursued the application or enforcement of any such governmental requirements for which adequate reserves have been established in accordance with generally accepted accounting principles. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES TO INDEMNIFY AND HOLD EACH HOLDER OF NOTES AND THEIR RESPECTIVE OFFICERS, AGENTS AND EMPLOYEES HARMLESS FROM ANY LOSS, LIABILITY, CLAIM OR EXPENSES THAT SUCH HOLDER OR ANY SUCH OFFICER, AGENT OR EMPLOYEE MAY INCUR OR SUFFER AS A RESULT OF A BREACH BY THE COMPANY, ITS SUBSIDIARIES OR AFFILIATES, AS THE CASE MAY BE, OF THIS COVENANT. 5K. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to and in compliance with the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5K, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act. 5L. ERISA. The Company will promptly pay and discharge, and will cause its Subsidiaries promptly to pay and discharge, all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a lien against any of its property and will promptly notify the holder of each Note of (i) the occurrence of any reportable event (as defined in ERISA) which might result in the termination by the PBGC of any Plan covering any officers or employees of the Company or of any Subsidiary, any benefits of which are, or are required to be, guaranteed by the PBGC, (ii) receipt of any notice from the PBGC of its intention to seek termination of any such Plan or appointment of a trustee therefor, and (iii) its intention to terminate or withdraw from any Plan. The Company will not, and will not permit any Subsidiary to, terminate any such Plan or withdraw therefrom unless it shall be in compliance with all of the terms and conditions of this Agreement after giving effect to any liability to the PBGC resulting from such termination or withdrawal. 5M. GUARANTIES. The Company shall require each Subsidiary that guarantees any obligations of the Company under the NationsBank Agreement, the Master Shelf Agreement, the 1993 Note Purchase Agreement or the Receivables Purchase Agreement to immediately execute and deliver to any holder of Notes a Guaranty. The Company will cause each such Subsidiary to deliver 11 to each holder of the Notes, simultaneously with its delivery of such a Guaranty, written evidence satisfactory to the Required Holder(s) and their counsel that such Subsidiary has taken all corporate or partnership action necessary to duly approve and authorize its execution, delivery and performance of such Guaranty and other documents which it is required to execute. PARAGRAPH 6. NEGATIVE COVENANTS. 6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, the Company covenants that: 6A. FINANCIAL COVENANTS. The Company will not permit: 6A.(1) CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth at any time to be less than $340,000,000 plus an amount equal to 50% of Consolidated Net Earnings subsequent to June 30, 1995 (but only to the extent such amount is a positive number) plus an amount equal to 75 % of the net cash proceeds received by the Company from the sale by the Company of any shares of its stock after June 30, 1995; 6A.(2) CURRENT RATIO. The ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.0 to 1.0 at any time. For the purposes of determining compliance with this paragraph 6A(2), (x) "Consolidated Current Liabilities" will be calculated without including any payments of principal of any Funded Debt of the Company which are required to be repaid within one year from the time of calculation and (y) "Consolidated Current Assets" shall include the amount of funds that are available to be borrowed under the Revolving Loan Agreement, where "available" means, as of the date of determination, the banks parties to the Revolving Loan Agreement are committed to advance such funds, no default exists under the Revolving Loan Agreement and all conditions to such banks advancing such funds would be satisfied. The Purchasers acknowledge that the Company currently calculates the current ratio only as of the end of each calendar month; 6A.(3) DEBT MAINTENANCE. Adjusted Consolidated Debt at any time to exceed (i) from the Date of Closing through October 31, 1996, 60% of Consolidated Net Tangible Assets, (ii) from November 1, 1996 through October 31, 1997, 57.5% of Consolidated Net Tangible Assets, and (iii) at any time after October 31, 1997, 55% of Consolidated Net Tangible Assets. In any event, for purposes of determining compliance with this paragraph 6A(3), Adjusted Consolidated Debt shall include without limitation all indebtedness included in determining compliance with the similar covenant in the NationsBank Agreement; and 6A.(4) FIXED CHARGE COVERAGE RATIO. For any fiscal quarter, the ratio of (i) the sum of (a) the Consolidated Net Earnings of the Company for the four immediately preceding fiscal quarters of the Company PLUS (b) the Company's consolidated interest expense, provision for income taxes, depreciation and amortization for the four immediately preceding fiscal quarters of the Company that were taken into account in determining such consolidated earnings PLUS (c) for each 12 calculation that includes the Company's fiscal quarter ending June 30, 1995, that certain $2,000,000 restructuring charge taken by the Company in its fiscal quarter ending June 30, 1995 as a result of the Company's general and administrative reductions, TO (ii) the Company's accrued consolidated interest expense for the four immediately preceding fiscal quarters, to be less than (x) 3.00 to 1.00 for the period commencing on the Date of Closing and ending on October 31, 1996, (y) 3.25 to 1.00 for the period commencing November 1, 1996 and ending October 31, 1997 and (z) 3.75 to 1.00 at any time after October 31, 1997. 6B. DIVIDEND LIMITATION. The Company will not make any Restricted Payment except out of Consolidated Net Earnings Available for Restricted Payments and unless no Default or Event of Default exists before such Restricted Payment is made and no Default or Event of Default would exist immediately after such Restricted Payment is made. 6C. LIEN, DEBT, AND OTHER RESTRICTIONS. The Company will not and will not permit any Subsidiary to: 6C.(1) LIENS. Create, assume or suffer to exist any Lien upon any of its properties or assets, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of Paragraph 5C), EXCEPT (i) Liens for taxes not yet due or which are being actively contested in good faith by appropriate proceedings, (ii) other statutory Liens incidental to the conduct of its business or the ownership of its property and assets (including landlord liens) that are not incurred in connection with the borrowing of money or the obtaining of advances or credit or guaranteeing the obligations of a Person, and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business, (iii) Liens on property or assets of a Subsidiary to secure obligations of such Subsidiary to the Company or a Wholly Owned Subsidiary, (iv) existing Liens on property of the Company or any Subsidiary described in SCHEDULE 6C(2) attached hereto and securing Debt permitted by subclause (a) of clause (ii) of paragraph 6C(2), (v) in the case of transactions that occur after the date hereof, Liens existing on any real property of any corporation at the time it becomes a Subsidiary, or existing prior to the time of acquisition upon any property acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the Company or such Subsidiary, or placed on property 13 at the time of acquisition by the Company or any Subsidiary to secure all or a portion of (or to secure Debt incurred to pay all or a portion of) the purchase price thereof, PROVIDED that (a) such property is not or shall not thereby become encumbered in any amount in excess of the lesser of the cost thereof or Fair Market Value thereof and (b) any such Lien shall not encumber any other property of the Company or such Subsidiary, (vi) Liens on deposit and other bank accounts of the Company created by the right of a lender party to the NationsBank Agreement to offset obligations of the Company owing thereunder against such accounts, if, and only if, there is no agreement between any such lender and the Company which requires the Company to maintain any deposit or other funds in any account with such lender other than as provided in clause (vii) below, (vii) Liens on deposits of the Company under the NationsBank Agreement to secure the face amount of outstanding letters of credit issued pursuant to the NationsBank Agreement, (viii) Liens on the Pledged Accounts Receivable securing sales or transfers of accounts receivable pursuant to the Permitted Securitization Program, and (ix) other Liens on the property of the Company, PROVIDED that the aggregate amount of Debt secured by Liens permitted by clauses (iv), (v), (viii) (to the extent of the Over-Collateralization Amount) and (ix), together with the amount of undrawn letters of credit subject to the obligation to provide deposits referred to in clause (vii), whether or not such deposits have been provided, does not exceed at any time an amount in excess of 5% of Consolidated Tangible Net Worth. 6C.(2) DEBT. Create, incur, assume or suffer to exist any Debt, EXCEPT (i) Debt of the Company represented by the Notes, (ii) (a) Debt of the Company or any Subsidiary to third parties described in SCHEDULE 6C(2) attached hereto which shall not be renewed, extended or permitted to remain outstanding after the stated maturities thereof, (b) Debt of the Company or any Subsidiary to third parties secured by Liens permitted by the provisions of clauses (v), (viii) (to the extent of the Over-Collateralization Amount) and (ix) of paragraph 6C(l) and (c) the amount of undrawn letters of credit permitted by clause (vii) of paragraph 6C(1), PROVIDED that the aggregate amount of the Debt described in this clause (ii) of paragraph 6C(2) does not exceed at any time an amount equal to 5% of Consolidated Tangible Net Worth. 14 (iii) Debt of any Subsidiary to the Company or any other Wholly Owned Subsidiary, and Debt of the Company to any Subsidiary, in each case arising from an extension of credit, advance or loan permitted by clause (ii) of paragraph 6C(7), (iv) other Debt of the Company not prohibited by 6A(3), and (v) Debt of the Guarantors represented by the Existing Guaranties and the Guaranties. 6C.(3) LIMITATION ON INVESTMENTS AND NEW BUSINESSES. (i) Make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by clause (iii) or clause (iv) of this paragraph 6C(3)); (ii) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to its present businesses and operations (which shall be deemed to include electric power generation and marketing and expenditures, commitments, obligations and transactions permitted by clause (iii) or clause (iv) of this paragraph 6C(3)); (iii) make any acquisitions of, capital contributions to, or other investments in, any Persons which exceed in the aggregate $500,000 other than (a) capital contributions to and investments in Wholly Owned Subsidiaries, (b) acquisitions of equity in corporations or partnerships having as their primary business gas processing, transmission and gathering, oil and gas production and storage or gas marketing and related activities or electric power generation and marketing which do not exceed in the aggregate 10% of Consolidated Net Tangible Assets and (c) deposits with, investments in, obligations of and time deposits in any domestic bank or domestic branches of foreign banks which, at the time such deposit or investment is made, are rated A or better by Standard & Poor's or Moody's or B or better by Thompson Bank Watch and investments maturing within one year from the date of acquisition in direct obligations of or obligations supported by, the full faith and credit of, the United States of America; or (iv) make any acquisition or investment in any properties other than gas processing, transmission and gathering facilities, domestic oil and gas properties, gas storage facilities, gas inventory and electric power generation facilities which exceeds $5,000,000; PROVIDED, however, that the loans referred to in paragraph 6C(7) may be outstanding. 6C.(4) SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose of, or part with control of, any shares of stock or Debt of any Subsidiary, except to the Company or another Wholly Owned Subsidiary, and except that all shares of stock and Debt of any Subsidiary at the time owned by or owed to the Company and all Subsidiaries may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Board of Directors of the Company) at the time of sale of the shares of stock and Debt so sold, PROVIDED that (i) the assets of such Subsidiary together with (ii) the assets of all other Subsidiaries the stock or Debt of which was sold or otherwise disposed of in the preceding 12-month period and (iii) the assets of the Company and its Subsidiaries sold, leased, transferred or otherwise disposed of pursuant to clause (v) of paragraph 6C(5) in the preceding 12-month period (in each transaction measured by the greater of book value or Fair Market Value), do not represent more than 15% of Consolidated Net Tangible 15 Assets as reflected on the most recent annual or quarterly consolidated balance sheet, and PROVIDED FURTHER that, at the time of such sale, such Subsidiary shall not own, directly or indirectly, any shares of stock or Debt of, or any other continuing investment in, any other Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary owned, directly or indirectly, by the Company and all Subsidiaries are simultaneously being sold as permitted by this paragraph 6C(4)), or any shares of stock or Debt of the Company. 6C.(5) MERGER AND SALE OF ASSETS. Merge or consolidate with or into any other Person or sell, convey, lease, transfer or otherwise dispose of all or any part of its assets, EXCEPT that: (i) (a) any Subsidiary may merge with the Company (PROVIDED, that the Company shall be the continuing or surviving corporation) and (b) any Subsidiary may merge with a Wholly Owned Subsidiary (PROVIDED that the Wholly Owned Subsidiary shall be the continuing or surviving corporation), (ii) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Company or to a Wholly Owned Subsidiary, (iii) the Company may merge with any other corporation, PROVIDED that (a) the Company shall be the continuing or surviving corporation, and (b) immediately after giving effect to such merger no Event of Default or Default shall exist, (iv) any non Wholly Owned Subsidiary may merge or consolidate with any other corporation, PROVIDED, that immediately after giving effect to such merger or consolidation (a) the continuing or surviving corporation of such merger or consolidation shall constitute a Subsidiary, and (b) no Event of Default or Default shall exist, (v) the Company or any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to any Person, PROVIDED, that (a) such assets together with (b) all other assets of the Company and its Subsidiaries sold, leased, transferred or otherwise disposed of during the preceding 12 month period, and (c) the assets of all Subsidiaries the stock or Debt of which has been sold or otherwise disposed of during the preceding 12-month period pursuant to the first proviso of paragraph 6C(4) (in each transaction measured by the greater of book value or Fair Market Value), do not represent more that 15% of Consolidated Net Tangible Assets as reflected on the most recent annual or quarterly consolidated balance sheet, 16 (vi) the Company may merge into or consolidate with any solvent corporation if (x) the surviving corporation is a corporation organized under the laws of any State of the United States of America, (y) such corporation shall expressly assume by an agreement satisfactory in substance and form to the Required Holder(s) (which agreement may require the delivery in connection with such assumption of such opinions of counsel as the Required Holder(s) may reasonably require), all of the obligations of the Company under this Agreement and the Notes, including all covenants herein and therein contained, and such successor or acquiring corporation shall succeed to and be substituted for the Company with the same effect as if it had been named herein as a party hereto (it being agreed that such assumption shall, upon the request of the holder of any outstanding Note and at the expense of such successor corporation, be evidenced by the exchange of such Note for another Note executed by such successor corporation, with such changes in phraseology and form as may be appropriate but in substance of like terms as the Note surrendered for such exchange and of like unpaid principal amount, and that each Note executed pursuant to paragraph 11E after such assumption shall be executed by and in the name of such successor corporation) and (z) after giving effect to such merger or consolidation no Event of Default or Default shall exist, (vii) the Company and any Subsidiary may sell or otherwise dispose of property (including inventory) in the ordinary course of business, and (viii) the Company may sell Pledged Accounts Receivable pursuant to the Permitted Securitization Program in an aggregate amount not to exceed $75,000,000. 6C.(6) LEASE RENTALS. Except for oil, gas and mineral leases or permits or similar agreements entered into in the ordinary course of business, and except for leases for transportation equipment, including over-the-road trucks and tankers, data processing and other office equipment used in the ordinary course of business, enter into or permit to remain in effect, any agreements to rent or lease (as lessee) any real or personal property for terms (including options to renew or extend any term, whether or not exercised) of more than three years if after giving effect thereto the aggregate amount of all sums payable in any fiscal year by the Company and all Subsidiaries under all such leases would exceed $4,000,000. 6C.(7) LIMITATION ON CREDIT EXTENSIONS. Extend credit, make advances or make loans other than (i) normal and prudent extensions of credit in the ordinary course of business, which extensions shall not be for longer periods than those extended by similar businesses operated in a normal and prudent manner, (ii) loans from Wholly Owned Subsidiaries to the Company, and loans from Wholly Owned Subsidiaries or the Company to any Subsidiary, in each case made in the ordinary course of business and, in the case of loans from Wholly Owned Subsidiaries that have not executed a Guaranty which are made to the Company or to a Subsidiary that has executed a Guaranty, subordinated to the principal of, interest on and Yield-Maintenance Amount, if any, with respect to the Notes, and (iii) loans made by the Company to its employees pursuant to 17 the Stock Option Agreements; PROVIDED that the aggregate amount of all such loans permitted by this clause (iii) outstanding at any time shall not exceed $10,000,000. 6C.(8) CONTRACTS; TAKE-OR-PAY AGREEMENTS. Enter into any "take-or-pay" contract or other contract which requires it to pay for oil, gas, other hydrocarbons or other minerals prior to taking delivery thereof, PROVIDED that the Company may enter into such contracts so long as the aggregate maximum direct and contingent liability of the Company under such contracts does not exceed $500,000 at any one time, and PROVIDED FURTHER that the Company may enter into contracts with gas producers requiring the Company to make payments if the Company has not connected the producer's well to the Company's gathering system within a specified period of time, so long as the maximum direct or contingent liability of the Company under such contract does not exceed $500,000. The Company and its Subsidiaries may enter into: (a) Short Hedge Futures to sell natural gas or liquid hydrocarbons or to offset a Long Hedge Future; and (b) Long Hedge Futures to purchase natural gas or liquid hydrocarbons or to offset a Short Hedge Future; PROVIDED, however, that at the time of entering into a Short Hedge Future, the Company shall own and have available to it sufficient amounts of natural gas or liquid hydrocarbons, as the case may be, or shall own pursuant to firm contracts to deliver natural gas or liquid hydrocarbons, as the case may be, pursuant to such Short Hedge Future; PROVIDED, further, that at the time of entering into a Long Hedge Future, the Company shall have sufficient agreements from Counterparties to purchase natural gas or liquid hydrocarbons, as the case may be, from the Company so that the Company can resell natural gas or liquid hydrocarbons, as the case may be, delivered pursuant to such Long Hedge Future. 6C.(9) SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or discount (other than to the extent of finance and interest charges included therein) or otherwise sell for less than face value thereof, any of its notes or accounts receivable EXCEPT (i) notes or accounts receivable the collection of which is doubtful in accordance with generally accepted accounting principles and (ii) pursuant to the Permitted Securitization Program; PROVIDED, however, that the Company and its Subsidiaries may not have more than one Permitted Securitization Program outstanding at any time. 6C.(10) GUARANTIES. Enter into or be party to: (i) any contract for the purchase of materials, supplies or other property or services if such contract (or any related document) requires that payment for such materials, supplies or other property or services shall be made regardless of whether or not delivery of such materials, supplies or other property or services is ever made or tendered, or (ii) any contract to rent or lease (as lessee) any real or personal property if such contract (or any related document) provides that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use or requires that the lessee purchase or otherwise acquire securities or obligations of the lessor, or 18 (iii) any contract for the sale or use of materials, supplies or other property, or the rendering of services, if such contract (or any related document) requires that payment for such materials, supplies or other property, or the use thereof, or payment for such services, shall be subordinated to any indebtedness (of the purchaser or user of such materials, supplies or other property or the Person entitled to the benefit of such services) owed or to be owed to any Person, or (iv) any other contract that is a guaranty, an endorsement or another form of contingent liability in respect of the obligations, stock or dividends of any Person or that, in economic effect, is substantially equivalent to a guaranty (other than the guaranties permitted by clause (v) of paragraph 6C(2)); provided, that the -------- foregoing provisions shall not apply to endorsements of negotiable instruments for collection in the ordinary course of business; PROVIDED, that, notwithstanding the foregoing, any contract of the type specified in any of the provisions of this paragraph 6C(10) shall be permitted if the obligations of the Company thereunder constitute Debt of the type described in clause (iv) of the definition thereof and such Debt were permitted by the Debt limitations contained in paragraph 6A(3). 6C.(11) TRANSACTIONS WITH AFFILIATES. Directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or otherwise deal with, in the ordinary course of business or otherwise (i) any Affiliate, (ii) any Person owning, beneficially or of record, directly or indirectly, either individually or together with all other Persons to whom such Person is related by blood, adoption or marriage, stock of the Company (of any class having ordinary voting power for the election of directors) aggregating 5% or more of such voting power or (iii) any Person related by blood, adoption or marriage to any Person described or coming within the provisions of clause (i) or (ii) of this paragraph 6C(11), PROVIDED that the Company may sell to, or purchase (within the limitations of paragraph 6B) from, any such Person shares of the Company's stock and except for transactions that are otherwise permitted by this Agreement and that are in the ordinary course of the Company's or a Subsidiary's business, and are also upon fair and reasonable terms no less favorable to the Company or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. 6C.(12) PANHANDLE JOINT VENTURE DEBT. Permit the Panhandle Joint Venture to create, incur, assume or suffer to exist any Debt. 6D. ISSUANCE OF STOCK BY SUBSIDIARIES. The Company covenants that it will not permit any Subsidiary to issue, sell or dispose of any shares of its stock of any class except to the Company or a Wholly Owned Subsidiary, and except to the extent that holders of minority interests may be entitled to purchase stock by reason of preemptive rights. 19 6E. OTHER AGREEMENTS. Without the prior written consent of the Required Holder(s), the Company will not amend, modify or waive (i) any provision of the Term Loan Agreement which would shorten the maturity or average life of any loan thereunder, (ii) any provision of the Revolving Loan Agreement which would shorten any commitment thereunder, or (iii) any provision of the Master Shelf Agreement or the 1993 Note Purchase Agreement which would shorten the maturity or average life of any note issued thereunder. PARAGRAPH 7. EVENTS OF DEFAULT. 7A. ACCELERATION. If any of the following events shall occur for any reason whatsoever and be continuing (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or Yield Maintenance Amount payable with respect to any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than 10 Business Days after the date due; or (iii) the Company or any Subsidiary defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other Debt beyond any period of grace provided with respect thereto, or the Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be repurchased by the Company or any Subsidiary) prior to any stated maturity, PROVIDED that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration (or resale to the Company or any Subsidiary) shall occur and be continuing exceeds $10,000,000; or (iv) any representation or warranty made by the Company herein, by any Guarantor in a Guaranty or by the Company, any Guarantor or any of their respective officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or (v) the Company fails to perform or observe any term, covenant or agreement contained in paragraph 6; or 20 (vi) the Company fails to perform or observe any other agreement, covenant, term or condition contained herein and such failure shall not be remedied within 30 days after the Chief Executive Officer, President, Chief Financial Officer, Vice President-Finance, Treasurer or the Executive Vice President-General Counsel of the Company obtains actual knowledge thereof; or (vii) the Company or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "BANKRUPTCY LAW"), of any jurisdiction; or (ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Subsidiary, or of any substantial part of the assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States of America or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days; or (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing a split-up of the Company or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary whose assets represent a substantial part, of the consolidated assets of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of a Subsidiary, which shall have contributed a 21 substantial part of the Consolidated Net Earnings of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xiii) any judgment or order, or series of judgments or orders, for the payment of money in an amount in excess of $5,000,000 is rendered against the Company or any Subsidiary and either (i) enforcement proceedings have been commenced by any creditor upon such judgment or order or (ii) within 30 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 30 days after the expiration of any such stay, such judgment is not discharged; or (xiv) (a) the Company or any other Person who is a member of the Company's "control group" (as such term is defined under ERISA) fails to make all or any portion of a required installment payment under 29 U.S.C. (S)1082(e) with respect to any Plan, (b) the aggregate unpaid balance of such installment together with the unpaid balance of all prior installments and other payments due under 29 U.S.C. (S)1082 (including any accrued interest on such amounts) exceeds $1,000,000, and (c) such amounts remain unpaid for more than 30 days after the due date of the installment referred to in clause (a); or (xv) the Company or any of its Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $1,000,000; or (xvi) the Company or any Affiliate breaches or defaults in the performance of any agreement or instrument creating or evidencing any Permitted Securitization Program or breaches or defaults in the performance of any prefunding facility associated therewith, and any such breach or default continues beyond any applicable period of grace provided therefor, or any early or accelerated amortization of any obligations or rights commences to occur under any such facility without a replacement facility (on terms consistent with those set forth in paragraph 6C(9)) being effective to provide for replacement funding therefor; then (a) if such event is an Event of Default specified in clause (viii), (ix) --- or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable together with interest accrued thereon and, to the extent permitted by applicable law, the Yield-Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate and notice of acceleration of maturity), all of which are hereby waived by the Company, 22 (b) if such event is an Event of Default specified in clause (i) or (ii) of this - --- paragraph 7A, the holder of any Note (other than the Company or any of its Subsidiaries or Affiliates) as to which such an Event of Default shall have occurred may at its option during the continuance of such Event of Default, by notice in writing to the Company, declare such Note to be, and such Note shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with, to the extent permitted by applicable law, the Yield-Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate), all of which are hereby waived by the Company, (c) if such event is any other Event of Default, the Required --- Holder(s) may at its or their option during the continuance of such Event of Default, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with, to the extent permitted by applicable law, the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate), all of which are hereby waived by the Company, and (d) if any Note shall have been declared --- to be due and payable pursuant to clause (b) above, any holder of any other Note may at any time thereafter, so long as the Event of Default described in clause (b) above shall at such time be continuing, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of the Notes held by such holder shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with, to the extent permitted by applicable law, the Yield-Maintenance Amount, if any, with respect to each such Note, without presentment, demand, protest or notice of any kind (including, without limitation, notice of intent to accelerate), all of which are hereby waived by the Company. The Company acknowledges and the parties hereto agree, that the holder of each Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and the provisions for payment of the Yield-Maintenance Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, are intended to provide compensation for the deprivation of such right under such circumstances. 7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes are declared immediately due and payable and have not been paid in full, the Required Holder(s) may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company has paid all overdue interest on the Notes, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes, (ii) all Events of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration have been cured or waived pursuant to paragraph 11C, and (iii) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom. 23 7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note at the time outstanding. 7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. PARAGRAPH 8. REPRESENTATIONS, COVENANTS AND WARRANTIES. 8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants as of the date hereof as follows: 8A. ORGANIZATION. The Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware, each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and the Company has and each Subsidiary has the corporate power to own its respective property and to carry on its respective business as now being conducted. The execution, delivery and performance by the Company of this Agreement and the Notes are within the Company's corporate powers and have been duly authorized by all necessary corporate action, and the execution, delivery and performance by each Guarantor of its respective Guaranty are within such Guarantor's corporate powers and have been duly authorized by all necessary corporate action. SCHEDULE 8A attached hereto sets forth the name and jurisdiction of incorporation of each Subsidiary and the percentage of the Company's ownership interest in each such Subsidiary and identifies each Subsidiary that is a Guarantor, all as of the Date of Closing. 8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as at December 31 in each of the four fiscal years of the Company most recently completed and consolidated statements of operations and cash flows of the Company and its Subsidiaries for each of the five fiscal years of the Company most recently completed, all certified by Price Waterhouse L.L.P.; and (ii) consolidated balance sheets of the Company and its Subsidiaries as at the end of the quarterly period ended September 30, 1995 and the comparable quarterly period in the preceding fiscal year and consolidated statements of operations and cash flows for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial 24 statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed (except as set forth in the notes thereto if consistent with generally accepted accounting principles and generally accepted auditing standards) throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the consolidated financial condition of the Company and its Subsidiaries as at the dates thereof, and the statements of operations and cash flows fairly present the results of the consolidated operations of the Company and its Subsidiaries for the periods indicated. There has been no material adverse change in the business, property or assets, financial condition or results of operations (financial or otherwise) of the Company and its Subsidiaries taken as a whole since December 31, 1994. 8C. ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company, any of its Subsidiaries, any of its Affiliates that is controlled by the Company or any joint venture in which the Company or any of its Subsidiaries has an investment, or any properties or rights of the Company, any of its Subsidiaries, any of its Affiliates that is controlled by the Company or any joint venture in which the Company or any of its Subsidiaries has an investment, by or before any court, arbitrator or administrative or governmental body which is reasonably likely to result in any material adverse change in the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole. There is no action, suit, investigation or proceeding pending or threatened against the Company or any of its Subsidiaries, any of its Affiliates that is controlled by the Company or any joint venture in which the Company or any of its Subsidiaries has an investment which purports to affect the validity or enforceability of this Agreement, any Note or any Guaranty. 8D. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries has outstanding any Debt except as permitted by paragraph 6C(2). There exists no default (and no waiver of any default that is conditional or is limited in duration) under the provisions of any instrument evidencing such Debt, or any Debt of any joint venture in which the Company or any Subsidiary has an investment, or of any agreement relating thereto. 8E. ENVIRONMENTAL COMPLIANCE. The Company, each of its Subsidiaries, each of its Affiliates that is controlled by the Company and each joint venture in which the Company or any of its Subsidiaries has an investment and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local and regional statutes, laws, ordinances and judicial and administrative orders, judgments, rulings and regulations relating to protection of the environment except, in any such case, where failure to comply would not result in a material adverse effect on the business, property or assets, financial condition or results of operations (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 25 8F. TAXES. The Company has and each of its Subsidiaries has filed all Federal, State and other income tax returns which, to the best knowledge of the officers of the Company and its Subsidiaries, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service (or the applicable statute of limitations has run) and such liabilities have been paid for all fiscal years up to and including the fiscal year ended December 31, 1989. 8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, or financial condition. Neither the execution nor delivery of this Agreement, the Notes or the Guaranties, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes or the Guaranties except as set forth in the agreements listed in EXHIBIT C attached hereto. 8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than the Purchasers and not more than 80 other institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of Section 5 of the Securities Act or to the registration, prospectus delivery or similar provisions of any securities or Blue Sky law of any applicable jurisdiction. 8I. REGULATION G, ETC. The proceeds of the sale of the Notes will be used to refinance existing indebtedness under the Revolving Loan Agreement. None of the proceeds of the sale of any Notes will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" as defined in Regulation G (12 C.F.R. Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock") or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to 26 purchase or carry any stock that is then currently a margin stock or for any other purpose which might constitute the purchase of such Notes a "purpose credit" within the meaning of such Regulation G. After applying the proceeds of the sale of the Notes, not more than 25% of the value of the assets subject to the terms of paragraph 5C, 6C(l), 6C(4) or 6C(5) will be "margin stock." Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. 8J. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company or any of its Subsidiaries which is or would be materially adverse to the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole. No Plan providing welfare benefits to retired former employees of the Company or any of its Subsidiaries has been established or is maintained for which the present value of future benefits payable, in excess of irrevocably designated funds for such purpose, is materially adverse to the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole. The purchase of Notes by the Purchasers will not constitute a "prohibited transaction" (as such term is defined in section 406 of ERISA or section 4975 of the Code). The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of the representations of the Purchasers in paragraph 9B. Neither the Company or any ERISA Affiliate, nor any "employee benefit plan" (as such term is defined in section 3 of ERISA) of the Company or any ERISA Affiliate or any trust created thereunder or any trustee or administrator thereof, has engaged in any "prohibited transaction" that could subject any such Person, or any other party dealing with such employee benefit plan or trust, to such penalty or tax. 8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental or regulatory body (other than routine filings after the Date of Closing with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement or any Guaranty, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof, of any Guaranty or of the Notes. 27 8L. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has good and defensible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6C(1) except that (i) with respect to easements and rights of way associated with the Company's gas gathering systems: (a) the Company has such title as is customary and appropriate in accordance with applicable industry standards and (b) the costs of curing defects in such title, if any, would not exceed $10,000,000 in the aggregate, (ii) no representation or warranty is made with respect to any gas or mineral property or interest to which no proved oil or gas reserves are properly attributed and (iii) with respect to Western Gas Resources Storage, Inc.'s Katy Hub and Gas Storage Facility: (a) the condemnation process relating to certain storage rights, rights-of-way and well easements has not been completed and therefore, as of the Closing Date, Western Gas Resources Storage, Inc. has, with respect to such storage rights, rights-of-way and well easements, only the right to the possession thereof (such right to possession being sufficient to enable Western Gas Resources Storage, Inc. to conduct its business and operations at the Katy Hub and Gas Storage Facility as currently conducted and as proposed to be conducted) and (b) when such condemnation process is completed and Western Gas Storage, Inc. has paid all amounts determined to be due to the condemnee with respect thereto, Western Gas Storage, Inc. will obtain good and defensible title to said storage rights, rights-of-way and well easements. All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid and subsisting and are in full force and effect. 8M. DISCLOSURE. Neither this Agreement nor the Private Placement Memorandum nor any other document, certificate or statement furnished to the Purchasers by or on behalf of the Company or any Guarantor in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future is reasonably likely (so far as the Company can now foresee) to materially adversely affect the business, property or assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole and which has not been set forth in this Agreement or in the Private Placement Memorandum. The financial projections provided to the Purchasers prior to the Date of Closing are reasonable based on the assumptions stated therein and the best information available to the officers of the Company. 8N. DELIVERY OF OTHER AGREEMENTS. The Company has delivered to each Purchaser prior to the date hereof a true, correct and complete copy of each of the NationsBank Agreement, the Master Shelf Agreement, the 1993 Note Purchase Agreement and the Receivables Purchase Agreement, including all amendments and waivers of any provision thereof. 8O. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT. Neither the Company nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or a "public utility company" as such terms are defined in the Public Utility Holding 28 Company Act of 1935, as amended, or, except for Western Gas Resources Power Marketing, Inc., a "public utility" as such term is defined in the Federal Power Act, as amended. 8P. INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary is, or is directly or indirectly controlled by, or acting on behalf of any Person that is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8Q. RANK OF NOTES. The Notes rank at least pari passu in right of payment with all other senior unsecured Debt of the Company, including without limitation the Debt with respect to the NationsBank Agreement, the Master Shelf Agreement and the 1993 Note Purchase Agreement. PARAGRAPH 9. REPRESENTATIONS OF THE PURCHASERS. 9. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser severally represents to the Company as of the date hereof as follows: 9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to be purchased by it hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of the property of such Purchaser shall at all times be and remain within its control. 9B. SOURCE OF FUNDS. Such Purchaser represents that at least one of the following statements concerning each source of funds to be used by it to purchase any Notes (respectively, the "SOURCE") is accurate as of the Date of Closing with respect to such Notes: (i) The Source is not an "employee benefit plan" as defined in Title 1, Section 3(3) of ERISA; (ii) the Source is a "governmental plan" as defined in Title I, Section 3(32) of ERISA; (iii) the Source is the general account of such Purchaser, and all requirements for an exemption under PTE 95-60 (issued July 12, 1995) have been satisfied; provided, that in making such representation such Purchaser is relying on the Company's representations set forth in paragraph 8J; (iv) the Source is either (a) an insurance company pooled separate account, and the purchase is exempt in accordance with PTE 90-1 (issued January 29, 1990), or (b) an insurance company "guaranteed contract separate account" entitled to the exemption granted by PTE 81-82 (issued September 18, 1981) and described in Department of Labor Advisory Opinion F2584A (issued September 21, 1983); 29 (v) the Source is an "investment fund" managed by a "qualified professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), and the purchase is exempt under PTE 84-14; provided that no other party to the transactions described in this Agreement and no "affiliate" of such other party (as defined in Section V(c) of PTE 84-14) has at this time, and during the immediately preceding one year, exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified to the Company in writing pursuant to this clause (v) or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans; or (vi) the Source is a plan or a separate account comprised of plans identified in writing by such Purchaser to the Company pursuant to this clause (vi). PARAGRAPH 10. DEFINITIONS. 10. DEFINITIONS. For the purpose of this Agreement, the terms defined in the introductory sentence and in paragraphs 1 and 2 shall have the respective meanings specified therein, and the following terms shall have the meanings specified with respect thereto below (such meanings to be equally applicable to both the singular and plural forms of the terms defined): 10A.YIELD-MAINTENANCE TERMS. "CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4A or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a quarterly basis) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by (a) the yields reported, as of --- 10:00 A.M. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 500" on the Telerate Service (or such other display as may replace page 500 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, plus 0.50%, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (b) --- the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant 30 maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, plus 0.50%. All implied yields under either clause (a) or (b) of this definition shall be determined, (i) if necessary, by (x) converting U.S. --- Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (y) interpolating linearly between yields reported for --- various maturities, and (ii) by converting all such implied yields to a quarterly payment basis in accordance with accepted financial practice. "REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one- twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum --- ---- of the products obtained by multiplying (a) each Remaining Scheduled Payment of --- such Called Principal (but not of interest thereon) by (b) the number of years --- (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest that would accrue thereon on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4A or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 10B. OTHER TERMS. "ADJUSTED CONSOLIDATED DEBT" shall mean Consolidated Debt (excluding Debt in the amount of the Receivables Investment relating to the Permitted Securitization Program) PLUS Excess Working Capital Deficit. "AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AUTHORIZED OFFICER" shall mean, in the case of the Company, its Chief Executive Officer, its Chief Financial Officer, its Treasurer, its President or the Executive Vice President-General Counsel or the Vice President-Finance of the Company. Any action taken under this Agreement on behalf of the Company by any individual who on or after the date of this Agreement 31 shall have been an Authorized Officer of the Company and whom any holder of a Note in good faith believes to be an Authorized Officer of the Company at the time of such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company. "BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 7A. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which, under generally accepted accounting principles, is or will be required to be, capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expenses) in accordance with such principles. "CLOSING" shall have the meaning specified in paragraph 2. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" shall mean any material non-public information regarding the Company and its Subsidiaries that is provided to any holder of any Note, any Person who purchases a participation in a Note and any offeree of a Note or participation therein pursuant to this Agreement other than information (i) which was publicly known or otherwise known to such holder, such Person or such offeree at the time of disclosure, (ii) which subsequently becomes publicly known through no act or omission of such holder, such Person or such offeree or (iii) which otherwise becomes known to such holder, such Person or such offeree, other than through disclosure by the Company or any Subsidiary. "CONSOLIDATED CURRENT ASSETS" shall mean the consolidated current assets of the Company and its Subsidiaries, as determined in accordance with generally accepted accounting principles. "CONSOLIDATED CURRENT LIABILITIES" shall mean the consolidated current liabilities (including, without limitation, the Debt in respect of the Permitted Securitization Program) of the Company and its Subsidiaries, as determined in accordance with generally accepted accounting principles. "CONSOLIDATED DEBT" shall mean the consolidated Debt of the Company and its Subsidiaries, determined in accordance with generally accepted accounting principles. 32 "CONSOLIDATED NET EARNINGS" shall mean consolidated gross revenues of the Company and its Subsidiaries including any gains (net of expenses and taxes applicable thereto) resulting from the sale, conversion or other disposition of capital assets (i.e., assets other than current assets), LESS all operating and non-operating expenses of the Company and its Subsidiaries including all losses resulting from the sale, conversion or other disposition of capital assets (i.e. assets other than current assets) and all charges of a proper character (including current and deferred taxes on income, provision for taxes on unremitted foreign earnings that are included in gross revenues, and current additions to reserves), but not including in gross revenues any gains resulting from the write-up of assets, any equity of the Company or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary, any earnings of any Person acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise for any period prior to the time of acquisition, or any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary, all determined in accordance with generally accepted accounting principles. "CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" shall mean an amount equal to (1) the sum of $50,000,000 PLUS (2) 50% (or minus 100% in case of a deficit) of Consolidated Net Earnings for the period commencing on July 1, 1995 and terminating at the end of the last fiscal quarter preceding the date of any proposed Restricted Payment (taken as one accounting period), LESS (3) the sum of all Restricted Payments made or declared after June 30, 1995, plus (4) the aggregate amount received by the Company after June 30, 1995, as the net cash proceeds of the sale of any shares of its stock. There shall not be included in Restricted Payments or in any computation of Consolidated Net Earnings Available for Restricted Payments (x) dividends paid, or distributions made, in stock of the Company; or (y) exchanges of stock of one or more classes of the Company, except to the extent that cash or other value is involved in such exchange. The term "stock" as used in this definition and in the definition of "Restricted Payments" shall include warrants or options to purchase stock. "CONSOLIDATED NET TANGIBLE ASSETS" shall mean the consolidated assets of the Company and its Subsidiaries, LESS, without duplication, (i) Consolidated Current Liabilities MINUS Excess Working Capital Deficit, (ii) asset, liability, contingency and other reserves of the Company and its Subsidiaries, including reserves for depreciation and for deferred income taxes, (iii) all other liabilities of the Company and its Subsidiaries, except liabilities for Funded Debt of the types described in clauses (i), (ii) and (iii) of the definition of Debt, and (iv) treasury stock, unamortized debt discount and expense, goodwill, trademarks, brand names, patents, organizational expenses and any other intangible assets of the Company and its Subsidiaries, and any write- up of the value of any assets after June 30, 1991, all as determined in accordance with generally accepted accounting principles; PROVIDED, HOWEVER, that the term "Consolidated Net Tangible Assets" shall include the book value of long-term gas contracts with producers that the Company assumes in connection with acquisitions and that are reflected on the books of the Company as assets. 33 "CONSOLIDATED TANGIBLE NET WORTH" shall mean consolidated stockholders' equity of the Company and its Subsidiaries, less goodwill, trademarks, brand names, patents, organizational expenses and any other intangible assets of the Company and its Subsidiaries, all as determined in accordance with generally accepted accounting principles; PROVIDED, HOWEVER, that the term "Consolidated Tangible Net Worth" shall include the book value of long-term gas contracts with producers that the Company assumes in connection with acquisitions and that are reflected on the books of the Company as assets. "COUNTERPARTY" shall mean (i) those Persons listed on SCHEDULE 6C(8) attached hereto, (ii) any Person that is not an Affiliate of the Company and that has senior debt securities rated at least A by Standard & Poor's or Moody's or whose obligations in respect of agreements described in the final proviso to paragraph 6C(8) or in the definition of Long Hedge Future or Short Hedge Future, as the case may be, are fully guaranteed by an affiliate of such Person whose senior debt securities are so rated, and (iii) any other Person that is not an Affiliate of the Company and with whom the Company has agreements of the nature described in the final proviso to paragraph 6C(8) or in the definition of Long Hedge Future or Short Hedge Future, so long as (a) the aggregate amount of all such agreements with such Person outstanding at any time shall not exceed $1,000,000, and (b) the Company has such agreements outstanding with no more than nine other such Persons at any time. "DATE OF CLOSING" shall have the meaning specified in paragraph 2. "DEBT" shall mean, without duplication: (i) any obligation that, under generally accepted accounting principles, is shown on the balance sheet as a liability (including, without limitation, any obligation for borrowed money, any notes payable and drafts accepted representing extensions of credit, whether or not representing obligations for borrowed money, and Capitalized Lease Obligations but excluding accounts payable and accrued expenses in the ordinary course of business, reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation), (ii) any obligation secured by a Lien on, or payable out of the proceeds of production from, property, whether or not the obligation secured thereby shall have been assumed by the owner of such property, (iii) liabilities in respect of unfunded vested benefits under Plans and liabilities in respect of postretirement benefits that, under generally accepted accounting principles in effect at the time in question, are shown on the balance sheet as a liability, and (iv) any obligation described in paragraph 6C(10) for which a maximum amount is quantifiable. 34 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" shall mean any corporation or trade or business that: (i) is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company, or (ii) is under common control (within the meaning of Section 414(c) of the Code) with the Company. "EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "DEFAULT" shall mean any of such events, whether or not any such requirement has been satisfied. "EXCESS WORKING CAPITAL DEFICIT" shall mean (i) if the Company's Working Capital is greater than or equal to negative $10,000,000, zero, or (ii) if the Company's Working Capital is less than negative $10,000,000, the product of (A) the amount of such Working Capital PLUS $10,000,000 MULTIPLIED BY (B) negative one (for example, if Working Capital equals negative $15,000,000, the Excess Working Capital Deficit would equal $5,000,000). For purposes of this definition, "WORKING CAPITAL" means the remainder of the Company's Consolidated Current Assets MINUS the Company's Consolidated Current Liabilities, excluding current maturities of Funded Debt. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXISTING GUARANTY" shall mean each guaranty of a Guarantor in favor of the banks parties to the NationsBank Agreement or the purchasers parties to the Master Shelf Agreement or the 1993 Note Purchase Agreement for which a similar guaranty shall have been issued to each holder of Notes. "FAIR MARKET VALUE" shall mean, at any time with respect to any property of any kind or character, the sale value of such property that would be realized in an arm's length sale at such time between an informed and willing buyer and an informed and willing seller, under no compulsion to buy or sell, respectively. "FUNDED DEBT" shall mean any Debt payable more than one year from the date of creation thereof. "GUARANTOR" shall mean each of Western Gas Resources Storage, Inc., a Texas corporation; Western Gas Resources - Texas, Inc., a Texas corporation; Western Gas Resources -Oklahoma, Inc., a Delaware corporation; Mountain Gas Resources, Inc., a Delaware corporation, 35 MGTC, MIGC and each other Subsidiary of the Company that issues a Guaranty to all of the holders of Notes. "GUARANTY" shall mean each guaranty of a Guarantor in substantially the form of EXHIBIT E hereto. "INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement substantially in the form of EXHIBIT F hereto. "LIEN" shall mean any mortgage, pledge, priority, security interest, encumbrance, deposit arrangement, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "LONG HEDGE FUTURE" shall mean an agreement, purchased on a commodities exchange or entered into with a Counterparty, that obligates the Company to purchase natural gas or liquid hydrocarbons, as the case may be, at a pre-determined price at a pre-determined time. "MGTC" shall mean MGTC, Inc., a Wyoming corporation. "MIGC" shall mean MIGC, Inc., a Delaware corporation. "MASTER SHELF AGREEMENT" shall mean that certain Amended and Restated Master Shelf Agreement dated as of December 19, 1991, between the Company and The Prudential Insurance Company of America, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6E. "MOODY'S" shall mean Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" shall mean any plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NATIONSBANK" shall mean NationsBank of Texas, N.A., and its successors and assigns. "NATIONSBANK AGREEMENT" shall mean, collectively, the Revolving Loan Agreement and the Term Loan Agreement, as the provisions thereof have been or may be from time to time amended or waived in compliance with paragraph 6E. 36 "NATURAL GAS INVENTORY" shall mean at the time in question, the Company's and its Subsidiaries' inventory of natural gas in storage. "1993 NOTE PURCHASE AGREEMENT" shall mean, collectively, those certain separate Note Purchase Agreements each dated as of April 1, 1993, between the Company and each of the purchasers listed on Annex 1 thereto, respectively, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6E. "NOTES" shall have the meaning specified in paragraph 1. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by an Authorized Officer of the Company. "OVER-COLLATERALIZATION AMOUNT" shall have the meaning specified in the definition of "Permitted Securitization Program." "PANHANDLE JOINT VENTURE" shall mean the joint venture formed between the Company and Panhandle Eastern Pipe Line Company. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor entity serving a similar function. "PERMITTED SECURITIZATION PROGRAM" shall mean a transaction or series of transactions executed pursuant to documentation that contemplates a commitment which is for a period of not more than 364 days and which is not extendible at the option of the Company or any of its Subsidiaries and pursuant to which each of the following conditions is satisfied: (a) the Company and the Subsidiaries sell, transfer or otherwise dispose of, at not less than face value, on a revolving basis, an undivided interest in a pool of the Company's and the Subsidiaries' accounts receivable to a special purpose entity (the "SPECIAL PURPOSE ENTITY"), in an amount not to exceed, at any time $75,000,000 and grants a security interest in connection therewith with respect to such accounts receivable which secures an amount not greater than 10% of the aforesaid amount sold or transferred at such time for the purpose of providing the purchaser with over- collateralization (the "OVER-COLLATERALIZATION AMOUNT"); and, as a part of such transaction, (b) the Company and the Subsidiaries grant a security interest (the "SECURITY INTEREST") in all or a portion of their accounts receivable (the "PLEDGED ACCOUNTS RECEIVABLE") to the Special Purpose Entity for the purpose of providing the Special Purpose Entity with a basis of recourse for its investment (i.e., the 37 aforesaid amount not to exceed $75,000,000) in the Pledged Accounts Receivable (the "RECEIVABLES INVESTMENT"), PROVIDED that: (i) the maximum recourse to the Pledged Accounts Receivable shall be equal to the purchase price of the Receivables Investment plus 10%, in an aggregate amount not to exceed Eighty-Two Million Five Hundred Thousand Dollars ($82,500,000) (the "RECOURSE AMOUNT"); (ii) the Security Interest shall apply to each Pledged Account Receivable in an amount not to exceed the proportion that the Recourse Amount bears to the face value of the Pledged Accounts Receivable; and (iii) the Company and the Subsidiaries shall be entitled to share (with the Special Purpose Entity), on a pari passu and pro rata basis (based upon the Special Purpose Entity's share described in clause (ii)), all proceeds (if any) derived from each Pledged Account Receivable. "PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "PLAN" shall mean an "employee pension benefit plan" (as defined in section 3 of ERISA) that is or has been established or maintained, or to which contributions are or have been made, by the Company or by any trade or business, whether or not incorporated, that, together with the Company, is under common control, as described in section 414(b) or (c) of the Code. "PLEDGED ACCOUNTS RECEIVABLE" shall have the meaning specified in the definition of "Permitted Securitization Program." "PRIVATE PLACEMENT MEMORANDUM" shall mean the Private Placement Memorandum dated September 1995, relating to the offering of the Notes, prepared by the Company and NationsBanc Capital Markets, Inc. "PURCHASERS" shall mean the purchasers of the Notes identified on the signature pages hereof. "RECEIVABLES INVESTMENT" shall have the meaning specified in the definition of "Permitted Securitization Program." "RECEIVABLES PURCHASE AGREEMENT" shall mean that certain Receivables Purchase Agreement dated as of February 28, 1995, among the Company, Receivables Capital Corporation and Bank of America National Trust and Savings Association, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived. 38 "REQUIRED HOLDER(S)" shall mean, with respect to the Notes, at any time, the holder or holders of at least 66 2/3% of the aggregate principal amount of the Notes outstanding at such time. "RESTRICTED PAYMENT" shall mean (a) any dividend paid or declared by the Company or any Subsidiary on any class of the Company's stock (other than a dividend payable in shares of stock of the Company), or any other distribution made by the Company or any Subsidiary on account of any class of the Company's stock, or (b) any cash or other consideration applied, directly or indirectly, by the Company or any Subsidiary to the redemption, purchase or other acquisition of any shares of the Company's capital stock or (c) any payment of principal of, or retirement, redemption, purchase or other acquisition of any subordinated debt. "REVOLVING LOAN AGREEMENT" shall mean that certain First Restated Loan Agreement (Revolver) dated as of September 2, 1994, among the Company, its Subsidiaries, NationsBank, as Agent, and the lenders parties thereto, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6E. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SHORT HEDGE FUTURE" shall mean an agreement, purchased on a commodities exchange or entered into with a Counterparty, that obligates the Company to sell natural gas or liquid hydrocarbons, as the case may be, at a pre-determined price at a pre-determined time. "STANDARD & POOR'S" shall mean Standard & Poor's Ratings Group. "STOCK OPTION AGREEMENTS" shall mean, collectively those certain Agreements to Provide Loan(s) to exercise key employees' Stock Options by and among the Company and certain key employees. "SUBSIDIARY" shall mean any corporation organized under the laws of any state of the United States of America, Canada, or any province of Canada, which conducts the major portion of its business in and makes the major portion of its sales to Persons located in the United States of America or Canada, and at least a majority of the combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Company either directly or through Subsidiaries. A "WHOLLY OWNED SUBSIDIARY" shall be a Subsidiary all of the stock of every class of which, except directors' qualifying shares shall, at the time at which any determination is being made, be owned by the Company either directly or through wholly owned subsidiaries. "TERMINATION EVENT" shall mean (i) a "reportable event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a reportable event not subject to the provision for 30-day notice to the PBGC under such regulations), or (ii) the withdrawal of the 39 Company or any of its ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC, or (v) any other event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "TERM LOAN AGREEMENT" shall mean that certain Third Restated Loan Agreement (Term) dated as of August 31, 1993, among the Company, its Subsidiaries, NationsBank, as Agent and the lenders parties thereto, as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with paragraph 6E. "TRANSFEREE" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement. "VOTING STOCK" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "WHOLLY OWNED SUBSIDIARY" shall have the meaning specified in the definition of "Subsidiary." 1.10C. ACCOUNTING TERMS AND DETERMINATIONS. All references in this Agreement to "generally accepted accounting principles" shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof, subject to the next sentence. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles, applied on a basis consistent with the audited consolidated financial statements of the Company and its Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such statements have been delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. PARAGRAPH 11. MISCELLANEOUS. 11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City time, on the date due) to each Purchaser's account or accounts, if any, as are specified in the PURCHASER SCHEDULE attached hereto, or, in the case any Purchaser wishes to change the account specified for such Purchaser in the PURCHASER SCHEDULE such account or accounts in the United States as such 40 Purchaser may from time to time designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, such Purchaser will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as the Purchasers have made in this paragraph 11A. 11B. EXPENSES. (I) GENERALLY. Whether or not the transactions contemplated hereby shall be consummated, the Company will promptly (and in any event within thirty (30) days after receiving any statement or invoice therefor) pay, and save each Purchaser and any Transferee harmless against liability for the payment of, all reasonable fees, expenses and costs relating hereto, including, but not limited to: (a) the cost of reproducing this Agreement and the Notes; (b) the fees and disbursements of any special counsel engaged by the Purchasers; (c) the cost of delivering to each Purchaser's home office or custodian bank, insured to such Purchaser's satisfaction, the Notes purchased by such Purchaser at the Closing; (d) the fees, expenses and costs incurred complying with each of the conditions to closing set forth in paragraph 3 hereof (including, without limitation the fees, expenses and costs incurred obtaining a Private Placement Number for the Notes); (e) the fees, expenses and costs of NationsBanc Capital Markets, Inc. and any other broker or investment banker, if any, incurred by the Company in connection with the offer, issuance, sale and delivery of the Notes or the transactions contemplated hereby; (f) the fees, expenses and costs relating to the consideration, negotiation, preparation, duplication or execution of any amendments, waivers or consents pursuant to the provisions hereof (including, without limitation, fees and disbursements of any special counsel or other professional advisors engaged by such Purchaser and the allocated cost of each Purchaser's or Transferee's counsel who are such Purchaser's or such Transferee's employees or such Purchaser's or such Transferee's affiliates' employees), whether or not any such amendments, waivers or consents are executed; and 41 (g) the fees, expenses and costs incurred by any Purchaser or any Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement, the Notes or the Guaranties or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of any Purchaser's or any Transferee's having acquired any Note (other than costs and expenses incurred in acquiring or merely holding a Note or interest therein), including without limitation fees, expenses and costs incurred in any bankruptcy case. (II) COUNSEL. Without limiting the generality of the foregoing, it is agreed and understood that the Company will pay, at the time of the execution of this Agreement, the statement, rendered as set forth in paragraph 3H, for reasonable fees and disbursements of any special counsel engaged by the Purchasers incurred up to that time, and the Company will also pay, upon receipt of any statement thereof, each additional statement for reasonable fees and disbursements of any special counsel engaged by the Purchasers rendered at and after the Closing in connection with the issuance of the Notes or the matters referred to in paragraphs 11B(i)(f) or 11B(i)(g) hereof. (III) SURVIVAL. The obligations of the Company under this paragraph 11B and under the final sentence of paragraph 5J shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or any Transferee, the payment or prepayment of the Notes and the termination hereof. 11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) of the Notes except that, (i) with the written consent of the holders of all Notes at the time outstanding (and not without such written consents), the Notes may be amended or the provisions thereof waived to change the maturity thereof, to change the principal thereof, or to change the rate or time of payment of interest on or any Yield-Maintenance Amount payable with respect to the Notes, and (ii) without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to or waiver of the provisions of this Agreement shall change the provisions of paragraph 7A or this paragraph 11C insofar as such provisions relate to proportions of the principal amount of the Notes, or the rights of any individual holder of Notes, required with respect to any declaration of Notes to be due and payable or with respect to any consent. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein and in the Notes, the term "THIS AGREEMENT" and references thereto shall mean this Note Purchase Agreement as it may from time to time be amended or supplemented. 42 11D. SOLICITATION OF NOTEHOLDERS. (i) SOLICITATION. Neither the Company nor any Guarantor shall solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions hereof or of the Notes or the Guaranties unless each holder of the Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this paragraph 11D shall be delivered by the Company to each holder of outstanding Notes forthwith following the date on which the same shall have been executed and delivered by all holders of outstanding Notes required to consent or agree to such waiver or consent. (ii) PAYMENT. Neither the Company nor any Guarantor shall, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof or of the Notes or the Guaranties unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to the holders of all Notes then outstanding. (iii) SCOPE OF CONSENT. Any consent made pursuant to this paragraph 11D by a holder of Notes that has transferred or has agreed to transfer its Notes to the Company, any Subsidiary or any Affiliate and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force and effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force and effect, retroactive to the date such amendment or waiver initially took or takes effect, except solely as to such holder. 11E. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The Notes are issuable as registered notes without coupons in denominations of at least $500,000, except as may be necessary to reflect any principal amount not evenly divisible by $100,000. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of an aggregate principal amount, registered in the name of such transferee or transferees; PROVIDED that the Company shall not be required to register any transfer that was made in violation of the legend appearing on such Note. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the 43 Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Each installment of principal payable on each installment date upon each new Note issued upon any such transfer or exchange shall be in the same proportion to the unpaid principal amount of such new Note as the installment of principal payable on such date on the Note surrendered for registration of transfer or exchange bore to the unpaid principal amount of such Note. No reference need be made in any such new Note to any installment or installments of principal previously due and paid upon the Note surrendered for registration of transfer or exchange. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 11F. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest on and any Yield- Maintenance Amount payable with respect to such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion. 11G. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. 11H. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. 44 11I. DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. EXCEPT AS PROVIDED IN THIS PARAGRAPH 11I, EACH HOLDER AND EACH PERSON WHO PURCHASES A PARTICIPATION IN A NOTE OR ANY PART THEREOF AGREES THAT, PRIOR TO THE OCCURRENCE OF A DEFAULT, IT WILL USE ITS BEST EFFORTS TO HOLD IN CONFIDENCE AND NOT TO DISCLOSE THE CONFIDENTIAL INFORMATION. The Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder, by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement to (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Person to which such holder offers to sell such Note or any part thereof, (iv) any Person to which such holder sells or offers to sell a participation in all or any part of such Note, (v) any federal or state regulatory authority having jurisdiction over such holder, (vi) the National Association of Insurance Commissioners or any similar organization or (vii) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process or informal investigative demand, (c) in connection with any litigation to which such holder is a party or (d) in order to protect such holder's investment in such Note; PROVIDED THAT -------- PRIOR TO DISCLOSING CONFIDENTIAL INFORMATION TO ANY OFFEREE REFERRED TO IN CLAUSES (III) AND (IV) ABOVE, SUCH HOLDER WILL USE ITS BEST EFFORTS TO HAVE SUCH OFFEREE DELIVER TO THE COMPANY A CONFIDENTIALITY AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT D HERETO. 11J. NOTICES. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the address specified for such communications in the PURCHASER SCHEDULE, or at such other address as such Purchaser shall have specified in writing to the Person sending such communication, and (ii) if to any other holder of any Note, addressed to it at such address as it shall have specified in writing to the Person sending such communication or, if any such holder shall not have so specified an address, then addressed to such holder in care of the last holder of such Note which shall have so specified an address to the Person sending such communication, and (iii) if to the Company, addressed to it at 12200 N. Pecos Street, Denver, Colorado 80234, Attention: John C. Walter, Executive Vice President-General Counsel, Telecopy No. (303) 252-3362 or at such other address as the Company shall have specified to the holder of each Note in writing; PROVIDED, however, that any such communication to the Company may also, at the option of the Person sending such communication, be delivered by any other means either to the Company at its address specified above or to any Authorized Officer of the Company. 11K. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. 45 11L. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser, to any holder of Notes or to the Required Holder(s), the determination of such satisfaction shall be made by such Purchaser, such holder or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 11M. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ------------- ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. 11N. LIMITATION ON INTEREST. The Company and the Purchasers specifically intend and agree to limit contractually the amount of interest payable in connection with this Agreement and the Notes to the maximum amount of interest lawfully permitted to be charged under applicable law. Therefore, none of the terms of this Agreement or the Notes shall ever be construed to create a contract to pay interest at a rate in excess of the maximum rate permitted to be charged under applicable law, and neither the Company nor any Guarantor nor any other party liable or to become liable hereunder or under the Notes shall ever be liable for interest in excess of the amount determined at such maximum rate. 11O. 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. 11P. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11Q. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 11R. BINDING AGREEMENT. When this Agreement is executed and delivered by the Company and each Purchaser, it shall become a binding agreement between the Company and the Purchasers. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGES FOLLOW.] 46 If all of the Purchasers are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterparts of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between the Company and the Purchasers effective as of November 29, 1995. Very truly yours, WESTERN GAS RESOURCES, INC. /s/ WILLIAM J. KRYSIAK ---------------------- Vice President-Finance The foregoing Agreement is hereby accepted as of the date first above written. THE VARIABLE ANNUITY LIFE INSURANCE COMPANY By: /s/ THE VARIABLE ANNUITY LIFE INSURANCE COMPANY ----------------------------------------------- [Title] AMERICAN GENERAL LIFE INSURANCE COMPANY By: /s/ AMERICAN GENERAL LIFE INSURANCE COMPANY ------------------------------------------- [Title] GULF LIFE INSURANCE COMPANY By: /s/ GULF LIFE INSURANCE COMPANY ------------------------------- [Title] 47 FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY By: /s/ FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY ----------------------------- [Title] ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY By: /s/ ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY --------------------------------- [Title] THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK By: /s/ THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK ----------------------------- [Title] 48 EX-10.53 7 5TH AMD. TO 1ST RESTATED LOAN AGMT. (REVOLVER) FIFTH AMENDMENT TO FIRST RESTATED LOAN AGREEMENT (REVOLVER) THIS FIFTH AMENDMENT TO FIRST RESTATED LOAN AGREEMENT (REVOLVER) (herein called the "Amendment") made as of the 22nd day of March, 1996, by and among Western Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas, N.A., a national banking association, as Agent ("Agent"), and NationsBank of Texas, N.A., Bank of Montreal, CIBC Inc., Societe Generale, Southwest Agency, The First National Bank of Boston, Colorado National Bank, Bank of America National Trust and Savings Association and Credit Lyonnais Cayman Island Branch, (herein, collectively referred to as "Lenders"). W I T N E S S E T H: WHEREAS, Borrower, Agent and Lenders have entered into that certain First Restated Loan Agreement (Revolver) dated as of September 2, 1994, as amended by that certain First Amendment to First Restated Loan Agreement (Revolver) dated as of December 2, 1994, that certain Second Amendment to First Restated Loan Agreement (Revolver) dated as of February 23, 1995, that certain Third Amendment to First Restated Loan Agreement (Revolver) dated as of July 19, 1995, and that certain Fourth Amendment to First Restated Loan Agreement (Revolver) dated as of November 29, 1995 (as amended to the date hereof, the "Original Agreement") for the purpose and consideration therein expressed, whereby Lenders became obligated to make and made loans to Borrower as therein provided; and WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement as expressly set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement and in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1 Exhibit 10.53 ARTICLE I. -- Definitions and References -------------------------- Section 1.1. Terms Defined in the Original Agreement. Unless the context --------------------------------------- otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. Section 1.2. Other Defined Terms. Unless the context otherwise requires, ------------------- the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Amendment" means this Fifth Amendment to First Restated Loan --------- Agreement (Revolver). "Loan Agreement" shall mean the Original Agreement as amended hereby. -------------- ARTICLE II. -- Amendments ---------- Section 2.1. Definitions. (a) The definition of "Commitment Period" in ----------- Section 1.1 of the Original Agreement is hereby amended in its entirety to read as follows: "`Commitment Period' means the period from and including the Closing ----------------- Date until and including the earlier of October 1, 1997 or the day on which the Notes become due and payable in full." 2 (b) The definition of "Preferred Stock" in Section 1.1 of the Original Agreement is hereby amended in its entirety to read as follows: "`Preferred Stock' means all issued and outstanding preferred stock of --------------- Borrower, as the same may change from time to time, including but not limited to (i) the 1,400,000 shares of $2.28 Cumulative Preferred Stock of Borrower and (ii) the 2,760,000 shares of $2.625 Cumulative Convertible Preferred Stock of Borrower." (c) The definition of "Additional Preferred Stock" is hereby deleted from Section 1.1 of the Original Agreement. 3 Section 2.2. Scheduled Payments. Section 2.6 of the Original Agreement is ------------------ hereby amended in its entirety to read as follows: "Section 2.6. Scheduled Payments. The principal amount of the Notes ------------------ shall be due and payable in twelve quarterly installments, each of which shall be equal to one-twelfth of the aggregate unpaid principal balance of the Loans at the end of the Commitment Period. These prepayments shall be due and payable on the first day of each January, April, July and October, beginning on and including January 1, 1998, and continuing regularly thereafter until and including October 1, 2000, the date on which the Notes become due and payable in full. Each principal payment made under this section shall be apportioned and applied to each Lender's Note in accordance with such Lender's Loan Share of such payment. Any principal prepaid pursuant to this section shall be in addition to and not in lieu of, all payments otherwise required to be made under the Loan Documents at the time of such prepayment." Section 2.3. Limitation on Dividends and Distributions. Section 6.2(a) of ----------------------------------------- the Original Agreement is hereby amended in its entirety to read as follows and such amendment shall be effective as of December 31, 1995. "(a) Limitation on Dividends and Distributions. Except for payments ----------------------------------------- by Borrower to its stockholders which are permitted under the following sentences of this subsection and do not otherwise violate any provisions of this Agreement and except for dividends paid to Borrower by its Subsidiaries or to MIGC by MGTC, none of Borrower and its Subsidiaries will declare or pay any dividends on, or make any other distribution in respect of, any class of its capital stock or any partnership or other interest in it, other than the distribution of common stock pursuant to the conversion or exchange of Preferred Stock, nor will any of Borrower and its Subsidiaries directly or indirectly make any capital contribution to or purchase, redeem, acquire or retire any shares of the capital stock of or partnership interest in any of Borrower and its Subsidiaries (whether such interests are now or hereafter issued, outstanding or created) or cause or permit any reduction or retirement of the capital stock of or partnership interest in any of Borrower and its Subsidiaries. Borrower may make any of the payments, distributions, capital contributions or purchases described above in this Section 6.2(a), so long as (i) no Default or Event of Default has occurred and is 4 continuing at the time such dividends are declared and paid and (ii) such repurchases and dividends declared or paid by Borrower since December 31, 1995, together with all investments Borrower has made in accordance with the provisions of Section 6.2(f)(vi), do not, in the aggregate, exceed the sum of (A) $10,000,000; plus (B) fifty percent (50.0%) of Borrower's ---- Consolidated cumulative net income earned after December 31, 1995 if such figure is positive (zero percent, if there is a Consolidated cumulative net loss); plus (C) fifty percent (50.0%) of the cumulative net proceeds ---- received by Borrower and its Subsidiaries at any time after December 31, 1995 from the sale of any equity securities issued by Borrower or any of its Subsidiaries. All dividends declared in the fourth Fiscal Quarter of 1995, payable in 1996 with respect to any class of stock of Borrower, shall be permitted and excluded from the preceding calculation." Section 2.4. Limitation on Mergers, Issuances of Securities. The ---------------------------------------------- reference to the term "Additional Preferred Stock" in section 6.2(d) of the Original Agreement is hereby deleted. Section 2.5. Limitation on Investments and New Businesses. Section 6.2(f) -------------------------------------------- of the Original Agreement is hereby amended in its entirety to read as follows and such amendment shall be effective as of December 31, 1995. "(f) Limitation on Investments and New Businesses. No Related Person -------------------------------------------- will: (i) make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by clause (iii), (iv), (v) or (vi) of this sentence); (ii) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to its present businesses and operations (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by clause (iii), (iv), (v) or (vi) of this sentence); (iii) make any acquisitions of or capital contributions to or other investments in any Persons other than (A) capital contributions to and investments in Williston Gas Company and Subsidiaries already wholly owned by such Related Person and the joint ventures described on Schedule 4 hereto, and (B) deposits with any Lender, investments in obligations of any Lender or any of such Lender's Affiliates, time deposits in other banking institutions which, at the time such deposit is made, are rated "C" by Thomson BankWatch, Inc. and investments maturing within one year from the date of acquisition in direct obligations of or obligations supported by, the full faith and credit of, the United States of America, 5 (iv) make any significant acquisitions or investments in any properties other than gas processing, transmission, gathering and storage facilities and domestic oil and gas properties; (v) make capital expenditures and/or general and administrative expenditures relating to power generation and power marketing which exceed in the aggregate $1,000,000, or; (vi) make any other investments unless (1) no Default or Event of ------ Default has occurred and is continuing at the time such investment is made and (2) such investments, together with all repurchases and dividends declared or paid by Borrower since December 31, 1995 in accordance with the provisions of Section 6.2(a) (except for all dividends declared in the fourth Fiscal Quarter of 1995, payable in 1996 with respect to any class of stock of Borrower), do not, in the aggregate, exceed the sum of (I) $10,000,000; plus (II) fifty percent ---- (50.0%) of Borrower's Consolidated cumulative net income earned after December 31, 1995 if such figure is positive (zero percent, if there is a Consolidated cumulative net loss); plus (III) fifty percent ---- (50.0%) of the cumulative net proceeds received by Borrower and its Subsidiaries at any time after December 31, 1995 from the sale of any equity securities issued by Borrower or any of its Subsidiaries. Notwithstanding the foregoing, if any Related Person makes an acquisition of any Person or property in accordance with the provisions of this Section 6.2(f), and if the historical cash earnings of the Person or property so acquired would have to be included in the calculation of the Mandatory Prepayment Ratio most recently delivered to Agent and Lenders hereunder to support the Indebtedness, if any, incurred by such Related Person in making the acquisition, Borrower shall promptly notify Agent and Lenders of such fact and Lenders shall have the right to require a recalculation of the Mandatory Prepayment Ratio in accordance with the provisions of Section 2.7(b) which ratio shall become effective at the time of such acquisition." Section 2.6. Events of Default and Remedies. (a) All references to the ------------------------------ term "Additional Preferred Stock" in section 8.1(i) of the Original Agreement are hereby deleted. (b) Section 8.1(k) of the Original Agreement is hereby amended in its entirety to read as follows: "(k) Any event occurs which would require Borrower to redeem for cash the Preferred Stock or any subordinated notes which may have been issued in exchange for the Preferred Stock, or which gives the holders of the Preferred Stock or any subordinated notes which may have been issued in exchange for the Preferred Stock the right to demand such redemption; or" ARTICLE III. -- Conditions of Effectiveness --------------------------- 6 Section 3.1. Effective Date. This Amendment shall become effective as of -------------- the date first above written, except as otherwise provided herein, when, and only when, Agent shall have received, at Agent's office, all of the following: (a) Amendment. A counterpart of this Amendment executed and --------- delivered by Borrower and all Lenders. (b) Amendment Fee. An amendment fee equal to one-tenth of one- ------------- percent (0.10%) of the Commitment (as of the date hereof) of each Lender, payable to Agent for the account of each Lender. (c) Officer's Certificate. A certificate of a duly authorized --------------------- officer of Borrower, dated the date of receipt thereof by Agent, duly authorized, executed and delivered, and in form and substance satisfactory to Agent, to the effect that all of the representations and warranties set forth in Article IV hereof are true and correct at and as of the time of such effectiveness. (d) Secretary's Certificate. A certificate of the Secretary or ----------------------- Assistant Secretary of Borrower, dated as of the date of this Amendment, duly authorized, executed and delivered, and in form and substance satisfactory to Agent, which shall contain the names and signatures of the officers of Borrower authorized to execute Loan Documents on behalf of Borrower and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (i) a copy of resolutions adopted by the Board of Directors of Borrower, in full force and effect on the date hereof, authorizing the execution, delivery and performance of the Loan Documents, including this Amendment, (ii) a copy of Borrower's charter, certified by the appropriate official of the State of Delaware, and (iii) a copy of the bylaws of Borrower, in full force and effect on the date hereof. (d) Legal Opinion. a favorable opinion from Messr. John Walter, ------------- Esq., counsel for Borrower in a form acceptable to Agent. (e) Supporting Documents. such supporting documents as Agent may -------------------- reasonably request. ARTICLE IV. -- Representations and Warranties ------------------------------ 7 Section 4.1. Representations and Warranties of Borrower. In order to ------------------------------------------ induce each Lender to enter into this Amendment, Borrower represents and warrants to each Lender that: (a) The representations and warranties contained in each subsection of Section 5.1 of the Original Agreement are true and correct at and as of the time of the effectiveness hereof. (b) Borrower is duly authorized to execute and deliver this Amendment and is and will continue to be duly authorized to borrow monies and to perform its obligations under the Loan Agreement. Borrower has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of Borrower hereunder. (c) The execution and delivery by Borrower of this Amendment, the performance by Borrower of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the certificate of incorporation and bylaws of Borrower, or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower, or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of this Amendment or to consummate the transactions contemplated hereby. (d) When duly executed and delivered, each of this Amendment and the Loan Agreement will be a legal and binding obligation of Borrower, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. (e) The unaudited quarterly Consolidated financial statements of Borrower dated as of September 30, 1995 fairly present Borrower's Consolidated financial position at such date and the Consolidated results of Borrower's operations and changes in Borrower's Consolidated cash flow for the period thereof. Copies of such financial statements have heretofore been delivered to each Lender. Since September 30, 1995, no material adverse change has occurred in the financial condition or 8 businesses or in the Consolidated financial condition or businesses of Borrower. ARTICLE V. -- Miscellaneous ------------- Section 5.1. Consent to Amendment to Shelf Agreement. Each Lender --------------------------------------- consents and agrees that the Shelf Agreement as modified by the First Amended and Restated Master Shelf Agreement dated January 31, 1996 complies with the provision of Section 6.2(b)(viii) of the Loan Agreement and each Lender further consents to such modifications for purposes of Section 8.1(i) of the Loan Agreement. Section 5.2. Ratification of Agreements. The Original Agreement as hereby -------------------------- amended and each other Loan Document affected hereby are ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein or therein, operate as a waiver of any right, power or remedy of Agent or Lenders under the Loan Agreement, or any other Loan Document nor constitute a waiver of any provision of the Loan Agreement, or any other Loan Document. Section 5.3. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of Borrower herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower or any Related Person hereunder or under the Loan Agreement to any Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower under this Amendment and under the Loan Agreement. Section 5.4. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Loan Agreement pertaining to Loan Documents apply hereto. Section 5.5. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. 9 Section 5.6. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their duly authorized officers. WESTERN GAS RESOURCES, INC. By: /s/ John C. Walter ------------------------------------- John C. Walter Executive Vice President NATIONSBANK OF TEXAS, N.A., as Agent, Issuing Bank and Lender By: /s/ Michele L. Jones ------------------------------------- Michele L. Jones Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Gary M. Tsuyuki ------------------------------------- Gary M. Tsuyuki Vice President 10 BANK OF MONTREAL By: /s/ Don Skipper ------------------------------------- Don Skipper Director THE FIRST NATIONAL BANK OF BOSTON By: /s/ Carol E. Holley ------------------------------------- Carol E. Holley Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: /s/ Pascal Poupelle ------------------------------------- Pascal Poupelle Senior Vice President CIBC INC. By: /s/ Gary C. Gaskill ------------------------------------- Gary C. Gaskill Vice President COLORADO NATIONAL BANK By: /s/ Kathryn S. Gaiter ------------------------------------- Kathryn S. Gaiter Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ Richard A. Erbert ------------------------------------- Richard A. Erbert Vice President 11 CONFIRMATION, ACKNOWLEDGEMENT AND CONSENT OF GUARANTORS Each of the undersigned (collectively "Guarantors") hereby (i) acknowledges and consents to the foregoing Fifth Amendment to First Restated Loan Agreement (Revolver) of even date herewith by and among Western Gas Resources, Inc., NationsBank of Texas, N.A., as Agent ("Agent"), Bank of Montreal, CIBC Inc., Societe Generale, Southwest Agency, The First National Bank of Boston, Colorado National Bank, Bank of America National Trust and Savings Association and Credit Lyonnais Cayman Island Branch; (ii) confirms the Restated Guaranty dated as of September 2, 1994 executed by such Guarantor in favor of Agent and the Lenders pursuant to the Original Agreement; and (iii) agrees that each of such Guarantor's obligations and covenants with respect to such Restated Guaranty shall remain in full force and effect after the execution of such Amendment. William J. Krysiak, Vice President-Finance of Western Gas Resources Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas Resources Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC, Inc., is executing this Confirmation, Acknowledgment and Consent of Guarantors in his capacity of officer of each such corporation. Dated as of the 22nd day of March, 1996. WESTERN GAS RESOURCES OKLAHOMA, INC. WESTERN GAS RESOURCES TEXAS, INC. WESTERN GAS RESOURCES STORAGE, INC. MOUNTAIN GAS RESOURCES, INC. MGTC, INC. MIGC, INC. By: /s/ William J. Krysiak --------------------------------------------- William J. Krysiak, Vice President-Finance EX-10.54 8 7TH AMD. TO 3RD RESTATED LOAN AGMT. (TERM) SEVENTH AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM) THIS SEVENTH AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM) (herein called the "Amendment") made as of the 22nd day of March, 1996, by and among Western Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas, N.A., a national banking association, as Agent ("Agent"), and NationsBank of Texas, N.A., Bankers Trust Company, Bank of Montreal and CIBC Inc. (herein, collectively referred to as "Lenders"), W I T N E S S E T H: WHEREAS, Borrower, Agent and Lenders have entered into that certain Third Restated Loan Agreement (Term) dated as of August 31, 1993, as amended by that certain First Amendment to Third Restated Loan Agreement (Term) dated as of December 31, 1993, that certain Second Amendment to Third Restated Loan Agreement (Term) dated as of September 2, 1994, that certain Third Amendment to Third Restated Loan Agreement (Term) dated as of December 2, 1994, that certain Fourth Amendment to Third Restated Loan Agreement (Term) dated as of February 23, 1995, that certain Fifth Amendment to Third Restated Loan Agreement (Term) dated as of July 19, 1995, among Borrower, Agent and Lenders, and that certain Sixth Amendment to Third Restated Loan Agreement (Term) dated as of November 29, 1995, among Borrower, Agent and Lenders (as amended to the date hereof, the "Original Agreement") for the purpose and consideration therein expressed, whereby Lenders became obligated to make and made loans to Borrower as therein provided; and WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement as expressly set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement and in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: -1- Exhibit 10.54 ARTICLE I. -- Definitions and References -------------------------- Section 1.1. Terms Defined in the Original Agreement. Unless the context --------------------------------------- otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. Section 1.2. Other Defined Terms. Unless the context otherwise requires, ------------------- the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Amendment" means this Seventh Amendment to Third Restated Loan --------- Agreement (Term). "Loan Agreement" shall mean the Original Agreement as amended hereby. -------------- ARTICLE II. -- Amendments ---------- Section 2.1. Definitions. (a) The definition of "Preferred Stock" in ----------- Section 1.1 of the Original Agreement is hereby amended in its entirety to read as follows: "`Preferred Stock' means all issued and outstanding preferred stock of --------------- Borrower, as the same may change from time to time, including but not limited to (i) the 1,400,000 shares of $2.28 Cumulative Preferred Stock of Borrower and (ii) the 2,760,000 shares of $2.625 Cumulative Convertible Preferred Stock of Borrower." (b) The definition of "Additional Preferred Stock" is hereby deleted from Section 1.1 of the Original Agreement. Section 2.2. Limitation on Dividends and Distributions. Section 5.2(a) of ----------------------------------------- the Original Agreement is hereby amended in its entirety to read as follows and such amendment shall be effective as of December 31, 1995. "(a) Limitation on Dividends and Distributions. Except for payments ----------------------------------------- by Borrower to its stockholders which are permitted under the following sentences of this subsection and do not otherwise violate any provisions of this Agreement and except for dividends paid to Borrower by its Subsidiaries or to MIGC by MGTC, none of Borrower and its Subsidiaries will declare or pay any dividends on, or make any other distribution in respect of, any class of its capital stock or any partnership or other interest in it, other than the distribution of common stock pursuant to the conversion or exchange of Preferred Stock, nor will any of Borrower and its Subsidiaries directly -2- or indirectly make any capital contribution to or purchase, redeem, acquire or retire any shares of the capital stock of or partnership interest in any of Borrower and its Subsidiaries (whether such interests are now or hereafter issued, outstanding or created) or cause or permit any reduction or retirement of the capital stock of or partnership interest in any of Borrower and its Subsidiaries. Borrower may make any of the payments, distributions, capital contributions or purchases described above in this Section 5.2(a), so long as (i) no Default or Event of Default has occurred and is continuing at the time such dividends are declared and paid and (ii) such repurchases and dividends declared or paid by Borrower since December 31, 1995, together with all investments Borrower has made in accordance with the provisions of Section 5.2(f)(vi), do not, in the aggregate, exceed the sum of (A) $10,000,000; plus (B) fifty percent (50.0%) of Borrower's ---- Consolidated cumulative net income earned after December 31, 1995 if such figure is positive (zero percent, if there is a Consolidated cumulative net loss); plus (C) fifty percent (50.0%) of the cumulative net proceeds ---- received by Borrower and its Subsidiaries at any time after December 31, 1995 from the sale of any equity securities issued by Borrower or any of its Subsidiaries. All dividends declared in the fourth Fiscal Quarter of 1995, payable in 1996 with respect to any class of stock of Borrower, shall be permitted and excluded from the preceding calculation." Section 2.3. Limitation on Mergers, Issuances of Securities. The ---------------------------------------------- reference to the term "Additional Preferred Stock" in section 5.2(d) of the Original Agreement is hereby deleted. Section 2.4. Limitation on Investments and New Businesses. Section 5.2(f) -------------------------------------------- of the Original Agreement is hereby amended in its entirety to read as follows and such amendment shall be effective as of December 31, 1995. "(f) Limitation on Investments and New Businesses. No Related Person -------------------------------------------- will: (i) make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by clause (iii), (iv), (v) or (vi) of this sentence); (ii) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to its present businesses and operations (which shall be deemed to include expenditures, commitments, obligations and transactions permitted by clause (iii), (iv), (v) or (vi) of this sentence); (iii) make any acquisitions of or capital contributions to or other investments in any Persons other than (A) capital contributions to and investments in Williston Gas Company and Subsidiaries already wholly owned -3- by such Related Person and the joint ventures described on Schedule 4 hereto, and (B) deposits with any Lender, investments in obligations of any Lender or any of such Lender's Affiliates, time deposits in other banking institutions which, at the time such deposit is made, are rated "C" by Thomson BankWatch, Inc. and investments maturing within one year from the date of acquisition in direct obligations of or obligations supported by, the full faith and credit of, the United States of America, (iv) make any significant acquisitions or investments in any properties other than gas processing, transmission, gathering and storage facilities and domestic oil and gas properties; (v) make capital expenditures and/or general and administrative expenditures relating to power generation and power marketing which exceed in the aggregate $1,000,000, or; (vi) make any other investments unless (1) no Default or Event of ------ Default has occurred and is continuing at the time such investment is made and (2) such investments, together with all repurchases and dividends declared or paid by Borrower since December 31, 1995 in accordance with the provisions of Section 5.2(a) (except for all dividends declared in the fourth Fiscal Quarter of 1995, payable in 1996 with respect to any class of stock of Borrower), do not, in the aggregate, exceed the sum of (I) $10,000,000; plus (II) fifty percent ---- (50.0%) of Borrower's Consolidated cumulative net income earned after December 31, 1995 if such figure is positive (zero percent, if there is a Consolidated cumulative net loss); plus (III) fifty percent ---- (50.0%) of the cumulative net proceeds received by Borrower and its Subsidiaries at any time after December 31, 1995 from the sale of any equity securities issued by Borrower or any of its Subsidiaries. Notwithstanding the foregoing, if any Related Person makes an acquisition of any Person or property in accordance with the provisions of this Section 5.2(f), and if the historical cash earnings of the Person or property so acquired would have to be included in the calculation of the Mandatory Prepayment Ratio most recently delivered to Agent and Lenders hereunder to support the Indebtedness, if any, incurred by such Related Person in making the acquisition, Borrower shall promptly notify Agent and Lenders of such fact and Lenders shall have the right to require a recalculation of the Mandatory Prepayment Ratio in accordance with the provisions of Section 2.5(a) which ratio shall become effective at the time of such acquisition." Section 2.5. Events of Default and Remedies. (a) All references to the ------------------------------ term "Additional Preferred Stock" in section 7.1(i) of the Original Agreement are hereby deleted. (b) Section 7.1(k) of the Original Agreement is hereby amended in its entirety to read as follows: -4- "(k) Any event occurs which would require Borrower to redeem for cash the Preferred Stock or any subordinated notes which may have been issued in exchange for the Preferred Stock, or which gives the holders of the Preferred Stock or any subordinated notes which may have been issued in exchange for the Preferred Stock the right to demand such redemption; or" ARTICLE III. -- Conditions of Effectiveness --------------------------- Section 3.1. Effective Date. This Amendment shall become effective as of -------------- the date first above written, except as otherwise provided herein, when, and only when, Agent shall have received, at Agent's office, all of the following: (a) Amendment. A counterpart of this Amendment executed and --------- delivered by Borrower and Majority Lenders. (b) Amendment Fee. An amendment fee equal to one-tenth of one- ------------- percent (0.10%) of the outstanding principal balance of the Loans (as of the date hereof) of each Lender, payable to Agent for the account of each Lender. (c) Officer's Certificate. A certificate of a duly authorized officer --------------------- of Borrower, dated the date of receipt thereof by Agent, duly authorized, executed and delivered, and in form and substance satisfactory to Agent, to the effect that all of the representations and warranties set forth in Article IV hereof are true and correct at and as of the time of such effectiveness. (d) Secretary's Certificate. A certificate of the Secretary or ----------------------- Assistant Secretary of Borrower, dated as of the date of this Amendment, duly authorized, executed and delivered, and in form and substance satisfactory to Agent, which shall contain the names and signatures of the officers of Borrower authorized to execute Loan Documents on behalf of Borrower and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (i) a copy of resolutions adopted by the Board of Directors of Borrower, in full force and effect on the date hereof, authorizing the execution, delivery and performance of the Loan Documents, including this Amendment, (ii) a copy of Borrower's charter, certified by the appropriate official of the State of Delaware, and (iii) a copy of the bylaws of Borrower, in full force and effect on the date hereof. (d) Legal Opinion. a favorable opinion from Messr. John Walter, ------------- Esq., counsel for Borrower in a form acceptable to Agent. -5- (e) Supporting Documents. such supporting documents as Agent may -------------------- reasonably request. ARTICLE IV. -- Representations and Warranties ------------------------------ Section 4.1. Representations and Warranties of Borrower. In order to ------------------------------------------ induce each Lender to enter into this Amendment, Borrower represents and warrants to each Lender that: (a) The representations and warranties contained in each subsection of Section 4.1 of the Original Agreement are true and correct at and as of the time of the effectiveness hereof. (b) Borrower is duly authorized to execute and deliver this Amendment and is and will continue to be duly authorized to borrow monies and to perform its obligations under the Loan Agreement. Borrower has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of Borrower hereunder. (c) The execution and delivery by Borrower of this Amendment, the performance by Borrower of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the certificate of incorporation and bylaws of Borrower, or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower, or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of this Amendment or to consummate the transactions contemplated hereby. (d) When duly executed and delivered, each of this Amendment and the Loan Agreement will be a legal and binding obligation of Borrower, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. -6- (e) The unaudited quarterly Consolidated financial statements of Borrower dated as of September 30, 1995 fairly present Borrower's Consolidated financial position at such date and the Consolidated results of Borrower's operations and changes in Borrower's Consolidated cash flow for the period thereof. Copies of such financial statements have heretofore been delivered to each Lender. Since September 30, 1995, no material adverse change has occurred in the financial condition or businesses or in the Consolidated financial condition or businesses of Borrower. ARTICLE V. -- Miscellaneous ------------- Section 5.1. Consent to Amendment to Shelf Agreement. Each Lender --------------------------------------- consents and agrees that the Shelf Agreement as modified by the Second Amended and Restated Master Shelf Agreement dated January 31, 1996 complies with the provision of Section 5.2(b)(viii) of the Loan Agreement and each Lender further consents to such modifications for purposes of Section 7.1(i) of the Loan Agreement. Section 5.2. Ratification of Agreements. The Original Agreement as hereby -------------------------- amended and each other Loan Document affected hereby are ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein or therein, operate as a waiver of any right, power or remedy of Agent or Lenders under the Loan Agreement, or any other Loan Document nor constitute a waiver of any provision of the Loan Agreement, or any other Loan Document. Section 5.3. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of Borrower herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower or any Related Person hereunder or under the Loan Agreement to any Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower under this Amendment and under the Loan Agreement. -7- Section 5.4. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Loan Agreement pertaining to Loan Documents apply hereto. Section 5.5. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. Section 5.6. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their duly authorized officers. WESTERN GAS RESOURCES, INC. By: /s/ John C. Walter ------------------------------------------ John C. Walter Executive Vice President NATIONSBANK OF TEXAS, N.A. By: /s/ Michele L. Jones ------------------------------------------ Michele L. Jones Vice President BANKERS TRUST COMPANY ---------------------- By: /s/ Mary Jo Jolly ------------------------------------------ Mary Jo Jolly Assistant Vice President -8- BANK OF MONTREAL By: /s/ Don Skipper ------------------------------------------ Don Skipper Director CIBC INC. By: /s/ Gary C. Gaskill ------------------------------------------ Gary C. Gaskill Vice President -9- CONFIRMATION, ACKNOWLEDGEMENT AND CONSENT OF GUARANTORS Each of the undersigned (collectively "Guarantors") hereby (i) acknowledges and consents to the foregoing Seventh Amendment to Third Restated Loan Agreement (Term) of even date herewith by and among Western Gas Resources, Inc., NationsBank of Texas, N.A., as Agent ("Agent"), Bankers Trust Company, Bank of Montreal, and CIBC Inc.; (ii) confirms the Restated Guaranty dated as of September 2, 1994 executed by such Guarantor in favor of Agent and the Lenders pursuant to the Original Agreement; and (iii) agrees that each of such Guarantor's obligations and covenants with respect to such Restated Guaranty shall remain in full force and effect after the execution of such Amendment. William J. Krysiak, Vice President-Finance of Western Gas Resources Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas Resources Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC, Inc., is executing this Confirmation, Acknowledgment and Consent of Guarantors in his capacity of officer of each such corporation. Dated as of the 22nd day of March, 1996. WESTERN GAS RESOURCES OKLAHOMA, INC. WESTERN GAS RESOURCES TEXAS, INC. WESTERN GAS RESOURCES STORAGE, INC. MOUNTAIN GAS RESOURCES, INC. MGTC, INC. MIGC, INC. By: /s/ William J. Krysiak ------------------------------------------------- William J. Krysiak, Vice President-Finance -11- EX-11.1 9 COMPUTATION OF PER SHARE EARNINGS 12/31/95 WESTERN GAS RESOURCES, INC. COMPUTATION OF PER SHARE EARNINGS DECEMBER 31, 1995
Weighted Average Shares Of Earnings Common Per Share Stock Net Of Common Outstanding Income (Loss) Stock ----------- ------------- ------------- Net Income (Loss)....................................... $(6,108,000) Weighted average shares of common stock outstanding..... 25,753,738 Less redemption premium and up-front costs associated with the 7.25% cumulative senior perpetual convertible preferred stock........................... (3,784,000) Less preferred stock dividends: 7.25% cumulative senior perpetual convertible preferred stock..................................... (1,208,000) $2.28 cumulative preferred stock...................... (3,194,000) $2.625 cumulative convertible preferred stock......... (7,245,000) ----------- ------------ 25,753,738 $(21,539,000) =========== ============ Basic earnings per share of common stock................ $(0.84) ====== Assume exercise of common stock equivalents: Weighted average shares of common stock outstanding... 25,753,738 (Anti-dilutive common stock equivalents are not used in this calculation) $5.40 employee stock options............................ 32,366 Director stock options.................................. 2,851 ----------- ------------ 25,788,955 $(21,539,000) =========== ============ Primary earnings per share of common stock.............. $(0.84) ====== Assume no conversion of anti-dilutive convertible preferred stock Assume exercise of common stock equivalents: Weighted average shares of common stock outstanding... 25,753,738 (Anti-dilutive common stock equivalents are not used in this calculation) $5.40 employee stock options............................ 30,817 Director stock options.................................. 1,620 ----------- ------------ 25,786,175 $(21,539,000) =========== ============ Fully diluted earnings per share of common stock........ $(0.84) ======
Exhibit 11.1 EX-21.1 10 SUBSIDIARIES OF WESTERN GAS RESOURCES, INC. SUBSIDIARIES OF WESTERN GAS RESOURCES, INC. NAME OF SUBSIDIARY RELATIONSHIP - ------------------ ------------
1) MIGC, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 2) MGTC, Inc. Wholly-owned subsidiary of MIGC, Inc. 3) Western Gas Resources - Texas, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 4) Williston Gas Company 50%-owned joint venture of Western Gas Resources, Inc. 5) Western Gas Resources Storage, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 6) Centre Court Travel, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 7) Rising Star Pipeline Corporation Wholly-owned subsidiary of Western Gas Resources, Inc. 8) Setting Sun Pipeline Corporation Wholly-owned subsidiary of Western Gas Resources, Inc. 9) Western Gas Resources - Louisiana, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 10) Western Gas Resources - Oklahoma, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 11) Westana Gathering Company A general partnership with Western Gas Resources, Inc. as general partner 12) Mountain Gas Resources, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc. 13) Mountain Gas Transportation, Inc. Wholly-owned subsidiary of Mountain Gas Resources, Inc. 14) Green River Gathering Company A general partnership between Western Gas Resources, Inc. and Mountain Gas Resources, Inc. 15) Western Power Services, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
Exhibit 21.1 EX-23.1 11 CONSENT OF PRICE WATERHOUSE LLP Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (No.33-66516, No. 33-54741and No. 333-00903) and in the Registration Statement on Form S-8 (No. 33-67834) of Western Gas Resources, Inc. of our report dated February 23, 1996 appearing on page 27 of this Form 10-K. PRICE WATERHOUSE LLP Denver, Colorado March 22, 1996 Exhibit 23.1 EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 5,795 0 204,426 0 30,581 242,326 1,049,806 (200,203) 1,193,997 297,615 454,500 0 416 2,580 368,913 1,193,997 1,249,517 1,256,984 1,040,265 1,040,265 187,825 0 37,160 (8,266) (2,158) (6,108) 0 0 0 (6,108) (.84) (.84)
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