-----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, HRYfNBFoLzk7dISd51ehVV/v7Dq5Cwv+q4JYcEOqCclc4vFKhGbsorO3SYeg0PVr RyAVM0WIySNpoN0FYsiPCw== 0001005477-99-002287.txt : 19990514 0001005477-99-002287.hdr.sgml : 19990514 ACCESSION NUMBER: 0001005477-99-002287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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-Q SEC ACT: SEC FILE NUMBER: 001-10389 FILM NUMBER: 99619704 BUSINESS ADDRESS: STREET 1: 12200 N PECOS ST CITY: DENVER STATE: CO ZIP: 80234-3439 BUSINESS PHONE: 3034525603 MAIL ADDRESS: STREET 1: 12200 NORTH PECOS ST CITY: DENVER STATE: CO ZIP: 80234 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION ------------------------------------------------ Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) - ---------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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). 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 ----- ----- On May 1, 1999, there were 32,147,993 shares of the registrant's Common Stock outstanding. 1 Western Gas Resources, Inc. Form 10-Q Table of Contents
PART I - Financial Information Page - ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheet - March 31, 1999 and December 31, 1998................ 3 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1999 and 1998......................................................................... 4 Consolidated Statement of Operations - Three Months Ended March 31, 1999 and 1998 5 Consolidated Statement of Changes in Stockholders' Equity - Three Months Ended March 31, 1999................................................................... 6 Notes to Consolidated Financial Statements....................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 10 PART II - Other Information - --------------------------- Item 1. Legal Proceedings................................................................ 19 Item 6. Exhibits and Reports on Form 8-K................................................. 20 Signatures................................................................................... 21
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements -------------------- WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands, except share data)e
March 31, December 31, 1999 1998 ----------- ------------- ASSETS (unaudited) - ------ Current assets: Cash and cash equivalents.................................................... $ 12,697 $ 4,400 Trade accounts receivable, net............................................... 185,169 233,574 Product inventory............................................................ 22,114 46,207 Parts inventory.............................................................. 9,913 10,153 Other........................................................................ 2,239 2,951 ---------- ---------- Total current assets........................................................ 232,132 297,285 ---------- ---------- Property and equipment: Gas gathering, processing, storage and transmission.......................... 966,065 952,531 Oil and gas properties and equipment......................................... 114,488 111,602 Construction in progress..................................................... 89,012 87,943 ---------- ---------- 1,169,565 1,152,076 Accumulated depreciation, depletion and amortization.......................... (317,388) (305,589) ---------- ---------- Total property and equipment, net........................................... 852,177 846,487 ---------- ---------- Other assets: Gas purchase contracts (net of accumulated amortization of $30,531 and $29,978, respectively)...................................................... 40,710 41,263 Other........................................................................ 37,654 34,342 ---------- ---------- Total other assets.......................................................... 78,364 75,605 ---------- ---------- Total assets.................................................................. $1,162,673 $1,219,377 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable............................................................. $ 180,850 $ 245,315 Accrued expenses.............................................................. 25,978 31,727 Dividends payable............................................................ 4,217 4,217 ---------- ---------- Total current liabilities................................................... 211,045 281,259 Long-term debt................................................................ 526,609 504,881 Deferred income taxes payable................................................. 46,648 48,021 ---------- ---------- Total liabilities........................................................... 784,302 834,161 ---------- ---------- Commitments and contingent liabilities........................................ - - Stockholders' equity: Preferred stock, par value $.10; 10,000,000 shares authorized: $2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding ($35,000,000 aggregate liquidation preference)............................. 140 140 $2.625 cumulative convertible preferred stock; 2,760,000 shares issued and outstanding ($138,000,000 aggregate liquidation preference)................ 276 276 Common stock, par value $.10; 100,000,000 shares authorized; 32,173,009 and 32,173,009 shares issued respectively....................................... 3,217 3,217 Treasury stock, at cost, 25,016 shares in treasury........................... (788) (788) Additional paid-in capital................................................... 397,344 397,344 Accumulated deficit.......................................................... (23,467) (17,075) Accumulated other comprehensive income....................................... 2,533 3,053 Notes receivable from key employees secured by common stock.................. (884) (951) ---------- ---------- Total stockholders' equity.................................................. 378,371 385,216 ---------- ---------- Total liabilities and stockholders' equity.................................... $1,162,673 $1,219,377 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, ---------------------- 1999 1998 ---------- ---------- Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Net income (loss)..................................................................... $ (2,176) $ 13,185 Add income items that do not affect cash: Depreciation, depletion and amortization............................................. 13,558 14,502 Gain on the sale of property and equipment........................................... (145) (14,866) Deferred income taxes................................................................ (1,373) 10,343 Other non-cash items, net............................................................ (371) 282 ---------- ---------- 9,493 23,446 ---------- ---------- Adjustments to working capital to arrive at net cash provided by (used in) operating activities: Decrease in trade accounts receivable................................................ 48,405 28,727 (Increase) decrease in product inventory............................................. 24,093 (3,423) (Increase) decrease in parts inventory............................................... 240 (27) Decrease in other current assets..................................................... 712 228 Decrease in other assets and liabilities, net........................................ 67 109 Decrease in accounts payable......................................................... (64,465) (65,186) Decrease in accrued expenses......................................................... (5,884) (190) --------- --------- Net cash provided by (used in) operating activities................................... 12,661 (16,316) --------- --------- Cash flows from investing activities: Purchases of property and equipment.................................................. (20,843) (30,839) Proceeds from the dispositions of property and equipment............................. 100 22,150 Contributions to equity investees.................................................... (891) (992) --------- --------- Net cash used in investing activities................................................. (21,634) (9,681) --------- --------- Cash flows from financing activities: Proceeds from exercise of common stock options....................................... - 11 Debt issue costs paid................................................................ (243) (2) Payments on revolving credit facility................................................ (794,650) (669,050) Borrowings under revolving credit facility........................................... 864,951 684,050 Payments on notes.................................................................... (48,571) - Dividends paid....................................................................... (4,217) (4,217) --------- --------- Net cash provided by financing activities............................................. 17,270 10,792 --------- --------- Net increase (decrease) in cash and cash equivalents.................................. 8,297 (15,205) Cash and cash equivalents at beginning of period...................................... 4,400 19,777 --------- --------- Cash and cash equivalents at end of period............................................ $ 12,697 $ 4,572 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in thousands, except share and per share amounts)
Three Months Ended March 31, -------------------------- 1999 1998 ------------ ------------ Revenues: Sale of gas........................................................... $ 350,841 $ 426,627 Sale of natural gas liquids........................................... 63,648 123,758 Processing, transportation and storage revenue........................ 11,073 11,335 Other, net............................................................ 3,943 18,735 ----------- ----------- Total revenues....................................................... 429,505 580,455 ----------- ----------- Costs and expenses: Product purchases..................................................... 381,365 507,287 Plant operating expense............................................... 19,465 20,255 Oil and gas exploration and production expense........................ 1,858 1,392 Depreciation, depletion and amortization.............................. 13,558 14,502 Selling and administrative expense.................................... 7,815 8,124 Interest expense...................................................... 8,743 8,156 ----------- ----------- Total costs and expenses............................................. 432,804 559,716 ----------- ----------- Income (loss) before taxes............................................. (3,299) 20,739 Provision for (benefit from) income taxes: Current............................................................... 250 (2,789) Deferred.............................................................. (1,373) 10,343 ----------- ----------- (1,123) 7,554 ----------- ----------- Net income (loss)...................................................... (2,176) 13,185 Preferred stock requirements........................................... (2,610) (2,610) ----------- ----------- Income (loss) attributable to common stock............................. $ (4,786) $ 10,575 =========== =========== Earnings (loss) per share of common stock.............................. $ (.15) $ . 33 =========== =========== Weighted average shares of common stock outstanding.................... 32,147,993 32,146,570 =========== =========== Earnings (loss) per share of common stock-assuming dilution............ $ (.15) $ . 33 =========== =========== Weighted average shares of common stock outstanding-assuming dilution.. 32,147,993 32,149,869 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands, except share amounts)
Shares of Shares of $2.625 $2.625 $2.28 Cumulative Shares $2.28 Cumulative Cumulative Convertible Shares Of Common Cumulative Convertible Preferred Preferred of Common Stock Preferred Preferred Stock Stock Stock in Treasury Stock Stock ------------------------------------------------------------------------------------- Balance at December 31, 1998........ 1,400,000 2,760,000 32,147,993 25,016 $ 140 $ 276 Comprehensive Income: Net loss............................ - - - - - - Foreign Currency Translation........ - - - - - - Comprehensive Income Dividends: Dividends declared on common stock.............................. - - - - - - Dividends declared on $2.28 cumulative preferred stock......... - - - - - - Dividends declared on $2.625 cumulative convertible preferred stock.............................. - - - - - - Stock options exercised............. - - - - - - Loans forgiven...................... - - - - - - ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 1999........... 1,400,000 2,760,000 32,147,993 25,016 $ 140 $ 276 ===================================================================================== Accumulated Notes Total Additional Other Receivable Stock- Common Treasury Paid-in Accumulated Comprehensive from Key holders' Stock Stock Capital Deficit Income Employees Equity ------------------------------------------------------------------------------------------------ Balance at December 31, 1998........ $3,217 $(788) $397,344 $(17,075) $3,053 $(951) $385,216 Comprehensive Income: Net loss............................ - - - (2,176) - - (2,176) Foreign Currency Translation........ - - - - (520) - (520) -------- Comprehensive Income (2,696) -------- Dividends: Dividends declared on common stock.............................. - - - (1,607) - - (1,607) Dividends declared on $2.28 cumulative preferred stock......... - - - (798) - - (798) Dividends declared on $2.625 cumulative convertible preferred stock.............................. - - - (1,811) - - (1,811) Stock options exercised............. - - - - - - - Loans forgiven...................... - - - - - 67 67 --------- ------- -------- --------- ---------- --------- -------- Balance at March 31, 1999........... $3,217 $(788) $397,344 $(23,467) $2,533 $(884) $378,371 ==============================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) GENERAL The interim consolidated financial statements presented herein should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 1998. The interim consolidated financial statements as of March 31, 1999 and for the three month periods ended March 31, 1999 and 1998 included herein are unaudited but reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results for such periods. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results of operations expected for the year ended December 31, 1999. Certain prior year's amounts in the Consolidated Financial Statements and Notes have been reclassified to conform to the presentation used in 1999. EARNINGS PER SHARE OF COMMON STOCK Earnings per share of common stock is computed by dividing income attributable to common stock by the weighted average shares of common stock outstanding. In addition, earnings per share of common stock - assuming dilution is computed by dividing income attributable to common stock by the weighted average shares of common stock outstanding as adjusted for potential common shares. Income attributable to common stock is income less preferred stock dividends. We declared preferred stock dividends of $2.6 million for each of the three-month periods ended March 31, 1999 and 1998. Common stock options, which are potential common shares, were anti-dilutive for the period ended March 31, 1999 and were not included in the calculation of earnings per share. For the period ended March 31, 1998 common stock options had a dilutive effect on earnings and increased the weighted average shares of common stock outstanding by 3,299. The numerators and the denominators for the three month periods ended March 31, 1999 and 1998 are not adjusted to reflect our $2.625 Cumulative Convertible Preferred Stock outstanding. These shares are antidilutive as the incremental shares result in an increase in earnings per share after giving effect to the dividend requirements. SUPPLEMENTARY CASH FLOW INFORMATION Interest paid was $9.7 million and $8.0 million for the three months ended March 31, 1999 and 1998, respectively. No income taxes were paid during the three months ended March 31, 1999 or for the three months ended March 31, 1998. Segment Reporting We operate in four principal business segments, as follows: Gas Gathering and Processing, Producing Properties, Marketing and Transmission. These segments are separately monitored by management for performance against its internal forecast and are consistent with our internal financial reporting package. These segments have been identified based upon the differing products and services, regulatory environment and the expertise required for these operations. The Gas Gathering and Processing segment connects producers' wells to its gathering systems for delivery to its processing or treating plants, processes the natural gas to extract NGLs and treats the natural gas in order to meet pipeline specifications. The residue gas and NGLs extracted at the processing facilities are sold by the Marketing segment. The activities of the Producing Properties segment include the exploration and development of certain oil and gas producing properties in basins where our facilities are located. The majority of the gas and oil produced from these properties is sold by the Marketing segment. The Marketing segment buys and sells gas and NGLs nationwide and in Canada, providing storage, transportation, scheduling, peaking and other services our customers. In addition, this segment also markets gas and NGLs produced by our facilities. The operations associated with the Katy Facility are included in the Marketing segment as are our Canadian marketing operations (which is immaterial for separate presentation). The Transmission segment reflects the operations of our MIGC and MGTC pipelines. The majority of the revenue presented in this segment is derived from transportation of residue gas. The following table sets forth our segment information as of and for the quarters ended March 31, 1999 and 1998 (in thousands). Due to our integrated operations, the use of allocations in the determination of business segment information is necessary. Intersegment revenues are valued at prices comparable to those of unaffiliated customers.
Gas Gathering Elim- and Producing Trans- inating Processing Properties Marketing mission Corporate Entries Total ---------- ---------- ---------- ---------- ---------- ---------- --------- Quarter ended March 31, 1999 Revenues from unaffiliated customers...... $ 11,225 $ 531 $414,302 $ 1,799 $ 1,468 $ (14) $429,311 Interest income........................... 1 - 2 - 7,053 (6,993) 63 Other, net................................ 108 - 23 - - - 131 Intersegment sales........................ 75,557 6,016 17,989 4,099 - (103,661) - -------- -------- -------- ------- ------- --------- -------- Total revenues............................ 86,891 6,547 432,316 5,898 8,521 (110,668) 429,505 -------- -------- -------- ------- ------- --------- -------- Product purchases......................... 59,083 448 427,197 (1,077) (1,329) (102,957) 381,365 Plant operating expense................... 13,539 498 1,112 3,729 922 (335) 19,465 Oil and gas exploration and production expense.................... - 1,776 (44) - 126 - 1,858 -------- -------- -------- ------- ------- --------- -------- Operating profit.......................... $ 14,269 $ 3,825 $ 4,051 $ 3,246 $ 8,802 $ (7,376) $ 26,817 ======== ======== ======== ======= ======= ========= ======== Depreciation, depletion and amortization.. 13,558 Interest expense.......................... 8,743 Selling and administrative expense....... 7,815 -------- Income (loss) before income taxes......... $ (3,299) ======== Identifiable assets....................... $557,149 $ 94,965 $117,633 $66,700 $35,631 $ - $872,078 ======== ======== ======== ======= ======= ========= ======== Gas Gathering Elim- and Producing Trans- inating Processing Properties Marketing mission Corporate Entries Total ---------- ---------- ---------- ---------- ---------- ---------- --------- Quarter ended March 31, 1998 Revenues from unaffiliated customers...... $ 9,017 $ 350 $552,108 $ 2,292 $ 93 $ 197 $564,057 Interest income........................... - - - - 6,613 (5,912) 701 Other, net................................ 15,123 408 166 - - - 15,697 Intersegment sales........................ 110,906 6,983 18,838 2,635 - (139,362) - -------- -------- -------- ------- ------- --------- -------- Total revenues............................ 135,046 7,741 571,112 4,927 6,706 (145,077) 580,455 -------- -------- -------- ------- ------- --------- -------- Product purchases......................... 83,388 369 562,600 625 (1,452) (138,243) 507,287 Plant operating expense................... 15,191 792 1,364 2,333 1,417 (842) 20,255 Oil and gas exploration and production expense.................... 1,377 3 - - 12 1,392 -------- -------- -------- ------- ------- --------- -------- Operating profit.......................... $ 36,467 $ 5,203 $ 7,145 $ 1,969 $ 6,741 $ (6,004) $ 51,521 ======== ======== ======== ======= ======= ========= ======== Depreciation, depletion and amortization.. 14,502 Interest expense.......................... 8,156 Selling and administrative expense....... 8,124 -------- Income (loss) before income taxes......... $ 20,739 ======== Identifiable assets....................... $677,930 $112,298 $120,768 $50,065 $28,735 $ - $989,796 ======== ======== ======== ======= ======= ========= ========
Subsequent Events Effective April 30, 1999 we sold all of the stock of our wholly owned subsidiary, Western Gas Resources Storage, Inc. to the Aquila Energy Corporation, a business unit of Utilicorp United. The sole asset of Western Gas Resources Storage, Inc. is the Katy Hub and Gas Storage Facility. The proceeds received from the sale of the Katy facility were $100.0 million. We will realize an after tax loss on this sale of approximately $10.9, subject to final accounting adjustment, million in the second quarter of 1999. In connection with this transaction, Aquila purchased approximately 5.1 Bcf of stored gas at the facility for proceeds of $11.7 million. The proceeds of the sale were equal to the value of the inventory on our books. Also on April 30, 1999 we completed the sale of our Giddings gathering system to GPM Gas Corporation, a business unit of Phillips Petroleum Company. This transaction had an effective date of January 1, 1999. The proceeds from this sale were $36.0 million. We will realize an after-tax loss on this sale of approximately $3.7, subject to final accounting adjustment, million in the second quarter of 1999. The proceeds of $147.7 million received from these transactions was used to reduce outstanding debt. 7 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") with an effective date for fiscal years beginning after June 15, 1999. We will comply with the accounting and reporting requirements of SFAS No. 133 when required. We have not completed our evaluation of the impact that SFAS No. 133 will have upon our financial statements. LEGAL PROCEEDINGS Reference is made to "Part II - Other Information - Item 1. Legal Proceedings," of this Form 10-Q. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS - ------------- The following discussion and analysis relates to factors which have affected our consolidated financial condition and results of operations for the three months ended March 31, 1999 and 1998. Certain prior year amounts have been reclassified to conform to the presentation used in 1999. Reference should also be made to our interim Consolidated Financial Statements and Notes thereto included elsewhere in this document. This section, as well as other sections in this Form 10-Q, contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as "may," "intend," "will," "expect," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereon or comparable terminology. In addition to the important factors referred to herein, numerous factors affecting the gas processing industry generally and in the markets for gas and NGLs in which we operate could cause actual results to differ materially from those in such forward-looking statements. Results of Operations Three months ended March 31, 1999 compared to the three months ended March 31, 1998 (Dollars in thousands, except per share amounts and operating data).
Three Months Ended March 31, --------------------- Percent 1999 1998 Change ---------- --------- -------- Financial results: Revenues................................................. $429,505 $580,455 (26) Gross profit............................................. 13,259 37,019 (64) Net income (loss)........................................ (2,176) 13,185 - Earnings (loss) per share of common stock - basic and diluted................................................ (.15) .33 - Net cash (used in) provided by operating activities...... $ 12,661 $(16,316) - Operating data: Average gas sales (MMcf/D)............................... 2,135 2,280 (6) Average NGL sales (MGal/D)............................... 3,030 4,655 (35) Average gas prices ($/Mcf)............................... $ 1.82 $ 2.08 (12) Average NGL prices ($/Gal)............................... $ .23 $ .29 (21)
Net income decreased $15.4 million for the quarter ended March 31, 1999 compared to 1998. The decrease in net income for the first quarter was primarily due to lower volumes and significantly lower prices compared to the prior year. Revenues from the sale of gas decreased approximately $75.9 million for the three months ended March 31, 1999 compared to the same period in 1998. Average gas sales volumes decreased 145 MMcf per day to 2,135 MMcf per day for the three months ended March 31, 1999 compared to the same period in 1998, largely due to a decrease in the sale of gas purchased from third parties. Average gas prices realized by us decreased $.26 per Mcf to $1.82 per Mcf for the three months ended March 31, 1999 compared to the same period in 1998. Included in the realized gas price was approximately $337,000 of gain recognized for the three months ended March 31, 1999 related to futures positions on equity gas volumes. We have entered into futures positions for a portion of our equity gas for the remainder of 1999 and throughout 2000. See further discussion in " - Liquidity and Capital Resources - Risk Management Activities." Revenues from the sale of NGLs decreased approximately $60.1 million for the three months ended March 31, 1999 compared to the same period in 1998. Average NGL sales volumes decreased 1,625 MGal per day to 3,030 MGal per day for the three months ended March 31, 1999 compared to the same period in 1998, primarily due to a decrease in sales of third-party product. Average NGL prices realized by us decreased $.06 per gallon to $.23 per gallon for the three months ended March 31, 1999 compared to the same period in 1998. Included in the realized NGL price was approximately $62,000 of loss recognized for the three months ended March 31, 1999 related to futures positions on equity NGL volumes. We have has entered into futures positions for a portion of our equity production for the remainder of 1999. See further discussion in " - Liquidity and Capital Resources - - Risk Management Activities." 9 Other net revenue decreased approximately $14.8 million for the three months ended March 31, 1999 compared to the same period in 1998. This decrease was primarily due to both a gain recognized on the sale of the Perkins facility of $14.9 million and the recognition of a $1.0 million non-refundable option payment from RIS Resources (USA) Inc. in the first quarter of 1998. The decrease of $125.9 million in product purchases was primarily due to a decrease in both commodity prices and sales volumes. Combined product purchases as a percentage of gas and NGL sales remained constant at 92% for the three months ended March 31, 1999 compared to the same period in 1998. Included in product purchases for the three months ended March 31, 1998 were lower of cost or market write-downs of NGL inventory of $328,000. There were no inventory write-downs for the first quarter of 1999. Depreciation, depletion and amortization decreased $944,000 for the quarter ended March 31, 1999 compared to the same quarter in 1998. The decrease was primarily due to the sales of assets during 1998. The Perkins plant was sold in March 1998 and the Edgewood gathering system was sold in October 1998. Interest expense increased $587,000 for the three months ended March 31, 1999 compared to the same period in 1998. The increase was due to less interest being capitalized related to capital projects and larger debt balances outstanding during the first quarter of 1999 compared to the corresponding period in 1998. The larger debt balances resulted primarily from capital expenditures and reduced income from operations. Subsequent Events Effective April 30, 1999 we sold all of the stock of our wholly owned subsidiary, Western Gas Resources Storage, Inc. to the Aquila Energy Corporation, a business unit of Utilicorp United. The sole asset of Western Gas Resources Storage, Inc. is the Katy Hub and Gas Storage Facility. The proceeds received from the sale of the Katy facility were $100.0 million. We will realize an after tax loss on this sale of approximately $10.9, subject to final accounting adjustment, million in the second quarter of 1999. In connection with this transaction, Aquila purchased approximately 5.1 Bcf of stored gas at the facility for proceeds of $11.7 million. The proceeds of the sale were equal to the value of the inventory on our books. Also on April 30, 1999 we completed the sale of our Giddings gathering system to GPM Gas Corporation, a business unit of Phillips Petroleum Company. This transaction had an effective date of January 1, 1999. The proceeds from this sale were $36.0 million. We will realize an after-tax loss on this sale of approximately $3.7, subject to final accounting adjustment, million in the second quarter of 1999. The proceeds of $147.7 million received from these transactions was used to reduce outstanding debt. 10 Liquidity and Capital Resources Our sources of liquidity and capital resources historically have been net cash provided by operating activities, funds available under our financing facilities and proceeds from offerings of equity securities. In the past, these sources have been sufficient to meet our needs and finance the growth of our business. We can give no assurance that the historical sources of liquidity and capital resources will be available for future development and acquisition projects, and we may be required to seek alternative financing sources. In 1998, sources of liquidity included the sales of the Perkins facility and the Edgewood facility and related production. In April 1999, we completed the sales of our Giddings and Katy facilities. In connection with the sale, we sold gas held in storage at the Katy facility. The total proceeds from these 1999 transactions were $147.7 million. We used the proceeds from these sales to reduce debt. Product prices, sales of inventory, our success in increasing the number and efficiency of our facilities and the volumes of natural gas processed by these facilities, the margin on third-party product purchased for resale, as well as the timely collection of our receivables will affect all future net cash provided by operating activities. Additionally, our future growth will be dependent upon obtaining additions to dedicated plant reserves, acquisitions, new project development, marketing, efficient operation of our facilities and our ability to obtain financing at favorable terms. Given the depressed oil and NGL prices we have experienced and the disappointing results from the Bethel treating facility, we have successfully negotiated amendments to in our various financing facilities which are intended to provide more flexibility in a low price environment. There can be no assurance that we can obtain further amendments or waivers in the future, if necessary, or that the terms would be favorable to us. To strengthen our credit ratings and to reduce our overall debt outstanding, we will continue to dispose of non- strategic assets and investigate alternative financing sources, including project-financing, joint ventures, issuance of public debt and operating leases. We believe that the amounts available to be borrowed under the Revolving Credit Facility, together with net cash provided by operating activities and the sale of non-strategic assets, will provide us with sufficient funds to connect new reserves, maintain our existing facilities and complete our current capital expenditure program. Depending on the timing and the amount of our future projects, we may be required to seek additional sources of capital. Our ability to secure such capital is restricted by our financing facilities, although we may request additional borrowing capacity from our lenders, seek waivers from our lenders to permit us to borrow funds from third parties, seek replacement financing facilities from other lenders, use stock as a currency for an acquisition, sell existing assets or a combination of such alternatives. While we believe that we would be able to secure additional financing, if required, we can provide no assurance that we will be able to do so or as to the terms of any such financing. We also believe that cash provided by operating activities and amounts available under our Revolving Credit Facility will be sufficient to meet our debt service and preferred stock dividend requirements for the remainder of 1999. Historically, while certain individual plants have experienced declines in dedicated reserves, we have been successful in connecting additional reserves to more than offset the natural declines. There has been a reduction in drilling activity, primarily in basins that produce oil and casinghead gas, from levels that existed in prior years. However, higher gas prices in 1997 and 1998, improved technology, e.g., 3-D seismic and horizontal drilling, and increased pipeline capacity from the Rocky Mountain region have stimulated drilling in the Powder River basin and Southwest Wyoming. The overall level of drilling will depend upon, among other factors, the prices for gas and oil, the drilling budgets of third-party producers, the energy policy of the federal government and the availability of foreign oil and gas, none of which is within our control. We have increased our dedicated estimated plant reserves from 2.2 Tcf at December 31, 1993 to 3.1 Tcf at December 31, 1998. On average, over this five year period, including the reserves associated with our joint ventures and partnerships and excluding the facilities sold during this period, we connected new reserves to our facilities to replace approximately 165% of throughput over this period. There is no assurance that we will continue to be successful in replacing the dedicated reserves processed at our facilities. We have effective shelf registration statements filed with the Commission for an aggregate of $200 million of debt securities and preferred stock, along with the shares of common stock, if any, into which such securities are convertible, and $62 million of debt securities, preferred stock or common stock. Our sources and uses of funds for the three months ended March 31, 1999 are summarized as follows (In thousands):
Sources of funds: Borrowings under revolving credit facility................ $864,951 Proceeds from the dispositions of property and equipment.. 100 Net cash provided by operating activities................. 12,661 -------- Total sources of funds.................................. $877,712 ======== Uses of funds: Payments related to long-term debt........................ $843,464 Capital expenditures...................................... 21,734 Dividends paid............................................ 4,217 -------- Total uses of funds..................................... $869,415 ========
Additional sources of liquidity available to us are our inventories of gas and NGLs in storage facilities. We store gas and NGLs primarily to ensure an adequate supply for long-term sales contracts and for resale during periods when prices are favorable. We held gas in storage and in imbalances of approximately 11.4 Bcf at an average cost of $1.70 per Mcf at March 31, 1999 compared to 8.2 Bcf at an average cost of $2.02 per Mcf at March 31, 1998, at various storage facilities, including the Katy facility. On April 30, 1999 we sold 5.1 Bcf of stored gas at the Katy facility for $11.7 million. At March 31, 1999, we had hedging contracts in place for anticipated sales of approximately 11.3 Bcf of stored gas at a weighted average price of $2.13 per Mcf for the stored inventory. 11 We held NGLs in storage of 6,900 MGal, consisting primarily of propane and normal butane, at an average cost of $.24 per gallon and 14,800 MGal at an average cost of $.32 per gallon at March 31, 1999 and 1998, respectively, at various third-party storage facilities. At March 31, 1999, we had no significant hedging contracts in place for anticipated sales of stored NGLs. Capital Investment Program Largely as a result of low commodity prices, primarily affecting NGL products, we have reduced our budget for capital expenditures in 1999 from the levels expended in 1997 and 1998. We expect capital expenditures related to existing operations to be approximately $67.0 million during 1999, consisting of the following: (i) approximately $39.6 million related to gathering, processing and pipeline assets, of which $6.3 million is for maintaining existing facilities; (ii) approximately $24.6 million on exploration and production activities; and (iii) approximately $2.8 million for miscellaneous items. Overall, capital expenditures in the Powder River basin coal bed methane development and in Southwest Wyoming operations represent 53% and 22%, respectively, of the total 1999 budget. As of March 31, 1999, we have expended $21.7 million, consisting of the following: (i) $12.6 million for new connects, system expansions and asset consolidations; (ii) $1.2 million for maintaining existing facilities; (iii) $7.8 million for exploration and production activities; and (iv) $178,000 related to other miscellaneous items. Powder River Basin - We continue to develop our Powder River basin coal bed methane natural gas gathering system and our coal seam gas reserves in Wyoming. The average drilling, completion and gathering cost for our coal bed methane wells is approximately $65,000 with average proven reserves per well of approximately 300 MMcf. As deeper wells are drilled, the average cost per well is expected to increase. Production of coal bed methane from the Powder River basin has been expanding, and approximately 116 MMcf/D of gas volumes in March 1999 were being produced by several operators in the area as compared to 61 MMcf/D in January 1998. Approximately 75% of this production is from acreage equally owned by our partner, Barrett Resources Corporation and us. We transport most of the coal bed methane gas through our MIGC interstate pipeline located in Wyoming, for redelivery to gas markets in the Rocky Mountain and Midwest regions of the United States. In December 1998, we joined with other industry partners to form Fort Union Gas Gathering, L.L.C., which is currently constructing a 106-mile long, 24-inch gathering pipeline and treater to gather and treat natural gas produced in the Powder River basin. We own a 13% equity interest in Fort Union and are the construction manager and field operator. We expect this new gathering pipeline to have an initial capacity of approximately 450 MMcf/D of natural gas with expansion capability. This project is expected to be operational on or about the end of the third quarter of 1999. Southwest Wyoming - The United States Geologic Survey estimates that the Greater Green River basin contains over 120 Tcf of unrecovered natural gas reserves. Our facilities are located in the Southwest Wyoming portion of this basin. They include the Granger gathering and processing facility and a 72% ownership interest in the Lincoln Road gathering and processing facility. These facilities have a combined operational capacity of 225 MMcf/D and processed an average of 179 MMcf/D in the first quarter of 1999. We connected 65 new gas wells to these facilities in 1998 despite low commodity prices. We believe that as governmental drilling restrictions affecting a portion of our service area in this basin are removed in the fourth quarter of 1999, we may have the opportunity to expand these facilities in the year 2000. Financing Facilities Revolving Credit Facility. The Revolving Credit Facility is with a syndicate of banks and provides for a maximum borrowing commitment of $300 million, $268.8 million of which was outstanding at March 31, 1999. The interest rate payable on the facility at March 31, 1999 was 6.7%. In April 1999, we restated the facility to reflect the following changes. The restated Revolving Credit Facility provides for an aggregate borrowing commitment of $250 million consisting of an $83 million 364-day Revolving Credit Facility, or Tranche A, and a five-year $167 million Revolving Credit Facility, or Tranche B. The Revolving Credit Facility bears interest at certain spreads over the Eurodollar rate, at the Federal Funds rate plus .50% or at the agent banks' prime rate. We have the option to determine which rate will be used. We also pay a facility fee on the commitment. The interest rate spreads and facility fee are adjusted based on our debt to capitalization ratio and range from .75% to 2.00%. We are required to maintain a total debt to capitalization ratio of not more than 60% through December 31, 2000 and of not more than 55% thereafter, and a senior debt to capitalization ratio of not more than 40% beginning September 30, 1999 through December 31, 2001 and of not more than 35% thereafter. The agreement also requires a ratio of EBITDA, excluding certain non-recurring items, to interest and dividends on preferred stock as of the end of any fiscal quarter, for the four preceding quarters, of not less than 1.35 to 1.0 beginning June 30, 1999 and increasing to 3.25 to 1.0 by December 31, 2002. This facility is guaranteed and secured via a pledge of the stock of our 12 significant subsidiaries. We generally utilize excess daily funds to reduce any outstanding balances on the Revolving Credit Facility and associated interest expense, and we intend to continue such practice. Master Shelf Agreement. In December 1991, we entered into a Master Shelf agreement with The Prudential Insurance Company of America. Amounts outstanding under the Master Shelf agreement at March 31, 1999 are as indicated in the following table (Dollars in thousands):
Interest Final Issue Date Amount Rate Maturity Principal Payments Due - -------------------- -------- --------- ------------------ ----------------------------------------------- October 27, 1992 $ 16,667 7.51% October 27, 2000 $8,333 on each of October 27, 1999 through 2000 October 27, 1992 25,000 7.99% October 27, 2003 $8,333 on each of 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 on each of July 28, 2003 through 2007 -------- $191,667 ========
In April 1999, effective January 1999, we amended our agreement with Prudential with the following provisions. We are required to maintain a current ratio, as defined therein, of at least .9 to 1.0, a minimum tangible net worth equal to the sum of $300 million plus 50% of consolidated net earnings earned from January 1, 1999 plus 75% of the net proceeds of any equity offerings after January 1, 1999, and a total debt to capitalization ratio of not more than 60% through December 31, 2001 and of not more than 55% thereafter. A senior debt to capitalization ratio will be implemented, if and when, we issue subordinated debt. This amendment also requires an EBITDA to interest ratio of not less than 1.75 to 1.0 increasing to a ratio of not less than 3.75 to 1.0 by March 31, 2002 and an EBITDA to interest on senior debt ratio of not less than 1.75 to 1.0 increasing to a ratio of not less than 5.50 to 1.0 by March 31, 2002. A senior debt to EBITDA ratio will be implemented, if and when we issue subordinated debt. EBITDA in these calculations excludes certain non-recurring items. In addition, we are prohibited from declaring or paying dividends that in the aggregate exceed the sum of $50 million plus 50% of consolidated net income earned after June 30, 1995, or minus 100% of a net loss, plus the aggregate net cash proceeds received after June 30, 1995 from the sale of any stock. At March 31, 1999, $32.0 million was available under this limitation. This amount is expected to be reduced by approximately $14.6 million as a result of the after-tax losses recognized on the sales of the Giddings and Katy facilities. We presently intend to finance the $8.3 million payment due in October 1999 with amounts available under the Revolving Credit Facility. The Master Shelf agreement is guaranteed and secured via a pledge of the stock of our significant subsidiaries. 1995 Senior Notes. In 1995, we sold $42 million of Senior Notes, the 1995 Senior Notes, to a group of insurance companies with an interest rate of 8.16% per annum. In March 1999, we prepaid $15 million of the principal amounts outstanding on the 1995 Senior Notes at par. These payments were financed by a portion of the $37 million Bridge Loan (described below) and by amounts available under the Revolving Credit Facility. The remaining principal amount outstanding of $27 million is due in a single payment in December 2005. The 1995 Senior Notes are guaranteed and secured via a pledge of the stock of our significant subsidiaries. This facility contains covenants similar to the Master Shelf agreement. In April 1999, we posted letters of credit for approximately $5.0 million for the benefit of the holders of the 1995 Senior Notes for approximately 4% of the net proceeds from the sale of Katy and Giddings. We are currently paying an average annual fee of not more than .65% on the amounts outstanding on the Master Shelf and the 1995 Senior Notes. This fee will continue until we have received an implied investment grade rating on our senior secured debt. On the portion of the 1995 Senior Notes for which a letter of credit is posted, this annual fee will not be due. 1993 Senior Notes. In 1993, we sold $50 million of 7.65% Senior Notes, the 1993 Senior Notes, to a group of insurance companies. Scheduled annual principal payments of $7.1 million on the 1993 Senior Notes were made on April 30 of 1997 and 1998. In February 1999, we prepaid $33.5 million of the total principal amounts outstanding of $35.6 million at par. These payments were financed by a portion of the $37 million Bridge Loan (described below). We prepaid the remaining outstanding principal of $2.1 million in April 1999 with amounts available under the Revolving Credit Facility. 13 Bridge Loan. In February 1999, in order to finance prepayments of amounts outstanding on the 1993 and 1995 Senior Notes, we entered into a Bridge Loan agreement in the amount of $37 million with our agent bank. This facility was paid in full in April 1999 with a portion of the proceeds from the sale of the Katy facility. Covenant Compliance. Taking into account all the covenants contained in these agreements, we had approximately $31.0 million of available borrowing capacity at March 31, 1999. In April 1999, we amended our various financing facilities providing for financial flexibility and covenant modifications. These amendments were needed given the depressed commodity pricing experienced in the industry in general and the disappointing results we have experienced at our Bethel Treating facility. We can provide no assurance that further amendments or waivers can be obtained in the future, if necessary, or that the terms would be favorable to us. To strengthen our credit ratings and to reduce our overall debt outstanding, we will continue to dispose of non- strategic assets and investigate alternative financing sources including the issuance of public debt, project financing, joint ventures and operating leases. Risk Management Activities Our commodity price risk management program has two primary objectives. The first goal is to preserve and enhance the value of our equity volumes of gas and NGLs with regard to the impact of commodity price movements on cash flow, net income and earnings per share in relation to those anticipated by our operating budget. The second goal is to manage price risk related to our gas, crude oil and NGL marketing activities to protect profit margins. This risk relates to hedging fixed price purchase and sale commitments, preserving the value of storage inventories, reducing exposure to physical market price volatility and providing risk management services to a variety of customers. We utilize a combination of fixed price forward contracts, exchange-traded futures and options, as well as fixed index swaps, basis swaps and options traded in the over-the-counter, or OTC, market to accomplish these objectives. These instruments allow us to preserve value and protect margins because corresponding losses or gains in the value of the financial instruments offset gains or losses in the physical market. We use 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. We enter into futures transactions on the New York Mercantile Exchange, or NYMEX, and the Kansas City Board of Trade and through OTC swaps and options with various counterparties, consisting primarily of financial institutions and other natural gas companies. We conduct our standard credit review of OTC counterparties and have agreements with these parties that contain collateral requirements. We generally use standardized swap agreements that allow for offset of positive and negative exposures. OTC exposure is marked to market daily for the credit review process. Our OTC credit risk exposure is partially limited by our ability to require a margin deposit from our major counterparties based upon the mark-to-market value of their net exposure. We are subject to margin deposit requirements under these same agreements. In addition, we are subject to similar margin deposit requirements for our NYMEX counterparties related to our net exposures. The use of financial instruments may expose us to the risk of financial loss in certain circumstances, including instances when (i) equity volumes are less than expected, (ii) our customers fail to purchase or deliver the contracted quantities of natural gas or NGLs, or (iii) our OTC counterparties fail to perform. To the extent that we engage in hedging activities, we may be prevented from realizing the benefits of favorable price changes in the physical market. However, we are similarly insulated against decreases in these prices. We hedged a portion of our estimated equity volumes of gas and NGLs in 1999, particularly in the first quarter, at pricing levels approximating our 1999 operating budget. Our equity hedging strategy establishes a minimum and maximum price while allowing market participation between these levels. As of March 31, 1999 we had hedged approximately 76% of our anticipated equity gas for 1999 at a weighted average NYMEX equivalent minimum price of $2.00 per Mcf. Additionally, we have hedged approximately 77% of our anticipated equity NGLs for 1999 at a weighted average composite Mont Belvieu and West Texas Intermediate crude oil equivalent minimum price of $.23 per gallon. 14 At March 31, 1999, we had $50,000 of losses deferred in inventory that will be recognized over the remainder of 1999, and will be offset by margins from our related forward fixed price hedges and physical sales. At March 31, 1999, we had unrecognized net losses of $432,000 related to financial instruments that were offset by corresponding unrecognized net gains from our obligations to sell physical quantities of gas and NGLs. We enter into speculative futures, swap and option trades on a very limited basis for purposes that include testing of hedging techniques. Our policies contain strict guidelines for these trades including predetermined stop-loss requirements and net open position limits. Speculative futures, swap and option 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 or losses from these speculative activities for the quarters ended March 31, 1999 and 1998 were not material. Year 2000 We have made a comprehensive review of our computer systems to identify the systems that could be affected by the Year 2000 issue and are in the process of identifying and making the appropriate modifications to these computer systems. We have: (i) created a Year 2000 awareness program to educate employees; (ii) compiled an inventory of all systems; (iii) developed system test plans as appropriate; and (iv) began the testing and remediation as required for both information and non-information technology systems. Additionally, we have initiated a program under which we survey our business counterparties periodically regarding their Year 2000 conversion and contingency plans. Currently, we anticipate spending approximately $1.5 million, of which approximately 67% is currently committed, for remediation purposes, which are primarily consisting of hardware and operating system upgrades. We have incurred and will continue to incur internal staff costs as well as some consulting and other expenses, which have been and are expected to continue to be immaterial. We anticipate our Year 2000 conversion project to be substantially completed by October 1999. Currently, we believe our most significant risk for the Year 2000 issue is that the systems of other companies on which we rely will not be Year 2000 compliant and that any failure to convert by another company will have an adverse effect on our results of operations or financial position. In order to mitigate this risk, we continue to develop contingency plans and are surveying our vendors and customers to verify the status of their conversion and contingency plans. 15 Principal Facilities The following tables provide information concerning our principal facilities at March 31, 1999. We also own and operate several smaller treating, processing and transmission facilities located in the same areas as its other facilities.
Average for the Three Months Ended March 31, 1999 Gas Gas -------------------------------------------------- Gathering Throughput Gas Gas NGL Year Placed Systems Capacity Throughput Production Production Plant Facilities (1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(5) - --------------------------------- ----------- --------------- --------------- -------------- ------------------- ------------ Southern Region: Texas Bethel Treating (6)............ 1997 86 350 70 66 - Giddings Gathering(14)......... 1979 661 80 46 32 68 Gomez Treating................. 1971 385 280 108 101 - Midkiff/Benedum................ 1955 2,139 165 139 94 836 Mitchell Puckett Gathering..... 1972 86 120 107 70 2 MiVida Treating (6)............ 1972 289 150 48 46 - Rosita Treating................ 1973 - 60 39 - - Louisiana Black Lake..................... 1966 56 75 12 7 17 Toca (7)(8).................... 1958 - 160 66 62 56 Northern Region: Wyoming Coal Bed Methane Gathering..................... 1990 389 105 107 85 - Granger (7)(9)(10)............. 1987 448 235 155 142 156 Hilight Complex (7)............ 1969 622 80 25 20 73 Kitty/Amos Draw (7)............ 1969 313 17 12 9 48 Lincoln Road (10).............. 1988 149 50 24 22 22 Newcastle...................... 1981 146 5 2 1 16 Red Desert..................... 1979 111 42 18 16 31 Reno Junction (9).............. 1991 - - - - 51 Oklahoma Arkoma......................... 1985 72 8 5 5 - Chaney Dell.................... 1966 2,050 180 61 47 203 Westana........................ 1986 791 45 69 60 45 New Mexico San Juan River (6)............. 1955 149 60 25 21 16 Utah Four Corners Gathering......... 1988 104 15 3 3 9 ----- ----- ----- --- ----- Total......................... 9,046 2,282 1,141 909 1,649 ===== ===== ===== === =====
Average for the Three Months Ended March 31, 1999 Interconnect --------------- and Gas Storage Pipeline Gas Storage and Year Placed Transmission Capacity Capacity Throughput Transmission Facilities (1) In Service Miles(2) (Bcf)(2) (MMcf/D)(2) (MMcf/D)(3) - --------------------------------- ----------- ------------ ----------- ---------- --------------- Katy Facility (11)(14)........... 1994 17 20 - 241 MIGC (12)(15).................... 1970 245 - 130 153 MGTC (13)........................ 1963 252 - 18 14 ----- ----- ----- --- Total.......................... 514 20 148 408 ===== ===== ===== ===
Footnotes on following page. 16 (1) Our interest in all facilities is 100% except for Midkiff/Benedum (73%); Black Lake (69%); Lincoln Road (72%); Westana Gathering Company (50%); Newcastle (50%) and Coal Bed Methane Gathering (50%). We operate all facilities and all data includes our interests and the interests of other joint interest owners and producers of gas volumes dedicated to the facility. Unless otherwise indicated, all facilities shown in the table are gathering and processing facilities. (2) Gas gathering systems miles, interconnect and transmission miles, gas storage capacity and pipeline capacity are as of March 31, 1999. (3) Gas throughput capacity is as of March 31, 1999 and represents capacity in accordance with design specifications unless other constraints exist, including permitting or field compression limits. (4) Aggregate wellhead natural gas volumes collected by a gathering system, aggregate volumes delivered over the header at the Katy Hub and Gas Storage Facility or volumes transported by a pipeline. (5) Volumes of gas and NGLs are allocated to a facility when a well is connected to that facility; volumes exclude NGLs fractionated for third parties. (6) Sour gas facility (capable of processing or treating gas containing hydrogen sulfide and/or carbon dioxide). (7) Fractionation facility (capable of fractionating raw NGLs into end-use products). (8) Straddle plant, or a plant located near a transmission pipeline that processes gas dedicated to or gathered by a pipeline company or another third party. (9) NGL production includes conversion of third-party feedstock to iso-butane. (10) We and our joint venture partner at the Lincoln Road facility have agreed to process such gas at our Granger facility so long as there is available capacity at the Granger facility. Accordingly, operations at the Lincoln Road facility were temporarily suspended for the period between January 1999 and March 1999. (11) Hub and gas storage facility. (12) MIGC is an interstate pipeline located in Wyoming and is regulated by the Federal Energy Regulatory Commission. (13) MGTC is a public utility located in Wyoming and is regulated by the Wyoming Public Service Commission. (14) On April 30, 1999 we sold both of these facilities. (15) Pipeline capacity represents capacity at the Powder River junction only and it does not include northern delivery points. 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- McMurry Oil Company, et al. v. TBI Exploration, Inc., Mountain Gas Resources, Inc. and Wildhorse Energy Partners, LLC, District Court, Ninth Judicial District, Sublette County, Wyoming, Civil Action No. 5882. McMurry Oil Company and certain other producers (collectively, "McMurry") filed suit against TBI Exploration, Inc. ("TBI"), Mountain Gas Resources, Inc., our wholly-owned subsidiary ("Mountain Gas") and Wildhorse Energy Partners, LLC ("Wildhorse"). The central dispute in this case concerns certain preferential rights which are set forth in a December 23, 1991 Lease Participation Agreement (the "Participation Agreement") entered into by Presidio Exploration, Inc. ("Presidio") and McMurry. The Participation Agreement granted Presidio a call on certain gas and the right to match offers for gathering and/or purchasing gases (collectively, the "Preferential Rights"). There is a dispute between McMurry and Mountain Gas as to whether any Preferential Rights exist and, if they do, whether Mountain Gas has exercised the Preferential Rights and whether McMurry has tendered all third-party offers to Mountain Gas in order to allow Mountain Gas to determine if it wishes to exercise the Preferential Rights. In addition, McMurry and Mountain Gas dispute the extent of the Preferential Rights. There is also a dispute as to who owns the Preferential Rights contained in the Participation Agreement which consolidated Presidio Oil Company's and it's gathering, processing, and marketing business into Mountain Gas. In November 1998, the Wyoming District Court granted summary judgment on all claims in favor of McMurry and against Mountain Gas, TBI and Wildhorse (with the exception of Mountain Gas' third-party claim against Jonah Gas Gathering Company). In early 1999, McMurry, TBI and Wildhorse settled their claims and crossclaims and TBI and Wildhorse were dismissed. The allegation of Mountain Gas' liability to McMurry for Mountain Gas' slander of title and its intentional interference with contract has been set for trial beginning May 10, 1999. At the present time, it is not possible to express an opinion as to the likely outcome of this litigation or to estimate the amount of potential damages. Berco Resources, Inc. v. Amerada Hess Corporation and Western Gas Resources, Inc., United States District Court, District of Colorado, Civil Action No. 97- WM-1332. Berco Resources, Inc. is an independent producer and marketer of natural gas and alleges that it owns or has the right to produce and sell natural gas in the Temple/Tioga Area in North Dakota. Berco alleges that Amerada Hess engaged in unlawful monopolization under Section 2 of the Sherman Act and Section 7 of the Clayton Act by acquiring natural gas gathering and producing facilities owned by us. Berco alleges that we, along with Amerada Hess have conspired, through the purchase and sale of our facilities in the Temple/Tioga Area, to create a monopoly affecting an appreciable amount of interstate commerce in violation of Sections 1 and 2 of the Sherman Act. Berco seeks an award against Amerada Hess and us of threefold the amount of damages actually sustained by Berco, in an amount to be determined at trial, and/or divestiture of the assets which Amerada Hess acquired, for an order restraining and enjoining us and Amerada Hess from violating the antitrust laws, and for costs, attorney fees and interest. We believe that we have meritorious defenses to the claims and will vigorously defend such claims. At the present time it is not possible to predict the outcome of this litigation or to estimate the amount of potential damages. Internal Revenue Service The Internal Revenue Service ("IRS") has completed its examination of our tax returns for the years 1990 and 1991 and has proposed adjustments to taxable income reflected in such tax returns that 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, we would incur an interest charge as a result of such adjustments. We are currently protesting certain of these proposed adjustments. In the opinion of management, any proposed adjustments for the additional income taxes and interest that may result would not be material. However, it is reasonably possible that the ultimate resolution could result in an amount which differs materially from management's estimates. Other We are involved in various other litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities that may result from these claims, will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 10.20 Loan Agreement dated April 29, 1999 by and among Western Gas Resources, Inc. and NationsBank, as agent, and the Lenders. 10.21 Amended and Restated Note Purchase Agreement dated April 28, 1999 by and among Western Gas Resources, Inc. and the purchasers identified in the original agreement dated November 29, 1995. 10.22 Letter Amendment No. 2 dated March 31, 1999 to the Second Amended and Restated Master Shelf Agreement effective January 31, 1996 by and among Western Gas Resources, Inc. and The Prudential Insurance Company of America and Pruco Life Insurance Company. (b) Reports on Form 8-K: A report on Form 8-K was filed on May 11, 1999 with the Securities and Exchange Commission to notify our stockholders of the disposition of our Katy Hub and Gas Storage Facility and the disposition of our Giddings gathering system. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTERN GAS RESOURCES, INC. --------------------------- (Registrant) Date: May 13, 1999 By: /s/ LANNY F. OUTLAW --------------------- Lanny F. Outlaw President and Chief Operating Officer Date: May 13, 1999 By: /s/WILLIAM J. KRYSIAK --------------------- William J. Krysiak Vice President - Finance (Principal Financial and Accounting Officer) 19 EX-10.20 2 LOAN AGREEMENT EXHIBIT 10.20 - -------------------------------------------------------------------------------- LOAN AGREEMENT ---------- WESTERN GAS RESOURCES, INC. and NATIONSBANK, N.A. as Agent NATIONSBANC MONTGOMERY SECURITIES LLC as Lead Arranger SOCIETE GENERALE as Syndication Agent ABN AMRO BANK N.V. as Documentation Agent and certain banks as Lenders ---------- $300,000,000 April 29, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I. - Definitions and References........................................1 Section 1.1. Defined Terms.............................................1 Section 1.2. Exhibits and Schedules; Additional Definitions...........19 Section 1.3. Amendment of Defined Instruments.........................20 Section 1.4. References and Titles....................................20 Section 1.5. Calculations and Determinations..........................20 ARTICLE II. - The Loans.......................................................20 Section 2.1. Committed Loans..........................................20 Section 2.2. Requests for New Loans...................................22 Section 2.3. Continuations and Conversions of Existing Committed Loans ...................................................23 Section 2.4. Competitive Bid Loans....................................24 Section 2.5. Use of Proceeds..........................................26 Section 2.6. Optional Prepayments.....................................27 Section 2.7. Mandatory Prepayments....................................27 Section 2.8. Payments to Lenders......................................29 Section 2.9. Facility Fees............................................30 Section 2.10. Increased Cost and Reduced Return........................30 Section 2.11. Limitation on Types of Loans.............................31 Section 2.12. Illegality...............................................32 Section 2.13. Treatment of Affected Loans..............................32 Section 2.14. Compensation.............................................33 Section 2.15. Taxes....................................................33 Section 2.16. Compensation Procedure...................................35 Section 2.17. Interest Rate Changes....................................35 ARTICLE III. - Letters of Credit..............................................36 Section 3.1. LCs......................................................36 Section 3.2. Reimbursement of LCs.....................................36 Section 3.3. Transferees of LCs.......................................38 Section 3.4. Extension of Maturity of LCs.............................38 Section 3.5. Restriction on Liability.................................38 Section 3.6. No Duty to Inquire.......................................39 Section 3.7. LC Fees..................................................39 ARTICLE IV. - Conditions Precedent to Lending.................................39 Section 4.1. Documents to be Delivered................................39 Section 4.2. Additional Conditions Precedent..........................40 -i- ARTICLE V. - Representations and Warranties...................................41 Section 5.1. Borrower's Representations and Warranties................41 Section 5.2. Representation by Lenders................................46 ARTICLE VI. - Covenants of Borrower...........................................46 Section 6.1. Affirmative Covenants....................................46 Section 6.2. Negative Covenants.......................................52 ARTICLE VII. - Security.......................................................58 Section 7.1. The Security.............................................58 Section 7.2. Offset...................................................58 Section 7.3. Guaranties of Borrower's Subsidiaries....................58 Section 7.4. Deposits.................................................59 ARTICLE VIII. - Events of Default and Remedies................................60 Section 8.1. Events of Default........................................60 Section 8.2. Remedies.................................................63 Section 8.3. Indemnity................................................63 ARTICLE IX. - Agent...........................................................64 Section 9.1. Appointment, Powers, and Immunities......................64 Section 9.2. Reliance by Agent........................................64 Section 9.3. Defaults.................................................64 Section 9.4. Rights as Lender.........................................65 Section 9.5. Indemnification..........................................65 Section 9.6. Non-Reliance on Agent and Other Lenders..................65 Section 9.7. Resignation of Agent.....................................66 Section 9.8. Appointment and Authority................................66 Section 9.9. Exculpation, Agent's Reliance, Etc.......................67 Section 9.10. Lenders' Credit Decisions................................67 Section 9.11. Expenses; Indemnification................................67 Section 9.12. Rights as Lender.........................................68 Section 9.13. Adjustments..............................................68 Section 9.14. Benefit of Article IX....................................69 Section 9.15. Agency/Administrative Fee................................69 ARTICLE X. - Miscellaneous....................................................69 Section 10.1. Waivers and Amendments; Acknowledgments..................69 Section 10.2. Survival of Agreements; Cumulative Nature................71 Section 10.3. Notices..................................................71 Section 10.4. Joint and Several Liability; Parties in Interest.........72 Section 10.5. Assignments and Participations...........................72 Section 10.6. Governing Law; Submission to Process.....................74 Section 10.7. Limitation on Interest...................................74 -ii- Section 10.8. Termination; Limited Survival............................75 Section 10.9. Severability.............................................76 Section 10.10. Confidentiality..........................................76 Section 10.11. Counterparts.............................................76 Section 10.12. Waiver of Jury Trial, Punitive Damages, Etc..............76 Section 10.13. Restatement..............................................77 -iii- SCHEDULE 1 - Disclosure Schedule SCHEDULE 2 - Security Schedule SCHEDULE 3 - Lenders SCHEDULE 4 - Joint Ventures EXHIBIT A - Tranche A Note EXHIBIT B - Tranche B Note EXHIBIT C - Borrowing Notice EXHIBIT D - Letter of Credit Application EXHIBIT E - Continuation/Conversion Notice EXHIBIT F - Officer's Certificate EXHIBIT G - Assignment and Acceptance EXHIBIT H - Form of Opinion of Borrower's General Counsel EXHIBIT I - Form of Cash Flow Projections EXHIBIT J - Competitive Bid Request EXHIBIT K - Invitation to Bid EXHIBIT L - Competitive Bid EXHIBIT M - Competitive Bid Accept/Reject Letter EXHIBIT N - Competitive Bid Note EXHIBIT O - Notice of Final Agreement EXHIBIT P - Risk Management Policy -iv- LOAN AGREEMENT THIS LOAN AGREEMENT is made as of April 29,1999 and shall be effective for all purposes as of the Effective Date, by and among Western Gas Resources, Inc., a Delaware corporation (herein called "Borrower"), NationsBank, N.A., a national banking association (herein called "Agent") and Lenders referred to below. In consideration of the mutual covenants and agreements contained herein the parties hereto agree as follows: ARTICLE I. - Definitions and References Section I.1. Defined Terms. As used in this Agreement, each of the following terms has the meaning given it in this Section 1.1 or in the sections and subsections referred to below: "Affiliate" means, as to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with, such Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 15% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" means NationsBank, as Agent hereunder, and its successors in such capacity. "Agreement" means this Loan Agreement. "American General Group" means, collectively, The Variable Annuity Life Insurance Company, American General Life Insurance Company, American General Life and Accident Insurance Company (successor in interest to Gulf Life Insurance Company), First Allmerica Financial Life Insurance Company, and Allmerica Financial Life Insurance and Annuity Company. "Applicable Lending Office" means, for each Lender and for each Type of Committed Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on Schedule 3 or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time specify to Agent and Borrower by written notice in accordance with the terms hereof as the office by which its Committed Loans of such Type are to be made and maintained. "Asset Sale" means each sale of an asset or group of assets by a Related Person for a purchase price of $1,000,000 or more. "Asset Sale Proceeds" means with respect to each Asset Sale, all proceeds from the sale of such asset or group of assets, net of reasonable out-of-pocket expenses of sales and associated cash taxes, if any, incurred by such Related Person. "At Risk Position" has the meaning given it in Section 6.2(k). "Authorized Officer" means, with respect to any act to be performed or duty to be discharged by or on behalf of any Person who is not an individual, any officer, agent or representative thereof who is at the time in question authorized to perform such act or discharge such duty on behalf of such Person. "Base Rate" means the per annum rate of interest equal to the sum of (i) the greater of (A) the Prime Rate from time to time in effect or (B) the Federal Funds Rate from time to time in effect plus one-half of one percent (.50%), plus (ii) the Base Rate Spread, plus (iii) the Senior Cap Spread, if any, and (iv) the Issuance Spread, if any. If the Prime Rate or the Federal Funds Rate, as the case may be, changes after the date hereof the Base Rate shall be automatically increased or decreased, as the case may be, without notice to Borrower from time to time as of the effective time of each such change. The Base Rate shall in no event, however, exceed the Highest Lawful Rate. "Base Rate Payment Date" means (i) the first day of each January, April, July and October beginning on and including July 1, 1999, and (ii) any day on which past due interest or principal is owed hereunder and is unpaid. If the terms hereof provide that payments of interest or principal hereon shall be deferred from one Base Rate Payment Date to another day, such other day shall also be a Base Rate Payment Date. "Base Rate Spread" means: (a) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is less than or equal to 0.50 to 1.0, 0.00%; (b) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.50 to 1.0 but less than or equal to 0.55 to 1.0, 0.25%; and (c) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.55 to 1.0, 0.50%. "Borrower" means Western Gas Resources, Inc., a Delaware corporation. "Borrowing" means any of the following: (i) a borrowing of new Committed Loans of a single Type pursuant to Section 2.2; (ii) a continuation or conversion of existing Committed Loans into a single Type (and, in the case of Committed Eurodollar Loans, with the same Interest Period) pursuant to Section 2.3; and (iii) a combination of new Committed Loans and a -2- continuation or conversion of existing Committed Loans in a single Type (and, in the case of Committed Eurodollar Loans, with the same Interest Period). "Borrowing Notice" means a request for a Borrowing made by Borrower either (i) in writing in the form and substance of the "Borrowing Notice" attached hereto as Exhibit C, duly completed, or (ii) by telephone providing the same information to Agent. "Bridge Facility" means that certain Loan Agreement among Borrower, as borrower, and NationsBank, N.A., as lender, dated as of February 17, 1999. "Business Day" means a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Dallas, Texas and New York City, New York. Any Business Day in any way relating to Committed Eurodollar Loans (such as the day on which an Interest Period begins or ends) must also be a day on which, in the judgment of Agent, significant transactions in dollars are carried out in the interbank eurocurrency market. "Change in Control" means any of the following: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 25% of the total Voting Shares of Borrower after the date hereof; or (b) Borrower is merged with or into or consolidated with another Person and immediately after giving effect to the merger or consolidation, (i) less than 50% of the total voting power of the outstanding Voting Shares of the surviving or resulting Person is then "beneficially owned" (within the meaning of Rule 13d-3 under the Exchange Act) in the aggregate by the stockholders of Borrower immediately prior to such merger or consolidation, and (ii) any "person" or "group" (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Shares of the surviving or resulting Person; or (c) Borrower, either individually or in conjunction with one or more Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all or substantially all of the properties of Borrower and the Subsidiaries, taken as a whole (either in one transaction or a series of related transactions) including capital stock of the Subsidiaries, to any Person (other than Borrower or a wholly owned Subsidiary); or (d) during any consecutive two-year period, individuals who at the beginning of such period constituted the board of directors of Borrower (together with any new directors whose election by such board of directors or whose nomination for election by the stockholders of Borrower was approved by a vote of a majority of the directors then still in office who were -3- either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of Borrower then in office; or (e) the liquidation or dissolution of Borrower. "Collateral" means all property of any kind which is subject to a Lien in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which, under the terms of any Security Document, is purported to be subject to such a Lien, in each case granted or created to secure all or part of the Obligations. "Commitment" means the aggregate amount of the Tranche A Commitment and the Tranche B Commitment as reduced from time to time pursuant to Section 2.7. "Committed Base Rate Loans" means all Tranche A Base Rate Loans and all Tranche B Base Rate Loans. "Committed Eurodollar Loans" means all Tranche A Eurodollar Loans and all Tranche B Eurodollar Loans. "Committed Loans" means all Tranche A Loans and all Tranche B Loans. "Committed Notes" means all Tranche A Notes and all Tranche B Notes. "Competitive Bid" means a response from any Lender to an Invitation to Bid, substantially in the form of Exhibit L. "Competitive Bid Accept/Reject Letter" means a notice sent by Borrower to Agent, substantially in the form of Exhibit M, indicating its acceptance or rejection of Competitive Bids from various Lenders. "Competitive Bid Interest Period" means, with respect to a Competitive Bid Loan, a period from one day to fifty-nine days as specified in the Competitive Bid applicable thereto. "Competitive Bid Loan" means a loan from a Lender to Borrower pursuant to the bidding procedure described in Section 2.4. "Competitive Bid Note" has the meaning given it in Section 2.4(f). "Competitive Bid Rate" means, for any Competitive Bid Loan, the fixed rate at which such Lender is willing to make such Competitive Bid Loan indicated in its Competitive Bid. The Competitive Bid Rate shall in no event, however, exceed the Highest Lawful Rate. -4- "Competitive Bid Request" means a request by Borrower in the form of Exhibit J for Lenders to submit Competitive Bids. "Consolidated" refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person's Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries. "Continuation/Conversion Notice" means a request for a continuation or conversion of existing Committed Loans made by Borrower pursuant to Section 2.3 either (i) in writing in the form and substance of the "Continuation/Conversion Notice" attached hereto as Exhibit E, duly completed, or (ii) by telephone providing the same information to Agent. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to Section 2.3 of a Committed Eurodollar Loan of one Type as a Committed Eurodollar Loan of the same Type from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 2.3 of one Type of Loan into another Type of Loan. "Debt" of any Person means the sum of the following indebtedness, liabilities and obligations of such Person (without duplication), whether matured or unmatured, liquidated or unliquidated, primary or secondary: (a) obligations for borrowed money, (b) obligations to pay the deferred purchase price of property or services, (c) obligations evidenced by a bond, debenture, note or similar financial instrument, (d) obligations which (i) would under GAAP be shown on such Person's balance sheet as a liability, and (ii) are payable more than one year from the date of creation thereof (other than reserves for taxes and reserves for contingent obligations), (e) obligations arising under Hedging Contracts to which such Person is a party, (f) obligations arising under leases, whether or not the payments thereunder are capitalized in accordance with GAAP, (g) obligations arising under conditional sales or other title retention agreements, (h) obligations owing under direct or indirect guaranties of Debt of any other Person or constituting obligations to purchase or acquire or to otherwise protect or insure a creditor -5- against loss in respect of Debt of any other Person (such as obligations under working capital maintenance agreements, agreements to keep-well, or agreements to purchase Debt, assets, goods, securities or services), (i) obligations (for example, repurchase agreements) to purchase securities or other property, if such obligations arise out of or in connection with the sale of the same or similar securities or property, (j) obligations with respect to letters of credit or reimbursement agreements therefor, (k) obligations with respect to payments received in consideration of oil, gas, or other minerals yet to be acquired or produced at the time of payment (including obligations under "take-or-pay" contracts to deliver gas in return for payments already received and the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment), or (l) obligations to deliver goods or services in consideration of advance payments therefor; provided, however, that the "Debt" of any Person shall not include Debt that was incurred by such Person on ordinary trade terms to vendors, suppliers, or other Persons providing goods and services for use by such Person in the ordinary course of its business, unless and until such Debt is outstanding more than ninety (90) days past the original invoice or billing date therefor. "Debt to Capitalization Ratio" means, at the time of determination, the ratio of (a) Funded Debt to (b) the sum of the Funded Debt plus Shareholders' Equity. (Determination will be made in connection with the delivery of the officer's certificate pursuant to Section 6.1(b)(iii) and may be made pursuant to Section 2.17 from time to time.) "Debt Securities" means collectively, (i) those senior notes dated October 27, 1992, September 22, 1993, December 27, 1993, October 27, 1994 and July 28, 1995 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 (ii) the 8.02% senior notes due December 1, 2005 in the aggregate principal amount of $42,000,000 issued by Borrower pursuant to a note purchase agreement among Borrower and the members of the American General Group (as amended and restated from time to time, the "American General Agreement"). "Default" means any Event of Default and any default, event or condition which would, with the giving of any requisite notices and the passage of any requisite periods of time, constitute an Event of Default. "Default Rate" means, at the time in question, (i) with respect to any Committed Base Rate Loan, two percent (2.0%) per annum plus the Base Rate then in effect; (ii) with respect to -6- any Committed Eurodollar Loan, two percent (2.0%) per annum plus (A) with respect to Tranche A Eurodollar Loans, the Tranche A Fixed Rate, or (B) with respect to Tranche B Eurodollar Loans, the Tranche B Fixed Rate; and (iii) with respect to any Competitive Bid Loan, two percent (2.0%) per annum plus the applicable Competitive Bid Rate, unless otherwise agreed to by Borrower and the applicable Lender, and (iv) with respect to any Obligation other than a Loan (including but not limited to Matured LC Obligations), two percent (2.0%) per annum plus the Base Rate then in effect. The Default Rate shall in no event, however, exceed the Highest Lawful Rate. "Disclosure Report" means either a notice given by Borrower under Section 6.1(d) or a certificate given by Borrower's chief financial officer, treasurer, executive vice president or president under Section 6.1(b)(iii). "Disclosure Schedule" means Schedule 1 hereto. "EBITDA" means with respect to any Person, for any period, the sum (determined without duplication on a Consolidated basis and in accordance with GAAP) of (a) such Person's net income (or net loss), and (b) such Person's Consolidated taxes, interest, depreciation, amortization and depletion expenses taken into account in determining such net income (or net loss) for such period. "Effective Date" means the date of the first Borrowing hereunder. "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; and (iii) any other Person approved by Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 10.5; Borrower, such approval not to be unreasonably withheld or delayed by Borrower and such approval to be deemed given by Borrower if no objection is received by the assigning Lender and Agent from Borrower within two Business Days after notice of such proposed assignment has been provided by the assigning Lender to Borrower; provided, however, that any such Eligible Assignee shall have capital and surplus in excess of $1,000,000,000 and, in Agent's reasonable opinion, has experience in lending to companies in the oil and gas business and provided further that neither Borrower nor an Affiliate of Borrower (excluding the members of the Board of Directors of Borrower and their Affiliates) shall qualify as an Eligible Assignee. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. -7- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Plan" means any employee pension benefit plan subject to Title IV of ERISA maintained by any Related Person or any Affiliate thereof with respect to which any Related Person has a fixed or contingent liability. "Eurodollar Rate" means, for any Committed Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Dow Jones Market Service (formerly Telerate Access Service) Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Committed Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Event of Default" has the meaning given it in Section 8.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Agreement" means that certain Loan Agreement dated as of May 30, 1997 among Borrower, Agent and the lenders named therein, as amended to the date hereof. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Agent (in its individual capacity) on such day on such transactions as determined by Agent. "Fiscal Quarter" means a three-month period ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means a twelve-month period ending on December 31 of any year. -8- "Fixed Rate Payment Date" means, with respect to any Committed Eurodollar Loan: (i) the day on which the related Interest Period ends and, if such Eurodollar Interest Period is six months in length, the date specified by Agent which is approximately three months after such Eurodollar Interest Period begins and (ii) any day on which past due interest or past due principal is owed hereunder with respect to such Committed Eurodollar Loan and is unpaid. If the terms hereof provide that payments of interest or principal with respect to such Committed Eurodollar Loan shall be deferred from one Fixed Rate Payment Date to another day, such other day shall also be a Fixed Rate Payment Date. "Funded Debt" means the aggregate of the following Debt of Borrower and its Subsidiaries, after elimination of intercompany items and other Consolidation in accordance with GAAP: (a) Debt (including the Obligations) for borrowed money, regardless of maturity, (b) Debt constituting an obligation to pay the deferred purchase price of property, (c) Debt evidenced by a bond, debenture, note or similar instrument, and (d) Debt which is due and payable at the time in question, with respect to letters of credit or reimbursement agreements therefor. "GAAP" means those generally accepted accounting principles and practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor) and which, in the case of Borrower and its Consolidated subsidiaries, are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the audited Initial Financial Statements. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor) in order for such principle or practice to continue as a generally accepted accounting principle or practice, all reports and financial statements required hereunder with respect to Borrower or with respect to Borrower and its Consolidated subsidiaries may be prepared in accordance with such change but, if such change is material, all calculations and determinations to be made hereunder may be made in accordance with such change only after notice of such change is given to each Lender and Majority Lenders agree to such change insofar as it affects the accounting of Borrower or of Borrower and its Consolidated subsidiaries. "Guarantor" means MIGC, MGR, MGTC, PGT, WGRC, WGRO, WGRT, WGW, and Lance and any other Person who has guaranteed some or all of the Obligations pursuant to a guaranty listed on the Security Schedule or any other Person who has guaranteed some or all of the Obligations and who has been accepted by Agent as a Guarantor or any Subsidiary of Borrower which now or hereafter executes and delivers a guaranty to Agent pursuant to Section 7.3. "Hazardous Materials" means any substances regulated under any Environmental Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise. "Hedging Contracts" means futures contracts, forward contracts, swap, cap or collar contracts, option contracts, hedging contracts, other derivative contracts, or similar agreements. -9- "Highest Lawful Rate" means, with respect to each Lender, the maximum nonusurious rate of interest that such Lender is permitted under applicable law to contract for, take, charge, or receive with respect to its Loan. All determinations herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest Lawful Rate, shall be made separately for each Lender as appropriate to assure that the Loan Documents are not construed to obligate any Person to pay interest to any Lender at a rate in excess of the Highest Lawful Rate applicable to such Lender. "Initial Financial Statements" means the audited annual Consolidated financial statements of Borrower dated as of December 31, 1998. "Interest Period" means, with respect to each particular Committed Eurodollar Loan, a period of 1, 2, 3 or 6 months, as specified in the Borrowing Notice or Continuation/Conversion Notice applicable thereto, beginning on and including the date specified in such Borrowing Notice or Continuation/Conversion Notice (which must be a Business Day), and ending on but not including the same day of the month as the day on which it began (e.g., a period beginning on the third day of one month shall end on but not include the third day of another month), provided that each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (unless such next succeeding Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the immediately preceding Business Day). No Interest Period may be elected, which would extend past the date on which the associated Note is due and payable in full. "Invitation to Bid" means an invitation by Agent to Lender, substantially in the form of Exhibit K, inviting each Lender to submit Competitive Bids in response to a Competitive Bid Request. "Issuance Date" means the first date after the date hereof on which Borrower has issued at least $150,000,000 of Subordinated Debt. "Issuance Spread" means, only if the Issuance Date has not occurred on or before June 30, 1999, one-fourth of one percent (0.25%) during the period from and after July 1, 1999 until the Issuance Date. "Issuing Bank" shall mean NationsBank, N.A., in its capacity as the issuer of LCs hereunder, and its successors in such capacity. "Lance" means Lance Oil & Gas Company, Inc., a Delaware corporation. "LC" has the meaning given it in Section 3.1. "LC Obligations" means, at the time in question, the sum of all Matured LC Obligations plus the maximum amounts which Issuing Bank might then or thereafter be called upon to advance under all LCs then outstanding. -10- "LC Sublimit" means $25,000,000. "Lenders" means each signatory hereto (other than Borrower), including NationsBank, N.A. in its capacity as a lender hereunder rather than as Agent, and the successors of each as holder of a Note. "Lien" means, with respect to any property or assets, any right or interest therein of a creditor to secure Debt owed to him or any other arrangement with such creditor which provides for the payment of such Debt out of such property or assets or which allows him to have such Debt satisfied out of such property or assets prior to the general creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's or materialman's lien, or any other charge or encumbrance for security purposes, whether arising by law or agreement or otherwise, but excluding any right of offset which arises without agreement in the ordinary course of business. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of uncertificated securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists. "Loan" means a Committed Loan or a Competitive Bid Loan, as applicable. "Loans" means all Committed Loans and Competitive Bid Loans. "Loan Documents" means this Agreement, the Notes, the LCs, the Security Documents and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (excluding term sheets, commitment letters, correspondence and similar documents used in the negotiation hereof, except to the extent the same contain information about Borrower or its Affiliates, properties, business or prospects, and further excluding all offering memorandums prepared by NationsBanc Montgomery Securities LLC, for use in connection with the Loans). "Majority Lenders" shall mean at the time in question two or more Lenders collectively having at least a 66-2/3% Percentage Share; provided, however, that in the event the obligation of Lenders to make Committed Loans hereunder has been terminated or the Obligations have been accelerated at the time in question, "Majority Lenders" shall mean two or more Lenders whose aggregate ratable share of the sum of the aggregate unpaid principal balance of all Loans at the time in question and the aggregate unpaid Matured LC Obligations at such time is at least 66 2/3%. "Material Adverse Effect" shall mean a material, adverse effect on the businesses, properties, prospects, operations, or financial condition of Borrower on a Consolidated basis or on the right or ability of any Related Person to consummate the transactions contemplated by the Loan Documents or to perform its obligations thereunder. -11- "Matured LC Obligations" has the meaning given it in Section 3.2. "MGR" means Mountain Gas Resources, Inc., a Delaware corporation. "MGTC" means MGTC, Inc., a Wyoming corporation. "MIGC" means MIGC, Inc., a Delaware corporation. "NationsBank" means NationsBank, N.A., in its individual capacity. "Note" means a Committed Note or a Competitive Bid Note, as appropriate. "Obligations" means all Debt from time to time owing by any of the Related Persons to Agent or any Lender under or pursuant to any of the Loan Documents. "Obligation" means any part of the Obligations. "Percentage Share" means, with respect to any Lender (a) when used in Sections 2.1 or 2.9, in any Notice of Borrowing or when no Committed Loans are outstanding hereunder, the percentage set forth opposite such Lender's name on the Schedule 3 attached hereto, and (b) when used otherwise, the percentage equal to the percentage obtained by dividing (i) the sum of the unpaid principal balance of such Lender's Committed Loans at the time in question plus the Matured LC Obligations which such Lender has funded pursuant to Section 3.2(b) plus that portion of the amount which Lenders might be called upon to advance under all LCs then outstanding that such Lender would be obligated to fund under Section 3.2(b), by (ii) the aggregate unpaid principal balance of all Committed Loans at such time plus the aggregate amount of LC Obligations outstanding at such time. "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity. "PGT" means Pinnacle Gas Treating, Inc., a Texas corporation and wholly-owned subsidiary of Borrower. "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. "Prime Rate" means the per annum rate of interest established from time to time by NationsBank as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank to its customers. -12- "Prohibited Lien" means any Lien not expressly allowed under Section 6.2(b). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect. "Related Person" means any of Borrower, each Guarantor, and each other Subsidiary of Borrower with the exception of Westana, Williston Gas Company, and Sandia. "Reserve Requirement" means, on any day with respect to each particular Committed Eurodollar Loan, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Tranche A Fixed Rate or the Tranche B Fixed Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Tranche A Fixed Rate and the Tranche B Fixed Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Right" has the meaning given it in the definition of "Shareholder Rights Plan" set forth in Section 1.1. "Rights Plan Preferred Stock" shall mean preferred stock of Borrower issued in connection with the exercise of a Right that: (a) is economically comparable to Borrower's common stock (including dividend rights), (b) contains no financial or operating covenants; (c) does not require Borrower to make any sinking fund or similar mandatory prepayments and is not otherwise subject to redemption at the option of the holder thereof; and (d) is not convertible or exchangeable into Debt of Borrower. "Risk Management Policy" means that certain WGR Commodity Price Risk Management Policy of Borrower effective as of January 24, 1997, a true and correct copy of which is attached hereto as Exhibit P. "Sandia" means Sandia Energy Resources Joint Venture. "Security Documents" means the instruments listed in the Security Schedule and all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now, heretofore, or hereafter delivered by any Related Person to Agent in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations or the performance of any Related Person's other duties and obligations under the Loan Documents. -13- "Security Schedule" means Schedule 2 hereto. "Senior Cap Spread" means with respect to any Fiscal Quarter, one-fourth of one percent (0.25%) only if the Senior Debt to Capitalization Ratio in effect pursuant to Section 2.17 as of the immediately preceding Fiscal Quarter is greater than 0.40 to 1.0. "Senior Debt" means all of the Obligations and all indebtedness owing by the Related Persons under the Debt Securities. "Senior Debt to Capitalization Ratio" means, at the time of determination, the ratio of (a) the Senior Debt to (b) the sum of the Funded Debt plus Shareholders' Equity. (Determination will be made in connection with the delivery of the officer's certificate pursuant to Section 6.1(b)(iii) and may be made pursuant to Section 2.17 from time to time.) "Shareholder Rights Plan" means a plan containing terms that are usual and customary pursuant to which: (i) holders of Borrower's common stock at the time of adoption of the plan (and any common stock of Borrower issued thereafter) receive by way of a dividend a right (a "Right") to purchase shares of either common stock or Rights Plan Preferred Stock of Borrower or shares of common stock of an acquiring Person, which Rights are not exercisable until a Triggering Event (as hereinafter defined) occurs: (ii) prior to a Triggering Event, the Rights may be transferred only as a right attaching to Borrower's common stock; (iii) the Rights to purchase shares are not exercisable until a Triggering Event occurs; (iv) the Person or group of Persons that cause the Triggering Event shall not be permitted to exercise any Rights; and (v) Borrower may redeem the Rights for nominal consideration under certain conditions which shall not exceed an aggregate amount of $1,000,000. For purposes of this definition, the term "Triggering Event" means the acquisition by a Person or group of Persons of a certain percentage (as set forth in the respective Shareholder Rights Plan) of the shares of common stock of Borrower or the announcement by a Person or group of Persons of a tender offer or exchange offer for such percentage of the common stock of Borrower. "Shareholders' Equity" means the remainder of (i) Borrower's Consolidated assets minus (ii) the sum of (x) Borrower's Consolidated liabilities plus (y) all treasury stock of Borrower and its Subsidiaries plus (z) all intangible assets of Borrower and its Subsidiaries (including without limitation all patents, copyrights, licenses, franchises, goodwill, trade names and trade secrets); provided that the term "Shareholder's Equity" shall include the book value of long-term gas contracts with producers that Borrower assumes in connection with acquisitions that are reflected on the books of Borrower as assets. "Stock Option Agreements" means, collectively, those certain Agreements to Provide Loan(s) to enable certain employees to exercise stock options by and among Borrower and certain of its key employees. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, joint venture, or other business or corporate entity, enterprise or organization which is directly or -14- effectively through one or more intermediaries, controlled by or owned fifty-one percent or more by such Person, provided that associations, joint ventures or other relationships (a) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (b) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state law, and (c) whose businesses are limited to the exploration, development and operation of oil, gas, mineral, gas gathering or gas processing properties and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries" of such Person. "Subordinated Debt" means unsecured Debt issued by Borrower that is subordinated to the Obligations and the Debt Securities on terms acceptable to Majority Lenders and guarantees thereof by Borrower's Subsidiaries each of which is subordinated to the Obligations and the Debt Securities on terms acceptable to Majority Lenders. "Subordinated Debt Proceeds" has the meaning given it in Section 2.7. "Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA or (ii) any other reportable event described in Section 4043(b) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (b) the withdrawal of any Related Person or of any Affiliate of any Related Person from an ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan. "Tranche A Base Rate Loan" means a Tranche A Loan which does not bear interest at the Tranche A Fixed Rate. "Tranche A Commitment" means $100,000,000 as reduced from time to time pursuant to Section 2.7. "Tranche A Commitment Period" means the period from and including the until and including the earlier of the Tranche A Maturity Date or the day on which the Tranche A Notes become due and payable in full. "Tranche A Eurodollar Loan" means a Tranche A Loan which is properly designated to bear interest at the Tranche A Fixed Rate pursuant to Section 2.2 or 2.3. "Tranche A Eurodollar Spread" means, with respect to each Tranche A Eurodollar Loan: -15- (a) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is less than or equal to 0.35 to 1.0, 0.625%; (b) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.35 to 1.0 but less than or equal to 0.45 to 1.0, 0.825%; (c) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.45 to 1.0 but less than or equal to 0.50 to 1.0, 1.025%; (d) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.50 to 1.0 but less than or equal to 0.55 to 1.0, 1.25%; and (e) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.55 to 1.0, 1.30%. "Tranche A Facility Fee Rate" means: (a) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is less than or equal to 0.35 to 1.0, 0.125% per annum; (b) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.35 to 1.0 but less than or equal to 0.45 to 1.0, 0.175% per annum; (c) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.45 to 1.0 but less than or equal to 0.50 to 1.0, 0.225% per annum; (d) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.50 to 1.0 but less than or equal to 0.55 to 1.0, 0.250% per annum; and (e) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.55 to 1.0, 0.450% per annum, "Tranche A Fixed Rate" means, with respect to each particular Tranche A Eurodollar Loan and the associated Eurodollar Rate and Reserve Requirement, the rate per annum calculated by Agent (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined on a daily basis pursuant to the following formula: Tranche A Fixed Rate = Eurodollar Rate + Tranche A Spread - ------------------------------- 100.0% - Reserve Requirement The Tranche A Fixed Rate for any Tranche A Eurodollar Loan shall change whenever the Tranche A Eurodollar Spread changes, whenever the Senior Cap Spread changes, whenever the -16- Issuance Spread changes, and whenever the Reserve Requirement changes. The Tranche A Fixed Rate shall in no event, however, exceed the Highest Lawful Rate. "Tranche A Loan" has the meaning given it Section 2.1(a). "Tranche A Maturity Date" means the date which is 364 days after the date hereof. "Tranche A Note" has the meaning given it in Section 2.1(a). "Tranche A Spread" means, at the time of determination, the sum of the Tranche A Eurodollar Spread, the Issuance Spread, if any, and the Senior Cap Spread, if any, then in effect. "Tranche B Base Rate Loan" means a Tranche B Loan which does not bear interest at the Tranche B Fixed Rate. "Tranche B Commitment" means $200,000,000, as reduced from time to time pursuant to Section 2.7. "Tranche B Commitment Period" means the period from and including the until and including the earlier of the Tranche B Maturity Date or the day on which the Tranche B Notes become due and payable in full. "Tranche B Eurodollar Loan" means a Tranche B Loan which is properly designated to bear interest at the Tranche B Fixed Rate pursuant to Section 2.2 or 2.3. "Tranche B Eurodollar Spread" means, with respect to each Tranche B Eurodollar Loan: (a) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is less than or equal to 0.35 to 1.0, 0.60%; (b) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.35 to 1.0 but less than or equal to 0.45 to 1.0, 0.80%; (c) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.45 to 1.0 but less than or equal to 0.50 to 1.0, 1.00%; (d) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.50 to 1.0 but less than or equal to 0.55 to 1.0, 1.20%; and (e) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.55 to 1.0, 1.25%. "Tranche B Facility Fee Rate" means: -17- (a) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is less than or equal to 0.35 to 1.0, 0.15% per annum; (b) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.35 to 1.0 but less than or equal to 0.45 to 1.0, 0.20% per annum; (c) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.45 to 1.0 but less than or equal to 0.50 to 1.0, 0.25% per annum; (d) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.50 to 1.0 but less than or equal to 0.55 to 1.0, 0.30% per annum; and (e) for each period in which the Debt to Capitalization Ratio in effect pursuant to Section 2.17 is greater than 0.55 to 1.0, 0.50% per annum. "Tranche B Fixed Rate" means, with respect to each particular Tranche B Eurodollar Loan and the associated Eurodollar Rate and Reserve Requirement, the rate per annum calculated by Agent (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined on a daily basis pursuant to the following formula: Tranche B Fixed Rate = Eurodollar Rate + Tranche B Spread - ------------------------------ 100.0% - Reserve Requirement The Tranche B Fixed Rate for any Tranche B Eurodollar Loan shall change whenever the Tranche B Eurodollar Spread changes, whenever the Senior Cap Spread changes, whenever the Issuance Spread changes, and whenever the Reserve Requirement changes. The Tranche B Fixed Rate shall in no event, however, exceed the Highest Lawful Rate. "Tranche B Loan" has the meaning given it Section 2.1(b). "Tranche B Maturity Date" means March 31, 2004. "Tranche B Note" has the meaning given it in Section 2.1(b). "Tranche B Spread" means, at the time of determination, the sum of the Tranche B Eurodollar Spread, the Issuance Spread, if any, and the Senior Cap Spread, if any, then in effect. "Type" means, with respect to any Committed Loan, the characterization of such Committed Loan as either a Committed Base Rate Loan or Committed Eurodollar Loan. "Voting Shares" means at the time in question, the sum of (a) all outstanding shares of common stock of Borrower, (b) all other securities issued by Borrower which entitle the holder -18- thereof to voting rights with respect to Borrower at such time (as used in this definition, the shares described in the immediately preceding clauses (a) and (b) are collectively called ("Shares")), and (c) the amount of additional Shares (not including any share or security included in the preceding clauses (a) and (b)) which may be obtained by converting outstanding shares of capital stock of Borrower or rights under other outstanding instruments into Shares. "Westana" means the general partnership formed between WGRO and Panhandle Gathering Company, a wholly-owned subsidiary of Panhandle Eastern Pipeline Company. "WGRC" means WGR Canada, Inc., a New Brunswick corporation and wholly-owned subsidiary of Borrower. "WGRO" means Western Gas Resources - Oklahoma, Inc., a Delaware corporation and wholly-owned subsidiary of Borrower. "WGRS" means Western Gas Resources Storage, Inc., a Texas corporation and wholly-owned subsidiary of Borrower. "WGRT" means Western Gas Resources Texas, Inc., a Texas corporation and wholly-owned subsidiary of Borrower. "WGW" means Western Gas Wyoming, L.L.C., a Wyoming limited liability company. "Williston Gas Company" means the joint venture formed pursuant to that certain Amended and Restated Joint Venture Agreement dated August 1, 1990 between Borrower (as successor in interest) and Enron Gas Processing, as amended to the date hereof. "WPS" means Western Power Services, Inc., a Delaware corporation and wholly-owned subsidiary of Borrower. Section I.2. Exhibits and Schedules; Additional Definitions. All Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Reference is hereby made to the Security Schedule for the meaning of certain terms defined therein and used but not defined herein, which definitions are incorporated herein by reference. Section I.3. Amendment of Defined Instruments. Unless the context otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document, provided that nothing contained in this section shall be construed to authorize any such renewal, extension, modification, amendment or restatement. Section I.4. References and Titles. All references in this Agreement to Exhibits, Schedules, articles, sections, subsections and other subdivisions refer to the Exhibits, Schedules, -19- articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation". Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Section I.5. Calculations and Determinations. All calculations under the Loan Documents with respect to the Federal Funds Rate, Fixed Rate Portions or the interest chargeable with respect thereto shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days. All calculations under the Loan Documents which are unrelated to the Federal Funds Rate, Committed Eurodollar Loans and the interest chargeable with respect thereto shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 365 or 366 days, as appropriate. Each determination by Agent or a Lender as to any Eurodollar Rate, Fixed Rate, Business Day, Interest Period, Reserve Requirement or similar matters shall be conclusive and binding for all purposes, provided that such determinations and allocations are made on a reasonable basis. Unless otherwise expressly provided herein or unless Majority Lenders otherwise consent all financial statements and reports furnished to Agent or any Lender hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP (except for financial projections). ARTICLE II. - The Loans II.1. Committed Loans. -20- (a) Tranche A Loans. Subject to the terms and conditions hereof, Lenders agree to make loans to Borrower (herein called such Lender's "Tranche A Loans") from time to time during the Tranche A Commitment Period so long as (i) all Lenders are requested to make Tranche A Committed Loans of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing, (ii) the aggregate amount of all Tranche A Committed Loans outstanding does not exceed the Tranche A Commitment at any time and (iii) the aggregate amount of all Loans (including Committed Loans and Competitive Bid Loans) and all LC Obligations does not exceed the Commitment. The aggregate amount of all Tranche A Loans in any Borrowing must be greater than or equal to $250,000 and must be an integral multiple of $250,000 for requests of $1,000,000 or less and an integral multiple of $100,000 for requests over $1,000,000 or must equal the unadvanced portion of the Tranche A Commitment. The obligation of Borrower to repay to each Lender the aggregate amount of all Tranche A Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by a single promissory note made by Borrower payable to the order of such Lender (herein called such Lender's "Tranche A Note") in the form of Exhibit A with appropriate insertions. The amount of principal owing on any Lender's Tranche A Note at any given time shall be the aggregate amount of all Tranche A Loans theretofore by such Lender made minus all payments of principal theretofore received by such Lender on its Tranche A Note. Principal paid or prepaid on the Tranche A Notes may, subject to the terms and conditions hereof, be reborrowed during the Tranche A Commitment Period. Interest on each Tranche A Note shall accrue and be payable as provided herein and therein. (b) Tranche B Loans. Subject to the terms and conditions hereof, Lenders agree to make loans to Borrower (herein called such Lender's "Tranche B Loans") from time to time during the Tranche B Commitment Period so long as (i) all Lenders are requested to make Tranche B Committed Loans of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing, (ii) the sum of (a) the aggregate amount of all Tranche B Loans outstanding plus (b) the LC Obligations outstanding does not exceed the Tranche B Commitment at any time and (iii) the aggregate amount of all Loans (including Committed Loans and Competitive Bid Loans) and all LC Obligations does not exceed the Commitment. The aggregate amount of all Tranche B Loans in any Borrowing must be greater than or equal to $250,000 and must be an integral multiple of $250,000 for requests of $1,000,000 or less and an integral multiple of $100,000 for requests over $1,000,000 or must equal the unadvanced portion of the Tranche B Commitment. In addition to the foregoing, upon the making of each payment by the Issuing Bank pursuant to any LC, Borrower shall be deemed to have requested each Lender to, and such Lender shall, make a Tranche B Loan in the amount of such Lender's Percentage Share of Borrower's consequent reimbursement obligation and apply the proceeds thereof to the payment of such reimbursement obligation. When any Matured LC Obligations is repaid with proceeds of a Borrowing, such Matured LC Obligations so repaid shall be extinguished and such Borrowing shall be governed by the terms of this Agreement applicable to all other Borrowings. Any such Borrowings are Borrowings of Committed Base Rate Loans unless otherwise designated by Borrower in compliance with the notice requirements set forth in Section 2.2. The obligation of Borrower to repay to each Lender the aggregate amount of all Tranche B Loans made by such Lender, together with interest accruing in connection therewith, -21- shall be evidenced by a single promissory note made by Borrower payable to the order of such Lender (herein called such Lender's "Tranche B Note") in the form of Exhibit B with appropriate insertions. The amount of principal owing on any Lender's Tranche B Note at any given time shall be the aggregate amount of all Tranche B Loans theretofore by such Lender made minus all payments of principal theretofore received by such Lender on its Tranche B Note. Principal paid or prepaid on the Tranche B Notes may, subject to the terms and conditions hereof, be reborrowed during the Tranche B Commitment Period. Interest on each Tranche B Note shall accrue and be payable as provided herein and therein. Section II.2. Requests for New Loans. Borrower must give to Agent a Borrowing Notice for any requested Borrowing of new Committed Loans to be advanced by Lenders (i) by telephone (which telephonic notice shall be confirmed in writing by Agent) or (ii) if Agent so requests, in writing. Each Borrowing Notice must: (a specify (i) the aggregate amount of any such Borrowing of new Committed Base Rate Loans and the date on which such Committed Base Rate Loans are to be advanced, or (ii) the aggregate amount of any such Borrowing of new Committed Eurodollar Loans, the date on which such Committed Eurodollar Loans are to be advanced (which shall be the first day of the Interest Period which is to apply thereto), and the length of the applicable Interest Period, or (iii) if such new Committed Eurodollar Loans are to be combined with existing Committed Loans in a new Borrowing, the foregoing information with respect to such combined Borrowing; and (b be received by Agent not later than 10:00 a.m., Dallas, Texas time, on (i) the day on which any such Committed Base Rate Loans are to be made, or (ii) if Committed Eurodollar Loans are to be made, the third Business Day preceding the day on which such Committed Eurodollar Loans are to be made. Each telephonic Borrowing Notice shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in a written Borrowing Notice. Upon receipt of any Borrowing Notice, Agent shall give each Lender prompt notice of the terms thereof. If all conditions precedent to such new Committed Loans have been met, each Lender will on the date requested promptly remit to Agent at Agent's office in Dallas, Texas the amount of such Lender's new Committed Loan in immediately available funds, and upon receipt of such funds, unless to its actual knowledge any conditions precedent to such Committed Loans have been neither met nor waived as provided herein, Agent shall promptly make such Committed Loans available to Borrower. Unless Agent shall have received prompt notice from a Lender that such Lender will not make available to Agent such Lender's new Committed Loan, Agent may in its discretion assume that such Lender has made such Committed Loan available to Agent in accordance with this section and Agent may if it chooses, in reliance upon such assumption, make such Committed Loan available to Borrower. If and to the extent such Lender shall not so make its new Committed Loan available to Agent, such Lender and Borrower severally agree to pay or repay to Agent within three days after demand the amount of such Loan together with interest thereon, for each day from the date such amount was -22- made available to Borrower until the date such amount is paid or repaid to Agent, with interest at (i) the Federal Funds Rate, if such Lender is making such payment and (ii) the interest rate applicable at the time to the other new Committed Loans made on such date, if Borrower is making such repayment. If neither such Lender nor Borrower pay or repay to Agent such amount within such three-day period, Agent shall in addition to such amount be entitled to recover from such Lender and from Borrower, on demand, interest thereon at the Default Rate, calculated from the date such amount was made available to Borrower. The failure of any Lender to make any new Committed Loan to be made by it hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its new Committed Loan, but no Lender shall be responsible for the failure of any other Lender to make any new Committed Loan to be made by such other Lender. Section II.3. Continuations and Conversions of Existing Committed Loans. Borrower may make the following elections with respect to Committed Loans already outstanding: to Convert Committed Base Rate Loans to Committed Eurodollar Loans, to Convert Committed Eurodollar Loans to Committed Base Rate Loans on the last day of the Interest Period applicable thereto, or to continue Committed Eurodollar Loans beyond the expiration of such Interest Period by designating a new Interest Period to take effect at the time of such expiration. In making such elections, Borrower may combine existing Committed Loans made pursuant to separate Borrowings into one new Borrowing or divide existing Committed Loans made pursuant to one Borrowing into separate new Borrowings or combine existing Committed Loans with new Committed Loans. To make any such election, Borrower must give to Agent a Continuation/Conversion Notice for any such conversion or continuation of existing Committed Loans, with a separate notice given for each new Borrowing (i) by telephone (which telephonic notice shall be confirmed in writing by Agent) or (ii) if Agent so requests, in writing. Each such Continuation/Conversion Notice must: (a specify the existing Committed Loans which are to be Continued or Converted, and if such existing Committed Loans are to be combined with new Committed Loans, specify such new Committed Loans; (b specify (i) the aggregate amount of any Borrowing of Committed Base Rate Loans into which such existing Committed Loans are to be continued or converted and the date on which such Continuation or Conversion is to occur, or (ii) the aggregate amount of any Borrowing of Committed Eurodollar Loans into which such existing Committed Loans are to be continued, converted or combined, the date on which such Continuation, Conversion or combination is to occur (which shall be the first day of the Interest Period which is to apply to such Committed Eurodollar Loans), and the length of the applicable Interest Period; and (c be received by Agent not later than 10:00 a.m., Dallas, Texas time, on (i) the day on which any such continuation or conversion to Committed Base Rate Loans is to occur, or (ii) the third Business Day preceding the day on which any such Continuation or Conversion to Committed Eurodollar Loans is to occur. -23- Each telephonic Continuation/Conversion Notice shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in the written Continuation/Conversion Notice. Upon receipt of any Continuation/Conversion Notice, Agent shall give each Lender prompt notice of the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and binding on Borrower. During the continuance of any Default, Borrower may not make any election to convert existing Committed Loans into Committed Eurodollar Loans or continue existing Committed Loans as Committed Eurodollar Loans. If (due to the existence of a Default or for any other reason) Borrower fails to timely and properly give any notice of continuation or conversion with respect to a Borrowing of existing Committed Eurodollar Loans at least three days prior to the end of the Interest Period applicable thereto, such Committed Eurodollar Loans shall automatically be converted into Committed Base Rate Loans at the end of such Interest Period. No new funds shall be repaid by Borrower or advanced by any Lender in connection with any continuation or conversion of existing Loans pursuant to this section, and no such continuation or conversion shall be deemed to be a new advance of funds for any purpose; such continuations and conversions merely constitute a change in the interest rate applicable to already outstanding Committed Loans. Section II.4. Competitive Bid Loans. (a) Borrower may request that each Lender submit Competitive Bids (on a several basis) to Borrower on any Business Day during the Tranche B Commitment Period, provided that all Lenders are requested to make a Competitive Bid on the same basis at the same time. In order to request Competitive Bids, Borrower shall deliver by hand or telecopy to Agent a Competitive Bid Request, to be received by Agent not later than 9:00 a.m., Dallas time one Business Day before the date specified for a proposed Competitive Bid Loan. A Competitive Bid Request that does not conform substantially to the format of Exhibit J may be rejected in Agent's sole discretion, and Agent shall promptly notify Borrower of such rejection by telecopier. After receiving an acceptable Competitive Bid Request, Agent shall no later than 12:00 noon, Dallas time on the date such Competitive Bid Request is received by Agent, by telecopier deliver to Lenders an Invitation to Bid substantially in the form of Exhibit K with respect thereto. (b Each Lender may, in its sole discretion, make one or more Competitive Bids to Agent responsive to each Competitive Bid Request given by Borrower. Each Competitive Bid by a Lender must be received by Agent by telecopier not later than 9:00 a.m., Dallas time on the date specified for a proposed Competitive Bid Loan. Multiple bids may be accepted by Agent. Competitive Bids that do not conform substantially to the format of Exhibit L may be rejected by Agent after conferring with, and upon the instruction of, Borrower, and Agent shall notify the bidding Lender of such rejection as soon as practicable. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify Agent by telecopier not later than 9:00 a.m., Dallas time, on the date specified for a Competitive Bid Loan; provided, however, that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Loan. A Competitive Bid submitted by a Lender shall be irrevocable. (c Promptly, and in no event later than 9:30 a.m., Dallas time, on the date specified for a proposed Competitive Bid Loan, Agent shall notify Borrower by telecopier of all the -24- Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Bid Loan in respect of which a Competitive Bid was made, and the identity of each Lender that made each Competitive Bid. Agent shall send a copy of all Competitive Bids to Borrower for its records as soon as practicable after completion of the bidding process. (d Borrower may, subject only to the provisions hereof, accept or reject any Competitive Bid. Borrower shall notify Agent by telecopier pursuant to a Competitive Bid Accept/Reject Letter whether and to what extent Borrower has decided to accept or reject any or all of the Competitive Bids, not later than 10:30 a.m., Dallas time, on the date specified for a proposed Competitive Bid Loan; provided, however, that: (i) the failure by Borrower to accept or reject any Competitive Bid within the time period specified herein shall be deemed to be a rejection of such Competitive Bid, (ii) the aggregate amount of the Competitive Bids accepted by Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iii) the aggregate amount of all Lenders' Competitive Bid Loans outstanding at any time shall not exceed $100,000,000 and the aggregate amount of all Loans (including all Competitive Bid Loans and all Committed Loans) and all LC Obligations shall not exceed the Commitment, (iv) if Borrower shall accept a Competitive Bid or Competitive Bids made at a particular Competitive Bid Rate, but the amount of such Competitive Bid or Competitive Bids shall cause the total amount of Competitive Bids to be accepted by Borrower to exceed the amount specified in the Competitive Bid Request, then Borrower shall accept a portion of such Competitive Bid or Competitive Bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate, and (v) no Competitive Bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of $1,000,000 and an integral multiple of $500,000 and is part of a Competitive Bid Loan in a minimum principal amount of $5,000,000; provided further, however, that if a Competitive Bid Loan must be in an amount less than $1,000,000 because of the provisions of clause (v) above, such Competitive Bid Loan may be for a minimum of $500,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances or portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (v), the amounts shall be rounded to integral multiples of $500,000 in a manner which shall be in the sole and absolute discretion of Borrower. -25- (e Promptly on each date Borrower accepts a Competitive Bid, Agent shall notify each Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopier transmission sent by Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Bid Loan in respect of which its Competitive Bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, Agent shall notify each Lender of the aggregate principal amount of all Competitive Bids accepted. Each Lender which is to make a Competitive Bid Loan shall, before 11:00 a.m., Dallas time, on the borrowing date specified in the Competitive Bid Request applicable thereto, make available to Agent in immediately available funds the amount of each Competitive Bid Loan to be made by such Lender, and Agent shall promptly deposit such funds to an account designated by Borrower. As soon as practicable thereafter, Agent shall notify each Lender of the aggregate amount of Competitive Bid Loans advanced, the respective Competitive Bid Interest Periods thereof and Competitive Bid Rate applicable thereto. (f The obligation of Borrower to repay to each Lender the aggregate amount of all Competitive Bid Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by promissory notes (respectively, such Lender's "Competitive Bid Note") made by Borrower payable to the order of such Lender in the form of Exhibit N, with appropriate insertions. The amount of principal owing on any Lender's Competitive Bid Note at any given time shall be the aggregate amount of all Competitive Bid Loans theretofore made by such Lender thereunder minus all payments of principal theretofore received by such Lender thereon. Interest on each Competitive Bid Note shall accrue and be due and payable as provided herein and therein. Borrower shall repay on the final day of the Competitive Bid Interest Period of each Competitive Bid Loan (such date being that specified by Borrower for repayment of such Competitive Bid Loan in the related Competitive Bid Request and such date being no later than six months after the date of the Competitive Bid Loan) the then unpaid principal amount of such Competitive Bid Loan. Subject to Section 2.6 and the payment of amounts described in Section 2.14, Borrower shall have the right to prepay any principal amount of any Competitive Bid Loan. (g) No Competitive Bid Loan shall be made within five Business Days after the date of any other Competitive Bid Loan, unless Borrower and Agent shall mutually agree otherwise. If Agent shall at any time elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to Borrower requesting such Competitive Bid one quarter of an hour earlier than the latest time at which the other Lenders are required to submit their bids to Agent. Section II.5. Use of Proceeds. Borrower shall use all funds from the Borrowings under the Loans (i) first, to repay in full all existing outstanding indebtedness owing under the Existing Agreement, and (ii) thereafter, to make capital expenditures and provide working capital for its operations, to meet its reimbursement obligations under LCs, and for other general business purposes. In no event shall any LC or any Borrowing be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock" or any "margin securities" (as such terms are defined respectively in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to -26- others directly or indirectly for the purpose of purchasing or carrying any such margin stock or margin securities. Borrower represents and warrants to Lenders that it is not engaged principally, or as one of its important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock or margin securities. Section II.6. Optional Prepayments. (a) Subject to the provisions of this Section 2.6, Borrower may from time to time prepay the Notes, including Competitive Bid Notes, in whole or in part, so long as (A) Borrower so notifies Agent by 10:00 a.m. Dallas, Texas time on the date such prepayment is to be made, which date must be a Business Day, and (B) the aggregate amount of all partial prepayments of principal concurrently paid on any category of Notes is greater than or equal to $250,000 and is an integral multiple of $250,000 for prepayments of $1,000,000 or less and an integral multiple of $100,000 for prepayments over $1,000,000, provided that any prepayment of any Committed Eurodollar Loan or Competitive Bid Loan shall be accompanied by all reimbursement amounts payable pursuant to Section 2.14. Unless otherwise designated by Borrower, any prepayment of Competitive Bid Loans shall be applied to the outstanding Competitive Bid Loans in order of shortest maturity. Agent shall give each Lender prompt notice of any notice of prepayment it receives from Borrower. (b) Each prepayment of principal under this Section 2.6, shall be accompanied by all interest accrued at the interest rate applicable to the principal amount being prepaid through the date of such prepayment and unpaid on such Notes. Each principal payment of a Committed Loan made under this Section 2.6 shall be apportioned and applied to each Lender's Committed Note in accordance with such Lender's Percentage Share of such payment. Any principal or interest prepaid pursuant to this Section 2.6 shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of such prepayment. Section II.7. Mandatory Prepayments. (a) Tranche A Loans. If the aggregate unpaid principal balance of the Tranche A Loans ever exceeds the Tranche A Commitment, Borrower shall, immediately after Agent on behalf of Majority Lenders gives written notice of such fact to Borrower, make a prepayment to Agent for distribution to Lenders in the amount of such excess on the Tranche A Loans in accordance with Lenders' Percentage Shares. (b) Tranche B Loans. If the sum of (i) the aggregate unpaid principal balance of the Tranche B Loans and (ii) the LC Obligations outstanding ever exceeds the Tranche B Commitment, Borrower shall, immediately after Agent on behalf of Majority Lenders gives written notice of such fact to Borrower, make a prepayment to Agent for distribution to Lenders in the amount of such excess on the Tranche B Loans in accordance with Lenders' Percentage Shares. -27- (c) Proceeds of Asset Sales and Related Reduction of Commitment. Until the Issuance Date: (i) Ninety percent (90%) of the Asset Sale Proceeds arising from each Asset Sale shall be delivered by Borrower, first, to NationsBank to pay the outstanding principal balance of, and accrued and unpaid interest on, the Debt outstanding under the Bridge Facility until such Debt is reduced to zero and, second, to Agent to pay the unpaid principal balance of, and accrued and unpaid interest on, the Tranche A Loans until the aggregate unpaid principal balance of the Tranche A Loans does not exceed the Tranche A Commitment and to pay the Tranche B Loans until the sum of the aggregate unpaid principal balance of the Tranche B Loans and the LC Obligations does not exceed the Tranche B Commitment, in each case after the reductions described in the immediately following subsection (ii); (ii) In connection with each Asset Sale for which all Asset Sale Proceeds are not applied to the Bridge Facility, each of the Tranche A Commitment and the Tranche B Commitment shall be reduced, pro rata, so as to represent the same proportion of the Commitment after such reduction as it represented before such reduction, by an amount equal to fifty percent (50%) of the Asset Sale Proceeds arising from such Asset Sale which are not applied to the Bridge Facility, such reduction to be effective on the date of receipt thereof by any Related Person. (d) Proceeds of Issuance of Subordinated Debt and Related Reduction of Commitment. The proceeds from the issuance of Subordinated Debt, net of reasonable out-of-pocket costs of issuance incurred by Borrower ("Subordinated Debt Proceeds") shall be applied as follows: (i) First, the Subordinated Debt Proceeds shall be delivered by Borrower to NationsBank to pay the outstanding principal balance of, and accrued and unpaid interest on, the Debt outstanding under the Bridge Facility until such Debt is reduced to zero. (ii) Second, until the aggregate amount of the Tranche A Commitment and the Tranche B Commitment is equal to $250,000,000: (A) Each of the Tranche A Commitment and the Tranche B Commitment shall be reduced, pro rata, so as to represent the same proportion of the Commitment after such reduction as it represented before such reduction, by an amount equal to fifty percent (50%) of the Subordinated Debt Proceeds remaining after the Debt under the Bridge Facility has been paid in full, such reduction to be effective on the date of receipt thereof by any Related Person; and (B) Borrower shall deliver to Agent Subordinated Debt Proceeds in the amount necessary to pay the unpaid principal balance of, and accrued and unpaid interest on, the Tranche A Loans until the aggregate unpaid principal balance of -28- the Tranche A Loans does not exceed the Tranche A Commitment and to pay the Tranche B Loans until the sum of the aggregate unpaid principal balance of the Tranche B Loans and the LC Obligations does not exceed the Tranche B Commitment, in each case after the reductions described in subsection immediately above. (e) Reduction in Commitment on September 30,1999. If the Commitment has not been reduced to $250,000,000 pursuant to Section 2.7(c) or Section 2.7(d) by September 30, 1999, on such date the Commitment shall be reduced automatically to $250,000,000, and each of the Tranche A Commitment and the Tranche B Commitment shall be reduced automatically on such date, pro rata, so as to represent the same proportion of the Commitment after such reduction as it represented before such reduction, by the amount necessary to reduce the aggregate amount of the Commitment to $250,000,000. (f) Prepayment Procedures. Each prepayment of principal on a Committed Note made under this Section 2.7 shall be accompanied by all interest then accrued at the interest rate applicable to the principal amount being prepaid and unpaid on such Committed Note; provided that any prepayment under a Committed Note must be accompanied by any amounts due under Section 2.14 as a result of such prepayments. Section II.8. Payments to Lenders. Borrower will make each payment which it owes under the Loan Documents (whether under any of Sections 2.6, 2.7, 3.2, or otherwise) to Agent for the account of Lender to whom such payment is owed not later than noon, Dallas time, in lawful money of the United States of America and in immediately available funds. Any payment received by Agent after such time will be deemed to have been made on the next following Business Day. Should any such payment become due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue and be payable thereon for the period of such extension as provided in the Loan Document under which such payment is due. Each payment under a Loan Document shall be payable at the place provided therein and, if no specific place of payment is provided, shall be payable at the place of payment of the Notes. When Agent collects or receives money on account of the Obligations, Agent shall distribute all money so collected or received, and Agent and Lenders shall apply all such money so distributed, as follows: (a) first, for the payment of all Obligations other than Swap Obligations (as defined below) which are then due, and if such money is insufficient to pay all such Obligations, first to any reimbursements due Agent or any Lender under Section 6.1(i) or 9.11 and then to the partial payment of all other Obligations then due in proportion to the amounts thereof, or as Lenders shall otherwise agree; (b) then for the prepayment of amounts owing under the Loan Documents (other than Swap Obligations and principal on the Notes) if so specified by Borrower; -29- (c) then for the prepayment of principal on the Notes, together with accrued and unpaid interest on the principal so prepaid; and (d) last, for the payment or prepayment of any other Obligations. All payments applied to principal or interest on any Note shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and interest in compliance with Sections 2.6 and 2.7. All distributions of amounts described in any of subsections (b), (c) or (d) above shall be made by Agent pro rata to Agent and each Lender then owed Obligations described in such subsection in proportion to all amounts owed to all Lenders which are described in such subsection. As used in this Section 2.8, the term "Swap Obligations" means the Obligations described in clause (ii) of Section 2(a) of each Guaranty described in the Security Schedule. Section II.9. Facility Fees. In consideration of Lenders' commitment to enter into this Agreement and to advance funds to Borrower hereunder, Borrower will pay to Agent, for pro rata distribution to each Lender in accordance with its Percentage Share, a facility fee for Tranche A Commitment determined on a daily basis by applying the Tranche A Facility Fee Rate to the Tranche A Commitment and a facility fee for the Tranche B Commitment determined on a daily basis by applying the Tranche B Facility Fee Rate to the Tranche B Commitment. Promptly at the end of each Fiscal Quarter Agent shall calculate the facility fees then due and shall notify Borrower thereof. Borrower shall pay such facility fee to Agent within five Business Days after receiving such notice. Section II.10. Increased Cost and Reduced Return. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Committed Eurodollar Loans or Competitive Bid Loans, its Notes, or its obligation to make Committed Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Notes in respect of any Committed Eurodollar Loans or Competitive Bid Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the -30- determination of the Fixed Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or the London interbank market any other condition affecting this Agreement or its Notes or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Committed Eurodollar Loans or Competitive Bid Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Notes with respect to any Committed Eurodollar Loans or Competitive Bid Loans, then Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by Borrower under this Section 2.10(a), Borrower may, by notice to such Lender (with a copy to Agent), suspend the obligation of such Lender to make or Continue Loans of the Type with respect to which such compensation is requested, or to Convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 2.13 shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify Borrower and Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section shall furnish to Borrower and Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. -31- Section II.11. Limitation on Types of Loans. If on or prior to the first day of any Interest Period for any Committed Eurodollar Loan: (a) Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Majority Lenders determine (which determination shall be conclusive) and notify Agent that the Fixed Rate will not adequately and fairly reflect the cost to Lenders of funding Committed Eurodollar Loans for such Interest Period; then Agent shall give Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, Lenders shall be under no obligation to make additional Loans of such Type, Continue Loans of such Type, or to Convert Loans of any other Type into Loans of such Type and Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or Convert such Loans into another Type of Loan in accordance with the terms of this Agreement. Section II.12. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Committed Eurodollar Loans hereunder, then such Lender shall promptly notify Borrower thereof and such Lender's obligation to make or Continue Eurodollar Loans and to Convert other Types of Loans into Eurodollar Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 2.13 shall be applicable). Section II.13. Treatment of Affected Loans. If the obligation of any Lender to make a particular Type of Committed Eurodollar Loan or to Continue, or to Convert Loans of any other Type into, Loans of a particular Type shall be suspended pursuant to Section 2.10 or 2.12 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 2.12 hereof, on such earlier date as such Lender may specify to Borrower with a copy to Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 2.10 or 2.12 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and -32- (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to Borrower (with a copy to Agent) that the circumstances specified in Section 2.10 or 2.12 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this Section 2.13 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Commitments. Section II.14. Compensation. Upon the request of any Lender, Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Committed Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 8.1) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article IV to be satisfied) to borrow, Convert, Continue, or prepay a Committed Eurodollar Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. Section II.15. Taxes. (a) Any and all payments by Borrower to or for the account of any Lender or Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.15) such Lender or Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the -33- full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) Borrower agrees to indemnify each Lender and Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.15) paid by such Lender or Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by Borrower or Agent (but only so long as such Lender remains lawfully able to do so), shall provide Borrower and Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide Borrower and Agent with the appropriate form pursuant to Section 2.15(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 2.15(a) or 2.15(b) with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 2.15, then such Lender will agree to use reasonable efforts to -34- change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender and in the event Lender is reimbursed for an amount paid by Borrower pursuant to this Section 2.15, it shall promptly return such amount to Borrower. (g) Within thirty (30) days after the date of any payment of Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 2.15 shall survive the termination of the Commitments and the payment in full of the Notes. Section II.16. Compensation Procedure. Any Lender or Issuing Bank notifying Borrower of the incurrence of additional costs under Sections 2.10 through 2.15 shall in such notice to Borrower and Agent set forth in reasonable detail the basis and amount of its request for compensation; provided that if such Lender or Issuing Bank fails to give notice to Borrower of any additional costs within ninety (90) days after it has actual knowledge thereof, neither such Lender nor Issuing Bank shall be entitled to compensation for such additional costs incurred more than ninety (90) days prior to the date on which notice is given by such Lender or Issuing Bank. Determinations and allocations by each Lender or Issuing Bank for purposes of Sections 2.10 through 2.15 of the effect of any change in applicable laws, treaties, rules or regulations or in the interpretation or administration thereof, any losses or expenses incurred by reason of the liquidation or reemployment of deposits or other funds, any taxes, levies, costs and charges imposed, or the effect of capital maintained on its costs or rate of return of maintaining Loans or its obligation to make Loans or issue LCs, or on amounts receivable by it in respect of Loans or LCs, and of the amounts required to compensate such Lender under Sections 2.10 through 2.15, shall be conclusive and binding for all purposes, provided that such determinations and allocations are made on a reasonable basis and there shall be no demand for duplicate payments of the same additional cost. Any request for compensation under this Section 2.16 shall be paid by Borrower within thirty (30) Business Days of the receipt by Borrower of the notice described in this Section 2.16. Section II.17. Interest Rate Changes. (a) Initial Debt to Capitalization Ratio and Initial Senior Debt to Capitalization Ratio. The Debt to Capitalization Ratio in effect from the date hereof until changed as herein provided is 0.57 to 1.0. The Senior Debt to Capitalization Ratio in effect from the date hereof until changed as herein provided is 0.57 to 1.0. (b) Decreases In Rates. Any reduction in the Base Rate, the Tranche A Fixed Rate, the Tranche B Fixed Rate or the rate being used to determine facility fees pursuant to Section 2.9 (in this section collectively called the "Rates") as a result of a change in the Debt to Capitalization Ratio or Senior Debt to Capitalization Ratio shall be requested by Borrower in a certificate delivered to Agent in which Borrower certifies as to the Debt to Capitalization Ratio -35- and Senior Debt to Capitalization Ratio in effect on the date thereof. Together with any such certificate, Borrower shall deliver to Agent true and correct financial statements of Borrower, in form and substance satisfactory to Agent, supporting Borrower's calculation of such Debt to Capitalization Ratio and Senior Debt to Capitalization Ratio. If Agent determines Borrower's calculation is correct, the reduction in the Rates shall become effective on the fifth Business Day following the date on which such notice is given to Agent or Lenders otherwise become aware of such a change in the Debt to Capitalization Ratio or the Senior Debt to Capitalization Ratio; provided that with respect to Committed Eurodollar Loans, such decrease shall apply only to Committed Eurodollar Loans continued or converted after such effective date. (c) Increases In Rates. With respect to any increase in the Rates, Borrower must notify Agent of any change in the Rates as a result of a change in the Debt to Capitalization Ratio or Senior Debt to Capitalization Ratio. Any such increase in the Rates shall become effective on the fifth Business Day following the date on which such notice is given to Agent or Lenders otherwise become aware of such a change in the Debt to Capitalization Ratio or the Senior Debt to Capitalization Ratio; provided that with respect to Committed Eurodollar Loans, such increase shall apply only to Committed Eurodollar Loans made, continued or converted after such effective date. ARTICLE III. - Letters of Credit Section III.1 LCs. From time to time during the Tranche B Commitment Period, Borrower may request Issuing Bank to issue, in reliance on the agreements of Lenders set forth in Section 3.2(b), letters of credit (each herein called an "LC") by means of an application in the form of Exhibit C, appropriately completed and with a proposed form of LC attached. Issuing Bank shall have no obligation whatsoever to issue any such requested LC, but any such LC which Issuing Bank does issue shall be subject to all terms and provisions hereof relating to LCs, and shall be subject to the following restrictions: (a) no LC issued hereunder shall have an expiration date later than the earlier of two years after the date of issuance thereof or the end of the Tranche B Commitment Period, without the prior written consent of all Lenders; (b) no LC issued hereunder shall be issued in an amount greater than $10,000,000 without the prior written consent of Majority Lenders; (c) the LC Obligations outstanding shall at no time exceed the LC Sublimit; (d) the sum of (i) the LC Obligations outstanding and (ii) the aggregate amount of all Tranche B Loans does not exceed the Tranche B Commitment; and (e) the aggregate amount of all Loans (including Committed Loans and Competitive Bid Loans) and all LC Obligations does not exceed the Commitment. Section III.2. Reimbursement of LCs. (a) Reimbursement by Borrower. Each payment by Issuing Bank pursuant to any LC (whether in response to a draft, a demand for payment, or otherwise), shall constitute a loan to and an obligation of Borrower. Borrower hereby promises to pay to Issuing Bank, or to Issuing Bank's order, at Issuing Bank's office at 901 Main Street, Dallas, Texas, on demand, any and all -36- amounts paid by Issuing Bank pursuant to any and all LCs (such amounts being herein called the "Matured LC Obligations"). Section 2.1(b) describes certain situations in which such payments may be made with funds advanced by Lenders under the Tranche B Notes, but Borrower's obligations to pay the Matured LC Obligations as provided in this section are absolute and not contingent upon the conditions for such Borrowings being met. Borrower hereby promises to pay to Issuing Bank, or to Issuing Bank's order, at Issuing Bank's office at 901 Main Street, Dallas, Texas, on demand, interest at the Default Rate on (a) any outstanding Matured LC Obligations and (b) any fees or other amounts due with respect to LCs (to the extent the same can legally bear interest). Borrower hereby promises to pay, when due, all present and future taxes, levies, costs and charges whatsoever imposed, assessed, levied or collected on, under or in respect of this Agreement or any LC and any payments of principal, interest or other amounts made on or in respect of any thereof (excluding, however, any such taxes, levies, costs and charges imposed on or measured by the overall net income of Issuing Bank). Borrower promises to indemnify Issuing Bank against, and to reimburse Issuing Bank on demand for, any of the foregoing taxes, levies, costs or charges paid by Issuing Bank and any loss, liability, claim or expense, including interest, penalties and legal fees, that Issuing Bank may incur because of or in connection with the failure of Borrower to make any such payment of taxes, levies, costs or charges when due or any payment of Matured LC Obligations when due. In addition, and without limiting the generality of the foregoing, if any law, regulation or the interpretation thereof by any court or administrative or governmental authority shall either impose, modify or deem applicable any capital, reserve, insurance premium or similar requirement against letters of credit issued by Issuing Bank and the result thereof shall be to increase the cost to Issuing Bank of issuing or maintaining any letter of credit; then, on demand by Issuing Bank, Borrower further promises to pay to Issuing Bank, from time to time, additional amounts which shall be sufficient to compensate Issuing Bank for the portion of such increased costs allocable to the LCs. A written advice(s) setting forth in reasonable detail such costs incurred by Issuing Bank, submitted by Issuing Bank to Borrower from time to time, shall be conclusive, absent manifest error, as to the amount thereof. (b) Reimbursement by Lenders. Issuing Bank irrevocably agrees to grant and hereby grants to each Lender, and, to induce Issuing Bank to issue LCs hereunder, each Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from Issuing Bank, on the terms and conditions hereinafter stated, for such Lender's own account and risk an undivided interest equal to such Lender's Percentage Share of Issuing Bank's obligations and rights under each LC issued hereunder and the amount of each draft paid by Issuing Bank thereunder. In the event that Borrower should fail to pay Issuing Bank on demand the amount of any draft or other request for payment drawn under or purporting to be drawn under a LC as provided in subsection (a) above, each Lender shall, before 2:00 p.m. (Dallas Time) on the Business Day Issuing Bank shall have given notice to Lenders of Borrower's failure to so pay Issuing Bank, if such notice is given by 10:00 am., Dallas Time (or on the Business Day immediately succeeding the day such notice is given after 10:00 am. Dallas Time), pay to Issuing Bank at Issuing Bank's offices in Dallas, Texas, in legal tender of the United States of America, in same day funds, such Lender's Percentage Share of the amount of such draft or other request for payment from Borrower plus interest on such amount from the date Issuing Bank shall have -37- paid such draft or request for payment to the date of such payment by such Lender at the Default Rate. Each Lender's obligation to make payment to Issuing Bank pursuant to the terms of this Section 3.2(b) is irrevocable and unconditional. If any such amount required to be paid by any Lender pursuant to this Section 3.2(b) is not in fact made available by such Lender to Issuing Bank within three Business Days after the date such payment is due, Issuing Bank shall be entitled to recover from such Lender, on demand, such amount with interest thereon calculated from such due date at the Default Rate. A written advice(s) setting forth in reasonable detail the amounts owing under this Section 3.2, submitted by Issuing Bank to Borrower from time to time, shall be conclusive, absent manifest error, as to the amounts thereof. Whenever, at any time after Issuing Bank has made payment under any LC, and has received from any Lender its Percentage Share of such payment in accordance with this Section 3.2(b), Issuing Bank receives any payment related to such LC (whether directly from Borrower or otherwise, including proceeds of collateral applied thereto by Issuing Bank), or any payment of interest on account thereof, Issuing Bank will distribute to such Lender its Percentage Share thereof; provided, however, that in the event that any such payment received by Issuing Bank shall be required to be returned by Issuing Bank, such Lender shall return to Issuing Bank the portion thereof previously distributed by Issuing Bank to it. Section III.3. Transferees of LCs. Borrower agrees that if any LC provides that it is transferable, Issuing Bank is under no duty to determine the proper identity of anyone appearing as transferee of such LC, nor shall Issuing Bank be charged with responsibility of any nature or character for the validity or correctness of any transfer or successive transfers. Payment by Issuing Bank to any purported transferee or transferees as determined by Issuing Bank is hereby authorized and approved, and Borrower further agrees to hold Issuing Bank and each Lender harmless and indemnified against any liability or claim in connection with or arising out of the foregoing or the circumstances described in Section 3.6. Section III.4. Extension of Maturity of LCs. Borrower agrees that in the event of any extension of the maturity or time for presentation of drafts or demands for payment or any other modification of the terms of any LC at the request of Borrower or by order of any court or tribunal, with or without notification to others, or in the event of any increase in the amount of any LC at the request of Borrower or by order of any court or tribunal, this Agreement shall be binding upon Borrower with respect to the LC so increased or otherwise modified, with respect to drafts and demands for payment thereunder, and with respect to any action taken in accordance with such extension, increase or other modification by Issuing Bank or by any bank which is a confirming bank or an advising bank with respect to any LC. -38- Section III.5. Restriction on Liability. Neither Issuing Bank nor any bank which is a confirming bank or an advising bank with respect to an LC (in this section called a "correspondent") shall be responsible for (a) the use which may be made of any LC or for any acts or omissions of the users of any LC; (b) the existence or nonexistence of a default under any instrument secured or supported by any LC or any other event which gives rise to a right to call upon any LC; (c) the validity, sufficiency or genuineness of any document delivered in connection with any LC, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged; (d) except as specifically required by an LC, failure of any instrument to bear any reference or adequate reference to any LC, or failure of documents to accompany any draft at negotiation or failure of any person to note the amount of any draft on the reverse of any LC or surrender or take up any LC; or (e) errors, omissions, interruptions or delays in transmission or delivery of any messages by mail, cable, telegraph, wireless or otherwise. Issuing Bank shall not be responsible for any act, error, neglect or default, omission, insolvency or failure in the business of any of the correspondents or any refusal by Issuing Bank or any of the correspondents to pay or honor drafts drawn under any LC because of any applicable law, decree or edict, legal or illegal, of any governmental agency now or hereafter enforced or for any matter beyond the control of Issuing Bank. The happening of any one or more of the contingencies referred to in the preceding clauses of this paragraph shall not affect, impair or prevent the vesting of any of the rights or powers of Issuing Bank and Lenders under this Agreement, or the obligation of Borrower to make reimbursement. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth Borrower agrees that any action taken or omitted to be taken by Issuing Bank or any Lender or by any correspondent under or in connection with any LC shall be binding on Borrower and shall not put Issuing Bank or any Lender or any correspondent under any resulting liability to Borrower unless grossly negligent or in breach of good faith. Section III.6. No Duty to Inquire. Borrower agrees that Issuing Bank is authorized and instructed to accept and pay drafts and demands for payment under the LCs without requiring, and without responsibility for, either at the time of acceptance or payment or thereafter, the determination as to the existence of any event giving rise thereto or the proper identity or authority of anyone appearing on behalf of the beneficiary of any LC. Section III.7. LC Fees. In consideration of any issuance by Issuing Bank of LCs hereunder and of Lender's incurrence of a reimbursement obligation with respect to such LCs, Borrower agrees to pay (a) to Agent for pro rata distribution to each Lender in accordance with its Percentage Share, a letter of credit fee at a rate equal to the Tranche B Eurodollar Spread then in effect, and (b) to such Issuing Bank for its own account, a letter of credit fronting fee at a rate equal to one-eighth of one percent per annum. Each such fee will be calculated on the term and face amount of such LC and the above applicable rate and will be payable upon the issuance of such LC. ARTICLE IV. - Conditions Precedent to Lending -39- Section IV.1. Documents to be Delivered. No Lender has any obligation to make its first Committed Loan and Issuing Bank has no obligation to issue the first LC (whether or not otherwise agreed to by Issuing Bank) unless Agent shall have received all of the following, at Agent's office in Dallas, Texas, duly executed and delivered and in form, substance and date satisfactory to Agent: (a) This Agreement and any other documents that Lenders are to execute in connection herewith. (b) Each Note. (c) Certain certificates of Borrower including: (i) An "Omnibus Certificate" of the Vice President Finance and the Secretary or an Assistant Secretary of Borrower, which shall contain the names and signatures of the officers of Borrower authorized to execute Loan Documents and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (1) a copy of resolutions duly adopted by the Board of Directors of Borrower and in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other Loan Documents delivered or to be delivered in connection herewith and the consummation of the transactions contemplated herein and therein, (2) a copy of the charter documents of Borrower and all amendments thereto, certified by the appropriate official of Borrower's state of organization, and (3) a copy of any bylaws of Borrower; and (ii) A "Compliance Certificate" of the Chairman of the Board or President and of the chief financial officer of Borrower, of even date with such Loan, in which such officers certify to the satisfaction of the conditions set out in subsections (a), (b), (c) and (d) of Section 4.2. (d) A certificate (or certificates) of the due formation, valid existence and good standing of Borrower in its state of organization, issued by the appropriate authorities of such jurisdiction. (e) A favorable opinion of John Walter counsel for Borrower, substantially in the form set forth in Exhibit H, together with the certificate provided for in such Exhibit. (f) Each Security Document listed in the Security Schedule. (g) Documents similar to those specified in subsections (c)(i) and (d) of this section with respect to each Guarantor and the execution by it of its guaranty of Borrower's Obligations. (h) A Notice of Final Agreement in the form of the attached Exhibit O. -40- Section IV.2. Additional Conditions Precedent. No Lender has any obligation to make any Committed Loan (including its first) and Issuing Bank has no obligation to issue any LC (including its first, whether or not otherwise agreed to by Issuing Bank), unless the following conditions precedent have been satisfied: (a) All representations and warranties made by any Related Person in any Loan Document shall be true on and as of the date of such Committed Loan or issuance of such LC (except to the extent that the facts upon which such representations and warranties are based have been changed by the extension of credit hereunder) as if such representations and warranties had been made as of the date of such Committed Loan or the issuance of such LC; provided, however, that Borrower's only representations and warranties regarding any financial projections delivered by Borrower shall be that at the time such projections were made, Borrower made such projections in good faith, using assumptions that Borrower believed were reasonable at the time made. (b) No Default shall exist at the date of such Committed Loan or issuance of such LC. (c) No material adverse change shall have occurred to Borrower's Consolidated financial condition or businesses since the date of this Agreement. (d) Each Related Person shall have performed and complied with all agreements and conditions required in the Loan Documents to be performed or complied with by it on or prior to the date of such Committed Loan or issuance of such LC. (e) The making of such Committed Loan or issuance of such LC shall not be prohibited by any law or any regulation or order of any court or governmental agency or authority and shall not subject any Lender to any penalty or other onerous condition under or pursuant to any such law, regulation or order. (f) Agent shall have received all documents and instruments which Agent has then requested, in addition to those described in Section 4.1 (including opinions of legal counsel for the Related Persons and Agent; corporate documents and records; documents evidencing governmental authorizations, consents, approvals, licenses and exemptions; and certificates of public officials and of officers and representatives of Borrower and other Persons), as to (i) the accuracy and validity of or compliance with all representations, warranties and covenants made by any of the Related Persons in this Agreement and the other Loan Documents, (ii) the satisfaction of all conditions contained herein or therein, and (iii) all other matters pertaining hereto and thereto. All such additional documents and instruments shall be satisfactory to Agent in form, substance and date. -41- ARTICLE V. - Representations and Warranties Section V.1. Borrower's Representations and Warranties. To confirm each Lender's understanding concerning Borrower and Borrower's business, properties and obligations and to induce Agent and each Lender to enter into this Agreement and to make the Committed Loans and to induce the Issuing Bank to issue LCs, Borrower represents and warrants to Agent, Issuing Bank, and each Lender that: (a) No Default. Borrower is not in default in the performance of any of the covenants and agreements contained herein. No event has occurred and is continuing which constitutes a Default. (b) Organization and Good Standing. Each Related Person which is a corporation or partnership is duly organized, validly existing and in good standing under the laws of its state of organization, having all corporate or partnership powers required to carry on its business and enter into and carry out the transactions contemplated hereby. Each such Related Person is duly qualified, in good standing, and authorized to do business in all other jurisdictions within the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary, except for jurisdictions in which the failure to qualify or maintain such qualification would not have a Material Adverse Effect. Each such Related Person has taken all actions and procedures customarily taken in order to enter, for the purpose of conducting business or owning property, each jurisdiction outside the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such actions and procedures desirable. (c) Authorization. Each Related Person which is a corporation or partnership has duly taken all corporate or partnership action necessary to authorize the execution and delivery by it of the Loan Documents to which it is a party and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder. Borrower is duly authorized to borrow funds hereunder, and Borrower is duly authorized to apply for the issuance of any LC requested hereunder. (d) No Conflicts or Consents. The execution and delivery by the various Related Persons of the Loan Documents to which each is a party, the performance by each of its obligations under such Loan Documents, and the consummation of the transactions contemplated by the various Loan Documents, do not and will not, to the best of our knowledge, (i) conflict with any provision of (1) any domestic or foreign law, statute, rule or regulation as in effect on the date such representation and warranty is made, (2) the articles or certificate of incorporation, bylaws, charter, or partnership agreement or certificate of any Related Person, or (3) any agreement, judgment, license, order or permit applicable to or binding upon any Related Person, (ii) result in the acceleration of any Debt owed by any Related Person, or (iii) result in or require the creation of any Lien upon any assets or properties of any Related Person except as expressly contemplated in the Loan Documents. No consent, approval, authorization or order of, and no notice to or filing with, any court or governmental authority or third party is required in -42- connection with the execution, delivery or performance by any Related Person of any Loan Document or to consummate any transactions contemplated by the Loan Documents. (e) Enforceable Obligations. This Agreement is, and the other Loan Documents when duly executed and delivered will be, legal, valid and binding obligations of each Related Person which is a party hereto or thereto, enforceable in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and as limited by general equitable principles. (f) Initial Financial Statements. The Initial Financial Statements fairly present Borrower's Consolidated financial position at the date thereof and the Consolidated results of Borrower's operations and Borrower's Consolidated cash flows for the period thereof. Since the date of the Initial Financial Statements no material adverse change has occurred in Borrower's financial condition or businesses or in Borrower's Consolidated financial condition or businesses, except as reflected in the Disclosure Schedule. All Initial Financial Statements were prepared in accordance with GAAP. (g) Other Obligations and Restrictions. No Related Person has any outstanding Debt of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments) which is, in the aggregate, material to Borrower or material with respect to Borrower's Consolidated financial condition and not shown in the Initial Financial Statements or disclosed in the Disclosure Schedule or a Disclosure Report. Except as shown in the Initial Financial Statements or disclosed in the Disclosure Schedule or a Disclosure Report, no Related Person is subject to or restricted by any franchise, contract, deed, charter restriction, or other instrument or restriction which can reasonably be expected to have a Material Adverse Effect. (h) Full Disclosure. No certificate, statement or other information delivered herewith or heretofore by any Related Person to Agent or any Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact known to any Related Person (other than industry-wide risks normally associated with the types of businesses conducted by the Related Persons) necessary to make the statements contained herein or therein not misleading as of the date made or deemed made. There is no fact known to any Related Person (other than industry-wide risks normally associated with the types of businesses conducted by the Related Persons) that has not been disclosed to Agent and each Lender in writing which can reasonably be expected to have a Material Adverse Effect. Borrower has heretofore delivered to Agent and each Lender true, correct and complete copies of the Initial Financial Statements. (i) Litigation. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule or a Disclosure Report: (i) there are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the knowledge of any Related Person threatened, against any Related Person before any federal, state, municipal or other court, department, commission, body, board, bureau, agency, or instrumentality, domestic or foreign, -43- which do or can reasonably be expected to have a Material Adverse Effect, and (ii) there are no outstanding judgments, injunctions, writs, rulings or orders by any such governmental entity against any Related Person or, to the best of Borrower's knowledge, against any Related Person's stockholders, partners, directors or officers which have or may reasonably be expected to have a Material Adverse Effect. (j) Labor Disputes and Acts of God. Except as disclosed in the Disclosure Schedule or a Disclosure Report, neither the business nor the properties of any Related Person has been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), which do or may reasonably be expected to have a Material Adverse Effect. (k) ERISA Liabilities. All currently existing ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule or a Disclosure Report, no Termination Event has occurred with respect to any ERISA Plan and the Related Persons are in compliance with ERISA in all material respects. No Related Person is required to contribute to, or has any other absolute or contingent liability in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, and (ii) the current value of each ERISA Plan's benefits does not exceed the current value of such ERISA Plan's assets available for the payment of such benefits by more than $2,500,000. (l) Environmental and Other Laws. Except as disclosed in the Disclosure Schedule or a Disclosure Report: (i) the Related Persons are conducting their businesses in material compliance with all applicable federal, state or local laws, including Environmental Laws, and have and are in compliance with all licenses and permits required under any such laws, in all material respects; (ii) none of the operations or properties of any Related Person is the subject of federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any Hazardous Materials into the environment or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Materials; (iii) no Related Person (and to the best knowledge of Borrower, no other Person) has filed any notice under any federal, state or local law indicating that any Related Person is responsible for the improper release into the environment, or the improper storage or disposal, of any material amount of any Hazardous Materials or that any Hazardous Materials have been improperly released, or are improperly stored or disposed of, upon any property of any Related Person; (iv) no Related Person has transported or arranged for the transportation of any Hazardous Material to any location which is (1) listed on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, listed for possible inclusion on such National Priorities List by the Environmental Protection Agency in its Comprehensive Environmental Response, Compensation and Liability Information System List, or listed on any similar state list or (2) to the best of our knowledge, the subject of -44- federal, state or local enforcement actions or other investigations which may lead to claims against any Related Person for clean-up costs, remedial work, damages to natural resources or for personal injury claims (whether under Environmental Laws or otherwise); and (v) no Related Person otherwise has any known material contingent liability under any Environmental Laws or in connection with the release into the environment, or the storage or disposal, of any Hazardous Materials, except to the extent the matters described in the foregoing clauses (i) through (v) would not have a Material Adverse Effect. (m) Names and Places of Business. No Related Person has, during the preceding five years, had, been known by, or used any other corporate, trade, or fictitious name, except as disclosed in the Disclosure Schedule. Except as otherwise indicated in the Disclosure Schedule or a Disclosure Report, the chief executive office and principal place of business of the Related Persons are (and for the preceding five years have been) located at the address of Borrower set out in Section 10.3 or (if different) the address of each such Related Person set out in the Disclosure Schedule. Except as indicated in the Disclosure Schedule or a Disclosure Report, no Related Person has any other principal place of business. (n) Borrower's Subsidiaries. None of Borrower and its Subsidiaries presently has any Subsidiary or owns any stock in any other corporation or association except those listed in the Disclosure Schedule or a Disclosure Report. (o) Title to Properties; Licenses. Except as disclosed in the Disclosure Schedule, each Related Person has good and defensible title to all of its material properties and assets, free and clear of all Prohibited Liens and of all impediments to the use of such properties and assets in such Related Person's business, except that (i) with regard to easements and rights-of-way relating to any Related Person's gathering systems, to the best of such Related Person's knowledge, there exist no Liens that a reasonable and prudent operator in the gas processing business would consider to be a material impairment of title and such Related Person has such title as is reasonably necessary to permit the use and enjoyment of such gathering systems, and (ii) no representation or warranty is made with respect to any oil, gas or mineral property or interest to which no proved oil or gas reserves are properly attributed. Each Related Person possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, and other intellectual property (or otherwise possesses the right to use such intellectual property without violation of the rights of any other Person) which are necessary to carry out its business as presently conducted and as presently proposed to be conducted hereafter, and no Related Person is in violation in any material respect of the terms under which it possesses such intellectual property or the right to use such intellectual property. (p) Government Regulation. Neither Borrower nor any other Related Person owing Obligations except WPS is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940 (as any of the preceding acts have been amended) or, to the best of our knowledge, any other statute, law, regulation or decree which regulates the incurring by such Person of Debt, including statutes, laws, regulations -45- or decrees relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services. (q) Insider. Neither Borrower, nor any other Related Person, nor, to the best of our knowledge, any Person having "control" (as that term is defined in 12 U.S.C. ss. 375b(9) or in regulations promulgated pursuant thereto) of Borrower, is a "director" or an "executive officer" or "principal shareholder" (as those terms are defined in 12 U.S.C. ss. 375b(8) or (9) or in regulations promulgated pursuant thereto) of Lender, of a bank holding company of which Lender is a Subsidiary or of any Subsidiary of a bank holding company of which Lender is a Subsidiary. (r) Officers and Directors. With the exception of the Senior Vice President - Engineering, the officers and directors of Borrower are those persons disclosed in the definitive proxy statement prepared by Borrower and filed with the Securities and Exchange Commission in connection with Borrower's most recent annual meeting, copies of which proxy statement have been previously furnished in connection with the negotiation hereof, except as set forth on the Disclosure Schedule or a Disclosure Report. (s) Year 2000 Compliance. Borrower has (i) initiated a review and assessment of all areas within Related Persons' business and operations (including those affected by suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Related Persons may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with that timetable. Borrower reasonably believes that all computer applications (including those of Related Persons' suppliers and vendors) that are material to any of Related Persons' business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. Section V.2. Representation by Lenders. Each Lender hereby represents that it will acquire its Notes for its own account in the ordinary course of its lending business; however, the disposition of such Lender's property shall at all times be and remain within its control and, in particular and without limitation, such Lender may sell or otherwise transfer its Notes, any participation interest or other interest in its Notes, or any of its other rights and obligations under the Loan Documents; provided that such sale or transfer is made in substantial compliance with applicable law. -46- ARTICLE VI. - Covenants of Borrower Section VI.1. Affirmative Covenants. Borrower warrants, covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Majority Lenders have previously agreed otherwise in writing: (a) Payment and Performance. Borrower will pay all amounts owed by it under the Loan Documents to which it is a party in accordance with the terms thereof and will observe, perform and comply with every covenant, term and condition expressed or implied in the Loan Documents. Borrower will use its best efforts to cause each other Related Person to observe, perform and comply with every term, covenant and condition of the Loan Documents applicable to it. (b) Books, Financial Statements and Reports. Each Related Person will at all times maintain full and accurate books of account and records. Borrower will maintain and will cause its Subsidiaries to maintain a standard system of accounting and will furnish the following statements and reports to Agent and each Lender at Borrower's expense: (i) As soon as available, and in any event within 90 days after the end of each Fiscal Year, complete Consolidated financial statements of Borrower together with all notes thereto, prepared in reasonable detail in accordance with GAAP, together with opinions, based on audits using generally accepted auditing standards, by PricewaterhouseCoopers, or other independent certified public accountants selected by Borrower and acceptable to Majority Lenders, 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, of 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. In addition, within 90 days after the end of each Fiscal Year Borrower will furnish to Agent and each Lender (A) a certificate in the form of Exhibit F signed by the chief financial officer, treasurer or controller of Borrower confirming compliance (or failure to comply) with the requirements of Sections 6.2(a), (b), (e), (f), (k), (l), (m), and (n) and setting out in reasonable detail calculations showing such compliance, if applicable, and (B) a report signed by such accountants stating that they have reviewed such certificate and this Agreement and further stating that, in making such review and the examination and report on the Consolidated financial statements described above, they did not obtain any knowledge that there existed any condition or event related to the financial covenants set forth in such sections relating to Borrower at the end of such Fiscal Year or at the time of their report which constituted an Event of Default or a Default, or, if they did obtain any such knowledge, specifying the nature and period of existence of any such condition or event. -47- (ii) For each Guarantor which has EBITDA in any Fiscal Quarter which constitutes ten percent (10%) or more of Borrower's Consolidated EBITDA for such Fiscal Quarter or which has assets at any time with a book value equal to or exceeding ten percent (10%) of the book value of Borrower's Consolidated assets at such time, as soon as available, and in any event within 90 days after the end of each fiscal year of such Guarantor, complete Consolidated financial statements of such Guarantor, together with all notes thereto, prepared in reasonable detail in accordance with all regulations applicable to such Guarantor or in accordance with accounting methods acceptable to Agent. Such Consolidated financial statements shall contain a balance sheet as of the end of such fiscal year and a statement of operations for such fiscal year, each setting forth in comparative form the corresponding figures for the preceding fiscal year. (iii) As soon as available, and in any event within 45 days after the end of each Fiscal Quarter, (A) Borrower's Consolidated balance sheet as of the end of such Fiscal Quarter and statements of operations for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail in accordance with GAAP, subject to changes resulting from normal year-end adjustments, (B) for each Guarantor which has EBITDA in any Fiscal Quarter which constitutes ten percent (10%) or more of Borrower's Consolidated EBITDA for such Fiscal Quarter or which has assets at any time with a book value equal to or exceeding ten percent (10%) of the book value of Borrower's Consolidated assets at such time, such Guarantor's consolidated balance sheet as of the end of each fiscal quarter of such Guarantor and statements of operations from the beginning of its then current fiscal year to the end of such fiscal quarter, prepared in reasonable detail in accordance with all regulations applicable to such Guarantor or in accordance with accounting methods acceptable to Agent, subject to changes resulting from normal year end adjustments, and (C) a certificate in the form of Exhibit F signed by the chief financial officer, treasurer or controller of Borrower, confirming compliance (or failure to comply) with the requirements of Sections 6.2(a), (b), (e), (f), (k), (l), (m), and (n) and setting out in reasonable detail calculation showing such compliance, if applicable, stating that such financial statements are materially complete, stating that he has reviewed the Loan Documents and carried out or caused to be carried out such further review as is necessary to enable him to express an informed opinion as to compliance with the Loan Documents, and further stating that to the best of his knowledge there is no condition or event at the end of such Fiscal Quarter or at the time of such certificate which constitutes an Event of Default or a Default or specifying the nature and period of existence of any such condition or event. -48- (iv) Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by Borrower to its shareholders and all registration statements, periodic reports and other statements and schedules filed by any Related Person with any securities exchange or any governmental authority responsible for compliance with securities laws. (v) By April 29 of each year, a projection of Borrower's cash flows for such year in form and scope substantially similar to Exhibit I hereto. (vi) As soon as delivered to holders of the Debt Securities, copies of all reports, statements and notices delivered generally to holders of Debt Securities (excluding data which Borrower deems duplicative, immaterial or inapplicable for delivery to Agent and Lenders). (c) Other Information and Inspections. Each Related Person will furnish to Agent and each Lender any information which Agent may from time to time request on behalf of itself or any Lender concerning any covenant, provision or condition of the Loan Documents or any matter in connection with the Related Persons' businesses and operations. Each Related Person will permit representatives appointed by Agent on behalf of Lenders, including independent accountants, agents, attorneys, appraisers and any other persons, to visit and inspect any of such Related Person's property, including its books of account, other books and records, and any facilities or other business assets, and to make extra copies therefrom and photocopies and photographs thereof, and to write down and record any information such representatives obtain, and each Related Person shall permit Agent or its representatives, on behalf of Lenders, to investigate and verify the accuracy of the information furnished to Agent or any Lender in connection with the Loan Documents and to discuss all such matters with its officers, employees and representatives. Each of Agent and Lenders agrees that, until the occurrence of a Default, it will take all reasonable steps to keep confidential any proprietary information regarding lists of customers of Borrower and its Subsidiaries and the terms of contracts of Borrower and its Subsidiaries with purchasers and producers; provided, however, that this restriction shall not apply to information which (i) has at the time in question entered the public domain, (ii) is required to be disclosed by law or by any order, rule or regulation (whether valid or invalid) of any court or governmental agency, or (iii) is furnished to purchasers or prospective purchasers of participations or interests in the Loans or the Notes so long as such purchasers and prospective purchasers have agreed to be subject to restrictions identical to those imposed upon Agent and each Lender under this sentence. -49- (d) Notice of Material Events. Borrower will promptly notify Agent and each Lender (i) of any material adverse change in Borrower's financial condition or Borrower's Consolidated financial condition, (ii) of the occurrence of a Default or Event of Default, (iii) of the acceleration of the maturity of any indebtedness owed by any Related Person or of any default by any Related Person under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such acceleration or default can reasonably be expected to have a Material Adverse Effect, (iv) of any material adverse claim (or any claim of $10,000,000 or more) asserted against any Related Person or with respect to any Related Person's properties pursuant to which an adverse decision can reasonably be expected to have a Material Adverse Effect, (v) of the occurrence of any Termination Event or of any event or condition known to Borrower which can reasonably be expected to have a Material Adverse Effect, and (vi) of the filing of any suit or proceeding against any Related Person in which an adverse decision can reasonably be expected to have a Material Adverse Effect. Upon the occurrence of any of the foregoing the Related Persons will 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. Borrower will also notify Agent and Agent's counsel in writing at least twenty Business Days prior to the date that any Related Person changes its name or the location of its chief executive office or principal place of business, furnishing with such notice any necessary financing statement amendments or requesting Agent and its counsel to prepare the same. Borrower hereby represents that the address of the chief executive office and principal place of business of each Related Person is the address of Borrower set out in Section 10.3 hereof or (if different) the address of each Related Person set out in the Disclosure Schedule. (e) Maintenance of Properties. Each Related Person will maintain, preserve, protect, and keep all 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, except to the extent that failure to do so would not have a Material Adverse Effect. (f) Maintenance of Existence and Qualifications. Each Related Person which is a corporation or partnership will maintain and preserve its corporate or partnership existence and its rights and franchises in full force and effect and will qualify to do business as a foreign corporation or partnership 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 such Related Person. -50- (g) Payment of Trade Debt, Taxes, etc. Each Related Person (i) will timely file all required tax returns; (ii) will timely pay all taxes, assessments and other governmental charges or levies imposed upon it or upon its income, profits or property; (iii) will within 90 days after the same becomes due pay all Debt owed by it on ordinary trade terms to vendors, suppliers, and other Persons providing goods and services used by it in the ordinary course of its business; (iv) will pay and discharge when due all other Debt now or hereafter owed by it; and (v) will maintain appropriate accruals and allowance accounts for all such liabilities in a timely fashion in accordance with GAAP. Each Related Person may, however, delay paying or discharging any such taxes, charges, claims or liabilities so long as the validity thereof is contested in good faith by appropriate proceedings and it has set aside on its books adequate allowance accounts therefor in accordance with GAAP. (h) Insurance. Borrower and the Related Persons will keep or cause to be kept adequately insured by financially sound and reputable insurers all property of a character usually insured by corporations or partnerships engaged in the same or similar businesses. Borrower and the Related Persons shall maintain business interruption insurance in an amount providing not less than $10,000,000 coverage for the covered persons, taken as a whole. At all times adequate insurance against liability on account of damages to Persons or property and workmen's compensation insurance shall be maintained covering Borrower and the Related Persons, which insurance shall be by financially sound and reputable insurers. (i) Payment of Expenses. Whether or not the transactions contemplated by this Agreement are consummated, Borrower will promptly (and in any event, within 30 days after any invoice or other statement or notice) pay all reasonable costs and expenses incurred by or on behalf of NationsBanc Montgomery Securities LLC (including attorneys' fees) in connection with the syndication of the Loans and by or on behalf of Agent (including attorneys' fees) in connection with (i) the preparation, execution and delivery of the Loan Documents, and any and all consents, waivers or other documents or instruments relating thereto, (ii) the filing, recording, refiling and re-recording of any Loan Documents and any other documents or instruments or further assurances required to be filed or recorded or refiled or re-recorded by the terms of any Loan Document, (iii) the borrowings hereunder and other action reasonably required in the course of administration hereof, and (iv) the enforcement, after the occurrence of a Default, of the Loan Documents. In addition to the foregoing, Borrower will pay the expenses of each Lender in connection with the events described in clause (iv) above. In no event shall Borrower pay any expenses incurred by Agent or any Lender in connection with the physical loss of any Note. (j) Performance on Borrower's Behalf. If any Related Person fails to pay any taxes, insurance premiums, costs, expenses, or other amounts it is required to pay under any Loan Document (including without limitation any amounts required to be paid under Sections 6.1(i) and 8.3 of this Agreement), Agent may pay the same on behalf of Lenders. -51- Borrower shall immediately reimburse Agent for any such payments and each amount paid shall constitute a part of the Obligations, shall be secured by the Security Documents and shall bear interest at the Default Rate from the date such amount is paid by Agent until the date such amount is repaid to Agent). (k) Compliance with Agreements and Law. Each Related Person will perform all obligations which are material to Borrower's Consolidated financial condition which such Related Person 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 (subject to their rights to delay payment in the circumstances described in Section 6.1(g)). Each Related Person will conduct its business and affairs in material compliance with all laws, regulations, and orders applicable thereto (including those relating to pollution and other environmental matters) except where such failure would not have a Material Adverse Effect. (l) Evidence of Compliance. Each Related Person will furnish to each Lender at such Related Person's or Borrower's expense all evidence which Agent from time to time reasonably requests on behalf of Lenders, including but not limited to the forms of evidence and assurance described in Section 4.2(f) as to the accuracy and validity of or compliance with all representations, warranties and covenants made by any Related Person in the Loan Documents, the satisfaction of all conditions contained therein, and all other matters pertaining thereto. (m) Shareholder Rights Plan. Notwithstanding anything else contained in this Agreement, Borrower may dividend, issue, redeem or otherwise sell or acquire any Rights pursuant to a Shareholder Rights Plan. (n) Year 2000 Compliance. Borrower will promptly notify Agent in the event Borrower discovers or determines that any computer application (including those of its suppliers and vendors) that is material to any of Related Persons' business and operations will not be Year 2000 compliant on a timely basis, except to the extent that such failure would not present a material probability of having a Material Adverse Effect. Section VI.2. Negative Covenants. To conform with the terms and conditions under which each Lender is willing to have credit outstanding to Borrower, and to induce Agent and each Lender to enter into this Agreement and make the Loans, Borrower warrants, covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Majority Lenders have previously agreed otherwise in writing: (a) Debt. No Related Person, Sandia, Westana, or Williston Gas Company will in any manner owe or be liable for Debt except: (i) the Obligations; -52- (ii) unsecured Debt among Borrower and any Guarantor; (iii) Obligations under leases, whether capital leases or operating leases, entered into in the ordinary course of business in arm's-length transactions at competitive market rates under competitive terms and conditions considering all aspects thereof, provided that the obligations payable over the lives of any such leases do not in the aggregate exceed $20,000,000, and in addition, obligations under oil and gas leases, real estate leases for office space used by Borrower, and leases for vehicles, office equipment and data processing equipment; (iv) Debt under the Debt Securities; (v) unsecured Debt of Borrower not described in subsections (i) through (iv) above which meets the following requirements: (A) the documentation evidencing such Debt shall contain no terms, conditions or defaults (other than pricing) which are more favorable to the third party creditor than those contained in this Agreement are to Lenders, as determined by Majority Lenders in their discretion (provided that Majority Lenders shall make any such determination considering any amendments or modifications to this Agreement existing at the time of the incurrence of such Debt) and shall not contain any provision which attempts to modify, amend or restrict any of the rights or remedies of Agent or Lenders hereunder or under any of the other Loan Documents, (B) such Debt shall have no scheduled principal payments due prior to the final maturity of the Obligations, (C) at the time Borrower incurs such Debt, no Default or Event of Default shall have occurred and be continuing hereunder and (D) if such Debt is to be guaranteed by any Affiliate of Borrower, then such third party lender(s) must enter into an inter-creditor agreement with Lenders, in form, scope and substance which is acceptable to Majority Lenders, as evidenced by their written consent; (vi) Debt arising under Hedging Contracts permitted under Section 6.2(k); (vii) Debt outstanding under the instruments or agreements described on the Disclosure Schedule, excluding any renewals or extensions of such Debt; (viii) Debt under the Bridge Facility the principal amount of which shall not exceed $37,000,000 at any one time outstanding; (ix) Subordinated Debt; and (x) miscellaneous items of Debt not described in subsections (i) through (ix) of this subsection (a) which do not in the aggregate (taking into account all Debt of all Related Persons) exceed $5,000,000 at any one time outstanding. -53- (b) Limitation on Liens. No Related Person will create, assume or permit to exist any Lien upon any of the properties or assets which it now owns or hereafter acquires, except, to the extent not otherwise forbidden by the Security Documents: (i) Liens and security interests at any time existing in favor of Lenders to secure the Obligations; (ii) statutory Liens for taxes and other sums which are not delinquent or which are being contested as provided in Section 6.1(g); (iii) mechanics' and materialmen's and similar statutory Liens with respect to obligations which are not delinquent or which are being contested as provided in Section 6.1(g); (iv) minor defects and irregularities in title to any property which do not materially impair the value of such property or the use thereof for the purposes for which it is held; (v) Liens listed on the Disclosure Schedule; (vi) Liens on margin accounts established in connection with Hedging Contracts securing Debt permitted under Section 6.2(a)(vii); (vii) Liens securing capital leases permitted under Section 6.2(a)(iii); and (viii) Liens securing purchase money indebtedness in an aggregate amount not to exceed $1,000,000 encumbering only the assets financed thereby. (c) Limitation on Mergers, Issuances of Securities. Except as expressly provided in this subsection no Related Person will merge or consolidate with or into any other business entity. Borrower may, however, merge or consolidate with or into any other business entity if Borrower is the surviving business entity; any Subsidiary of Borrower which is a Guarantor may merge or consolidate with another Subsidiary of Borrower so long as a Guarantor is the surviving business entity; and any Subsidiary of Borrower which is not a Guarantor may merge or consolidate with another Subsidiary of Borrower which is not a Guarantor; provided that the surviving entity immediately becomes a Guarantor if required to do so pursuant to the terms of Section 7.3 hereof. No Related Person will issue partnership interests, stock, or other securities (other than shares of its common stock or warrants to purchase its common stock), nor will any Subsidiary of Borrower allow any diminution of Borrower's interest (direct or indirect) therein. (d) Limitation on Sales of Property. No Related Person will sell, transfer, lease, exchange, alienate or dispose of any of its material assets or properties or any material interest therein except: -54- (i) equipment which is worthless or obsolete or which is replaced by equipment of equal suitability and value; (ii) inventory which is sold in the ordinary course of business; (iii) sales of (A) all the issued and outstanding shares of stock of WGRS so long as the Asset Sale Proceeds received by Borrower equal or exceed $80,000,000 and the portion thereof required to be delivered to Agent pursuant to Section 2.7 is so delivered and upon receipt thereof Agent shall release WGRS from its guaranty of the Obligations on behalf of Lenders, and (B) the Giddings Facility so long as the Asset Sale Proceeds received by Borrower equal or exceed $30,000,000 and the portion thereof required to be delivered to Agent pursuant to Section 2.7 is so delivered; and (iv) so long as no Default or Event of Default has occurred, other assets or property which are sold in arm's length transactions to third parties that are not Affiliates of Borrower and are sold for fair consideration not in the aggregate in excess of $20,000,000 during any Fiscal Year. Neither Borrower nor any of Borrower's Subsidiaries will sell, transfer or otherwise dispose of capital stock of any of Borrower's Subsidiaries except that any Subsidiary of Borrower may sell or issue its own capital stock to the extent not otherwise prohibited hereunder. No Related Person will discount, sell, pledge or assign any notes payable to it, accounts receivable or future income except to the extent expressly permitted under the Loan Documents. (e) Limitation on Dividends, Redemptions and Prepayments on Senior Unsecured Notes. No Related Person will: (i) declare or pay any dividends on, or make any other distribution in respect of any interest in it, other than dividends and distributions by Borrower's Subsidiaries to Borrower if a Default has occurred and is continuing, or will occur as a result thereof; (ii) directly or indirectly make any capital contribution to or purchase, redeem, acquire or retire any securities in any Related Person (whether such interests are now or hereafter issued, outstanding or created) other than contributions, purchases, redemptions, acquisitions, retirements made by any Subsidiary with respect to any shares of its capital stock owned by Borrower if a Default has occurred and is continuing, or will occur as a result thereof; (iii) purchase, repurchase, defease or make any prepayments on the Debt Securities except (A) with proceeds from any issuance of common or preferred stock of Borrower in an amount not to exceed ten percent (10%) of such proceeds, (B) with Asset Sale Proceeds from any Asset Sale in an amount not to exceed ten percent (10%) of the Asset Sale Proceeds arising from such Asset Sale and (C) any such purchase, repurchase, defeasance or prepayment (not described in (a) or (b) above) if at the time thereof the Commitment is equal to or less than $250,000,000, the outstanding principal balance of -55- the Committed Loans is equal to or less than $150,000,000, and no Default has occurred and is continuing, or will occur as a result thereof. (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) or (iv) of this Section 6.2(f); (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) or (iv) of this Section 6.2(f); (iii) make any acquisitions of or capital contributions to or other investments except (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, (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, or (C) purchases of open market commercial paper, maturing within 270 days after acquisition thereof, with the highest or second highest credit rating given by either Standard & Poor's Rating Services (a division of The McGraw-Hill Companies, Inc.) or Moody's Investors Service, Inc. and investments in money market mutual funds with equivalent ratings; or (iv) make any significant acquisitions or investments in any properties other than gas processing, treating, fractionation, transmission, gathering and storage facilities, power generation facilities, and domestic oil and gas properties and an office building located in the State of Colorado and primarily used by the Related Persons. (g) Limitation on Credit Extensions. Except for investments permitted under Section 6.2(f), no Related Person will extend credit, make advances or make loans other than (i) normal and prudent extensions of credit to customers buying goods and services 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, and (ii) loans to Borrower or to any Guarantor made in the ordinary course of business and (iii) loans made by Borrower to its employees pursuant to the Stock Option Agreements; provided that the aggregate outstanding amount of all such loans so made shall not exceed $10,000,000, and (iv) to finance the purchase -56- by Borrower's employees of certain real property, provided that the aggregate outstanding amount of such loans shall not exceed $500,000. (h) Transactions with Affiliates. Neither Borrower nor any of its Subsidiaries will engage in any material transaction with any of its Affiliates on terms which are less favorable to it than those which would have been obtainable at the time in arm's-length dealing with Persons other than such Affiliates, provided that such restriction shall not apply to transactions among Borrower and its wholly owned Subsidiaries. (i) Certain Contracts; Amendments; Multiemployer ERISA Plans. Except as expressly provided for in the Loan Documents, no Related Person will, directly or indirectly, enter into, create, or otherwise allow to exist any contract or other consensual restriction on the ability of any Subsidiary of Borrower to: (i) pay dividends or make other distributions to Borrower, (ii) to redeem equity interests held in it by Borrower, (iii) to repay loans and other indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to Borrower, provided that nothing contained in this sentence is intended to prohibit Borrower's execution and delivery of the Debt Securities, as is in existence on the date hereof, and the documents and instruments executed in connection therewith. No Related Person will enter into, or amend or permit any amendment to, any contract which releases, qualifies, limits, makes contingent or otherwise detrimentally affects the rights of any Related Person in any joint venture or partnership if such contract or amendment would have a Material Adverse Effect. No Related Person will enter into, or amend or permit any amendment to, any contract which releases, qualifies, limits, makes contingent or otherwise detrimentally affects Agent or any Lender or the rights and benefits of Agent or any Lender under or acquired pursuant to any Loan Documents. (j) Fiscal Year. No Related Person will change its fiscal year. (k) Limitation for Net Products Exposure. No Related Person will enter into, or otherwise be a party to) any Hedging Contract that does not comply with the Risk Management Policy. Furthermore, the aggregate Net Product Exposure at any time shall not exceed $10,000,000. "Net Products Exposure" means at the close of any Business Day the sum of the following: (i) the Related Persons' mark-to-market exposure of At Risk Positions under the "Strategic Marketing Initiative" section of the Risk Management Policy. (ii) the Related Persons' mark-to-market exposure of At Risk Positions under the "Risk Management Trading Program" section of the Risk Management Policy. (iii) the Related Persons' mark-to-market exposure of At Risk Positions specifically approved by Borrower's Board of Directors which are not covered by the Risk Management Policy. -57- (iv) the Related Persons' mark-to-market net exposure under fixed price sales contracts with terms in excess of 30 days and fixed price purchase contracts with terms in excess of 30 days. As used in this section, "At Risk Position" means net long or short position for contracts purchased or sold in financial markets or over the counter. (l) Debt to Capitalization Ratio. Borrower's Debt to Capitalization Ratio will never be greater than 0.60 to 1.00 as of the end of any Fiscal Quarter until and including December 31, 2000, and thereafter Borrower's Debt to Capitalization Ratio will never be greater than 0.55 to 1.00 as of the end of any Fiscal Quarter. (m) Senior Debt to Capitalization Ratio. Borrower's Senior Debt to Capitalization Ratio will never be greater than 0.40 to 1.00 as of the end of any Fiscal Quarter, beginning with the Fiscal Quarter ending on September 30, 1999 until and including the Fiscal Quarter ending on December 31, 2001, and thereafter Borrower's Senior Debt to Capitalization Ratio will never be greater than 0.35 to 1.00 as of the end of any Fiscal Quarter. (n) Fixed Charge Coverage Ratio. As of the end of each Fiscal Quarter, Borrower's Fixed Charge Coverage Ratio for the four immediately preceding consecutive Fiscal Quarters shall never be less than (i) 1.35 to 1.00 during the period from and including June 30, 1999 until and including December 30, 1999, (ii) 1.50 to 1.00 during the period from and including December 31, 1999 until and including December 30, 2000, (iii) 1.80 to 1.00 during the period from and including December 31, 2000 until and including December 30, 2001, (iv) 2.50 to 1.00 during the period from and including December 31, 2001 until and including December 30, 2002 and (v) 3.25 to 1.0 at any time thereafter. For purposes of this subsection, the term "Borrower's Fixed Charge Coverage Ratio" means for any period, the ratio of (A) EBITDA, calculated excluding gains and losses on asset sales and other extraordinary items, to (B) the sum of (1) the aggregate amount of interest for such period treated as an expense or capitalized on Borrower's consolidated financial statements plus (2) the aggregate amount of dividends paid or declared by Borrower for such period in respect of the Preferred Stock, not to exceed four regularly scheduled dividends and all special dividends. ARTICLE VII. - Security Section VII.1. The Security. The Obligations will be secured by the Security Documents listed in the Security Schedule and any additional Security Documents hereafter delivered by any Related Person and accepted by Agent. Section VII.2. Offset. Borrower hereby grants to Agent and each Lender a right of offset to secure the repayment of the Obligations, which right of offset shall be upon and against (a) any and all moneys, securities or other property (and the proceeds therefrom) of Borrower now or hereafter held or received by or in transit to Agent or any Lender from or for the account -58- of Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or special, time or demand, provisional or final) of Borrower with Agent or any Lender, and (c) any other credits and claims of Borrower at any time existing against Agent or any Lender, including claims under certificates of deposit. Upon the occurrence of any Default, each of Agent and Lenders is hereby authorized to offset appropriate, and apply, at any time and from time to time, without notice to Borrower, any and all items hereinabove referred to against the Obligations. Section VII.3. Guaranties of Borrower's Subsidiaries. Borrower shall require each of the following Subsidiaries to immediately execute and deliver to Agent an absolute and unconditional guaranty of the timely repayment of the Obligations and the due and punctual performance of the obligations of Borrower hereunder, which guaranty shall be satisfactory to Agent in form and substance: (a) Each Subsidiary of Borrower which has EBITDA in any Fiscal Quarter which constitutes ten percent (10%) or more of Borrower's Consolidated EBITDA for such Fiscal Quarter or which has assets at any time with a book value equal to or exceeding ten percent (10%) of the book value of Borrower's Consolidated assets at such time; (b) If the aggregate amount of Borrower's unconsolidated EBITDA for any Fiscal Quarter plus the aggregate EBITDA of Guarantors during such Fiscal Quarter does not constitute eighty- five percent (85%) or more of Borrower's Consolidated EBITDA for such Fiscal Quarter or if the book value of Borrower's individual assets at any time plus the aggregate book value of the assets of Guarantors at such time does not exceed eight-five percent (85%) of the book value of Borrower's Consolidated assets at such time, then Subsidiaries of Borrower with aggregate assets and/or EBITDA necessary to comply with the eighty-five percent (85%) tests contained in this subsection; and (c) Upon request by Agent on behalf of Majority Lenders, any other Subsidiary of Borrower. Borrower will cause each of its Subsidiaries to deliver to Agent, simultaneously with its delivery of such a guaranty, written evidence satisfactory to Agent and its 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 any other documents which it is required to execute. Section VII.4. Deposits -59- (a) During the continuance of any Event of Default or if upon the Tranche B Maturity Date any LC remains outstanding, Agent may, on behalf of Majority Lenders, require Borrower to deposit funds with Agent under this section in an amount up to the aggregate amount which Lenders might then or thereafter be called upon to advance under all LCs then outstanding. Any funds deposited under this section shall be held by Agent for the benefit of Lenders as collateral, and Borrower will in connection therewith execute and deliver such Security Documents as Majority Lenders may in their discretion require. As drafts or demands for payment are presented under any LCs, Agent shall apply such funds to satisfy Borrower's reimbursement obligations with respect thereto. Pending such application Agent shall invest such funds as mutually agreed upon by Majority Lenders and Borrower and, if no such agreement is made, in overnight eurodollar deposits or time deposits with or certificates of deposit issued by Agent, with maturities from one to sixty days as chosen by Agent and upon such other terms and conditions as Agent chooses. All interest on such investments shall be reinvested or applied to LC reimbursement obligations in the same manner as funds originally deposited by Borrower or, if Borrower requests, released to Borrower so long as no Default or Event of Default exists. When all LCs have expired and Borrower's reimbursement obligations in connection therewith have been satisfied, Agent shall, provided no Default or Event of Default then exists, release to Borrower any remaining funds and interest deposited under this section. Borrower shall in no event be obligated to make deposits under this Section 7.4 whenever the funds and interest already deposited equal or exceed the aggregate amount which Lenders might then or thereafter be called upon to advance under all LCs then outstanding. (b) Whenever Borrower is required to make deposits under this section and fails to do so on the day such deposit is due, Agent and Lenders may without notice to Borrower make such deposit (whether by transfers from other accounts maintained with Lenders, or otherwise) using any funds then available to Agent or any Lender of Borrower, any Guarantor, or any other person liable for all or any part of Borrower's obligations hereunder or with respect to the LCs. Any amounts which are required hereunder to be deposited pursuant to this section and which are not deposited on the date due shall, for the purposes of each Security Document, be considered past due debts owing hereunder, and Agent is hereby authorized to exercise its rights under each Security Document to obtain funds for deposit as contemplated in this section. ARTICLE VIII. - Events of Default and Remedies Section VIII.1. Events of Default. Each of the following events constitutes an Event of Default under this Agreement: -60- (a) (i) Any Related Person fails to pay any principal when due and payable, whether at a date for the payment of a fixed installment or contingent or other payment to Agent, Issuing Bank or any Lender or as a result of acceleration or otherwise, or (ii) any Related Person fails to pay any interest or other Obligation other than principal when due and payable, whether at a date for the payment of a fixed installment or contingent or other payment to Agent, Issuing Bank or any Lender or as a result of acceleration or otherwise, and such failure continues for ten (10) Business Days after such payment is due; or (b) Any default occurs under any Loan Document, any document governing or evidencing the Debt Securities, or evidencing any interest therein, or any event of default or termination event occurs under any Hedging Contract to which a Lender is a party, and such default, event of default or termination event is not remedied within the applicable period of grace (if any) provided for in such document or an Event of Default occurs under the Bridge Loan Agreement; or (c) Any Related Person fails to duly observe, perform or comply with any provision of Section 6.2, provided that no grace period shall be applicable to such failure, or any Related Person fails to duly observe, perform or comply with any other covenant, agreement, condition or provision (except those referred to above in this subsection and in subsections (a) and (b) above) of any Loan Document in any material respect, and such failure is not remedied within thirty (30) days; or (d) Any representation or warranty previously, presently or hereafter made in writing by or on behalf of any Related Person in connection with any Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made, and such representation or warranty does not become true and correct within thirty days; or (e) Any Related Person fails to duly observe, perform or comply with any agreement with any Person or any term or condition of any instrument, if such agreement or instrument is materially significant to Borrower and its Subsidiaries on a Consolidated basis, and such failure is not remedied within the applicable period of grace (if any) provided in such agreement or instrument; or (f) Any Related Person (i) fails to duly pay any Debt constituting principal or interest owed by it to any Person other than Agent, Issuing Bank or any Lender with respect to borrowed money or money otherwise owed under any note, bond, or similar instrument (including, but not limited to, the Debt under the Debt Securities, the Bridge Loan Agreement or the Subordinated Debt) unless such Related Person is contesting the validity of such Debt by appropriate proceedings and has set aside on its books adequate allowance accounts therefor in accordance with GAAP or (ii) breaches or defaults in the performance of any agreement or instrument by which any Debt described in the -61- preceding clause (i) is issued, evidenced, governed, or secured, and any such failure, breach or default continues beyond any applicable period of grace provided therefor; or (g) Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of $10,000,000 exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs with respect to any ERISA Plan and the then current value of such ERISA Plan's benefits guaranteed under Title IV of ERISA exceeds the then current value of such ERISA Plan's assets available for the payment of such benefits by more than $1,000,000 (or in the case of a Termination Event involving the withdrawal of a substantial employer, the withdrawing employer's proportionate share of such excess exceeds such amount); or (h) Any Related Person: (i) suffers the entry against it of a judgment, decree or order for relief by a court of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended, or has any such proceeding commenced against it which remains undismissed for a period of sixty days; or (ii) commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended; or applies for or consents to the entry of an order for relief in an involuntary case under any such law; or makes a general assignment for the benefit of creditors; or fails generally to pay (or admits in writing its inability to pay) its debts as such debts become due; or takes corporate or other action to authorize any of the foregoing; or (iii) suffers the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of all or a substantial part of its assets in a proceeding brought against or initiated by it, and such appointment or taking possession is neither made ineffective nor discharged within thirty days after the making thereof, or such appointment or taking possession is at any time consented to, requested by, or acquiesced to by it; or (iv) suffers the entry against it of a final judgment for the payment of money in excess of $ 5,000,000 (not covered by effective insurance), unless the same is discharged within sixty days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such period and a stay of execution pending such appeal is obtained; or -62- (v) suffers a writ or warrant of attachment or any similar process to be issued by any court against all or any substantial part of its assets or any part of the collateral subject to a Security Document, and such writ or warrant of attachment or any similar process is not stayed or released within thirty days after the entry or levy thereof or after any stay is vacated or set aside; or (i) Without the express prior written consent of Majority 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 including but not limited to, an amendment or modification to (a) shorten the maturity of the Debt Securities, or (b) increase the maximum principal amount of the Debt Securities; provided, however, that Borrower may increase the interest rate or fees payable under or with respect to the Debt Securities without the consent of any Lender; or (j) Without the express prior written consent of Majority Lenders, Borrower amends or modifies the terms of any of the documents or instruments governing, or otherwise executed in connection with, the Subordinated Debt, including but not limited to, an amendment or modification to (a) shorten the maturity of the Subordinated Debt, (b) increase the maximum principal amount of the Subordinated Debt, or (c) modify the terms of the subordination of the Subordinated Debt to the Senior Debt; or (k) Without the express prior written consent of Majority Lenders, Borrower amends or modifies any term of the Preferred Stock; or (l) A Change in Control occurs. Upon the occurrence of an Event of Default described in subsection (h)(i), (h)(ii) or (h)(iii) of this section with respect to Borrower, all of the Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Related Person who at any time ratifies or approves this Agreement. Upon any such acceleration, any obligation of any Lender to make any further Committed Loan or of Issuing Bank to issue LCs shall be permanently terminated. During the continuance of any other Event of Default, Agent at any time and from time to time may (and upon written instructions from Majority Lenders, Agent shall), without notice to Borrower or any other Related Person, do either or both of the following: (1) terminate any obligation of Lenders to make the Committed Loans hereunder, (2) terminate any obligation of Issuing Bank to issue LCs, and (3) declare any or all of the Obligations immediately due and payable, and all such Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Related Person who at any time ratifies or approves this Agreement. -63- Section VIII.2. Remedies. If any Default shall occur and be continuing, each Lender may protect and enforce its rights under the Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and each Lender may enforce the payment of any Obligations due it or enforce any other legal or equitable right which it may have. All rights, remedies and powers conferred upon Agent and Lenders under the Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the Loan Documents or at law or in equity. Section VIII.3. Indemnity. Borrower agrees to indemnify Agent, Issuing Bank and each Lender, upon demand, from and against any and all liabilities, obligations, claims, losses, damages, penalties, fines, actions, judgments, suits, settlements, costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever (in this section collectively called "liabilities and costs") which to any extent (in whole or in part) may be imposed on, incurred by, or asserted against Agent, Issuing Bank or such Lender growing out of, resulting from or in any other way associated with the Loan Documents, any LC issued by Issuing Bank and the transactions and events (including the enforcement or defense thereof) at any time associated therewith or contemplated therein (including any violation or noncompliance with any Environmental Laws by any Related Person or any liabilities or duties of any Related Person, Agent, Issuing Bank or any Lender with respect to Hazardous Materials found in or released into the environment). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT, ISSUING BANK OR ANY LENDER. Notwithstanding anything else contained in this Agreement, neither Agent, Issuing Bank nor any Lender shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any Person (including Borrower or any of its Affiliates) ever alleges such gross negligence or willful misconduct by Agent, Issuing Bank or any Lender, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the terms "Agent," "Issuing Bank" and "Lender" shall refer not only to the Persons designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Person. -64- ARTICLE IX. - Agent Section IX.1. Appointment, Powers, and Immunities. Each Lender hereby irrevocably appoints and authorizes Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Related Person or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Related Person or the satisfaction of any condition or to inspect the property (including the books and records) of any Related Person or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Section IX.2. Reliance by Agent. Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Related Person), independent accountants, and other experts selected by Agent. Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 10.5 hereof. As to any matters not expressly provided for by this Agreement, Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding on all of Lenders; provided, however, that Agent shall not be required to take any action that exposes Agent to personal liability or that is contrary to any Loan Document or applicable law or unless it shall first be indemnified to its satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. Section IX.3. Defaults. Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless Agent has received written notice from a -65- Lender or Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that Agent receives such a notice of the occurrence of a Default or Event of Default, Agent shall give prompt notice thereof to Lenders. Agent shall (subject to Section 9.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Majority Lenders, provided that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of Lenders. Section IX.4. Rights as Lender. With respect to its Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Related Person or any of its Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any Related Person or any of its Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Section IX.5. Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed under Section 8.3 hereof, but without limiting the obligations of Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by Agent under any Loan Document (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF AGENT); provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share of any costs or expenses payable by Borrower under Section 8.3, to the extent that Agent is not promptly reimbursed for such costs and expenses by Borrower. The agreements contained in this Section shall survive payment in full of the Loans and all other amounts payable under this Agreement. Section IX.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Related Persons and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own -66- analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to Lenders by Agent hereunder, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Related Person or any of its Subsidiaries or affiliates that may come into the possession of Agent or any of its affiliates. Section IX.7. Resignation of Agent. Agent may resign at any time by giving notice thereof to Lenders and Borrower. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent with the consent of Borrower, which consent shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $1,000,000,000 and which shall have experience lending to oil and gas companies. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. Section IX.8. Appointment and Authority. Each Lender hereby irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments of principal, interest and other amounts due hereunder as specified herein and to take all other actions and to exercise such powers under the Loan Documents as are specifically delegated to Agent by the terms hereof or thereof, together with all other powers reasonably incidental thereto. The relationship of Agent to Lenders is only that of one commercial bank acting as administrative agent for others, and nothing in the Loan Documents shall be construed to constitute Agent a trustee or other fiduciary for any holder of any of the Notes or of any participation therein nor to impose on Agent duties and obligations other than those expressly provided for in the Loan Documents. With respect to any matters not expressly provided for in the Loan Documents and any matters which the Loan Documents place within the discretion of Agent, Agent shall not be required to exercise any discretion or take any action, and it may request instructions from Lenders with respect to any such matter, in which case it shall be required to act or to refrain from acting (and shall be fully protected and free from liability to all Lenders in so acting or refraining from acting) upon the instructions of Majority Lenders (including itself), provided, however, that Agent shall not be required to take any action which exposes it to a risk of personal liability that it considers unreasonable or which is contrary to the Loan Documents or to applicable law. Upon receipt by Agent from Borrower of any communication calling for action on the part of Lenders or upon notice from any Lender to Agent of any Default or Event of Default, Agent shall promptly notify each Lender thereof. -67- Section IX.9. Exculpation, Agent's Reliance, Etc. Neither Agent nor any of its directors, officers, agents, attorneys, or employees shall be liable for any action taken or omitted to be taken by any of them under or in connection with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each shall be liable for its own gross negligence or willful misconduct. Without limiting the generality of the foregoing, Agent (a) may treat the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof in accordance with this Agreement, signed by such payee and in form satisfactory to Agent; (b) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Loan Documents on the part of any Related Person or to inspect the property (including the books and records) of any Related Person; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any instrument or document furnished in connection therewith; (f) may rely upon the representations and warranties of the Related Persons and Lenders in exercising its powers hereunder; and (g) shall incur no liability under or in respect of the Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (including any telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper Person or Persons. Section IX.10. Lenders' Credit Decisions. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender, made its own analysis of Borrower and the transactions contemplated hereby and its own independent decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents. Section IX.11. Expenses; Indemnification. (a) Borrower agrees to pay on demand all reasonable costs and expenses of Agent in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for Agent (including the cost of internal counsel) with respect thereto and with respect to advising Agent as to its rights and responsibilities under the Loan Documents. Borrower further agrees to pay on demand all costs and expenses of Agent and Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. -68- (b) Borrower agrees to indemnify and hold harmless Agent and each Lender and each of their affiliates and their respective officers, directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED PARTY), except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct and except to the extent that such claim, damage, loss, liability, cost, or expense arises in a suit by one Lender against another Lender in each case solely in its capacity as a "Lender" hereunder and not in its capacity as Agent or Issuing Bank. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.11 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. (c) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 9.11 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. Section IX.12. Rights as Lender. In its capacity as a Lender, Agent shall have the same rights and obligations as any Lender and may exercise such rights as though it were not Agent. Agent may accept deposits from, lend money to, act as Trustee under indentures of, and generally engage in any kind of business with any of the Related Persons or their Affiliates, all as if it were not Agent hereunder and without any duty to account therefor to any other Lender. Section IX.13. Adjustments. (a) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits -69- returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this Section 9.13 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. Section IX.14. Benefit of Article IX. The provisions of this Article (other than Section 9.7) are intended solely for the benefit of Agent and Lenders, and no Related Person shall be entitled to rely on any such provision or assert any such provision in a claim or defense against Agent or any Lender. Agent and Lenders may waive or amend such provisions as they desire without any notice to or consent of Borrower or any Related Person. Section IX.15. Agency/Administrative Fee. To compensate Agent for performing its duties under the Loan Documents and for expenses incurred by Agent in connection with such performance, Borrower shall pay to Agent an agency and administrative fee in an amount mutually agreed upon by Borrower and Agent. Section 9.16. Syndication Agent and Documentation Agent. The Lenders identified on the facing page of this Agreement as "Syndication Agent" and "Documentation Agent", respectively, have no right, power, obligation, liability, responsibility, or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, the Lenders so identified as "Syndication Agent" and "Documentation Agent", respectively, shall not have and shall not be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on taking or not taking action hereunder. ARTICLE X. - Miscellaneous Section X.1. Waivers and Amendments; Acknowledgments. -70- (a) Waivers and Amendments. No failure or delay (whether by course of conduct or otherwise) by Agent, Issuing Bank or any Lender in exercising any right, power or remedy which Agent, Issuing Bank or such Lender may have under any of the Loan Documents shall operate as a waiver thereof or of any other right, power or remedy, nor shall any single or partial exercise by Agent, Issuing Bank or such Lender of any such right, power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No failure or delay (whether by course of conduct or otherwise) by Borrower in exercising any right, power or remedy which Borrower may have under any of the Loan Documents shall operate as a waiver thereof or of any other right, power or remedy, nor shall any single or partial exercise by Borrower of any such right, power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No waiver of any provision of any Loan Document and no consent to any departure therefrom shall ever be effective unless it is in writing and signed as provided below in this section, and then such waiver or consent shall be effective only in the specific instances and for the purposes for which given and to the extent specified in such writing. No notice to or demand on any Related Person shall in any case of itself entitle any Related Person to any other or further notice or demand in similar or other circumstances. (b) No waiver or supplement to this Agreement or the other Loan Documents shall be valid or effective against any party hereto unless the same is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if such party is Agent, by Agent, (iii) if such party is Issuing Bank, by Issuing Bank, and (iv) if such party is a Lender, by Majority Lenders or by Agent on behalf of Lenders with the written consent of Majority Lenders (which consent has already been given as to the termination of the Loan Documents as provided in Section 10.8). Notwithstanding the foregoing or anything to the contrary herein, no such amendment or waiver shall, unless signed by all Lenders or by Agent on behalf of all Lenders with the prior consent of each individual Lender, (1) waive any of the conditions specified in Article IV (provided that Agent may in its discretion withdraw any request it has made under Section 4.2(f)), (2) increase the Percentage Share or Commitment of such Lender or subject such Lender to any additional obligations, (3) reduce any fees hereunder, or the principal of, or interest on, such Lender's Note, (4) postpone any date fixed for any payment of any fees hereunder, or principal of, or interest on, such Lender's Note, (5) amend the definition herein of "Majority Lenders" or otherwise change the aggregate amount of Percentage Shares which is required for Agent, Lenders or any of them to take any particular action under the Loan Documents, (6) release Borrower from its obligation to pay such Lender's Note or any Guarantor from its guaranty of such payment, or (7) release any Collateral except in accordance with the express terms of any Loan Document. (c) Acknowledgments and Admissions. Borrower hereby represents, warrants, acknowledges and admits that (i) it has been advised by counsel in the negotiation, execution and delivery of the Loan Documents to which it is a party, (ii) it has made an independent decision to enter into this Agreement and the other Loan Documents to which it is a party, without reliance on any representation, warranty, covenant or undertaking by Agent, Issuing Bank or any Lender, whether written, oral or implicit, other than as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iii) there are no representations, warranties, covenants, undertakings or agreements by Agent, Issuing Bank or any Lender as to -71- the Loan Documents except as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iv) neither Agent, Issuing Bank nor any Lender has any fiduciary obligation toward Borrower with respect to any Loan Document or the transactions contemplated thereby, (v) the relationship pursuant to the Loan Documents between Borrower, on one hand, and Agent, Issuing Bank and each Lender, on the other hand, is and shall be solely that of debtor and creditor, respectively, (vi) no partnership or joint venture exists with respect to the Loan Documents between any of Borrower, Agent, Issuing Bank and Lenders, (vii) Agent is not Borrower's Agent, but Agent for Lenders, (viii) should an Event of Default or Default occur or exist Agent and each Lender will determine in its sole discretion and for its own reasons what remedies and actions it will or will not exercise or take at that time, (ix) without limiting any of the foregoing, Borrower is not relying upon any representation or covenant by Agent or any Lender, or any representative thereof, and no such representation or covenant has been made, that Agent or any Lender will, at the time of an Event of Default or Default, or at any other time, waive, negotiate, discuss, or take or refrain from taking any action permitted under the Loan Documents with respect to any such Event of Default or Default or any other provision of the Loan Documents, and (x) Agent and all Lenders have relied upon the truthfulness of the acknowledgments in this section in deciding to execute and deliver this Agreement and to make their Loans. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section X.2. Survival of Agreements; Cumulative Nature. All of the Related Persons' various representations, warranties, covenants and agreements in the Loan Documents shall survive the execution and delivery of this Agreement and the other Loan Documents and the performance hereof and thereof, including the making or granting of the Loans and the delivery of the Notes and the other Loan Documents, and shall further survive until all of the Obligations are paid in full and all of Agent's, Issuing Bank's and Lenders' obligations to Borrower are terminated. All statements and agreements contained in any certificate or other instrument delivered by any Related Person to Agent, Issuing Bank or any Lender under any Loan Document shall be deemed representations and warranties by Borrower or agreements and covenants of Borrower under this Agreement. The representations, warranties, indemnities, and covenants made by the Related Persons in the Loan Documents, and the rights, powers, and privileges granted to Agent, Issuing Bank and Lenders in the Loan Documents, are cumulative, and, except for expressly specified waivers and consents, no Loan Document shall be construed in the context of another to diminish, nullify, or otherwise reduce the benefit to Agent, Issuing Bank or any Lender of any such representation, warranty, indemnity, covenant, right, power or privilege. In particular and without limitation, no exception set out in this Agreement to any representation, warranty, indemnity, or covenant herein contained shall apply to any similar -72- representation, warranty, indemnity, or covenant contained in any other Loan Document, and each such similar representation, warranty, indemnity, or covenant shall be subject only to those exceptions which are expressly made applicable to it by the terms of the various Loan Documents. Section X.3. Notices. All notices, requests, consents, demands and other communications required or permitted under any Loan Document shall be in writing, unless otherwise specifically provided in such Loan Document (provided that Agent may give telephonic notices to Lenders), and shall be deemed sufficiently given or furnished if delivered by personal delivery, by telecopy or telex, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, to Borrower and the Related Persons at the address of Borrower specified on the signature pages hereto and to Agent, Issuing Bank and the other Lenders at their addresses specified on the signature pages hereto (unless changed by similar notice in writing given by the particular Person whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address provided herein, (b) in the case of telecopy or telex, upon receipt, or (c) in the case of registered or certified United States mail, three days after deposit in the mail; provided, however, that no Borrowing Notice shall become effective until actually received by Agent. Section X.4. Joint and Several Liability; Parties in Interest; Assignments. All Obligations which are incurred by two or more Related Persons shall be their joint and several obligations and liabilities. All grants, covenants and agreements contained in the Loan Documents shall bind and inure to the benefit of the parties thereto and their respective successors and assigns; provided, however, that no Related Person may assign or transfer any of its rights or delegate any of its duties or obligations under any Loan Document without the prior consent of Majority Lenders. Neither Borrower nor any Affiliates of Borrower shall directly or indirectly purchase or otherwise retire any Obligations owed to any Lender nor will any Lender accept any offer to do so, unless each Lender shall have received substantially the same offer with respect to the same Percentage Share of the Obligations owed to it. If Borrower or any Affiliate (excluding members of Borrower's Board of Directors or Affiliates of such members) of Borrower at any time purchases some but less than all of the Obligations owed to Agent, Issuing Bank and all Lenders, such purchaser shall not be entitled to any rights under the Loan Documents unless and until Borrower or its Affiliates have purchased all of the Obligations. Section X.5. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; -73- (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $10,000,000 or an integral multiple of $5,000,000 in excess thereof; (iii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, each Lender's Percentage Share of the Commitments shall not be less than the lesser of $10,000,000 or 5% of the aggregate amount of such Commitments then outstanding; (iv) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; and (v) the parties to such assignment shall execute and deliver to Agent for its acceptance (A) an Assignment and Acceptance in the form of Exhibit G hereto, together with any Note subject to such assignment and a processing fee of $3,500 and (B) each such assignee shall agree in writing to be bound to the terms and conditions of that certain Intercreditor Agreement of even date herewith by and among Agent, Lenders, The Prudential Insurance Company of America, the American General Group, and other Persons that are or become parties thereto from time to time as the same may be supplemented, amended or restated from time to time. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, Agent and Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to Borrower and Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 2.15(d). (b) Agent shall maintain at its address set forth on its signature page hereto a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, Agent and Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, Agent -74- shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit G hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); provided, however, that (i) such participant shall be an Eligible Assignee, (ii) such Lender's obligations under this Agreement shall remain unchanged, (iii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iv) the participant shall be entitled to the benefit of the yield protection provisions contained in Article II and the right of set-off contained in Section 7.2, and (v) Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Commitment). (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 6.1(c) hereof. (g) No Lender will request that a rating agency prepare a credit rating for Borrower without giving prior notice to Borrower. Section X.6. Governing Law; Submission to Process. Except to the extent that the law of another jurisdiction is expressly elected in a Loan Document, the Loan Documents shall be deemed contracts and instruments made under the laws of the State of Texas and shall be construed and enforced in accordance with and governed by the laws of the State of Texas and the laws of the United States of America, without regard to principles of conflicts of law. Chapter 346 of the Texas Finance Code (the "Texas Finance Code") as amended (which regulates certain revolving credit loan accounts and revolving tri-party accounts) does not apply to this Agreement or to the Notes. Borrower hereby irrevocably submits itself and each other Related Person to the non-exclusive jurisdiction of the state and federal courts sitting in the State of Texas and agrees and consents that service of process may be made upon it or any of the -75- Related Persons in any legal proceeding relating to the Loan Documents or the Obligations by any means allowed under Texas or federal law. Section X.7. Limitation on Interest. Agent, Issuing Bank, Lenders, the Related Persons and any other parties to the Loan Documents intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither any Related Person nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. Agent, Issuing Bank and Lenders expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) Agent, Issuing Bank or any Lender or any other holder of any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at Agent's, Issuing Bank's or such Lender's or holder's option, promptly returned to Borrower or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable law, Agent, Issuing Bank, Lenders and the Related Persons (and any other payors thereof) shall to the greatest extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. In the event applicable law provides for an interest ceiling under Chapter 303 of the Texas Finance Code, as amended, for that day, the ceiling shall be the "weekly ceiling" as defined in the Texas Finance Code, provided that if any applicable law permits greater interest, the law permitting the greatest interest shall apply and shall be used when appropriate in determining the Highest Lawful Rate. As used in this section the term "applicable law" means the laws of the State of Texas or the laws of the United States of America, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future. -76- Section X.8. Termination; Limited Survival. In its sole and absolute discretion Borrower may at any time that no Obligations are owing elect in a written notice delivered to Agent to terminate this Agreement. Upon receipt by Agent of such a notice, if no Obligations are then owing this Agreement and all other Loan Documents shall thereupon be terminated and the parties thereto released from all prospective obligations thereunder. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by any Related Person in any Loan Document, any Obligations under Sections 2.10 through 2.14, and any obligations which any Person may have to indemnify or compensate Agent, Issuing Bank or any Lender shall survive any termination of this Agreement or any other Loan Document. At the request and expense of Borrower, Agent shall prepare and execute all necessary instruments to reflect and effect such termination of the Loan Documents. Agent is hereby authorized to execute all such instruments on behalf of all Lenders, without the joinder of or further action by any Lender. Section X.9. Severability. If any term or provision of any Loan Document shall be determined to be illegal or unenforceable all other terms and provisions of the Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable law. Section X.10. Confidentiality. Agent and each Lender (each, a "Lending Party") agree to keep confidential any information furnished or made available to it by Borrower pursuant to this Agreement that is marked confidential; provided that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any law, rule, or regulation, (d) upon the order of any court or administrative agency, (e) upon the request or demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its affiliates may be a party, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed participant or assignee. With respect to clause (a) and (b) of this Section 10.10, the Lending Party disclosing such confidential information shall advise the Person to whom the information is disclosed of the confidential nature of such information and that the Lending Party making such disclosure shall be responsible for any violation of this Section 10.10 by any such Person, and with respect to clauses (c), (d), (e) and (g) of this Section 10.10, prior to any such disclosure, the Lending Party shall (unless such Lending Party is unable because of requirements of law or the exigency of the request for such disclosure): (i) promptly notify Borrower thereof; (ii) consult with Borrower on the advisability of taking steps to resist or narrow such request; and (iii) cooperate with Borrower in any attempt it may make to obtain a protective order or other appropriate remedy to assure that -77- confidential treatment will be afforded such confidential information. In the event such protective order or other appropriate remedy is not obtained, the Lending Party agrees to furnish only that portion of such confidential information which the Lending Party is advised by its counsel is legally required to be disclosed. Section X.11. Counterparts. This Agreement may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. SECTION X.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF BORROWER, ISSUING BANK, AGENT AND LENDERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (a) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. Section X.13. Restatement. This Agreement restates and amends the Existing Agreement in its entirety, and all of the terms and provisions hereof shall supersede the terms and provisions thereof. -78- IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. WESTERN GAS RESOURCES, INC. Borrower By: ------------------------------- William J. Krysiak Vice President - Finance Address: 12200 N. Pecos Street Denver, Colorado 80234 Attention: General Counsel Telephone: 03/452-5603 Telecopy: 303/254-9794 NATIONSBANK, N.A., as Agent, Issuing Bank and Lender By: ------------------------------- Name: Title: Address: NationsBank Plaza 901 Main Street Dallas, Texas Tel: 214/209-9452 Fax: 214/209-2881 with a copy to: David C. Rubenking NationsBank, N.A. 370 17th Street, Suite 3250 Denver, Colorado Tel: 303/629-6969 Fax: 303/629-6303 SOCIETE GENERALE SOUTHWEST AGENCY, as a Lender By: ------------------------------- Name: Title: Address: 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Attention: Loan Administration Tel: 214/754-0171 Fax: 214/979-2792 with a copy to: 1111 Bagby, Suite 2020 Houston, Texas 77002 Attention: Richard Erbert Tel: 713/650-0824 Fax: 713/759-6318 ABN AMRO BANK N.V., as a Lender By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: Address: 208 S. LaSalle Street Chicago, Illinois 60604 Tel: 312/992-5110 Fax: 312/992-5111 with a copy to: 3 Riverway, Suite 1700 Houston, Texas 77056 Attention: Robert Cunningham Tel: 713/964-3351 Fax: 713/961-1699 CREDIT LYONNAIS, as a Lender By: ------------------------------- Name: Title: Address: 1000 Louisiana Street, Suite 5360 Houston, Texas 77002 Attention: Darryl Stanley Tel: 713/753-8734 Fax: 713/751-0307 BANKBOSTON, N.A., as a Lender By: ------------------------------- Name: Title: Address: 100 Federal Street Boston, Massachusetts 02110 Attention: Terrence Ronan Tel: 617/434-5472 Fax: 617/434-3652 UNION BANK OF CALIFORNIA, N.A., as a Lender By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: Address: 500 N. Akard, Suite 4200 Dallas, Texas 75201 Attention: Gary Shekerjian Tel: 214/922-4213 Fax: 214/922-4209 THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By: ------------------------------- Name: Title: Address: One First National Plaza Chicago, Illinois 60670 Tel: 312/732-3659 Fax: 312/732-4840 with a copy to: Bank One Texas, N.A. 910 Travis Street Houston, Texas 77002 Attention: Dixon Schultz Tel: 713/751-3741 Fax: 713/751-3760 U.S. BANK NATIONAL ASSOCIATION, as a Lender By: ------------------------------- Name: Title: Address: 918 17th Street Denver, Colorado 80202 Attention: Monte Deckerd Tel: 303/585-4212 Fax: 303/585-4362 EX-10.21 3 AMENDED AND RESTATED NOTE PURCHASE AGREEMENT EXHIBIT 10.21 ================================================================================ WESTERN GAS RESOURCES, INC. $27,000,000 8.02% SENIOR NOTES DUE DECEMBER 1, 2005 AMENDED AND RESTATED NOTE PURCHASE AGREEMENT Dated as of April 28, 1999 ================================================================================ TABLE OF CONTENTS (Not Part of Agreement) THE NOTES................................................................- 2 - 1. The Notes....................................................- 2 - [INTENTIONALLY OMITTED]..................................................- 2 - CONDITIONS PRECEDENT.....................................................- 2 - 3A. Conditions to Effectiveness..................................- 2 - 3B. Certain Documents............................................- 2 - 3C. Representations and Warranties; No Default...................- 4 - 3D. Transactions Permitted by Applicable Laws....................- 4 - 3E. Legal Matters................................................- 4 - 3F. Proceedings..................................................- 4 - 3G. Amendment of Other Agreements................................- 5 - 3H. Fees Payable at Closing......................................- 5 - PREPAYMENTS..............................................................- 5 - 4. Prepayments..................................................- 5 - 4A. Optional Prepayment With Yield-Maintenance Amount............- 5 - 4B. Notice of Optional Prepayment................................- 5 - 4C. Application of Prepayments...................................- 6 - 4D. Retirement of Notes..........................................- 6 - 4E. Offer to Prepay Notes or Post Letters of Credit Upon Occurrence of a Required Offer Event.........................- 6 - 4E(1) Required Offers........................................- 6 - 4E(2) Required Reoffers......................................- 7 - 4E(3) Acceptance or Rejection................................- 7 - 4E(4) Required Prepayment....................................- 8 - 4F. Issuance of Letters of Credit................................- 9 - 4F(1) In Lieu of Prepayment..................................- 9 - 4F(2) Election by the Company at any Time....................- 9 - 4F(3) Terms of Letters of Credit.............................- 9 - 4F(4) Payments by the Company; Company Remains Liable...... - 10 - AFFIRMATIVE COVENANTS...................................................- 10 - 5. Affirmative Covenants.......................................- 10 - 5A. Financial Statements........................................- 10 - 5B. Inspection of Property......................................- 13 - - ii - 5C. Covenant to Secure Notes Equally............................- 13 - 5D. Agreement Assuming Liability on Notes.......................- 13 - 5E. Notice of Material Events...................................- 14 - 5F. Maintenance of Properties...................................- 14 - 5G. Maintenance of Existence and Qualifications.................- 14 - 5H. Insurance...................................................- 15 - 5I. Compliance with Agreements and Law..........................- 15 - 5J. Compliance with Environmental Laws..........................- 15 - 5K. Information Required by Rule 144A...........................- 16 - 5L. ERISA.......................................................- 16 - 5M. Guaranties..................................................- 16 - 5N. Credit Fees.................................................- 17 - 5N(1) First Credit Fee.....................................- 17 - 5N(2) Second Credit Fee....................................- 17 - 5O. Purchase Offer Fees.........................................- 18 - 5O(1) 1995 Notes...........................................- 18 - 5O(2) 1993 Notes...........................................- 18 - 5P. Pledge of Subsidiary Stock..................................- 18 - 5Q. Year 2000...................................................- 18 - NEGATIVE COVENANTS......................................................- 19 - 6. Negative Covenants..........................................- 19 - 6A. Financial Covenants...................................- 19 - 6A(1) Consolidated Tangible Net Worth.......................- 19 - 6A(2) Current Ratio.........................................- 19 - 6A(3) Total Debt Maintenance................................- 19 - 6A(4) Senior Debt Maintenance...............................- 19 - 6A(5) Total Fixed Charge Coverage Ratio.....................- 20 - 6A(6) Senior Fixed Charge Coverage Ratio....................- 20 - 6A(7) Senior Debt to EBITDA.................................- 21 - 6B. Dividend Limitation.........................................- 21 - 6C. Lien, Debt, and Other Restrictions..........................- 21 - 6C(1) Liens.................................................- 22 - 6C(2) Debt..................................................- 23 - 6C(3) Limitation on Investments and New Businesses..........- 23 - 6C(4) Sale of Stock and Debt of Subsidiaries................- 24 - 6C(5) Merger and Sale of Assets.............................- 25 - 6C(6) Lease Rentals.........................................- 26 - 6C(7) Limitation on Credit Extensions.......................- 27 - 6C(8) Contracts; Take-or-Pay Agreements.....................- 27 - 6C(9) Sale or Discount of Receivables.......................- 27 - 6C(10)Guaranties............................................- 27 - 6C(11)Transactions With Affiliates..........................- 28 - - iii - 6C(12)Panhandle Joint Venture Debt..........................- 29 - 6C(13)Certain Matters Relating to Subordinated Debt.........- 29 - 6D. Issuance of Stock by Corporate Subsidiaries.................- 29 - 6E. Other Agreements............................................- 29 - EVENTS OF DEFAULT.......................................................- 31 - 7A. Acceleration................................................- 31 - 7B. Rescission of Acceleration..................................- 35 - 7C. Notice of Acceleration or Rescission........................- 35 - 7D. Other Remedies..............................................- 35 - REPRESENTATIONS, COVENANTS AND WARRANTIES...............................- 35 - 8. Representations, Covenants and Warranties...................- 35 - 8A. Organization................................................- 35 - 8B. Financial Statements........................................- 36 - 8C. Actions Pending.............................................- 36 - 8D. Outstanding Debt............................................- 36 - 8E. Environmental Compliance....................................- 37 - 8F. Taxes.......................................................- 37 - 8G. Conflicting Agreements and Other Matters....................- 37 - 8H. [Intentionally omitted].....................................- 38 - 8I. [Intentionally omitted].....................................- 38 - 8J. ERISA.......................................................- 38 - 8K. Governmental Consent........................................- 38 - 8L. Title to Properties.........................................- 38 - 8M. Disclosure..................................................- 39 - 8N. Delivery of Other Agreements................................- 39 - 8O. Public Utility Holding Company Act; Federal Power Act.......- 39 - 8P. Investment Company Act......................................- 39 - 8Q. Rank of Notes...............................................- 39 - 8R. Year 2000 Programming.......................................- 39 - 8S. Receivables Purchase Agreement..............................- 40 - 8T. 1993 Note Purchase Agreement................................- 40 - 8U. Existing Guaranties.........................................- 40 - 8V. MONY Notes..................................................- 40 - PARAGRAPH 9. [Intentionally omitted]...............................- 40 - DEFINITIONS.............................................................- 40 - 10. Definitions.................................................- 40 - 10A. Yield-Maintenance Terms.....................................- 40 - 10B. Other Terms.................................................- 41 - 10C. Accounting Terms and Determinations.........................- 54 - - iv - MISCELLANEOUS...........................................................- 54 - 11A. Note Payments...............................................- 54 - 11B. Expenses....................................................- 55 - 11C. Consent to Amendments.......................................- 56 - 11D. Solicitation of Noteholders.................................- 56 - 11E. Form, Registration, Transfer and Exchange of Notes; Lost Notes.......................................................- 57 - 11F. Persons Deemed Owners; Participations.......................- 58 - 11G. Survival of Representations and Warranties; Entire Agreement...................................................- 58 - 11H. Successors and Assigns......................................- 58 - 11I. Disclosure to Other Persons; Confidentiality................- 58 - 11J. Notices.....................................................- 59 - 11K. Payments Due on Non-Business Days...........................- 59 - 11L. Satisfaction Requirement....................................- 59 - 11M. GOVERNING LAW...............................................- 60 - 11N. Limitation on Interest......................................- 60 - 11O. Severability................................................- 60 - 11P. Descriptive Headings........................................- 60 - 11Q. Counterparts................................................- 60 - 11R. Binding Agreement...........................................- 60 - - v - REMAINING HOLDER SCHEDULE SCHEDULE 6C(2) EXISTING DEBT SCHEDULE 6C(8) EXISTING COUNTERPARTIES SCHEDULE 8A SUBSIDIARIES AND CERTAIN OTHER ENTITIES 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 ANNUAL CASH FLOW PROJECTION EXHIBIT G FORM OF CONSENT EXHIBIT H FORM OF COMPANY PLEDGE AGREEMENT EXHIBIT I FORM OF MIGC PLEDGE AGREEMENT EXHIBIT J FORM OF LETTER OF CREDIT - vi - AMENDED AND RESTATED NOTE PURCHASE AGREEMENT This AMENDED AND RESTATED NOTE PURCHASE AGREEMENT (this "Agreement") is entered into as of April 28, 1999, among WESTERN GAS RESOURCES, INC., a Delaware corporation (the "Company"), and The Variable Annuity Life Insurance Company ("VALIC"), American General Life Insurance Company ("American General"), American General Life and Accident Insurance Company (as successor in interest to Gulf Life Insurance Company, "AGLA"), First Allmerica Financial Life Insurance Company ("First Allmerica") and Allmerica Financial Life Insurance and Annuity Company ("Allmerica" and together with VALIC, American General, AGLA and First Allmerica, the "Remaining Holders"). The parties hereto agree as follows: RECITALS WHEREAS, the Company, the Remaining Holders and Mutual Life Insurance Company of New York ("MONY" and together with the Remaining Holders, the "1995 Purchasers") entered into that certain Note Purchase Agreement dated as of November 29, 1995 (the "1995 Note Purchase Agreement") pursuant to which the Company issued and sold to the 1995 Purchasers the 1995 Notes (as hereinafter defined); and WHEREAS, the Company entered into those certain separate Note Purchase Agreements each dated as of April 1, 1993 (collectively, the "1993 Note Purchase Agreement") with each of the purchasers listed on Annex 1 thereto (collectively, the "1993 Purchasers"), respectively, pursuant to which the Company issued and sold to the 1993 Purchasers its 7.65% Senior Notes due April 30, 2003 in the aggregate original principal amount of $50,000,000 (collectively, the "1993 Notes" and individually, a "1993 Note"); and WHEREAS, the Company and The Prudential Insurance Company of America entered into that certain Second Amended and Restated Master Shelf Agreement, dated as of December 19, 1991, as amended by Letter Agreement No. 1 dated November 21, 1997 (as so amended, the "Existing Master Shelf Agreement"); and WHEREAS, the Company entered into that certain Loan Agreement dated as of May 30, 1997 with NationsBank, N.A., as Agent, and the lenders parties thereto (the "Existing NationsBank Agreement"); and WHEREAS, the Company entered into that certain Loan Agreement dated as of February 17, 1999 with Nations Bank, N.A. (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, the "Bridge Facility"); and -1- WHEREAS, the Company has proposed modifications to various of its financings, pursuant to which, among other things, the Company will (1) prepay and retire the 1993 Notes, (2) amend the Existing Master Shelf Agreement, and (3) terminate the Existing NationsBank Agreement and enter into the NationsBank Agreement; and WHEREAS, the Company and the Remaining Holders have agreed that, in furtherance of the foregoing, the 1995 Note Purchase Agreement will be amended and restated in its entirety; and NOW, THEREFORE, to accomplish the matters contemplated by the immediately preceding recitals and in consideration of the mutual premises herein contained and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the 1995 Note Purchase Agreement is hereby amended and restated in its entirety as follows: PARAGRAPH 1. THE NOTES. 1. The Notes. Pursuant to the 1995 Note Purchase Agreement, the Company authorized, issued and delivered its 8.02% Senior Notes in the aggregate original principal amount of $42,000,000 of which $27,000,000 is outstanding, dated the date of issue thereof, to mature December 1, 2005, to bear interest on the unpaid balance from the date thereof until the principal shall have become due and payable at the rate of 8.02% per annum and on overdue payments at the rate specified therein (collectively, the "1995 Notes" and individually, a "1995 Note"). The term "Notes" as used herein shall include each 1995 Note issued and delivered pursuant to any provision of the 1995 Note Purchase Agreement, each PIK Note issued and delivered pursuant to paragraph 5N(1) of this Agreement and each Note deliv-ered in substitution or exchange for any 1995 Note or PIK Note pursuant to any provision of this Agreement. The Company and each Remaining Holder hereby agree that the Notes will be subject to the terms and conditions of the 1995 Note Purchase Agreement as herein amended and restated. Each Remaining Holder severally agrees that the aggregate principal amount of Notes outstanding as of the Effective Date and held by such Remaining Holder is set forth opposite such Remaining Holder's name in the Remaining Holder's Schedule attached hereto. PARAGRAPH 2. [INTENTIONALLY OMITTED] PARAGRAPH 3. CONDITIONS PRECEDENT. 3A. Conditions to Effectiveness. This Agreement shall become effective as of April 28, 1999 (the "Effective Date"), subject to the satisfaction, on or before the Effective Date, of the following conditions: 3B. Certain Documents. Each Remaining Holder shall have received the following, each dated the Effective Date unless otherwise indicated: -2- (i) a Guaranty executed by Western Gas Wyoming, L.L.C., WGR Canada, Inc., Lance Oil and Gas Company and Pinnacle Gas Treating, Inc. and a Consent executed by each Guarantor; (ii) the Company Pledge Agreement executed by the Company and the MIGC Pledge Agreement executed by MIGC; (iii) the Intercreditor Agreement executed by each party thereto; (iv) a certificate of the Secretary or Assistant Secretary of the Company certifying (a) the resolutions of the Board of Directors of the Company approving this Agreement, the Company Pledge Agreement and all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Company Pledge Agreement, and (b) the names and true signatures of the officers of the Company authorized to sign this Agreement, the Company Pledge Agreement and the other documents to be delivered by the Company hereunder; (v) a certificate of the Secretary or Assistant Secretary of each Guarantor other than MIGC certifying (a) the resolutions of the board of directors or similar governing body of such Guarantor approving the Guaranty and/or Consent, as applicable, executed in connection with this Agreement by such Guarantor and all documents evidencing other necessary corporate or similar action and governmental approvals, if any, with respect to the Guaranty and/or Consent, as applicable, executed in connection with this Agreement by such Guarantor, and (b) the names and true signatures of the officers of such Guarantor authorized to sign the Guaranty and/or Consent, as applicable, executed in connection with this Agreement by such Guarantor, and the other documents to be delivered by such Guarantor hereunder; (vi) a certificate of the Secretary or Assistant Secretary of MIGC certifying (a) the resolutions of the board of directors of MIGC approving the MIGC Pledge Agreement and the Consent executed in connection with this Agreement by MIGC and all documents evidencing other necessary corporate action or governmental approvals, if any, with respect to the MIGC Pledge Agreement and the Consent executed in connection with this Agreement by MIGC, and (b) the names and true signatures of the officers of MIGC authorized to sign the MIGC Pledge Agreement and the Consent executed in connection with this Agreement by MIGC, and the other documents to be delivered by MIGC hereunder; (vii) a favorable opinion of John C. Walter, General Counsel of the Company, reasonably satisfactory to such Remaining Holder and substantially in the form of Exhibit B attached hereto and as to such other matters as such Remaining Holder may reasonably request, and by its execution and delivery hereof the Company hereby directs such counsel to deliver such opinion and acknowledges and agrees that each Remaining Holder receiving such opinion will and is hereby authorized to rely on such opinion; -3- (viii) a copy of the Bridge Facility, in form and substance satisfactory to such Remaining Holder and certified by an Authorized Officer of the Company as being true and complete; (ix) a copy of the NationsBank Agreement, in form and substance satisfactory to such Remaining Holder and certified by an Authorized Officer of the Company as being true and complete, together with evidence satisfactory to such Remaining Holder as to the ability of the Company to satisfy the conditions precedent to the extension of credit thereunder; (x) copies of all amendments and waivers relating to the Master Shelf Agreement, in form and substance satisfactory to such Remaining Holder and certified by an Authorized Officer of the Company as being true and complete; and (xi) copies of all pledge agreements for the benefit of the holders of Debt under the Bridge Facility, the NationsBank Agreement or the Master Shelf Agreement, in each case in form and substance satisfactory to such Remaining Holder and certified by an Authorized Officer of the Company as being true and complete. 3C. Representations and Warranties; No Default. The representations and warranties contained in paragraph 8 hereof, in each Guaranty, in the Company Pledge Agreement and in the MIGC Pledge Agreement shall be true on and as of the Effective Date after giving effect to the transactions herein contemplated; there shall exist on the Effective Date no Event of Default or Default and no Default or Event of Default would result from the transactions contemplated by this Agreement; and the Company shall have delivered to such Remaining Holder an Officer's Certificate, dated the Effective Date, to both such effects. 3D. Transactions Permitted by Applicable Laws. The transactions to be consummated on the terms and conditions as herein provided shall not violate any applicable law or governmental regulation and shall not subject such Remaining Holder to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Remaining Holder shall have received such certificates or other evidence as it may reasonably request to establish compliance with this condition. 3E. Legal Matters. Counsel to such Remaining Holder, including any special counsel retained in connection with the transactions contemplated by this Agreement, shall be satisfied as to all legal matters relating to such transactions. 3F. 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 Remaining Holder, and such Remaining Holder shall have received all such counterpart originals or certified or other copies of such documents as such Remaining Holder may reasonably request. -4- 3G. Amendment of Other Agreements. Neither the NationsBank Agreement, the Bridge Facility nor the Master Shelf 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 in favor of NationsBank, as agent, and the lenders under the NationsBank Agreement and in favor of NationsBank as lender under the Bridge Facility, in each case as permitted by clauses (vi) and (vii) of paragraph 6C(1), and (b) Liens created by the pledge agreements described in clause (xi) of paragraph 3B and other pledge agreements that are subject to the Intercreditor Agreement and in connection with which the holders of the Notes, or a collateral agent appointed by them, shall have received a Pledge Agreement from the same pledgor and covering the same collateral) 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 Remaining Holder shall have received a guaranty from the same Guarantor, (b) the pledge agreements described in clause (xi) of paragraph 3B and other pledge agreements that are subject to the Intercreditor Agreement and in connection with which the holders of the Notes, or a collateral agent appointed by them, shall have received a Pledge Agreement from the same pledgor and covering the same collateral and (c) any other guaranty or agreement to provide guaranties of the obligations of the Company under such agreements delivered after the Effective Date which becomes subject to the Intercreditor Agreement and in connection with which such Remaining Holder 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. 3H. Fees Payable at Closing. Without limiting the generality of paragraph 11B, the Company shall have paid on or before the Effective Date the fees, charges and disbursements of Baker & Botts, L.L.P., the Remaining Holders' special counsel, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Effective Date. PARAGRAPH 4. PREPAYMENTS. 4. Prepayments. The Notes shall be subject to prepayment only with respect to the prepayments permitted by paragraphs 4A, 4E and 4F. 4A. Optional Prepayment With Yield-Maintenance Amount. The Notes shall be subject to prepayment on any Business Day, 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 and the Credit Fees 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 -5- 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 and the Credit Fees 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 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, 4E or 4F 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 Affiliates shall not be deemed to be outstanding for any purpose under this Agreement. 4E. Offer to Prepay Notes or Post Letters of Credit Upon Occurrence of a Required Offer Event. 4E(1) Required Offers. At least 20 days before the anticipated date of the closing of the transaction with respect to each Required Offer Event other than a Small Asset Sale and the sale of the stock of WGRS and the Giddings Facility (as to which sales no formal Required Offers shall be required but shall be deemed nevertheless to have been given), and in the case of a Small Asset Sale, as soon as possible and in any event at least four (4) Business Days before the anticipated date of the closing of the transaction with respect thereto, the Company shall make a written offer (a "Required Offer"), contingent upon the closing of such transaction, to each holder of Notes (all such holders, together with the lenders under the NationsBank Agreement, the lender under the Bridge Facility and the holders of notes under the Master Shelf Agreement, collectively, the "Senior Debt Holders") of its offer to prepay, or, in the case of a Required Offer as to which the -6- Delivery Date occurs on or before August 12, 2000 (but not thereafter), to cause the issuance of a Letter of Credit in support of, a portion of the principal amount of Notes held by such holder of Notes on the date of closing of such transaction (the "Delivery Date"). The Required Offer shall specify whether the Company intends to make the prepayment in respect of the Note as to which such offer is accepted (and any additional prepayment or Letter of Credit issuance that may result from the acceptance of any subsequent Required Reoffer relating thereto) in cash or, within the time period described in the preceding sentence, to cause the issuance of a Letter of Credit pursuant to paragraph 4F(1) as support for the Secured Amount of such Note. The amount of the prepayment required to be made by, or the Letter of Credit required to be issued for the account of, the Company to each holder of Notes that has accepted the Required Offer shall be equal to (x) the lesser of the Net Proceeds Amount with respect to such Required Offer Event and the difference between $270,000,000 and the sum of the Net Proceeds Amounts in respect of all other Required Offer Events, if any, as to which a Required Prepayment has previously been made multiplied by (y) 0.054 multiplied by (z) a fraction the numerator of which is the aggregate outstanding principal amount of Notes held by such holder (or its predecessor in interest) as of the Effective Date and the denominator of which is aggregate outstanding principal amount of all Notes as of the Effective Date. 4E(2) Required Reoffers. Ten (10) days following the Required Offer other than in the case of a Small Asset Sale (in which case, two (2) Business Days following) and the sale of the stock of WGRS and the Giddings Facility (as to which sales no formal Required Reoffers shall be required but shall be deemed nevertheless to have been given), the Company shall notify the holder of each Note whether any Senior Debt Holder, other than the holder of a Note, is not to receive a prepayment in the amount of its Ratable Portion of the Net Proceeds Amount in respect of the Senior Debt held by it. If any holder of Senior Debt is not to receive such a prepayment (whether because no such prepayment is required to be made to it by the terms of the document under which such Senior Debt is issued, because such holder has declined an offer of prepayment or otherwise), a portion of all such prepayments not made to other Senior Debt Holders (the "Reoffered Amount") shall be offered by the Company (a "Required Reoffer") in such notice, either for prepayment or the issuance of a Letter of Credit in support of the Secured Amount thereof on the Delivery Date, to the holder of each Note in an amount equal to (x) the Reoffered Amount multiplied by (y) a fraction the numerator of which is 0.054 and the denominator of which is 0.054 plus the Ratable Portions of all Senior Debt Holders that have received a prepayment in respect of the Senior Debt held by them by application of the Net Proceeds Amount with respect to the relevant Required Offer Event multiplied by (z) a fraction the numerator of which is the principal amount of the Note held by such holder (or its predecessor in interest) as of the Effective Date and the denominator of which is the aggregate outstanding principal amount of all Notes as of the Effective Date. 4E(3) Acceptance or Rejection. A holder of Notes may accept a Required Offer by causing an irrevocable written notice of such acceptance to be delivered to the Company, at the address provided by the Company pursuant to paragraph 11J, during the period commencing with the date of such Required Offer and ending two (2) Business Days prior to the date of the -7- closing of the transaction in the case of a Required Offer Event arising from a Small Asset Sale and ending ten (10) days after the receipt of such Required Offer by such holder in all other cases. Two (2) Business Days prior to the Delivery Date the Company shall deliver to the holder of each Note a certificate of an Authorized Officer of the Company specifying: (i) the Delivery Date; (ii) the amount of principal that is to be prepaid, or the Secured Amount of the Letter of Credit that is to be delivered, to such holder on the Delivery Date; (iii) the interest due on such principal amount (if any) that is to be prepaid, accrued to the Delivery Date; (iv) the Credit Fees due on such principal amount (if any) that is to be prepaid, accrued to the Delivery Date; (v) any applicable Yield-Maintenance Amount due on such principal amount (if any) that is to be prepaid, calculated as of the Delivery Date (to the extent Yield-Maintenance Amount is required by paragraph 4E(4)(iii)); (vi) that the conditions of paragraphs 4E(1) and 4E(2) have been fulfilled; and (vii) in reasonable detail, the respective types of transactions, closing dates, Gross Proceeds Amounts and Net Proceeds Amounts in respect of the Required Offer Event giving rise to the Required Offer and, if applicable, the Required Reoffer. On the Business Day next preceding the Delivery Date, the Company shall transmit by facsimile and by overnight courier to the holder of each Note to be prepaid the calculation of the Yield-Maintenance Amount, if any, to be due on such Delivery Date. In the event that the holder of a Note shall reject a Required Offer or a Required Reoffer, such Note shall continue to bear interest at the rate and to be subject to the Credit Fees and Yield - Maintenance Amount to which outstanding principal in respect of the Notes for all purposes is otherwise subject. A failure by any holder of Notes to respond to any Required Offer shall be deemed to constitute an acceptance of such Required Offer by such holder. A failure by any holder of Notes to respond to any Required Reoffer shall be deemed to constitute a rejection of such Required Reoffer by such holder. In case of the Required Offers and Required Reoffers deemed to have been made in connection with the sale of the stock of WGRS and the Giddings Facility (i) the Variable Annuity Life Insurance Company, American General Life Insurance Company and American General Life and Accident Insurance Company shall be deemed to have accepted such Required Offers and to have rejected such Required Reoffers and (ii) First Allmerica Financial Life Insurance Company and Allmerica Financial Life Insurance and Annuity Company shall be deemed to have rejected such Required Offers and such Required Reoffers. 4E(4) Required Prepayment. Each prepayment of principal in respect of Notes that is to be made pursuant to any provision in this paragraph 4E (a "Required Prepayment") shall be at 100% of the principal amount of such Notes, together with (i) the interest due thereon accrued to the Delivery Date, (ii) the Credit Fees due thereon accrued to the Delivery Date and (iii) any applicable Yield-Maintenance Amount calculated as of the Delivery Date (treating the Delivery Date as the Settlement Date), except that any prepayment made pursuant to a Required Reoffer shall be made without any Yield-Maintenance Amount if and only if no other Senior Debt Holder that has received or is receiving a prepayment in respect of the Senior Debt held by it as the result of a Required Reoffer receives any premium, yield-maintenance, make-whole, breakage costs, fees or other similar amounts. The Required Prepayment shall be made on the Delivery Date. 4F. Issuance of Letters of Credit. -8- 4F(1) In Lieu of Prepayment. If the Delivery Date with respect to any Required Offer Event is to occur on or prior to August 12, 2000, as provided in paragraph 4E(1) the Company, instead of offering to make prepayments in respect of the Notes, at its option may cause separate Letters of Credit to be issued for the benefit of the holders of the Notes that have accepted such offer. If the Company does not elect to cause the issuance of such Letters of Credit or, after having made such election fails to cause the issuance of such Letters of Credit on or prior to the Delivery Date, the Company itself shall pay make the Required Prepayment on such Delivery Date together with all amounts required to be paid by it on such date pursuant to paragraph 4E(4). 4F(2) Election by the Company at any Time. (a) At any time, upon at least five (5) Business Days' notice, the Company may cause the issuance to the holders of all Notes of Letters of Credit in stated amounts equal to the respective principal amounts of the Notes or, in the case of each Note, and subject to satisfaction of the remaining conditions of this paragraph 4F(2), such lesser principal amount as is equal to the lesser of (x) the outstanding principal amount of such Note and (y) $500,000 or any integral multiple of $100,000 in excess thereof. If a Letter of Credit is issued as to any Note, Letters of Credit shall be issued as to all Notes, in stated amounts that are in the same proportion to one another as are the outstanding principal balances of the Notes. No Letter of Credit may be issued pursuant to this paragraph 4F(2) in place of a Letter of Credit issued, or to be issued, pursuant to paragraph 4F(1). (b) If the Company shall desire to cause the issuance of Letters of Credit in Stated Amounts that are less than the respective principal amounts of the Notes, prior to the issuance of such Letters of Credit the Company shall execute such documentation and to take such actions, in each case at the sole cost and expense of the Company, as the Required Holders may request in order to create a separate series of Notes to represent the aggregate principal amount of the Notes that is equal to the aggregate Stated Amount of all such Letters of Credit and to obtain a separate private placement number for such series. 4F(3) Terms of Letters of Credit. (a) Each Letter of Credit issued for the account of the Company pursuant to paragraph 4F(1) shall be in the amount determined pursuant to the last sentence of paragraph 4E(1). (b) The Beneficiary shall be entitled to present a sight draft under the Letter of Credit issued to it pursuant to paragraph 4F(1) or 4F(2) upon the occurrence of any of the following events or conditions: (i) the issuing bank at any time fails to satisfy the Required Ratings; (ii) a Default under either or both of clauses (i) and (ii) of paragraph 7A occurs; (iii) an Event of Default occurs; (iv) the date of such drawing is not more than 30 days prior to the then current expiry date of the Letter of Credit; or (v) in the case of a Letter of Credit issued prior to October 1, 2000 pursuant to paragraph 4F(1), at any time on or after October 1, 2000. (c) If the Beneficiary of any Letter of Credit shall desire to transfer less than the entire Stated Amount thereof in connection with its transfer of less than the entire principal amount of the Note that corresponds to such Stated Amount and the issuer of such Letter of Credit will not permit -9- a partial transfer thereof, upon request of such Beneficiary the Company, at its sole cost and expense, shall promptly cause the issuance of separate Letters of Credit to such Beneficiary and its designated transferee in order to effectuate such partial transfer. 4F(4) Payments by the Company; Company Remains Liable. The Company shall remain unconditionally liable for the payment of the Secured Amount in respect of a Note until it is paid pursuant to a drawing under the relevant Letter of Credit or is paid by the Company. The Secured Amount, to the extent not paid under the Letter of Credit securing such Secured Amount or paid by the Company itself to the Beneficiary, shall remain outstanding as principal and shall continue to be entitled to the benefits of this Agreement, the Pledge Agreements and the Guaranties and shall continue to bear interest at the rate, and to be subject to the Second Credit Fee (but not the First Credit Fee) and Yield-Maintenance Amount, to which outstanding principal in respect of the Notes for all purposes is otherwise subject. So long as the Letter of Credit is outstanding, the Company shall continue to pay interest and the Second Credit Fee (but not the First Credit Fee) in respect of the Secured Amount at the times and in the manner provided in this Agreement. In addition, if a draft drawn under a Letter of Credit in accordance with paragraph 4F(3)(b) is not paid on the date when payment of such draft is to be made pursuant to the terms of such Letter of Credit, the Secured Amount shall be subject to the First Credit Fee from and after such date. If a Beneficiary should draw the Secured Amount under a Letter of Credit in accordance with paragraph 4F(3)(b) and regardless of whether the issuer of the Letter of Credit shall honor such draft, such Beneficiary shall be entitled to receive, and the Company shall pay to such Beneficiary within three (3) Business Days following notice from such Beneficiary, the unpaid accrued interest and Second Credit Fees and any Yield-Maintenance Amount (which shall be determined as though the date of payment by the Company were the Settlement Date with respect thereto) on the Secured Amount to which such Beneficiary would be entitled pursuant to this Agreement if a prepayment of the Secured Amount in respect of which such Letter of Credit was established had been made by the Company on the date of such payment by the Company and also, if the issuer of the Letter of Credit shall not have honored such draft, the First Credit Fees with respect to such Secured Amount for the period from and including the date of such drawing to but not including the date of payment by the Company. Any amount paid to a Beneficiary by the issuing bank under a Letter of Credit shall be applied by such Beneficiary in satisfaction of the same amount of principal outstanding under the Note held by such Beneficiary. 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 -10- 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 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 -11- 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 F 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; (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 (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), 6A(5), 6A(6), 6A(7), 6B, 6C(l), 6C(2), 6C(3), 6C(4), 6C(5), 6C(6) and 6C(7), and each Financial Covenant incorporated herein by virtue of paragraph 6E(3), 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 -12- 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 or similar 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 persons 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 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 the holder of each 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 -13- 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 the holder of each Note 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, any Note, any Guaranty or any Pledge Agreement 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. -14- 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, 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 -15- 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 will require each Subsidiary, and each entity that would constitute a Subsidiary but for its being organized under the laws of a jurisdiction outside the United States of America, that guarantees any obligations of the Company under the NationsBank Agreement, the Bridge Facility or the Master Shelf Agreement, or under any replacement or refinancing thereof, immediately to execute and deliver a Guaranty to the holder of each Note. The Company will cause each such Subsidiary or other entity to deliver to the holder of each Note, simultaneously with its delivery of such Guaranty, written evidence satisfactory to the Required Holder(s) and their counsel that such Subsidiary or other entity has taken all corporate or similar action necessary to duly approve and authorize its execution, delivery and performance of such Guaranty and other documents which it is required to execute. -16- 5N. Credit Fees. 5N(1) First Credit Fee. The Company shall pay the holder of each Note a credit fee equal to (a) 1.45% per annum of the outstanding principal amount of such Note, excluding the Secured Amount (if any) in respect of such principal amount, during the period beginning January 1, 1999 (with such credit fee accruing as if it had been in effect, continuously, beginning January 1, 1999), through the day on which the Company provides to such holder satisfactory evidence that the Company has received the Minimum Rating and (b) 0.75% per annum of the outstanding principal amount of such Note during the period beginning the day after the Company provides such evidence through the day the Company again shall cease to have the Minimum Rating. If the Company is downgraded below the Minimum Rating after having received the Minimum Rating, the Company shall pay the holder of each Note a credit fee equal to 1.45% per annum of the outstanding principal amount of such Note, excluding the Secured Amount (if any) in respect to such principal amount, during the period beginning the day after the Company loses the Minimum Rating and ending on the day the Company again provides satisfactory evidence to the holder of such Note that the Company has received the Minimum Rating (the credit fees applicable pursuant to the preceding two sentences are referred to herein as the "First Credit Fee"). The First Credit Fee shall be payable quarterly in arrears on the first day of March, June, September and December of each year commencing June 1, 1999 in accordance with paragraph 11A (provided that the First Credit Fee that has accrued from January 1, 1999 through March 31, 1999 shall be paid on the Effective Date), and on the day on which the Company achieves the Minimum Rating, except that if and only so long as the Second Credit Fee is not accruing at the same time as the First Credit Fee, the Company may pay in kind 95 basis points (which number of basis points shall be reduced by the number of basis points by which the "First Credit Fee" payable pursuant to the Master Shelf Agreement exceeds 50 basis points) of any such First Credit Fee that is calculated at the 1.45% per annum level (any amount so paid in kind to the holder of a Note is referred to a the "PIK Amount"). The PIK Amount shall constitute an additional principal amount of Notes in respect of which the Company shall issue and deliver to the holder of each Note a Note (a "PIK Note") in the PIK Amount owing to such holder. If the Company elects to pay in kind any such First Credit Fee that is subject to being paid in kind, the Company shall pay all holders of the Notes in kind and shall pay in kind the entire amount of the First Credit Fee so subject to being paid in kind. 5N(2) Second Credit Fee. If the 1999 Action Plan is not completed by June 30, 1999, the Company shall pay the holder of each Note a credit fee, which shall be in addition to the First Credit Fee, equal to 0.55% per annum of the outstanding principal amount of such Note during the period beginning July 1, 1999 and ending on the day on which the Company delivers to the holders of the Notes evidence satisfactory to the Required Holders that the 1999 Action Plan has been completed (such credit fees being referred to herein as the "Second Credit Fee"). The Second Credit Fee shall be payable, in accordance with paragraph 11A, quarterly in arrears on the first day of March, June, September and December of each year, commencing June 1, 1999, and on the day on which the Company delivers to the holders of the Notes evidence satisfactory to the Required Holders that the 1999 Action Plan has been completed. -17- 5O. Purchase Offer Fees. 5O(1) 1995 Notes. If the Company, directly or indirectly, pays or causes to be paid any remuneration, whether by supplemental or additional interest, premium, fee or otherwise, to any Person participating in the Offer to Acquire Notes, other than the payments of principal at par described therein, the Company shall pay, without duplication, ratably according to the respective principal amounts of the 1995 Notes outstanding as of December 31, 1998, the same such remuneration to the holder of each Note and upon the same terms and conditions. 5O(2) 1993 Notes. If the Company, directly or indirectly, pays or causes to be paid any remuneration, whether by supplemental or additional interest, premium, fee or otherwise, to any Person participating in the Purchase Offers, other than the payments of principal at par described therein, the Company shall pay, without duplication, ratably according to the respective principal amounts of the 1993 Notes outstanding as of December 31, 1998, the same such remuneration to the holder of each Note that was also the holder of a 1993 Note as of such date and upon the same terms and conditions. 5P. Pledge of Subsidiary Stock. The Company shall on the earlier of January 3, 2000, if the stock of WGRS has not been sold by December 31, 1999, and the date that is ten (10) days after the day on which the agreement for the sale of stock in WGRS is terminated, pledge under the Company Pledge Agreement all of the issued and outstanding capital stock in WGRS and cause WGRS to execute and deliver a Guaranty to the holder of each Note. The Remaining Holders and the Company agree that all stock and other securities pledged pursuant to the Pledge Agreements, including the stock of WGRS if pledged pursuant to the preceding sentence, will remain subject to the Pledge Agreements until (i) in the case of all such stock and other securities, the Company achieves the Minimum Rating and NationsBank, as agent for the lenders under the NationsBank Agreement, the lender under the Bridge Facility and the holders of the notes under the Master Shelf Agreement have released their security interests in all of such pledged stock and other securities and, provided that no Default or Event of Default exists or would result therefrom, or, in the case only of the stock of WGRS, until (ii) the Company shall deliver to each holder of the Notes a certificate of an Authorized Officer certifying that the Company has sold, at Fair Market Value for cash, all of the stock in WGRS to a Person that is not an Affiliate or a Subsidiary and that no Default or Event of Default exists immediately prior to or after giving effect to such sale. If, however, after any release described in the preceding sentence the Company is downgraded below the Minimum Rating, the Company shall immediately pledge, and cause its Subsidiaries to pledge, all stock or other equity interests in all Guarantors to the holders of the Notes under one or more Pledge Agreements. 5Q. Year 2000. The Company will promptly notify the holder of each Note in the event that the Company discovers or determines that any computer application (including those of its suppliers or vendors) that is material to any of the Company's or any of its Subsidiaries' business and operations will not properly function, in and following the year 2000 on a timely basis, except to the extent such failure would not present a material probability of having a material -18- adverse effect on the business, property or assets, financial condition or results of operations of the Company or any of its Subsidiaries. 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 from and after January 1, 1999 to be less than the sum of (i) $300,000,000 plus (ii) an amount equal to 50% of Consolidated Net Earnings subsequent to December 31, 1998 (to the extent such amount is a positive number) plus (iii) 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 January 1, 1999; 6A(2) Current Ratio. The ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 0.90 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 NationsBank Agreement, where "available" means, as of the date of determination, the banks parties to the NationsBank Agreement are committed to advance such funds, no default exists under the NationsBank Agreement and all conditions to such banks advancing such funds would be satisfied. The Remaining Holders acknowledge that the Company currently calculates the current ratio only as of the end of each calendar month; 6A(3) Total Debt Maintenance. Adjusted Consolidated Debt at any time to exceed (i) from January 1, 1999 through December 31, 2001, 60% of Consolidated Net Tangible Assets, and (ii) from and after January 1, 2002, 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; 6A(4) Senior Debt Maintenance. Adjusted Consolidated Senior Debt at any time to exceed (i) from January 1, 1999 through the earlier of September 30, 1999 and the completion of the 1999 Action Plan, 60% of Consolidated Net Tangible Assets, (ii) from the earlier of October 1, 1999 and the completion of the 1999 Action Plan through March 31, 2002, 40% of Consolidated Net Tangible Assets, and (iii) from and after April 1, 2002, 35% of Consolidated Net Tangible Assets. In any event, for purposes of determining compliance with this paragraph 6A(3), Adjusted Consolidated Senior Debt shall include without limitation all indebtedness included in determining compliance with the similar covenant in the NationsBank Agreement; 6A(5) Total 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, excluding any prepayment premiums paid with respect to Funded -20- Debt of the Company prepaid in calendar years 1999 and 2000, 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 Net Earnings to (ii) the sum of (a) the Company's accrued consolidated interest expense, excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, plus, (b) without duplication, capitalized interest, for the four immediately preceding fiscal quarters, to be less than the Total Fixed Charge Coverage Ratio set forth in the table below for the periods opposite such ratio: Period Fixed Charge Coverage Ratio - ------------------------------------------------------------------------------- January 1, 1999 through March 31, 1999 1.75 to 1.00 - ------------------------------------------------------------------------------- April 1, 1999 through June 30, 1999 1.75 to 1.00 - ------------------------------------------------------------------------------- July 1, 1999 through September 30, 1999 1.75 to 1.00 - ------------------------------------------------------------------------------- October 1, 1999 through December 31, 1999 2.00 to 1.00 - ------------------------------------------------------------------------------- January 1, 2000 through March 31, 2000 2.25 to 1.00 - ------------------------------------------------------------------------------- April 1, 2000 through June 30, 2000 2.25 to 1.00 - ------------------------------------------------------------------------------- July 1, 2000 through September 30, 2000 2.50 to 1.00 - ------------------------------------------------------------------------------- October 1, 2000 through December 31, 2000 2.50 to 1.00 - ------------------------------------------------------------------------------- January 1, 2001 through March 31, 2001 2.75 to 1.00 - ------------------------------------------------------------------------------- April 1, 2001 through June 30, 2001 3.00 to 1.00 - ------------------------------------------------------------------------------- July 1, 2001 through September 30, 2001 3.25 to 1.00 - ------------------------------------------------------------------------------- October 1, 2001 through December 31, 2001 3.50 to 1.00 - ------------------------------------------------------------------------------- January 1, 2002 and thereafter 3.75 to 1.00 - ------------------------------------------------------------------------------- 6A(6) Senior 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, excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, 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 Net Earnings to (ii) the sum of (a) the Company's accrued consolidated interest expense, excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, plus, (b) without duplication, capitalized interest for Senior Debt for the four immediately preceding fiscal quarters, to be less than the Senior Fixed Charge Coverage Ratio set forth in the table below for the periods opposite such ratio: Period Senior Fixed Charge Coverage Ratio - -------------------------------------------------------------------------------- January 1, 1999 through March 31, 1999 1.75 to 1.00 - -------------------------------------------------------------------------------- April 1, 1999 through June 30, 1999 1.75 to 1.00 - -------------------------------------------------------------------------------- July 1, 1999 through September 30, 1999 1.75 to 1.00 - -------------------------------------------------------------------------------- October 1, 1999 through December 31, 1999 2.25 to 1.00 - -------------------------------------------------------------------------------- January 1, 2000 through March 31, 2000 2.25 to 1.00 - -------------------------------------------------------------------------------- April 1, 2000 through June 30, 2000 3.00 to 1.00 - -------------------------------------------------------------------------------- July 1, 2000 through September 30, 2000 3.50 to 1.00 - -------------------------------------------------------------------------------- October 1, 2000 through December 31, 2000 4.00 to 1.00 - -------------------------------------------------------------------------------- January 1, 2001 through March 31, 2001 4.50 to 1.00 - -------------------------------------------------------------------------------- April 1, 2001 through June 30, 2001 4.75 to 1.00 - -------------------------------------------------------------------------------- July 1, 2001 through September 30, 2001 5.00 to 1.00 - -------------------------------------------------------------------------------- October 1, 2001 through December 31, 2001 5.25 to 1.00 - -------------------------------------------------------------------------------- January 1, 2002 and thereafter 5.50 to 1.00 - -------------------------------------------------------------------------------- 6A(7) Senior Debt to EBITDA. As of any date of determination (i) from the date on which the 1999 Action Plan is completed through December 31, 1999, the ratio of Senior Debt to EBITDA for the period of four fiscal quarters most recently ended to be greater than 4.50 to 1.00 and (ii) from and after January 1, 2000, the ratio of Senior Debt to EBITDA for the period of four fiscal quarters most recently ended to be greater than 4.00 to 1.00. 6B. Dividend Limitation. The Company will not make any Restricted Payment except out of Consolidated Net Earnings Available for Restricted Payments and unless n o 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. In addition, the Company will not make any Restricted Payment with respect to its common stock after June 30, 1999 if the 1999 Action Plan has not been completed on or before June 30, 1999. If the Company is required to cease making Restricted Payments with respect to its common stock because of the previous sentence and completes the 1999 Action Plan after June 30, 1999, the Company can thereafter resume making Restricted Payments to the extent it complies with the first sentence of this paragraph 6B. -21- 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) Liens on property of the Company or any Subsidiary described in Schedule 6C(2) attached hereto, existing as of November 29, 1995 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 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 or the Bridge Facility 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, -22- (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) other Liens on the property of the Company, and (ix) Liens created pursuant to pledge agreements described in paragraph 3G, but in each case only so long as the Intercreditor Agreement is in effect and Pledge Agreements covering the same collateral have been delivered to the holders of the Notes, provided that the aggregate amount of Debt secured by Liens permitted by clauses (iv), (v) and (viii), 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 and existing as of November 29, 1995, 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) and (viii) 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, (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) or 6A(4), and (v) Debt of the Guarantors represented by the Existing Guaranties, the Guaranties, and Subordinated Debt 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, -23- 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 S&P 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 (except that the Company may sell the stock of WGRS if and only if, notwithstanding any other provision of this Agreement, such sale is made on or prior to December 31, 1999, the Company receives a Net Proceeds Amount of not less than $86,000,000, the Company shall make a Required Offer to the holders of the Notes in the amount of at least 5.40% of such Net Proceeds Amount pursuant to paragraph 4E(1), and no Default or Event of Default shall have occurred and be continuing at the time of such sale or after giving effect thereto), and except that all shares of stock and Debt of any Subsidiary (other than WGRS) 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, 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, and provided further 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 (including the assets of WGRS, if the stock of WGRS is sold) and (iii) the assets (including the Edgewood Facility and the Giddings Facility, if the Giddings Facility is sold) 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 -24- Consolidated Net Tangible Assets as reflected on the most recent annual or quarterly consolidated balance sheet, or for so long as such assets do represent more than 15% of such Consolidated Net Tangible Assets, such assets, in the case of the Company and the other Related Persons, consist solely of the shares of WGRS, the Giddings Facility, the Edgewood Facility, equipment that is worthless or obsolete or that is replaced by equipment of equal suitability and value, inventory that is sold in the ordinary course of business and other assets or property that is sold in arm's-length transactions to third parties that are not Affiliates and are sold for fair consideration not in the aggregate in excess of $20,000,000 during any fiscal year 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 (including the Edgewood Facility and the Giddings Facility if the Giddings Facility is sold), and (c) the assets of all Subsidiaries (including the assets of WGRS if the stock of WGRS is sold) the stock or Debt of which has been sold or otherwise disposed of during the preceding 12-month period pursuant to the second 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, or for so long as such -25- assets do represent more than 15% of such Consolidated Net Tangible Assets, such assets, in the case of the Company and the other Related Persons, consist solely of the shares of WGRS, the Giddings Facility, the Edgewood Facility, equipment that is worthless or obsolete or that is replaced by equipment of equal suitability and value, inventory that is sold in the ordinary course of business and other assets or property that is sold in arm's-length transactions to third parties that are not Affiliates and are sold for fair consideration not in the aggregate in excess of $20,000,000 during any fiscal year of the Company, (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 inventory in the ordinary course of business, and (viii) the Company may sell the Giddings Facility, if and only if, notwithstanding any other provision of this Agreement, such sale is consummated on or before December 31, 1999 for a Net Proceeds Amount of not less than $30,000,000, the Company shall have made a Required Offer to the holders of the Notes in the amount of at least 5.40% of such Net Proceeds Amount pursuant to paragraph 4E(1), and no Default or Event of Default shall have occurred and be continuing at the time of such sale or after giving effect thereto. 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 -26- 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, Credit Fees 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 contra ct 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 notes or accounts receivable the collection of which is doubtful in accordance with generally accepted accounting principles. 6C(10) Guaranties. Enter into or be party to: -27- (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 (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 is permitted by the Debt limitations contained in paragraphs 6A(3) and 6A(4). 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 -28- 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. 6C(13) Certain Matters Relating to Subordinated Debt. (i) Make any payment in respect of principal of, or purchase, redeem or otherwise retire, any Subordinated Debt (including, without limitation, by the making of payments by Subsidiaries under Subordinated Guaranties) if a Default or an Event of Default at the time exists or would result therefrom, or (ii) issue, create or incur any Subordinated Debt if a "Default" (as such term is defined in the NationsBank Agreement) at the time exists or would result therefrom. 6D. Issuance of Stock by Corporate 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. 6E(1) Modifications. The Company will not amend or modify any term or provision of the Master Shelf Agreement, the NationsBank Agreement or the Bridge Facility, including but not limited to, an amendment or modification so as to change to an earlier date the date on which any payment of principal is to be made thereunder, (ii) any provision of the NationsBank Agreement so as to shorten the duration or increase the amount of any commitment thereunder, or (iii) any provision of the Master Shelf Agreement so as to increase the principal amount outstanding thereunder or to change to an earlier date the date on which any payment of principal is to be made thereunder; provided, that the Company may increase the interest rate or fees payable under or with respect to the Master Shelf Agreement, the Bridge Facility or the NationsBank Agreement if the Company complies with the other provisions of this Agreement, including, without limitation, paragraph 6E(3). 6E(2) Conflicting Provisions. The Company will not and will not permit any of its Subsidiaries to enter into or permit to exist any agreement to which any such entity is a party or by which any such entity is bound (i) which would cause a Default or Event of Default hereunder, (ii) which contains any provision which would be violated or breached by the performance of the obligations of the Company and its Subsidiaries under this Agreement, any Guaranty, any Pledge Agreement or any other agreement, document, instrument or writing executed in connection therewith or (iii) which contains any provision that attempts to modify, amend or restrict any of the rights or remedies of the holders of the Notes hereunder or under the Intercreditor Agreement, the Notes, the Guaranties or the Pledge Agreements. The Company will not and will not permit any of its Subsidiaries to enter into or suffer to exist any contractual obligation, other than this Agreement, the Guaranties and the Pledge Agreements, which restricts the ability (i) of the -29- Company to make any prepayments of the Notes required under this Agreement, (ii) of the Company to make any payments required under this Agreement or of any Subsidiary to make any payments required under any Guaranty, (iii) of any Subsidiary to make any dividends or distributions to the Company or a Wholly Owned Subsidiary, (iv) of any Subsidiary to otherwise transfer any of its property or assets to the Company or a Wholly Owned Subsidiary, (v) of any Subsidiary to make any payments in respect of Debt owed by a Subsidiary to the Company or a Wholly Owned Subsidiary, or (vi) of any Subsidiary to make any loan, advance or extension of credit to the Company or a Wholly Owned Subsidiary. 6E(3) Most Favored Lender. The Company will not and will not permit any Subsidiary to: (i) enter into any indenture, agreement or other instrument under which the Company could issue or permit to remain outstanding Debt, other than Subordinated Debt, in an aggregate principal amount greater than $10,000,000 (a "Restricted Agreement"), or (ii) agree to any amendment, waiver, consent, modification, refunding, refinancing or replacement of the Master Shelf Bank Agreement, the NationsBank Agreement, the Bridge Facility or any other Restricted Agreement, in either case with terms the effect of which is to (a) include a Financial Covenant which is not contained in this Agreement, or (b) revise or alter any Financial Covenant contained therein the effect of which is to increase or expand the restriction on any Company or any Subsidiary, unless the Company concurrently incorporates herein such additional, altered or revised Financial Covenant. The incorporation of each such additional Financial Covenant is hereby deemed to occur automatically and concurrently by reason of the execution of this Agreement without any further action or the execution of any additional document by any of the parties to this Agreement. Without limiting the foregoing and in addition thereto, neither any Company nor any Subsidiary nor any Affiliate, directly or indirectly, will offer any economic inducement to the holder of any note under the Master Shelf Agreement, to any lenders party to the NationsBank Agreement, to NationsBank as lender under the Bridge Facility or to any other Person who is a party to any other Restricted Agreement for the purpose of inducing such holder, lender or other Person to enter into any waiver of any event of default under the Master Shelf Agreement, the NationsBank Agreement, the Bridge Facility or such other Restricted Agreement or any event which with the lapse of time or the giving of notice, or both, would constitute such an event of default, unless the same such economic inducement has been concurrently offered and (unless such waiver required hereunder is not granted hereunder) paid on a pro-rata basis to all of the holders of the Notes if a similar waiver is required hereunder or if such waiver is sought in connection with an -30- issue as to which no waiver is required hereunder because the applicable provisions of this Agreement, on the one hand, and those of the Master Shelf Agreement, the Bridge Facility or the NationsBank Agreement, as the case may be, on the other hand, differ as of the Effective Date (it being understood and agreed that the offering of such economic inducement to the holders of the Notes shall not be deemed or construed to obligate any such holder to enter into any waiver of any Default or Event of Default hereunder or to conform any of the provisions hereof to those of such other agreement). In addition, neither the Company nor any Subsidiary will enter into any agreement or instrument that evidences Debt of the type permitted by clause (v) of Section 6.2(a) of the NationsBank Credit Agreement unless: (A) such Debt shall have no scheduled principal payments due prior to December 1, 2005, (B) at the time that the Company incurs such Debt, no Default or Event of Default shall have occurred and be continuing hereunder and (C) if such Debt is to be guaranteed by any Affiliate of the Company, then such third party lender(s) must enter into an intercreditor agreement with the holders of the Notes, in form, scope and substance satisfactory to the Required Holder(s), as evidenced by their written consent. 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 or any Credit Fees 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 -31- (iv) any representation or warranty made by the Company herein or in the Company Pledge Agreement, by any Guarantor in a Guaranty, a Consent or a Pledge Agreement, 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 or in the Company Pledge Agreement, or any Subsidiary that has executed a Pledge Agreement fails to perform or observe any agreement, covenant term or condition contained in such Pledge Agreement, and in any case 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 -32- (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 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. '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. '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 (xvii) any Guaranty, for any reason, ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof is contested or any Guarantor denies that it has any further liability under its Guaranty, or any Guarantor shall default in the performance or observance of any of its obligations under its Guaranty, and such default shall not have been remedied within 30 days; or -33- (xviii) any Pledge Agreement, for any reason other than as specified therein, ceases to be in full force and effect or is declared null and void or shall cease to create a valid and perfected first priority security interest in any of the collateral purported to be covered thereby, or the validity or enforceability thereof is contested or the Company or any Subsidiary that is a pledgor denies that it has any further liability under any Pledge Agreement executed by it; 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 and Credit Fees 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, (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 and Credit Fees 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 and Credit Fees 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 and Credit Fees 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 -34- 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 and Credit Fees 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 (at the rate specified in the Notes) and Credit Fees on such overdue interest and Credit Fees and overdue principal and Yield-Maintenance Amount, (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. 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 Effective Date 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, the Pledge Agreement and the Notes are within the Company's corporate powers and have been duly authorized by all necessary corporate action, and the execution, -35- delivery and performance by each Guarantor of its respective Guaranty, Consent and Pledge Agreement (if any) are within such Guarantor's company powers and have been duly authorized by all necessary corporate or similar action. Schedule 8A attached hereto sets forth the name and jurisdiction of organization of each Subsidiary and each entity, organization and enterprise that would constitute a Subsidiary but for the final proviso in the definition of "Subsidiary" and the percentage of the Company's ownership interest in each such Subsidiary, entity, organization or enterprise and identifies each Subsidiary that is a Guarantor, all as of the Effective Date. 8B. Financial Statements. The Company has furnished each Remaining Holder with the following financial statements, identified by a principal financial officer of the Company: a consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1998 and consolidated statements of operations and cash flows of the Company and its Subsidiaries for the fiscal year that ended, all certified by PriceWaterhouse Coopers LLP. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects, 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 sheet fairly presents the consolidated financial condition of the Company and its Subsidiaries as at the date 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 period 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, 1998. 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 Pledge 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). After giving effect to the execution and delivery of this Agreement and the NationsBank Agreement, and the contemporaneous amendment of the Master Shelf Agreement, there exists no default (and no waiver of any default that -36- 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. 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, 1991. 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 Pledge Agreements, the Guaranties and the Consents nor fulfillment of nor compliance with the terms and provisions hereof and thereof 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 imposes restrictions on the performance any of the obligations and covenants of the Company under this Agreement or limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type evidenced by the Notes or the Guaranties except as set forth in the agreements listed in Exhibit C attached hereto. -37- 8H. [Intentionally omitted] 8I. [Intentionally omitted] 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 transactions contemplated by this Agreement will not constitute a "prohibited transaction" (as such term is defined in section 406 of ERISA or section 4975 of the Code). 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 transactions contemplated by this Agreement 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 Effective Date with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, any Pledge Agreement or any Guaranty, or fulfillment of or compliance with the terms and provisions hereof, of any Pledge Agreement, of any Guaranty 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 -38- 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. Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to the Remaining Holders by or on behalf of the Company or any Guarantor in connection herewith contain 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. The financial projections provided to the Remaining Holders prior to the Effective Date 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 Remaining Holder on or prior to the date hereof a true, correct and complete copy of each of the NationsBank Agreement, the Bridge Facility and the Master Shelf Agreement, including all amendments and waivers of any provision thereof, and each pledge agreement relating thereto. 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 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 Bridge Facility and the Master Shelf Agreement. 8R. Year 2000 Programming. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Company's or any of its Subsidiaries' computer systems and (ii) material equipment containing embedded microchips and the testing of all such systems and equipment, as so reprogrammed, will be completed by October 31, 1999. The reasonably foreseeable cost to the Company and its Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of the year 2000 to the Company and its Subsidiaries -39- will not result in an Event of Default or a have a material adverse effect on the Company or its Subsidiaries. The Company and its Subsidiaries have delivered notice to each Remaining Holder of any material problems (to the extent of the knowledge of the Company and its Subsidiaries) related to the proper functioning in and following the year 2000 of systems with which the Company or any of its Subsidiaries interface. 8S. Receivables Purchase Agreement. The Receivable Purchase Agreement has been terminated. 8T. 1993 Note Purchase Agreement. The 1993 Note Purchase Agreement has been terminated and all 1993 Notes have been paid in full. 8U. Existing Guaranties. No Subsidiary, and no entity that would constitute a Subsidiary but for its being organized under the laws of the jurisdiction outside the United States of America, has executed and delivered an Existing Guaranty except Subsidiaries that have executed and delivered Guaranties to the Holders of the Notes. 8V. MONY Notes. All 1995 Notes held by MONY have been paid in full and retired pursuant to the Offer to Acquire Notes. PARAGRAPH 9. [Intentionally omitted] PARAGRAPH 10. DEFINITIONS. 10. Definitions. For the purpose of this Agreement, the terms defined in the introductory paragraph and recitals 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 paragraphs 4A, 4E or 4F 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) -40- 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 (including by use of the methods provided in the last sentence of this definition), (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, 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 paragraphs 4A, 4E or 4F 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 plus Excess Working Capital Deficit. -41- "Adjusted Consolidated Senior Debt" shall mean Adjusted Consolidated Debt less all Subordinated Debt. "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 another Person that is an entity if such first-mentioned Person directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Sale" means any sale, conveyance, lease, transfer or other disposition of all or any part of the assets of any Related Person made in compliance with paragraph 6C(5) or any sale or other disposal of, or any parting with control of, any shares of stock or Debt of any Subsidiary made in compliance with paragraph 6C(4) for which, in any case, the Gross Proceeds Amount is $1,000,000 or more. "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 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. "Beneficiary" shall mean the holder of a Note that is the beneficiary under a Letter of Credit. "Bridge Facility" shall have the meaning specified in the recitals to this Agreement. "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. "Code" shall mean the Internal Revenue Code of 1986, as amended. -42- "Company Pledge Agreement" shall mean that certain Pledge Agreement, dated as of the Effective Date, by the Company in favor of the holders of the Notes, in the form attached hereto or Exhibit H, as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. "Confidential Information" shall mean any material non-public information regarding t he 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. "Consent" shall mean a Consent substantially in the form of Exhibit G hereto. "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 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 excluding any gains (net of expenses and taxes applicable thereto) resulting from the sale, conversion or other disposition of capital assets (including capital stock of Subsidiaries and other assets not constituting current assets), less all operating and non-operating expenses of the Company and its Subsidiaries (other than all losses resulting from the sale, conversion or other disposition of capital assets, including capital stock of Subsidiaries and other assets not constituting 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. -43- "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 July 1, 1995, plus (4) the aggregate amount received by the Company after July 1, 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 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 -44- (b) the Company has such agreements outstanding with no more than nine other such Persons at any time. "Credit Fees" shall mean the First Credit Fee and the Second Credit Fee. "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. "Debt Offering" shall mean the issuance or incurrence by the Company or any other Related Person of any Debt in the amount of at least $1,000,000, except that any incurrence of Debt under the NationsBank Agreement or in the form of a Capitalized Lease Obligation shall not be considered a Debt Offering. "Delivery Date" shall have the meaning specified in paragraph 4E(1). "EBITDA" shall mean, for any period, the sum of Consolidated Net Earnings, plus, to the extent deducted in the determination of Consolidated Net Earnings, (i) all provisions for federal, state and other income tax, (ii) the Company's consolidated interest expense and (iii) provisions for depreciation and amortization, less, in the case of items (i) through (iii), deductions for amounts attributable to minority interests in Subsidiaries. "Edgewood Facility" shall mean that certain gas processing plant and related production located primarily in Van Zandt County, Texas and sold by the Company on October 29, 1998 for a Gross Proceeds Amount of approximately $56,000,000. -45- "Effective Date" shall have the meaning specified in paragraph 3. "Equity Offering" shall mean the issuance of any common or preferred stock by the Company or any other Related Person. "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 NationsBank as agent for the lenders parties to the NationsBank Agreement, NationsBank as lender under the Bridge Facility or the holders of the Notes issued pursuant to the Master Shelf Agreement, in each case, for which a similar guaranty shall have been issued to each holder of Notes. "Existing Master Shelf Agreement" shall have the meaning specified in the recitals to this Agreement. "Existing NationsBank Agreement" shall have the meaning specified in the recitals to this Agreement. -46- "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. "Financial Covenant" means, with respect to any agreement or instrument representing or governing Debt, any covenant (whether expressed as a covenant, an event of default or a condition to a borrowing) contained therein expressed in terms of (i) a minimum or maximum amount in or derived from the Company's or any Subsidiary's financial statements, (ii) a minimum or maximum ratio between any such amounts described in clause (i) above or (iii) any other financial or finance related test as the same may relate to the consolidated or individual assets, liabilities, revenues or expenses of the Company or any of its Subsidiaries. "First Credit Fee" shall have the meaning specified in paragraph 5N(1). "Funded Debt" shall mean any Debt payable more than one year from the date of creation thereof. "Giddings Facility" shall mean those certain gas gathering facilities of the Company located in Lee, Burleson, Washington, Bastrop, Fayette and Lavaca Counties, Texas. "Gross Proceeds Amount" means, (i) with respect to any Asset Sale by the Company or any other Related Person, the aggregate amount of the consideration (v)lued at the Fair Market Value of such consideration at the time of the consummation of such Asset Sale) payable to such Person in respect of such Asset Sale, and (ii) with respect to any Equity Offering or Debt Offering by the Company or any other Related Person, the gross cash proceeds received by the Company or such Related Person at the time of the consummation of such Equity Offering or Debt Offering. "Guarantor" shall mean each of 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; WGR Canada, Inc., a New Brunswick corporation; Lance Oil & Gas Company, Inc., a Delaware corporation; Pinnacle Gas Treating, Inc., a Texas corporation; Western Gas Wyoming, L.L.C., a Wyoming limited liability company, and each other Subsidiary of the Company (or entity that would be a Subsidiary but for the fact that it is organized in a jurisdiction outside the United States of America) that issues a Guaranty to the holders of the Notes. "Guaranty" shall mean each guaranty of a Guarantor in substantially the form of Exhibit E hereto. "Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of the Effective Date among NationsBank, as agent for the lenders parties to the NationsBank -47- Agreement, such lenders, NationsBank as lender under the Bridge Facility, The Prudential Insurance Company of America and the Remaining Holders, as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. "Letter of Credit" shall mean an irrevocable, transferable, direct pay letter of credit that (a) is in the form of Exhibit J attached hereto, (b) is issued by a bank having the Required Ratings at the time of issuance, and (c) has an expiry date no earlier than September 30, 2000, and no more than 18 months, after the date of issuance thereof, provided, that in no event may the expiry date be later than December 31, 2005. "Lien" shall mean any mortgage, pledge, priority, security interest, encumbrance, de posit 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. "Master Shelf Agreement" shall mean the Existing Master Shelf Agreement, 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. "MGTC" shall mean MGTC, Inc., a Wyoming corporation. "MIGC" shall mean MIGC, Inc., a Delaware corporation. "MIGC Pledge Agreement" shall mean that certain Pledge Agreement, dated as of the Effective Date, by MIGC in favor of the holders of the Notes, in the form attached hereto as Exhibit I, as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. "Minimum Rating" shall mean ratings for the senior unsecured Debt of the Company similar to the Notes (if unsecured) of at least BBB- from S&P and Baa3 from Moody's. "MONY" shall have the meaning specified in the recitals to this Agreement. "Moody's" shall mean Moody's Investors Service, Inc. -48- "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, N.A., and its successors and assigns. "NationsBank Agreement" shall mean that certain Loan Agreement dated as of the Effective Date among the Company, NationsBank, as agent, and the lenders parties thereto as the provisions thereof have been or may be from time to time amended or waived in compliance with paragraph 6E. "Natural Gas Inventory" shall mean at the time in question, the Company's and its Subsidiaries' inventory of natural gas in storage. "Net Proceeds Amount" means, (i) with respect to any Debt Offering or Equity Offering, the Net Proceeds of Debt/Equity and (ii) with respect to any Asset Sale, an amount equal to the difference of (a) the Gross Proceeds Amount, minus (b) all ordinary and reasonable out-of-pocket expenses actually incurred by such Person in connection with such Asset Sale and any associated cash taxes. "Net Proceeds of Debt/Equity" means, with respect to any Debt Offering or Equity Offering, cash proceeds (net of all costs and out-of-pocket expenses in connection therewith, including, without limitation, placement, underwriting and brokerage fees and expenses), received by the Company or another Related Person, from the issuance or incurrence of its Debt or the sale of its common stock with respect to such Debt Offering or Equity Offering, including in such net proceeds: (a) the net amount paid upon issuance and exercise during such period of any right to acquire any common stock, or paid during such period to convert a convertible debt Security to common stock (but excluding any amount paid to the Company upon issuance of such convertible debt Security); and (b) any amount paid to the Company upon issuance of any convertible debt Security issued after January 14, 1996 and thereafter converted to common stock during such period. "1995 Note Purchase Agreement" shall have the meaning specified in the recitals to this Agreement. "1995 Notes" shall have the meaning specified in the recitals to this Agreement. -49- "1995 Purchasers" shall have the meaning specified in the recitals to this Agreement. "1999 Action Plan" shall mean the completion of all of the following after January 1, 1999 : (i) the sale by the Company and other Related Persons of assets the Net Proceeds Amount of which exceeds $50,000,000 in the aggregate, (ii) completion of a public offering of Subordinated Debt by the Company the Gross Proceeds Amount of which is at least $150,000,000, and (iii) (a) the offer to prepay, or to post Letters of Credit with respect to an aggregate Secured Amount, of at least $14,580,000 aggregate principal amount of the Notes pursuant to paragraph 4E(1) or paragraph 4F(1), respectively, and (b) the prepayment, or the posting of Letters of Credit in the Stated Amount, of the amounts required with respect to the Notes the holders of which have accepted the offer in the foregoing clause (iii)(a). "1993 Note Purchase Agreement" shall have the meaning specified in the recitals to this Agreement. "1993 Notes" shall have the meaning specified in the recitals to this Agreement. "1993 Purchasers" shall have the meaning specified in the recitals to this Agreement. "Notes" shall have the meaning specified in paragraph 1. "Offer to Acquire Notes" shall mean that certain Offer to Acquire Notes, dated February 12, 1999, by the Company and accepted by MONY. "Officer's Certificate" shall mean a certificate signed in the name of the Company by an Authorized Officer of the Company. "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. "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. "PIK Amount" shall have the meaning specified in paragraph 5N(1). "PIK Note" shall mean a Note issued by the Company pursuant to paragraph 5N(1) in lieu of payment in cash of a portion of the First Credit Fee. -50- "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. "Pledge Agreement" shall mean the Company Pledge Agreement, the MIGC Pledge Agreement and each other Pledge Agreement, substantially in the form of the MIGC Pledge Agreement, delivered from time to time by a Subsidiary to the holders of the Notes pursuant to paragraph 5P, in each case as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. "Purchase Offers" shall mean those certain Offers to Acquire Notes, dated February 12, 1999, by the Company and accepted by the holders of the 1993 Notes. "Ratable Portion" shall mean (a) as to the Notes, 5.40%, (b) as to the Notes outstanding under the Master Shelf Agreement, 38.0%, and (c) as to the obligations owing under the Bridge Facility and the NationsBank Agreement, collectively, 56.6%. "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. "Related Person" shall mean any of the Company, each Guarantor and each other Subsidiary with the exception of Westana, Williston Gas Company and Sandia. "Reoffered Amount" shall have the meaning specified in paragraph 4E(2). "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. "Required Offer" shall have the meaning specified in paragraph 4E(1). "Required Offer Event" shall mean the consummation of an Asset Sale, a Debt Offering or an Equity Offering. "Required Prepayment" shall have the meaning specified in paragraph 4E(4). "Required Ratings" shall mean, with respect to the issuer of any Letter of Credit, that such issuer (a) has a senior unsecured debt rating of at least A+ by S&P and A1 by Moody's and (b) has not been placed, with negative implications, on Creditwatch or a similar listing by S&P or Moody's. -51- "Required Reoffer" shall have the meaning specified in paragraph 4E(2). "Restricted Agreement" shall have the meaning specified in paragraph 6E(3). "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. "Sandia" shall mean Sandia Energy Resources Joint Venture. "S&P" shall mean Standard & Poor's Ratings Group, a division of the McGraw Hill Companies. "Second Credit Fee" shall have the meaning specified in paragraph 5N(2). "Secured Amount" shall mean the principal amount of a Note that is supported by a Letter of Credit. "Securities Act" shall mean the Securities Act of 1933, as amended. "Senior Debt" shall mean all Debt other than Subordinated Debt. "Senior Debt Holders" shall have the meaning specified in paragraph 4E(1). "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. "Small Asset Sale" shall mean an Asset Sale the Net Proceeds of which is less than $5,000,000. "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. "Subordinated Debt" shall mean unsecured Debt of the Company for borrowed money that has no scheduled payment of principal, that may not be prepaid, redeemed or purchased at par earlier than January 31, 2008 and that is subordinated in right of payment to the payment of -52- the Notes on terms typical for publicly held subordinated debt and in a manner satisfactory to the Required Holder(s). "Subordinated Debt Guaranties" shall mean guaranties by Subsidiaries that are Guarantors in respect of Subordinated Debt, which guaranties are subordinate in right of payment to the Guaranties on terms typical for guaranties of publicly held subordinated debt and in a manner satisfactory to the Required Holder(s). "Subsidiary" shall mean any corporation, association, partnership, joint venture, limited liability company or other business or corporate entity, enterprise or organization 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, provided that associations, joint ventures or other relationships (a) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (b) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state law, and (c) whose businesses are limited to the exploration, development and operation of oil, gas, mineral, gas gathering or gas processing properties and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries". A "Wholly Owned Subsidiary" shall be a Subsidiary all of the stock of other form of equity interest 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 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. "Transferee" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Remaining Holder under this Agreement. "Voting Stock" shall mean, with respect to any corporation, association, partnership, joint venture, limited liability company or other business or corporate entity, enterprise or organization, any shares of stock of or other similar equity interest in such entity, enterprise or organization or whose holders are entitled under ordinary circumstances to vote for the election of -53- directors or other similar management of such entity, enterprise or organization (irrespective of whether at the time stock or other similar equity interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Westana" shall mean the general partnership formed between Western Gas Resources - Oklahoma, Inc. and Panhandle Gathering Company, a wholly-owned subsidiary of Panhandle Eastern Pipeline Company. "WGRS" shall mean Western Gas Resources Storage, Inc. a Texas corporation. "Wholly Owned Subsidiary" shall have the meaning specified in the definition of "Subsidiary." 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 Remaining Holder shall hold any Note, it will make payments of principal of, interest on, and any Credit Fee and/or 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 Remaining Holder's account or accounts, if any, as are specified in the Remaining Holder Schedule attached hereto, or, in the case any Remaining Holder wishes to change the account specified for such Remaining Holder in the Remaining Holder Schedule such account or accounts in the United States as such Remaining Holder may from time to time designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Notwithstanding anything in this paragraph 11A to the contrary, certain portions of the First Credit Fee may be payable in kind pursuant to paragraph 5N(1) with the result that the aggregate outstanding principal amount of the Notes may increase from time to time. Each Remaining Holder agrees that, before disposing of any Note, such Remaining Holder 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 and Credit Fees thereon have 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 Remaining Holders have made in this paragraph 11A. -54- 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 Remaining Holder 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 Remaining Holders; (c) the fees, expenses and costs incurred complying with each of the conditions to closing set forth in paragraph 3 hereof; (d) the fees, expenses and costs of any broker or investment banker, if any, incurred by the Company in connection with the transactions contemplated hereby; (e) 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 Remaining Holder and the allocated cost of each Remaining Holder's or Transferee's counsel who are such Remaining Holder's or such Transferee's employees or such Remaining Holder's or such Transferee's affiliates' employees), whether or not any such amendments, waivers or consents are executed; (f) the fees, expenses and costs incurred by any Remaining Holder or any Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement, the Notes, the Pledge Agreements 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 Remaining Holder'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; and (g) Any fees or other charges imposed by the issuer of a Letter of Credit upon the transfer in whole or in part, thereof, which payment shall be made by the Company not later than three (3) Business Days after notice from the holder of the Note that is the Beneficiary of such Letter of Credit. -55- (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 3G, for reasonable fees and disbursements of any special counsel engaged by the Remaining Holders 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 Remaining Holders rendered after the Effective Date in connection with matters referred to in paragraphs 11B(i)(e) or 11B(i)(f) 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 Remaining Holder 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 Credit Fees or 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. 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, the Pledge Agreement 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 -56- 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 Pledge Agreement 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 PIK Amount with respect to a PIK Note or 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 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 -57- 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 be entitled to the benefits of any Letter of Credit in support of such Note so exchanged (and the holder of such Note shall execute a transfer instruction in the form attached as Annex A to the form of Letter of Credit attached as Exhibit J, or in a form otherwise acceptable to such holder, in order to effect the transfer thereof) shall carry the rights to unpaid interest and Credit Fees and interest and Credit Fees to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest or Credit Fees 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 Credit Fees and 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 Remaining Holder 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 Remaining Holder or any Transferee. Subject to the preceding sentence, this Agreement, the Company Pledge 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. 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 -58- 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 Remaining Holder, addressed to such Remaining Holder at the address specified for such communications in the Remaining Holder Schedule, or at such other address as such Remaining Holder 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 or Credit Fees 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 and Credit Fees payable on such Business Day. 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 Remaining Holder, to any holder of Notes or to the Required Holder(s), the determination of such satisfaction shall be made by such Remaining Holder, such holder or the Required Holder(s), as the -59- 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 Remaining Holders 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 Remaining Holder, it shall become a binding agreement between the Company and the Remaining Holders. [Remainder of page intentionally left blank. Signature pages follow.] -60- IN WITNESS HEREOF, the parties hereto have caused their duly authorized officers to execute this Agreement as of the date first above written. WESTERN GAS RESOURCES, INC. ---------------------------------------- Vice President-Finance THE VARIABLE ANNUITY LIFE INSURANCE COMPANY AMERICAN GENERAL LIFE INSURANCE COMPANY AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY By: ------------------------------------- [Title] FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY By: ------------------------------------- [Title] ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY By: ------------------------------------- [Title] J-1 EX-10.22 4 LETTER AMENDMENT #2 EXHIBIT 10.22 [Execution Copy] LETTER AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED MASTER SHELF AGREEMENT March 31, 1999 The Prudential Insurance Company of America Pruco Life Insurance Company c/o Prudential Capital Group 2200 Ross Avenue, Suite 4200E Dallas, Texas 75201 Ladies and Gentlemen: We refer to the Second Amended and Restated Master Shelf Agreement dated as of December 19, 1991 (effective as of January 31, 1996) as amended by Letter Amendment No. 1 dated November 21, 1997 (as amended, the "Agreement") by and among the undersigned, Western Gas Resources, Inc. (the "Company"), and The Prudential Insurance Company of America and Pruco Life Insurance Company (together, "Prudential"). Unless otherwise defined herein, the terms defined in the Agreement shall be used herein as therein defined. The Company has asked Prudential to amend certain covenants contained in the Agreement to permit it to remain in compliance with the terms of the Agreement. You have indicated your willingness to so amend the Agreement provided the Company undertake certain actions, including the prepayment of Indebtedness and raising additional capital. Accordingly, it is hereby agreed by the parties hereto as follows: I. Amendments to the Agreement. The Agreement is, effective the date first above written, hereby amended as follows: A. Paragraph 4B. Optional Prepayments With Yield-Maintenance Amount. Paragraph 4B of the Agreement is amended by deleting the phrase "plus interest" and substituting therefor the phrase "plus interest and the Credit Fees". B. Paragraph 4C. Notice of Optional Prepayment. Paragraph 4C of the Agreement is amended by deleting the phrase "together with interest" and substituting therefor the phrase "together with interest and the Credit Fees". C. Paragraph 5M. Guaranties. Paragraph 5M of the Agreement is amended in full to read as follows: "5M. Guaranties. The Company will require each Subsidiary, and each entity that would constitute a Subsidiary but for its being organized under the laws of a jurisdiction outside the United States of America, that guarantees any obligations of the Company under the NCNB Agreement, the Bridge Facility or the 1995 Note Purchase Agreement, or under any replacement or refinancing thereof, immediately to execute and deliver a Guaranty to the holder of each Note. The Company will cause each such Subsidiary or other entity to deliver to the holder of each Note, simultaneously with its delivery of such Guaranty, written evidence satisfactory to the Required Holder(s) and their counsel that such Subsidiary or other entity has taken all corporate or similar action necessary to duly approve and authorize its execution, delivery and performance of such Guaranty and other documents which it is required to execute." D. Paragraph 5. Affirmative Covenants. Paragraph 5 of the Agreement is amended by adding at the end thereof the following paragraphs 5N, 5O, 5P and 5Q: "5N. Pledge of Subsidiary Stock. On or before April 30, 1999, the Company will grant a security interest in the stock of all of its Subsidiaries who are Guarantors (other than Western Gas Resources Storage, Inc.) to Prudential, as collateral agent for the holders of the Notes, to the holders of the notes issued pursuant to the 1995 Note Purchase Agreement and to NCNB, as agent for the Banks parties to the NCNB Agreement and the lender under the Bridge Facility. The Company shall on the earlier of January 3, 2000, if the stock of WGRS has not been sold by December 31, 1999, and the date that is ten days after the day on which the agreement for the sale of stock in WGRS is terminated, pledge under the Company Pledge Agreement all of the issued and outstanding capital stock in WGRS and cause WGRS to execute and deliver a Guaranty to the holder of each Note. The holders and the Company agree that all stock and other securities pledged pursuant to the Pledge Agreements, including the stock of WGRS if pledged pursuant to the preceding sentence, will remain subject to the Pledge Agreements until (i) in the case of all such stock and other securities, the Company achieves the Minimum Rating and NCNB, as agent for the lenders under the NCNB Agreement, the lender under the Bridge Facility and the holders of the notes under the 1995 Note Purchase Agreement have released their security interests in all of such pledged stock and other securities and, provided that no Default or Event of Default exists or would result therefrom, or, in the case only of the stock of WGRS, until (ii) the Company shall deliver to each holder of the Notes a certificate of an Authorized Officer certifying that the Company has sold, at Fair Market Value for cash, all of the stock in WGRS to a Person that is not an Affiliate or a Subsidiary and that no Default or Event of Default exists immediately prior to or after giving effect to such sale. If, however, after any release described in the preceding sentence the Company is downgraded below the Minimum Rating, the Company shall immediately pledge, and cause its Subsidiaries to pledge, all stock or other equity interests in all Guarantors to the holders of the Notes under one or more Pledge Agreements. 2 5O. Credit Fees. (i) First Credit Fee. The Company shall pay the holder of each Note a credit fee equal to 0.50% per annum of the principal amount of such Note during the period beginning January 1, 1999 (with such credit fee accruing as if it had been in effect, continuously, beginning January 1, 1999), through the day on which the Company provides to such holder satisfactory evidence that the Company has received the Minimum Rating. If the Company is downgraded below the Minimum Rating after having received the Minimum Rating, the Company shall pay the holder of each Note a credit fee equal to 0.50% per annum of the outstanding principal amount of such Note, in respect to such principal amount, during the period beginning the day after the Company loses the Minimum Rating and ending on the day the Company again provides satisfactory evidence to the holder of such Note that the Company has received the Minimum Rating (the credit fees applicable pursuant to the preceding two sentences are referred to herein as the "First Credit Fee"). The First Credit Fee shall be payable quarterly in arrears on the last day of March, June, September and December of each year commencing March 31, 1999 (provided that the First Credit Fee that has accrued from January 1, 1999 through April 30, 1999 shall be paid on the Effective Date), and on the day on which the Company achieves the Minimum Rating. (ii) Second Credit Fee. If the 1999 Action Plan is not completed by June 30, 1999, the Company shall pay the holder of each Note a credit fee equal to 1.50% per annum of the principal amount of such Note during the period beginning July 1, 1999 and ending on the day the Company delivers to the holders of the Notes evidence satisfactory to the Required Holders that the 1999 Action Plan has been completed (such credit fee being referred to herein as the "Second Credit Fee") . The Second Credit Fee shall be payable quarterly in arrears on the last day of March, June, September and December of each year, commencing September 30, 1999 and on the day the Company delivers to the holders of the Notes evidence satisfactory to the Required Holders that the 1999 Action Plan has been completed. For clarity, if the Minimum Rating has not been achieved and the 1999 Action Plan is not complete, the cumulative credit fee for each Note shall be 2.00% per annum. 5P. Purchase Offer Fees. If the Company, directly or indirectly, pays or causes to be paid any remuneration, whether by supplemental or additional interest, premium, fee or otherwise, to any Person participating in the Offer to Acquire Notes or the Purchase Offers, other than the payments of principal at par described therein, the Company shall pay, ratably according to the respective principal amounts of the Notes outstanding as of April 30, 1999, the same such remuneration to the holder of each Note and upon the same terms and conditions. 5Q. Year 2000. The Company will promptly notify the holder of each Note in the event that the Company discovers or determines that any computer application (including those of its suppliers or vendors) that is material to any of the Company's or any of its Subsidiaries' business and operations will not properly function, in and following the year 2000 on a timely basis, except to the extent such failure would not present a material probability of having a material adverse effect on the business, property or assets, financial condition or results of operations of the Company or any of its Subsidiaries." 3 E. Paragraph 6A. Financial Covenants. Paragraph 6A of the Agreement is amended in full to read as follows: "6A(1). Consolidated Tangible Net Worth. Consolidated Tangible Net Worth at any time from and after January 1, 1999, to be less than the sum of (i) $300,000,000 plus (ii) an amount equal to 50% of Consolidated Net Earnings earned from January 1, 1999 (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 January 1, 1999. 6A(2). Current Ratio. The ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 0.90 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 banks 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). Total Debt Maintenance. Adjusted Consolidated Debt at any time to exceed (i) from October 1, 1998 through December 31, 2001, 60% of Consolidated Net Tangible Assets and (ii) from and after January 1, 2002, 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). Senior Debt Maintenance. Adjusted Consolidated Senior Debt at any time to exceed (i) from January 1, 1999 until the completion of the 1999 Action Plan, 60% of Consolidated Net Tangible Assets, (ii) from and after completion of the 1999 Action Plan through March 31, 2002, 40% of Consolidated Net Tangible Assets and (iii) from and after April 1, 2002, 35% of Consolidated Net Tangible Assets. In any event, for purposes of determining compliance with this paragraph 6A(4), Adjusted Consolidated Senior Debt shall include without limitation all indebtedness included in determining compliance with the similar covenant in the NCNB Agreement. 6A(5). Total 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, excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, 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 4 such Consolidated Net Earnings to (ii) the Company's consolidated accrued interest expense excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, for the four immediately preceding fiscal quarters to be less than the Total Fixed Charge Coverage Ratio set forth in the table below for the periods opposite such ratio: Total Fixed Charge ------------------ Period Coverage Ratio ------ -------------- October 1, 1998 through December 31, 1998 2.80 to 1.00 January 1, 1999 through March 31, 1999 1.75 to 1.00 April 1, 1999 through June 30, 1999 1.75 to 1.00 July 1, 1999 through September 30, 1999 1.75 to 1.00 October 1, 1999 through December 31, 1999 2.00 to 1.00 January 1, 2000 through March 31, 2000 2.25 to 1.00 April 1, 2000 through June 30, 2000 2.25 to 1.00 July 1, 2000 through September 30, 2000 2.50 to 1.00 October 1, 2000 through December 31, 2000 2.50 to 1.00 January 1, 2001 through March 31, 2001 2.75 to 1.00 April 1, 2001 through June 30, 2001 3.00 to 1.00 July 1, 2001 through September 30, 2001 3.25 to 1.00 October 1, 2001 through December 31, 2001 3.50 to 1.00 January 1, 2002 and thereafter 3.75 to 1.00 6A(6). Senior 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, excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, 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 to (ii) the Company's consolidated accrued interest expense, excluding any prepayment premiums paid with respect to Funded Debt of the Company prepaid in calendar years 1999 and 2000, for Senior Debt for the four immediately preceding fiscal quarters to be less than the Senior Fixed Charge Coverage Ratio set forth in the table below for the periods opposite such ratio: Senior Fixed Charge ------------------- Period Coverage Ratio ------ -------------- September 30, 1998 through December 31, 1998 2.80 to 1.00 January 1, 1999 through March 31, 1999 1.75 to 1.00 April 1, 1999 through June 30, 1999 1.75 to 1.00 July 1, 1999 through September 30, 1999 1.75 to 1.00 October 1, 1999 through December 31, 1999 2.25 to 1.00 January 1, 2000 through March 31, 2000 2.25 to 1.00 April 1, 2000 through June 30, 2000 3.00 to 1.00 July 1, 2000 through September 30, 2000 3.50 to 1.00 5 October 1, 2000 through December 31, 2000 4.00 to 1.00 January 1, 2001 through March 31, 2001 4.50 to 1.00 April 1, 2001 through June 30, 2001 4.75 to 1.00 July 1, 2001 through September 30, 2001 5.00 to 1.00 October 1, 2001 through December 31, 2001 5.25 to 1.00 January 1, 2002 and thereafter 5.50 to 1.00 6A(7). Senior Debt to EBITDA . As of any date of determination (i) from the date on which the 1999 Action Plan is completed through December 31, 1999, the ratio of Senior Debt to EBITDA for the period of four fiscal quarters most recently ended to be greater than 4.50 to 1.00 and (ii) from and after January 1, 2000, the ratio of Senior Debt to EBITDA for the period of four fiscal quarters most recently ended to be greater than 4.00 to 1.00." F. Paragraph 6B. Dividend Limitation. Paragraph 6B of the Agreement is amended in full to read as follows: "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. In addition, the Company will not make any Restricted Payment with respect to its common stock after June 30, 1999 if the 1999 Action Plan has not been completed on or before June 30, 1999. If the Company is required to cease making Restricted Payments with respect to its common stock because of the previous sentence and completes the 1999 Action Plan after June 30, 1999, the Company can thereafter resume making Restricted Payments to the extent it complies with the first sentence of this paragraph 6B." G. Paragraph 6C(1). Liens. Paragraph 6C(1) of the Agreement is amended (I) by amending clause (viii) in its entirety to read as follows: "(viii) Liens created by the Pledge Agreement and the pledge agreements in favor of NCNB as collateral agent for the Lenders under the NCNB Agreement, the Lender under the Bridge Facility and the holders of the notes issued pursuant to the 1995 Note Purchase Agreement so long as the Intercreditor Agreement is in effect." and (II) by deleting the phrase "(viii) (to the extent of the Over-Collateralization Amount)" in the proviso following clause (ix) thereof. H. Paragraph 6C(2). Debt. Clauses (v) and (vi) of paragraph 6C(2) of the Agreement is amended in full to read as follows: "(v) other Debt of the Company not prohibited by paragraph 6A(3) or 6A(4), and 6 (vi) Debt of the Guarantors represented by the Bank Guaranties, the Guaranties, the guaranties of the notes issued pursuant to the 1995 Note Purchase Agreement and Subordinated Debt Guaranties." I. Paragraph 6C(4). Sale of Stock and Debt Subsidiaries. Paragraph 6C(4) of the Agreement is amended in full to read as follows: "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 (except that the Company may sell the stock of WGRS if and only if, notwithstanding any other provision of this Agreement, such sale is made on or prior to December 31, 1999, the Company receives a Net Proceeds Amount of not less than $86,000,000, and no Default or Event of Default shall have occurred and be continuing at the time of such sale or after giving effect thereto), and except that all shares of stock and Debt of any Subsidiary (other than WGRS) 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, 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, and provided further 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 (including the assets of WGRS, if the stock of WGRS is sold) and (iii) the assets (including the Edgewood Facility and the Giddings Facility, if the Giddings Facility is sold) 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, or, as of each date of determination during the 12-month period ended 12 months after the later of the date of the sale of WGRS and the date of the sale of the Giddings Facility for so long as such assets do represent more than 15% of such Consolidated Net Tangible Assets, such assets, in the case of the Company and the other Related Persons, consist solely of the shares of WGRS, the Giddings Facility, the Edgewood Facility, equipment that is worthless or obsolete or that is replaced by equipment of equal suitability and value, inventory that is sold in the ordinary course of business and other assets or property that is sold in arm's-length transactions to third parties that are not Affiliates and are sold for fair consideration not in the aggregate in excess of $20,000,000 during any fiscal year of the Company." J. Paragraph 6C(5). Merger and Sale of Assets. Paragraph 6C(5) of the Agreement is amended in full to read as follows: 7 "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 (including the Edgewood Facility and the Giddings Facility if the Giddings Facility is sold), and (c) the assets of all Subsidiaries (including the assets of WGRS if the stock of WGRS is sold) the stock or Debt of which has been sold or otherwise disposed of during the preceding 12-month period pursuant to the second 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, as of each date of determination during the 12-month period ended 12 months after the later of the date of the sale of WGRS and the date of the sale of the Giddings Facility or for so long as such assets do represent more than 15% of such Consolidated Net Tangible Assets, such assets, in the case of the Company and the other Related Persons, consist solely of the shares of WGRS, the Giddings Facility, the Edgewood Facility, equipment that is worthless or obsolete or that is replaced by equipment of equal suitability and value, inventory that is sold in the ordinary course of business and other assets or property that is sold in arm's-length transactions to third parties that are not Affiliates and are sold for fair consideration not in the aggregate in excess of $20,000,000 during any fiscal year of the Company, (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 8 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 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 inventory in the ordinary course of business, and (viii) the Company may sell the Giddings Facility, if and only if, notwithstanding any other provision of this Agreement, such sale is consummated on or before December 31, 1999 for a Net Proceeds Amount of not less than $30,000,000 and no Default or Event of Default shall have occurred and be continuing at the time of such sale or after giving effect thereto." K. Paragraph 6C(7). Limitation on Credit Extensions. Clause (ii) of Paragraph 6C(7) of the Agreement is amended in full to read as follows: "(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, Credit Fees and Yield-Maintenance Amount, if any, with respect to the Notes, and" L. Paragraph 6C(9). Sale or Discount of Receivables. Paragraph 6C(9) of the Agreement is amended in full to read as follows: "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 notes or accounts receivable the collection of which is doubtful in accordance with generally accepted accounting principles." M. Paragraph 6C(10). Guaranties. The proviso at the end of paragraph 6C(10) of the Agreement is amended by adding at the end thereof before the period the phrase "and 6A(4)". 9 N. Paragraph 6C. Lien, Debt, and Other Restrictions. Paragraph 6C of the Agreement is amended by adding at the end thereof the following paragraph 6C(13): "6C(13) Certain Matters Relating to Subordinated Debt. (i) Make any payment in respect of principal of, or purchase, redeem or otherwise retire, any Subordinated Debt (including, without limitation, by the making of payments by Subsidiaries under Subordinated Guaranties) if a Default or an Event of Default at the time exists or would result therefrom or (ii) issue, create or incur any Subordinated Debt if a "Default" (as such term is defined in the NCNB Agreement) at the time exists or would result therefrom." O. 6E. Other Agreements. Paragraph 6E of the Agreement is amended in full to read as follows: "6E. Other Agreements. 6E(1) Modifications. The Company will not amend or modify any term or provision of the 1995 Note Purchase Agreement, the NCNB Agreement or the Bridge Facility, including but not limited to, an amendment or modification so as to change to an earlier date the date on which any payment of principal is to be made thereunder, (ii) any provision of the NCNB Agreement so as to shorten the duration or increase the amount of any commitment thereunder, or (iii) any provision of the 1995 Note Purchase Agreement so as to increase the principal amount outstanding thereunder or to change to an earlier date the date on which any payment of principal is to be made thereunder; provided, that the Company may increase the interest rate or fees payable under or with respect to the 1995 Note Purchase Agreement, the Bridge Facility or the NCNB Agreement if the Company complies with the other provisions of this Agreement, including, without limitation, paragraph 6E(3). 6E(2) Conflicting Provisions. The Company will not and will not permit any of its Subsidiaries to enter into or permit to exist any agreement to which any such entity is a party or by which any such entity is bound (i) which would cause a Default or Event of Default hereunder, (ii) which contains any provision which would be violated or breached by the performance of the obligations of the Company and its Subsidiaries under this Agreement, any Guaranty, any Pledge Agreement or any other agreement, document, instrument or writing executed in connection therewith or (iii) which contains any provision that attempts to modify, amend or restrict any of the rights or remedies of the holders of the Notes hereunder or under the Intercreditor Agreement, the Notes, the Guaranties or the Pledge Agreements. The Company will not and will not permit any of its Subsidiaries to enter into or suffer to exist any contractual obligation, other than this Agreement, the Guaranties and the Pledge Agreements, which restricts the ability (i) of the Company to make any prepayments of the Notes required under this Agreement, (ii) of the Company to make any payments required under this Agreement or of any Subsidiary to make any payments required under any Guaranty, (iii) of any Subsidiary to make any dividends or distributions to the Company or a Wholly Owned Subsidiary, (iv) of any Subsidiary to otherwise transfer any of its property or assets to the Company or a Wholly Owned Subsidiary, 10 (v) of any Subsidiary to make any payments in respect of Debt owed by a Subsidiary to the Company or a Wholly Owned Subsidiary, or (vi) of any Subsidiary to make any loan, advance or extension of credit to the Company or a Wholly Owned Subsidiary. 6E(3) Most Favored Lender. For so long as any notes issued pursuant to the 1995 Note Purchase Agreement are outstanding, the Company will not and will not permit any Subsidiary to: (i) enter into any indenture, agreement or other instrument under which the Company could issue or permit to remain outstanding Debt, other than Subordinated Debt, in an aggregate principal amount greater than $10,000,000 (a "Restricted Agreement"), or (ii) agree to any amendment, waiver, consent, modification, refunding, refinancing or replacement of the 1995 Note Purchase Agreement, the NCNB Agreement, the Bridge Facility or any other Restricted Agreement, in either case with terms the effect of which is to (a) include a Financial Covenant which is not contained in this Agreement, or (b) revise or alter any Financial Covenant contained therein the effect of which is to increase or expand the restriction on any Company or any Subsidiary, unless the Company concurrently incorporates herein such additional, altered or revised Financial Covenant. The incorporation of each such additional Financial Covenant is hereby deemed to occur automatically and concurrently by reason of the execution of this Agreement without any further action or the execution of any additional document by any of the parties to this Agreement. Without limiting the foregoing and in addition thereto, neither any Company nor any Subsidiary nor any Affiliate, directly or indirectly, will offer any economic inducement to the holder of any note under the 1995 Note Purchase Agreement, to any lenders party to the NCNB Agreement, to NCNB as lender under the Bridge Facility or to any other Person who is a party to any other Restricted Agreement for the purpose of inducing such holder, lender or other Person to enter into any waiver of any event of default under the 1995 Note Purchase Agreement, the NCNB Agreement, the Bridge Facility or such other Restricted Agreement or any event which with the lapse of time or the giving of notice, or both, would constitute such an event of default, unless the same such economic inducement has been concurrently offered and (unless such waiver required hereunder is not granted hereunder) paid on a pro-rata basis to all of the holders of the Notes if a similar waiver is required hereunder or if such waiver is sought in connection with an issue as to which no waiver is required hereunder because the applicable provisions of this Agreement, on the one hand, and those of the 1995 Note Purchase Agreement, the Bridge Facility or the NCNB Agreement, as the case may be, on the other hand, differ as of the Effective Date (it being understood and agreed that the offering of such economic inducement to the holders of the Notes shall not be deemed or construed to 11 obligate any such holder to enter into any waiver of any Default or Event of Default hereunder or to conform any of the provisions hereof to those of such other agreement). In addition, neither the Company nor any Subsidiary will enter into any agreement or instrument that evidences Debt of the type permitted by clause (v) of Section 6.2(a) of the NCNB Agreement unless: (A) such Debt shall have no scheduled principal payments due prior to December 1, 2005, (B) at the time that the Company incurs such Debt, no Default or Event of Default shall have occurred and be continuing hereunder and (C) if such Debt is to be guaranteed by any Affiliate of the Company, then such third party lender(s) must enter into an intercreditor agreement with the holders of the Notes, in form, scope and substance satisfactory to the Required Holder(s), as evidenced by their written consent." P. Paragraph 7A. Acceleration. Paragraph 7A of the Agreement is amended by (I) amending clauses (ii) and (iv) of paragraph 7A of the Agreement in full to read as follows: "(ii) the Company defaults in the payment of any interest or Credit Fees on any Note for more than 10 Business Days after the date due; or" "(iv) any representation or warranty made by the Company herein or in the Company Pledge Agreement, by any Guarantor in a Guaranty, or a Pledge Agreement, 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" (II) adding the word "or" at the end of clause (xvi) and by adding at the end thereof the following new clauses (xvii) and (xviii): "(xvii) any Guaranty, for any reason, ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof is contested or the Guarantor denies that it has any further liability under the Guaranty, or the Guarantor shall default in the performance or observance of any of its obligations under the Guaranty, and such default shall not have been remedied within 30 days; or (xviii) any Pledge Agreement, for any reason other than as specified therein, ceases to be in full force and effect or is declared null and void or shall cease to create a valid and perfected first priority security interest in any of the collateral purported to be covered thereby, or the validity or enforceability thereof is contested or the Company denies that it has any further liability under any Pledge Agreement, or the Company shall default in the performance or observance of any of its obligations under the Pledge Agreement, and such default shall not have been remedied within 30 days;" (III) amending the last paragraph of 7A of the Agreement by deleting the phrase "with interest" each time it appears therein and substituting therefor the phrase "with interest and Credit Fees". 12 Q. Paragraph 7B. Rescission of Acceleration. Paragraph 7B of the Agreement is amended in full to read as follows: "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 and Credit Fees 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 (at the rate specified in the Notes) and Credit Fees on such overdue interest and Credit Fees 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." R. Paragraph 8. Representations, Covenants and Warranties. Paragraph 8 of the Agreement is amended by adding at the end thereof the following paragraphs 8Q, 8R, 8S and 8T: "8Q. Receivables Purchase Agreement. The Receivable Purchase Agreement has been terminated. 8R. 1993 Note Purchase Agreement. The 1993 Note Purchase Agreement has been terminated and all 1993 Notes have been paid in full. 8S. Existing Guaranties. No Subsidiary, and no entity that would constitute a Subsidiary but for its being organized under the laws of the jurisdiction outside the United States of America, has executed and delivered an Existing Guaranty except Subsidiaries that have executed and delivered Guaranties to the holders of the Notes. 8T. MONY Notes. All 1995 Notes held by MONY have been paid in full and retired pursuant to the Offer to Acquire Notes." S. Paragraph 10B. Other Terms. Paragraph 10B of the Agreement is amended by (I) amending the following definitions in full to read as follows: "'Asset Sale' shall mean any sale, conveyance, lease, transfer or other disposition of all or any part of the assets of any Related Person made in compliance with paragraph 6C(5) or any sale or other disposal of, or any parting with control of, any shares of stock or Debt of any Subsidiary made in compliance with paragraph 6C(4) for which, in any case, the Gross Proceeds Amount is $1,000,000 or more. 13 'Bridge Facility' shall mean the Loan Agreement dated as of February 17, 1999 with NCNB as the provisions thereof have heretofore been amended or waived or may be from time to time amended or waived in compliance with this Agreement. 'Company Pledge Agreement' shall mean the Pledge Agreement, dated as of the Effective Date, by the Company in favor of Prudential, as collateral agent for the holders of the Notes, in the form attached hereto or Exhibit H, as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. 'Consolidated Net Earnings' shall mean consolidated gross revenues of the Company and its Subsidiaries excluding gains resulting from the sale, conversion or other disposition of capital assets (including capital stock of Subsidiaries and other assets not constituting current assets), less all operating and non-operating expenses of the Company and its Subsidiaries (other than losses resulting from the sale, conversion or other disposition of capital assets, including capital stock of Subsidiaries and other assets not constituting 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 July 1, 1995, plus (4) the aggregate amount received by the Company after July 1, 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. 'Guarantor' shall mean each of 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; Pinnacle Gas Treating, Inc., a Texas corporation; WGR Canada, Inc., a New Brunswick corporation; Lance Oil & Gas Company, Inc., a Delaware corporation and Western Gas Wyoming, L.L.C., a Wyoming limited liability company and each other Subsidiary of the Company that issues a Guaranty to all of the holders of Notes. 14 'Intercreditor Agreement' shall mean that certain Intercreditor Agreement dated as of the Effective Date among NCNB, as agent for the lenders parties to the NCNB Agreement, such lenders, NCNB as lender under the Bridge Facility, The Prudential Insurance Company of America, Pruco Life Insurance Company and the holders of the 1995 Notes, as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. 'NCNB' shall mean NationsBank, N.A., and its successors and assigns. 'NCNB Agreement' shall mean that certain Loan Agreement dated as of the Effective Date among the Company, NationsBank, as agent, and the lenders parties thereto as the provisions thereof have been or may be from time to time amended or waived in compliance with paragraph 6E. 'Subsidiary' shall mean any corporation, association, partnership, joint venture, limited liability company or other business or corporate entity, enterprise or organization 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, provided that associations, joint ventures or other relationships (a) which are established pursuant to a standard form operating agreement or similar agreement or which are partnerships for purposes of federal income taxation only, (b) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state law, and (c) whose businesses are limited to the exploration, development and operation of oil, gas, mineral, gas gathering or gas processing properties and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries". A "Wholly Owned Subsidiary" shall be a Subsidiary all of the stock of other form of equity interest 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." (II) inserting the following defined terms in the appropriate alphabetical order: "'Adjusted Consolidated Senior Debt' shall mean Adjusted Consolidated Debt less all Subordinated Debt. 'Credit Fees' shall mean the First Credit Fee and the Second Credit Fee. 'Debt Offering' shall mean the issuance or incurrence by the Company or any other Related Person of any Debt in the amount of at least $1,000,000, except that any incurrence of Debt under the NCNB Agreement or in the form of a Capitalized Lease Obligation shall not be considered a Debt Offering. 15 'EBITDA' shall mean, for any period, the sum of Consolidated Net Earnings, plus, to the extent deducted in the determination of Consolidated Net Earnings, (i) all provisions for federal, state and other income tax, (ii) the Company's consolidated interest expense and (iii) provisions for depreciation and amortization, less , in the case of items (i) through (iii), deductions for amounts attributable to minority interests in Subsidiaries. 'Edgewood Facility' shall mean that certain gas processing plant and related production located primarily in Van Zandt County, Texas and sold by the Company on October 29, 1998 for a Gross Proceeds Amount of approximately $56,000,000. 'Effective Date' shall mean the date the Letter Amendment No. 2 to this Agreement is effective. 'Equity Offering' shall mean the issuance of any common or preferred stock by the Company or any other Related Person. 'Existing Guaranty' shall mean each guaranty of a Guarantor in favor of NCNB as agent for the lenders parties to the NCNB Agreement, NCNB as lender under the Bridge Facility or the holders of the Notes issued pursuant to the 1995 Note Purchase Agreement, in each case, for which a similar guaranty shall have been issued to each holder of Notes. 'Financial Covenant' shall mean, with respect to any agreement or instrument representing or governing Debt, any covenant (whether expressed as a covenant, an event of default or a condition to a borrowing) contained therein expressed in terms of (i) a minimum or maximum amount in or derived from the Company's or any Subsidiary's financial statements, (ii) a minimum or maximum ratio between any such amounts described in clause (i) above or (iii) any other financial or finance related test as the same may relate to the consolidated or individual assets, liabilities, revenues or expenses of the Company or any of its Subsidiaries. 'First Credit Fee' shall have the meaning specified in paragraph 5N(1). 'Giddings Facility' shall mean those certain gas gathering facilities of the Company located in Lee, Burleson, Washington, Bastrop, Fayette and Lavaca Counties, Texas. 'Gross Proceeds Amount' shall mean (i) with respect to any Asset Sale by the Company or any other Related Person, the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such Asset Sale) payable to such Person in respect of such Asset Sale, and (ii) with respect to any Equity Offering or Debt Offering by the Company or any other Related Person, the gross cash proceeds received by the Company or such Related Person at the time of the consummation of such Equity Offering or Debt Offering. 16 'MIGC Pledge Agreement' shall mean that certain Pledge Agreement, dated as of the Effective Date, by MIGC in favor of the holders of the Notes, in the form attached hereto as Exhibit I, as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. 'Minimum Rating' shall mean a rating for the senior unsecured Debt of the Company similar to the Notes (if unsecured) of at least BBB- from Standard & Poor's Rating Group, a division of The McGraw Hill Companies and Baa3 from Moody's Investors Services, Inc. (if no notes issued under the 1995 Note Purchase Agreement are outstanding, such rating from either Standard & Poor's Rating Group or Moody's Investors Services, Inc. will suffice). 'MONY' shall mean Mutual Life Insurance Company of New York. 'Net Proceeds Amount' shall mean, (i) with respect to any Debt Offering or Equity Offering, the Net Proceeds of Debt/Equity and (ii) with respect to any Asset Sale, an amount equal to the difference of (a) the Gross Proceeds Amount, minus (b) all ordinary and reasonable out-of-pocket expenses actually incurred by such Person in connection with such Asset Sale and any associated cash taxes. 'Net Proceeds of Debt/Equity' shall mean, with respect to any Debt Offering or Equity Offering, cash proceeds (net of all costs and out-of-pocket expenses in connection therewith, including, without limitation, placement, underwriting and brokerage fees and expenses), received by the Company or another Related Person, from the issuance or incurrence of its Debt or the sale of its common stock with respect to such Debt Offering or Equity Offering, including in such net proceeds: (a) the net amount paid upon issuance and exercise during such period of any right to acquire any common stock, or paid during such period to convert a convertible debt security to common stock (but excluding any amount paid to the Company upon issuance of such convertible debt security); and (b) any amount paid to the Company upon issuance of any convertible debt security issued after January 14, 1996 and thereafter converted to common stock during such period. '1999 Action Plan' shall mean (i) the sale by the Company of assets after January 1, 1999, the Net Sales Proceeds Amount of which exceed $50,000,000; (ii) completion of a public offering of Subordinated Debt yielding Gross Proceeds Amount of $150,000,000; (iii) the prepayment of the notes outstanding under the 1993 Note Purchase Agreement; (iv) the prepayment of the $25,000,000 6.77% Senior Note due 2003 and the prepayment of the final installment of $8,333,334 principal installment of the 7.51% Senior Notes due 2000 that would otherwise be due on October 27, 2000; and (v) the offer to prepay, or post letters of credit with respect to an aggregate 17 Secured Amount (as defined in the 1995 Note Purchase Agreement) of, at least $10,000,000 aggregate principal amount of the notes pursuant to paragraph 4E(4) or paragraph 4F(1) of the 1995 Note Purchase Agreement, respectively. 'Offer to Acquire Notes' shall mean that certain Offer to Acquire Notes, dated February 12, 1999, by the Company and accepted by MONY. 'Pledge Agreement' shall mean the Company Pledge Agreement, the MIGC Pledge Agreement and each other Pledge Agreement, substantially in the form of the MIGC Pledge Agreement, delivered from time to time by a Subsidiary to the holders of the Notes pursuant to paragraph 5N, in each case as the provisions thereof may be from time to time amended or waived in compliance with the terms thereof. 'Purchase Offers' shall mean those certain Offers to Acquire Notes, dated February 12, 1999, by the Company and accepted by the holders of the 1993 Notes. 'Related Person' shall mean any of the Company, each Guarantor and each Subsidiary with the exception of Westana, a general partnership, Williston Gas Company and Sandia Energy Resources Joint Venture. 'Second Credit Fee' shall have the meaning specified in paragraph 5O. 'Senior Debt' shall mean all Debt other than Subordinated Debt. 'Subordinated Debt' shall mean unsecured Debt of the Company for borrowed money that has no scheduled payment of principal, that may not be prepaid, redeemed or purchased earlier than January 31, 2008 and that is subordinated in right of payment to the payment of the Notes on terms typical for publicly held subordinated debt and in a manner satisfactory to the Required Holder(s). 'Subordinated Debt Guaranties' shall mean guaranties by Subsidiaries that are Guarantors in respect of Subordinated Debt, which guaranties are subordinate in right of payment to the Guaranties on terms typical for guaranties of publicly held subordinated debt and in a manner satisfactory to the Required Holder(s). 'WGRS' shall mean Western Gas Resources Storage, Inc., a Texas corporation." II. 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 emended by this Letter Amendment No. 2. The Agreement, as amended by this letter agreement, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. 18 The execution, delivery and effectiveness of this letter amendment shall note 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 No. 2 may be executed in any number of counterparts, and by any combination of the parties hereto in separate counterparts, each of which counterpart shall be an original and all of which taken together shall constitute one and the same letter 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 No. 2 to the Company at its address at 12200 N. Pecos Street, Denver, CO 80234, Attention: Vice President-Finance. D. This Letter Amendment No. 2 shall become effective as of the date (the "Effective Date") when: (i) counterparts of this letter amendment shall have been executed by us and you; (ii) the consent attached hereto shall have been executed by each Guarantor; (iii) the Company shall have executed and delivered the Company Pledge Agreement and MIGC shall have executed and delivered the MIGC Pledge Agreement; (iv) the Intercreditor Agreement shall have been executed and delivered by all parties thereto; (v) the Company shall have delivered a certificate of the Secretary or Assistant Secretary of the Company certifying (a) the resolutions of the Board of Directors of the Company approving this Letter Amendment No. 2, the Company Pledge Agreement and all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Letter Amendment No. 2 and the Company Pledge Agreement, and (b) the names and true signatures of the officers of the Company authorized to sign this Amendment and the other documents to be delivered hereunder; (vi) a certificate of the Secretary or Assistant Secretary of each Guarantor other than MIGC certifying (a) the resolutions of the board of directors or similar governing body of such Guarantor approving the Guaranty and/or Consent, as applicable, executed in connection with this Agreement by such Guarantor and all documents evidencing other necessary corporate or similar action and governmental approvals, if any, with respect to the Guaranty and/or Consent, as applicable, executed in connection with this Agreement by such Guarantor, and (b) the names and true signatures of the officers of such Guarantor authorized to sign the Guaranty and/or Consent, as applicable, executed in connection with this Agreement by such Guarantor, and the other documents to be delivered by such Guarantor hereunder; 19 (vii) a certificate of the Secretary or Assistant Secretary of MIGC certifying (a) the resolutions of the board of directors of MIGC approving the MIGC Pledge Agreement and the Consent executed in connection with this Agreement by MIGC and all documents evidencing other necessary corporate action or governmental approvals, if any, with respect to the MIGC Pledge Agreement and the Consent executed in connection with this Agreement by MIGC, and (b) the names and true signatures of the officers of MIGC authorized to sign the MIGC Pledge Agreement and the Consent executed in connection with this Agreement by MIGC, and the other documents to be delivered by MIGC hereunder; (viii) a favorable opinion of John C. Walter, General Counsel of the Company, satisfactory to Prudential as to such matters as Prudential may request. The Company hereby directs such counsel to deliver such opinion, and understands and agrees that Prudential will and is hereby authorized to rely on such opinion in entering into this Letter Amendment No. 2; (ix) Prudential and Pruco shall receive a structuring fee in the amount of $670,834.50 payable as set forth in Schedule I attached hereto and shall have received a documentation fee of $35,000; (x) the 1995 Note Agreement shall have been amended in a manner satisfactory to you; (xi) Western Gas Wyoming, L.L.C. shall have guaranteed the Notes; (xii) a copy of the Bridge Facility, in form and substance satisfactory to the Required Holders and certified by an Authorized Officer of the Company as being true and complete; (xiii) a copy of the NCNB Agreement, in form and substance satisfactory to the Required Holders and certified by an Authorized Officer of the Company as being true and complete, together with evidence satisfactory to the Required Holders as to the ability of the Company to satisfy the conditions precedent to the extension of credit thereunder; (xiv) copies of all pledge agreements for the benefit of the holders of Debt under the Bridge Facility, the NCNB Agreement or the 1995 Note Purchase Agreement, in each case in form and substance satisfactory to the Required Holders and certified by an Authorized Officer of the Company as being true and complete; and (xv) a fee of $7,500 to reimburse Prudential for the allocable costs of its in-house counsel. E. The effectiveness of this Letter Amendment No. 2 is conditioned upon the absence of any requirement of the NCNB Agreement, the Bridge Facility or the 1995 Note Agreement (or if so required, such conditions shall simultaneously terminate) (i) to grant a Lien on any property of the Company or any Subsidiary (other than (a) Liens in favor of NCNB, as agent, and the lenders under the NCNB Agreement and in favor of NCNB as lender under the Bridge Facility, in each case as permitted by clauses (vi) and (vii) of paragraph 6C(1), and (b) Liens created by the pledge agreements that are subject to the Intercreditor Agreement and in connection with which the holders of the Notes, or a collateral agent appointed by them, shall 20 have received a Pledge Agreement from the same pledgor and covering the same collateral) or (ii) to deliver 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 the holders of the Notes shall have received a guaranty from the same Guarantor, (b) the pledge agreements that are subject to the Intercreditor Agreement and in connection with which the holders of the Notes, or a collateral agent appointed by them, shall have received a Pledge Agreement from the same pledgor and covering the same collateral and (c) any other guaranty or agreement to provide guaranties of the obligations of the Company under such agreements delivered after the Effective Date which becomes subject to the Intercreditor Agreement and in connection with which the holders of the Notes 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. F. In connection with the prepayment of the Notes pursuant to the 1999 Action Plan, Prudential hereby waives the 10 Business Days' notice requirement contained in paragraph 4C of the Agreement. G. The Company represents and warrants that the representations and warranties contained in paragraph 8 of the Agreement, as amended by this Letter Amendment No. 2, are true and correct. Very truly yours, WESTERN GAS RESOURCES, INC. By: --------------------------- William J. Krysiak Vice President-Finance Agreed as of the date first above written: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: -------------------------------------- - Vice President PRUCO LIFE INSURANCE COMPANY By: --------------------------------------- Vice President 21 CONSENT TO AMENDMENT Each of the undersigned is a Guarantor ("Guarantor" and, collectively, "Guarantors") under separate guaranties (each being a "Guaranty ") in favor of The Prudential Insurance Company of America ("Prudential"), for itself and on beha lf of affiliates of Prudential with respect to the obligations of Western Gas Resources, Inc. (the "Company") under that certain Second Amended and Restated Master Shelf Agreement dated as of December 19, 1991 (effective as of January 31, 1996) as amended by Letter Amendment No. 1 dated November 21, 1997 (as amended, the "Agreement"). The terms used herein have the meaning specified in each Guaranty unless otherwise defined herein. Prudential, Pruco Life Insurance Company and the Company are entering into that certain Letter Amendment No. 2 dated as of March 31, 1999 to the Agreement to which this consent is attached ("Letter Amendment No. 2"). Each of the undersigned hereby consents to Letter Amendment No. 2 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 Agreement as amended by the Letter Amendment No. 2. Dated as of March 31, 1999. LANCE OIL & GAS COMPANY, INC. MGTC, INC. MIGC, INC. MOUNTAIN GAS RESOURCES, INC. PINNACLE GAS TREATING, INC. WESTERN GAS RESOURCES - TEXAS, INC. WESTERN GAS RESOURCES OKLAHOMA, INC. WGR CANADA, INC. WESTERN GAS WYOMING, L.L.C. By ----------------------------------------------- William J. Krysiak, as Vice President- Finance of each of the above-named companies. SCHEDULE I In connection with Letter Amendment No. 2 dated March 31, 1999 to the Second Amended and Restated Master Shelf Agreement dated as of December 19, 1991 between Western Gas Resources, Inc., The Prudential Insurance Company of America and Pruco Life Insurance Company, the $670,834.50 structuring fee and the $35,000 documentation fee should be paid to the following accounts in same day funds: (1) The Prudential Insurance Company of America $662,655.00 - Structuring Fee $34,573.24 - Documentation Fee Bank of New York New York, NY ABA No. 021-000-018 For Credit to the Account of: The Prudential Insurance Company of America Account No. 890-0304-391 Re: $662,655.00 - Western Gas Structuring Fee $34,573.24 - Western Gas Documentation Fee (2) Pruco Life Insurance Company $8,179.50 - Structuring Fee $426.76 - Documentation Fee Bank of New York New York, New York ABA No. 021-000-018 For Credit to the Account of: Pruco Life Insurance Company Account No. 890-0304-421 Re: Western Gas Structuring Fee EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 12,967 0 185,169 0 32,027 232,132 1,169,565 (317,388) 1,162,673 211,045 526,609 416 0 3,217 374,738 1,162,673 425,562 429,505 383,223 383,223 40,838 0 8,743 (3,299) (1,123) (2,176) 0 0 0 (2,176) (.15) (.15)
-----END PRIVACY-ENHANCED MESSAGE-----