-----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, FP/QsN3NaTdqtpGOO0SqZtifmVxtxzG5q6BDnSvHZMSQf1qTROyfQp2lhdgEOiOV mehX/Ixplcuea8BBy4SI1Q== 0001021408-01-500964.txt : 20010515 0001021408-01-500964.hdr.sgml : 20010515 ACCESSION NUMBER: 0001021408-01-500964 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: 1633652 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 d10q.txt FORM 10-Q DATED 3/31/2001 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, 2001 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, 2001, there were 32,497,723 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, 2001 and December 31, 2000................ 3 Consolidated Statement of Cash Flows - Three Months Ended March 31, 2001 and 2000......................................................................... 4 Consolidated Statement of Operations - Three Months Ended March 31, 2001 and 2000 5 Consolidated Statement of Changes in Stockholders' Equity - Three Months Ended March 31, 2001................................................................... 6 Notes to Consolidated Financial Statements....................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk....................... 18 PART II - Other Information - --------------------------- Item 1. Legal Proceedings................................................................ 22 Item 4. Submission of matters to a vote of security holders.............................. 23 Item 6. Exhibits and Reports on Form 8-K................................................. 23 Signatures.................................................................................... 24
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements -------------------- WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands, except share data)
March 31, December 31, ASSETS 2001 2000 ------ ---------- ---------- (unaudited) Current assets: Cash and cash equivalents.................................................................. $ 74,387 $ 12,927 Trade accounts receivable, net............................................................. 356,393 546,791 Product inventory.......................................................................... 14,364 44,822 Parts inventory............................................................................ 3,102 3,489 Assets from price risk management activities............................................... 31,156 - Assets held for sale....................................................................... - 25,001 Other...................................................................................... 2,953 2,654 ---------- ---------- Total current assets..................................................................... 482,355 635,684 ---------- ---------- Property and equipment: Gas gathering, processing, storage and transportation...................................... 862,690 856,982 Oil and gas properties and equipment (successful efforts method)........................... 156,864 139,084 Construction in progress................................................................... 57,457 58,319 ---------- ---------- 1,077,011 1,054,385 Less: Accumulated depreciation, depletion and amortization................................ (320,096) (306,651) ---------- ---------- Total property and equipment, net........................................................ 756,915 747,734 ---------- ---------- Other assets: Gas purchase contracts (net of accumulated amortization of $33,840 and $33,357, respectively)................................................................... 34,316 34,798 Assets from price risk management activities............................................... 670 - Other...................................................................................... 14,327 13,206 ---------- ---------- Total other assets......................................................................... 49,313 48,004 ---------- ---------- TOTAL ASSETS................................................................................ $1,288,583 $1,431,422 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable........................................................................... $ 401,309 $ 581,563 Accrued expenses........................................................................... 35,276 25,094 Liabilities from price risk management activities.......................................... 39,728 - Dividends payable.......................................................................... 4,209 4,205 ---------- ---------- Total current liabilities................................................................ 480,522 610,862 Long-term debt.............................................................................. 305,000 358,700 Liabilities from price risk management activities........................................... 385 - Other long-term liabilities................................................................. 2,559 2,646 Deferred income taxes payable, net.......................................................... 79,550 67,680 ---------- ---------- Total liabilities........................................................................... 868,016 1,039,888 ---------- ---------- Stockholders' equity: Preferred Stock; 10,000,000 shares authorized: $2.28 cumulative preferred stock, par value $.10; 1,400,000 shares issued ($35,000,000 aggregate liquidation preference).......................................... 140 140 $2.625 cumulative convertible preferred stock, par value $.10; 2,760,000 issued ($138,000,000 aggregate liquidation preference).................................. 276 276 Common stock, par value $.10; 100,000,000 shares authorized; 32,497,723 and 32,361,131 shares issued, respectively.................................................. 3,275 3,265 Treasury stock, at cost; 25,016 common shares and 44,290 shares of $2.28 cumulative preferred stock in treasury............................................................. (2,003) (1,778) Additional paid-in capital................................................................. 401,102 400,157 Retained earnings (deficit)................................................................ 24,561 (11,820) Accumulated other comprehensive income..................................................... (5,996) 2,178 Notes receivable from key employees secured by common stock................................ (884) (884) ---------- ---------- Total stockholders' equity............................................................... 420,567 391,534 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................................. $1,288,583 $1,431,422 ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
3 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in thousands)
Three Months Ended March 31, --------------------- 2001 2000 --------- --------- Reconciliation of net income to net cash provided by operating activities: Net income.................................................................. $ 40,590 $ 13,006 Add income items that do not affect cash: Depreciation, depletion and amortization................................... 14,478 13,309 Gain on the sale of property and equipment................................. (11,223) (5,299) Deferred income taxes...................................................... 16,719 7,441 Non-cash change in fair value of derivatives............................... (5,049) - Other non-cash items, net.................................................. 8 929 --------- --------- 55,523 29,386 --------- --------- Adjustments to working capital to arrive at net cash provided by operating activities: (Increase) decrease in trade accounts receivable........................... 190,454 (31,234) Decrease in product inventory.............................................. 30,458 22,762 Decrease in parts inventory................................................ 387 1,066 (Increase) decrease in other current assets................................ (299) 7,937 Decrease in other assets and liabilities, net.............................. 8,076 37 Decrease in accounts payable............................................... (180,254) (5,614) (Increase) decrease in accrued expenses.................................... 2,199 (14,975) --------- --------- Net cash provided by operating activities................................... 106,544 9,365 --------- --------- Cash flows from investing activities: Purchases of property and equipment........................................ (25,908) (28,498) Proceeds from the dispositions of property and equipment................... 38,075 15,057 Contributions to equity investees.......................................... (169) - --------- --------- Net cash provided by (used in) investing activities......................... 11,998 (13,441) --------- --------- Cash flows from financing activities: Proceeds from exercise of common stock options............................. 955 71 Repurchase of $2.28 cumulative preferred stock............................. (129) - Payments on revolving credit facility...................................... (301,953) (293,286) Borrowings under revolving credit facility................................. 248,250 291,350 Payments on notes.......................................................... - - Dividends paid............................................................. (4,205) (4,217) --------- --------- Net cash used in financing activities....................................... (57,082) (6,082) --------- --------- Net increase (decrease) in cash and cash equivalents........................ 61,460 (10,158) Cash and cash equivalents at beginning of period............................ 12,927 14,062 --------- --------- Cash and cash equivalents at end of period.................................. $ 74,387 $ 3,904 ========= =========
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, -------------------------- 2001 2000 ----------- ----------- Revenues: Sale of gas........................................................... $ 1,044,876 $ 413,816 Sale of natural gas liquids........................................... 129,477 135,388 Processing, transportation and storage revenue........................ 16,036 13,885 Unrealized gain on marketing activities............................... 5,049 - Other, net............................................................ 1,838 2,063 ----------- ----------- Total revenues...................................................... 1,197,276 565,152 ----------- ----------- Costs and expenses: Product purchases..................................................... 1,086,600 501,143 Plant operating expense............................................... 17,037 15,262 Oil and gas exploration and production expense........................ 9,605 4,146 Depreciation, depletion and amortization.............................. 14,478 13,309 Gain on sale of assets................................................ (11,223) (5,299) Selling and administrative expense.................................... 8,479 7,389 Interest expense...................................................... 6,829 8,218 ----------- ----------- Total costs and expenses............................................ 1,131,805 544,168 ----------- ----------- Income before taxes.................................................... 65,471 20,984 Provision for income taxes: Current............................................................... 8,162 537 Deferred.............................................................. 16,719 7,441 ----------- ----------- Total provision for income taxes.................................. 24,881 7,978 ----------- ----------- Net income............................................................. 40,590 13,006 Preferred stock requirements........................................... (2,584) (2,610) ----------- ----------- Income attributable to common stock.................................... $ 38,006 $ 10,396 =========== =========== Earnings per share of common stock..................................... $1.17 $.32 =========== =========== Weighted average shares of common stock outstanding.................... 32,405,044 32,165,868 =========== =========== Income attributable to common stock-assuming dilution.................. $ 39,817 $ 10,396 =========== =========== Earnings per share of common stock-assuming dilution................... $1.08 $.32 =========== =========== Weighted average shares of common stock outstanding-assuming dilution.. 36,757,118 32,459,209 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except share amounts)
Shares of Shares of $2.28 $2.625 $2.625 $2.28 Cumulative Cumulative Shares $2.28 Cumulative Cumulative Preferred Convertible Shares of Common Cumulative Convertible Preferred Stock in Preferred of Common Stock in Preferred Preferred Common Stock Treasury Stock Stock Treasury Stock Stock Stock ---------- ---------- ----------- ---------- ---------- --------- ----------- -------- Balance at December 31, 2000...................... 1,400,000 39,190 2,760,000 32,361,131 25,016 140 276 3,265 Comprehensive income: Net income, three months ended March 31, 2001........... - - - - - - - - Translation adjustments... - - - - - - - - Cumulative change for accounting principle January 1, 2001.......... - - - - - - - - Reclassification adjustment for settled contracts.... - - - - - - - - Changes in fair value of outstanding hedging positions................ - - - - - - - - Total comprehensive income, net of tax....... Stock options exercised.... - - - 136,592 - - - 10 Tax benefit related to stock options............. - - - - - - - - Loans forgiven............. - - - - - - - - Dividends declared on common stock.............. - - - - - - - - Dividends declared on $2.28 cumulative preferred stock........... - - - - - - - - Dividends declared on $2.625 cumulative convertible preferred stock.................... - - - - - - - - Repurchase of $2.28 cumulative preferred stock........... - 5,100 - - - - - ---------- ---------- ----------- ---------- -------- ---------- ----------- -------- Balance at March 31, 2001.. 1,400,000 44,290 2,760,000 32,497,723 25,016 $ 140 $ 276 $ 3,275 ========== ========== =========== ========== ======== ========== =========== ========
Accumulated Other Notes Total Additional Retained Comprehensive Receivable Stock- Treasury Paid-In (Deficit) Income from Key holders' Stock Capital Earnings Net of Tax Employees Equity -------- ---------- -------- ------------- ---------- -------- Balance at December 31, 2000...................... (1,778) 400,157 (11,820) 2,178 (884) 391,534 Comprehensive income: Net income, three months ended March 31, 2001........... - - 40,590 - - 40,590 Translation adjustments... - - - 256 - 256 Cumulative change for accounting principle January 1, 2001.......... - - - (22,527) - (22,527) Reclassification adjustment for settled contracts.... - - - 13,429 - 13,429 Changes in fair value of outstanding hedging positions................ - - - 668 - 668 -------- Total comprehensive income, net of tax....... 32,416 -------- Stock options exercised.... - 945 - - - 955 Tax benefit related to stock options............. - - - - - - Loans forgiven............. - - - - - - Dividends declared on common stock.............. - - (1,625) - - (1,625) Dividends declared on $2.28 cumulative preferred stock........... - - (773) - - (773) Dividends declared on $2.625 cumulative convertible preferred stock.................... - - (1,811) - - (1,811) Repurchase of $2.28 cumulative preferred stock..................... (129) - - - - (129) -------- ---------- -------- ------------- ---------- -------- Balance at March 31, 2001.. (1,907) $ 401,102 $24,561 $ (5,996) $ (884) $420,567 ======== ========== ======== ============= ========== ========
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, 2000. The interim consolidated financial statements as of March 31, 2001 and for the three month periods ended March 31, 2001 and 2000 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, 2001 are not necessarily indicative of the results of operations expected for the year ended December 31, 2001. Prior period amounts in the interim consolidated financial statements and notes have been reclassified as appropriate to conform to the presentation used in 2001. 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, 2001 and 2000, respectively. Common stock options and our $2.625 Cumulative Convertible Preferred Stock, which are potential common shares, had a dilutive effect on earnings and increased the weighted average number of shares of common stock outstanding by 4,352,074 and 293,341 for the three-month periods ended March 31, 2001and 2000, respectively. The numerators and the denominators for these periods were adjusted to reflect these potential shares in calculating fully diluted earnings per share. OTHER INFORMATION Bethel Treating Facility. In December 2000, we signed an agreement with Anadarko Petroleum Corporation for the sale of all the outstanding stock of our wholly-owned subsidiary, Pinnacle Gas Treating, Inc. ("Pinnacle") for $38.0 million. The only asset of this subsidiary was a 300 MMcf per day treating facility and 86 miles of associated gathering assets located in east Texas. The sale closed in January 2001 and resulted in a net pre-tax gain for financial reporting purposes of $11.2 million in the first quarter of 2001. Western Gas Resources-California, Inc. In January 2000, we sold all the outstanding stock of our wholly-owned subsidiary, Western Gas Resources- California, Inc. ("WGR-California") for $14.9 million. The only asset of this subsidiary was a 162-mile pipeline in the Sacramento basin of California. We acquired the pipeline through the exercise of an option in a transaction, which closed simultaneously with the sale of WGR-California. We recognized a pre-tax gain on the sale of approximately $5.4 million in the first quarter of 2000. The proceeds from these sales were initially used to reduce borrowings outstanding on the Revolving Credit Facility. Westana. In February 2000, we acquired the remaining 50% interest in the Westana Gathering Company for a net purchase price of $9.8 million. The results from our ownership through February 2000 of a 50% equity interest in the Westana Gathering Company are reflected in revenues in Other, net on the Consolidated Statement of Operations. Beginning in March 2000, the results of these operations are fully consolidated and are included in Revenues and Costs and expenses. Additionally, in March 2000, our investment in the Westana Gathering Company was reclassed from Other assets to Property and equipment. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board, the FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for fiscal years beginning after June 15, 2000. Under SFAS No. 133, which was subsequently amended by SFAS No. 138, we are required to recognize the change in the market value of all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. 7 Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending upon the nature of the underlying transaction. Also on January 1, 2001, we adopted mark-to-market accounting for the remainder of our marketing activities which, for various reasons, are not designated or qualified as hedges under SFAS 133. Upon the adoption of SFAS No. 133 and mark-to-market accounting on January 1, 2001, the impact was a decrease in a component of stockholders' equity through Accumulated other comprehensive income of $22.5 million, an increase to Current assets of $52.6 million, an increase to Current liabilities of $86.9 million, an increase to Other long-term liabilities of $1.1 million and a decrease in Deferred income taxes payable of $12.9 million. Of the $22.5 million decrease to Accumulated other comprehensive income resulting from the January 1, 2001 adoption of SFAS 133, $14.1 million was reversed in the first quarter of 2001 with gains and losses from the underlying transactions recognized through Total revenues. An additional $7.1million of this transition entry is currently anticipated to be recognized through Total revenues in the remaining three quarters of 2001. The non-cash impact to our results of operations in the first quarter of 2001 resulting from the adoption of mark-to-market accounting for our marketing activities resulted in additional pre-tax income of $5.0 million. ADOPTION OF STOCKHOLDER RIGHTS PLAN In the first quarter of 2001, we adopted a Stockholder Rights Plan under which rights were distributed as a dividend at the rate of one right for each share of our common stock held by stockholders of record as of the close of business on April 9, 2001. The Rights Plan was not adopted in response to any efforts to acquire control of our company. The Rights Plan, however, is designed to deter coercive takeover tactics including the accumulation of shares in the open market or through private transactions and to prevent an acquirer from gaining control of our company without offering a fair and adequate price to all of our stockholders. Each right initially will entitle stockholders to buy one unit consisting of 1/100th of a share of a new series of preferred stock for $180 per unit. The right generally will be exercisable only if a person or group acquires beneficial ownership of 15 percent or more of our then outstanding common stock or commences a tender or exchange offer upon consummation of which a person or group would beneficially own 15 percent or more of our then outstanding common stock. The rights will expire on March 22, 2011. SUPPLEMENTARY CASH FLOW INFORMATION Interest paid was $4.2 million and $4.7 million for the three months ended March 31, 2001 and 2000, respectively. No income taxes were paid during the three months ended March 31, 2001 or the three months ended March 31, 2000. Segment Reporting We operate in four principal business segments, as follows: Gas Gathering and Processing, Production, Marketing and Transmission. These segments are separately monitored by management for performance against our 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. In our Gas Gathering and Processing segment, we connect producers' wells to our gathering systems for delivery to our processing or treating plants, process the natural gas to extract NGLs and treat the natural gas in order to meet pipeline specifications. Our Marketing segment sells the residue gas and NGLs extracted at our processing facilities. The activities of our Production segment include the exploration and development of gas properties primarily in basins where our facilities are located. The Marketing segment sells the majority of the production from these properties. Our Marketing segment buys and sells gas and NGLs nationwide and in Canada from or to a variety of customers. In addition, this segment also markets gas and NGLs produced by our gathering, processing and production assets. Our Canadian marketing operations, which are immaterial for separate presentation, are included in this segment. The Marketing segment also includes losses associated with our equity gas and NGL hedging program of $(14.5) million and $(3.1) million for the quarters ended March 31, 2001 and March 31, 2000, respectively. The Transmission segment reflects the operations of the MIGC and MGTC pipelines. The majority of the revenue presented in this segment is derived from transportation of residue gas. 8 The following table sets forth our segment information as of and for the quarters ended March 31, 2001 and 2000 (dollars in thousands). Due to our integrated operations, the use of allocations in the determination of business segment information is necessary. Inter-segment revenues are valued at prices comparable to those of unaffiliated customers.
Gas Gathering Elim- and Trans- inating Processing Production Marketing mission Corporate Entries Total ---------- ----------- ----------- -------- --------- ---------- ----------- Quarter ended March 31, 2001 Revenues from unaffiliated customers...... $ 14,035 $ 721 $1,209,769 $ 2,675 $ 282 $ - $1,227,482 Interest income........................... - - - - 5,086 (4,802) 284 Other, net................................ 4 (1) (31,872) 2 1,377 - (30,490) Intersegment sales........................ 318,073 52,150 11,486 4,267 14 (385,990) - -------- -------- ---------- ------- ------- --------- ---------- Total revenues............................ 332,112 52,870 1,189,383 6,944 6,759 (390,792) 1,197,276 -------- -------- ---------- ------- ------- --------- ---------- Product purchases......................... 272,839 2,645 1,188,165 (434) 13 (376,628) 1,086,600 Plant operating expense................... 15,320 30 39 2,094 375 (821) 17,037 Oil and gas exploration and production expense................ - 17,054 - - - (7,449) 9,605 -------- -------- ---------- ------- ------- --------- ---------- Operating profit.......................... $ 43,953 $ 33,141 $ 1,179 $ 5,284 $ 6,371 $ (5,894) $ 84,034 ======== ======== ========== ======= ======= ========= ========== Depreciation, depletion and amortization.. 9,500 3,067 40 415 1,456 - 14,478 Interest expense.......................... 6,829 Gain on sale of assets.................... (11,223) Selling and administrative expense........ 8,479 ---------- Income before income taxes................ $ 65,471 ========== Identifiable assets....................... $563,850 $141,430 $ 57 $46,808 $55,384 $ - $ 807,529 ======== ======== ========== ======= ======= ========= ==========
Gas Gathering Elim- and Trans- inating Processing Production Marketing mission Corporate Entries Total ----------- ---------- ---------- ------- ---------- ---------- --------- Quarter ended March 31, 2000 Revenues from unaffiliated customers...... $ 11,406 $ 986 $551,322 $ 2,378 $ 26 $ (8) $566,110 Interest income........................... 33 2 24 - 5,838 (5,668) 229 Other, net................................ (20) - (2,203) - 1,036 - (1,187) Intersegment sales........................ 134,342 10,304 26,333 4,404 4 (175,387) - -------- -------- -------- ------- ------- --------- -------- Total revenues............................ 145,761 11,292 575,476 6,782 6,904 (181,063) 565,152 -------- -------- -------- ------- ------- --------- -------- Product purchases......................... 103,008 504 572,687 - (25) (175,031) 501,143 Plant operating expense................... 13,062 17 - 2,268 256 (341) 15,262 Oil and gas exploration and production expense................ - 4,146 - - - - 4,146 -------- -------- -------- ------- ------- --------- -------- Operating profit.......................... $ 29,691 $ 6,625 $ 2,789 $ 4,514 $ 6,673 $ (5,691) $ 44,601 ======== ======== ======== ======= ======= ========= ======== Depreciation, depletion and amortization.. 8,571 2,889 40 424 1,385 - 13,309 Interest expense.......................... 8,218 Gain on sale of assets.................... (5,299) Selling and administrative expense........ 7,389 -------- Income before income taxes................ $ 20,984 ======== Identifiable assets....................... $547,611 $101,802 $ 75 $47,213 $37,710 $ - $734,411 ======== ======== ======== ======= ======= ========= ========
9 LEGAL PROCEEDINGS Reference is made to "Part II - Other Information - Item 1. Legal Proceedings," of this Form 10-Q. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS - ------------- The following discussion and analysis relates to factors that have affected our consolidated financial condition and results of operations for the three months ended March 31, 2001 and 2000. Prior period amounts have been reclassified as appropriate to conform to the presentation used in 2001. You should also refer 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 specific 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, 2001 compared to the three months ended March 31, 2000 (Dollars in thousands, except per share amounts and operating data).
Three Months Ended March 31, -------------------- Percent 2001 2000 Change ---------- -------- ------- Financial results: Revenues.................................... $1,197,276 $565,152 112 Gross profit................................ 80,779 36,591 121 Net income.................................. 40,590 13,006 212 Earnings per share of common stock.......... 1.17 .32 266 Earnings per share of common stock-diluted.. 1.08 .32 238 Net cash provided by operating activities... $ 106,544 $ 9,365 1,038 Operating data: Average gas sales (MMcf/D).................. 1,665 1,800 (8) Average NGL sales (MGal/D).................. 2,230 3,125 (29) Average gas prices ($/Mcf).................. $ 6.97 $ 2.52 177 Average NGL prices ($/Gal).................. $ .63 $ .48 31
Net income increased $27.6 million for the three months ended March 31, 2001 compared to the same period in 2000. The increase in net income was primarily attributable to significantly higher gas and NGL prices in the first quarter of 2001 compared to the same period last year, increased production from the Powder River coal bed methane development, improved marketing margins and a net increase in after-tax gain of $3.2 million from the sale of assets in the first quarter of 2001 as compared to the same period in 2000. These increases were partially offset by a net increase in after-tax losses on hedging activities on our equity gas and NGLs of $7.3 million in the first quarter of 2001 as compared to the same period in 2000. Revenues from the sale of gas increased $632.0 million to $1,044.9 million for the three months ended March 31, 2001 compared to the same period in 2000. This increase was due to an improvement in product prices in 2001 which more than offset a reduction in sales volume. Average gas prices realized by us increased $4.45 per Mcf to $6.97 per Mcf for the quarter ended March 31, 2001 compared to the same period in 2000. Average gas sales volumes decreased 135 MMcf per day to 1,665 MMcf per day for the quarter ended March 31, 2001 compared to the same period in 2000. This decrease was due to an intentional reduction by us in our third-party transactions in the first quarter of 2001 due to the high price of natural gas and its impact on the credit exposure to our individual counter-parties. Revenues from the sale of NGLs decreased approximately $5.9 million for the three months ended March 31, 2001 compared to the same period in 2000. This decrease is primarily due to a reduction in the sale of third-party product which was substantially offset by an improvement in product prices. Also we rejected ethane at our facilities for a portion of the first quarter of 2001 which contributed to the decrease in sales volume. We reject ethane when it is more profitable for us to sell this product as a component of the gas stream rather than as an NGL. Average NGL prices realized by us increased $.15 per gallon to $.63 per gallon for the three months ended March 31, 2001 compared to the same period in 2000. Average NGL sales volumes decreased 895 MGal per day to 2,230 MGal per day for the three months ended March 31, 2001 compared to the same period in 2000. 11 Product purchases increased by $585.5 million for the quarter ended March 31, 2001 compared to the same period in 2000 as a result of the increase in commodity prices. Overall, combined product purchases as a percentage of sales of all products increased to 98% in the first quarter of 2001 from 91% in the first quarter of 2000. The prices received and paid for the sale and purchase of third-party product increased with commodity prices; however, the net margin received from this activity did not increase proportionally. Marketing margins on residue gas averaged $.06 per Mcf in the first quarter of 2001. This represents a significant increase as compared to the margin realized during the same period during 2000 of $.02 per Mcf. The increase in margin in the first quarter of 2001 is primarily due to our adoption of mark-to-market accounting. Under this method of accounting, the margin to be realized over the term of the sales agreement is recorded in the month of origination. To the extent this amount includes margin to be recognized beyond the current quarter it is included in the financial statement caption Unrealized gain in marketing activities. Also contributing to the increase in the margin realized in the first quarter of 2001 was the effect of the current volatile market conditions and our ability to benefit from these conditions through our transportation arrangements. Marketing margins on NGLs remained relatively constant at approximately $.008 per gallon for each of the quarters ended March 31, 2001 and 2000. There is no assurance, however, that these market conditions for our gas and NGL products and related margins will continue in the future, that we will be in a similar position to benefit from them or that we will continue to originate the same amount of transactions in future quarters. In addition, during the first quarter of 2001, we reserved a total of $1.0 million for doubtful accounts. This reserve is not included in the calculation of the marketing margins and is reported in Selling and administrative expenses. Oil and gas exploration and production expenses increased $5.6 million for the quarter ended March 31, 2001 compared to the same period in 2000. These increases are due to increased production taxes and lease operating expenses resulting from our increased drilling and production activities in the Powder River coal bed methane development. In the first quarter of 2001, we realized a net pre-tax gain of $11.2 million on the sale of our wholly-owned subsidiary, Pinnacle Gas Treating, Inc. In the first quarter of 2000, we realized a net pre-tax gain of $5.3 million on the sale of our California subsidiary, Western Gas Resources - California, Inc. Other Information Bethel Treating Facility. In December 2000, we signed an agreement with Anadarko Petroleum corporation for the sale of all the outstanding stock of our wholly-owned subsidiary, Pinnacle for $38.0 million. The only asset of this subsidiary was a 300 MMcf per day treating facility and 86 miles of associated gathering located in east Texas. The sale closed in January 2001 and resulted in a net pre-tax gain for financial reporting purposes of $11.2 million in the first quarter of 2001. Western Gas Resources-California, Inc. In January 2000, we sold all of the outstanding stock of our wholly-owned subsidiary, WGR-California for $14.9 million. The only asset of this subsidiary was a 162-mile pipeline in the Sacramento basin of California. We acquired the pipeline through the exercise of an option in a transaction that closed simultaneously with the sale of WGR- California. We recognized a pre-tax gain on the sale of approximately $5.3 million in the first quarter of 2000. The proceeds from these sales were used initially to reduce borrowings outstanding on the Revolving Credit Facility. Westana. In February 2000, we acquired the remaining 50% interest in the Westana Gathering Company for a net purchase price of $9.8 million. The results from our ownership through February 2000 of a 50% equity interest in the Westana Gathering Company were reflected in revenues in Other, net on the Consolidated Statement of Operations. Since March 2000, the results of these operations have been fully consolidated and are included in Revenues and Costs and expenses. Additionally, in March 2000, our investment in the Westana Gathering Company was reclassed from Other assets to Property and equipment. Business Strategy In 1998 and 1999, as oil and gas prices were approaching historical lows, our activities were focused on consolidating our businesses in our core operating regions and reducing our outstanding debt. Improved product prices throughout 2000 and continuing into 2001 along with our improved financial position will allow us to emphasize the growth aspects of our business strategy. Our long- term business plan is to increase our profitability by: (i) optimizing the efficiency and utilization of our existing operations; (ii) developing natural gas reserves and increasing production volumes on our existing acreage positions; and (iii) investing in projects or acquiring assets that complement and extend our core natural gas gathering, processing, production and marketing businesses. 12 With our improved financial position, in 2001, we will actively evaluate acquisitions of either assets or companies. These acquisitions can be related to gathering and processing or production with emphasis on properties located in the Rocky Mountains or Canada. Capital expenditures budgeted for existing operations in 2001 are estimated to be approximately $136.4 million. This includes approximately $71.8 million related to gathering, processing and pipeline assets and approximately $46.8 million for the acquisition of undeveloped acreage and development of gas reserves in the Powder River basin. This budget will be increased to provide for acquisitions if approved by our board of directors. In the first quarter of 2001, our capital expenditures totaled $26.1 million. We consistently seek to improve the profitability of our existing operations by increasing natural gas throughput levels through new well connections and expansion of our gathering systems, increasing our efficiency through the modernization of equipment and consolidation of existing gathering and processing facilities, evaluating the economic performance of each of our operating facilities to ensure that a targeted rate of return is achieved and controlling operating and overhead expenses. We continually seek to increase reserves dedicated to our facilities. Our operations are located in some of the most actively drilled oil and gas producing basins in the United States. We enter into agreements under which we gather and process natural gas produced on acreage dedicated to us by third parties. We contract for production from new wells and newly dedicated acreage in order to replace declines in existing reserves or increase reserves that are dedicated for gathering and processing at our facilities. At December 31, 2000, our estimated dedicated reserves totaled 2.7 Tcf. In 2000, including the reserves developed by us and associated with our partnerships and excluding the reserves and production associated with the facilities sold during this period, we connected new reserves to our facilities to replace approximately 222% of throughput. In order to obtain additional dedicated acreage and to secure contracts on favorable terms, we may participate to a limited extent with third- party producers in exploration and production activities that supply our facilities. For the same reason, we may also offer to sell ownership interests in our facilities to selected producers. We selectively participate in exploration and production activities largely to secure additional gas supply for our facilities. Beginning in 1997, we substantially increased our investment in the acquisition of undeveloped acreage and development of the Powder River basin coal bed methane. We have acquired drilling rights on approximately 530,000 net acres in the basin. At December 31, 2000 we had proved developed and undeveloped reserves of approximately 350 Bcf on a portion of this acreage. We also have participated in the development of properties in southwest Wyoming and Colorado. These properties have an additional 58Bcf of proved developed and undeveloped reserves. This represents an increase of approximately 50% in our proved reserves from December 31, 1999. We also estimate a net total of 1.9 Tcf of probable or possible reserves on an unrisked basis associated with undeveloped acreage in these areas. There can be no assurance, however, as to the ultimate recovery of these probable or possible reserves. We will also consider investing in other exploration and production prospects that we consider to be low risk and complementary to our other business segments. We will continue to invest in projects that complement and extend our core natural gas gathering, processing, production and marketing businesses including the consideration of expansion into additional geographic areas in the continental United States and Canada. In the third quarter of 2000, our board of directors began a search to identify and evaluate both internal and external candidates to replace our current Chief Executive Officer and President, Lanny Outlaw who had informed the board of his intention to retire May 31, 2001 in accordance with his contract. In May 2001, Mr. Outlaw agreed to postpone his retirement until November 30, 2001 in order to allow the board of directors to continue its efforts to secure the ideal candidate as his successor. Mr. Outlaw intends to serve his remaining term on the board of directors which expires in May 2003. 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 debt and 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. Product prices, sales of inventory, the volumes of natural gas processed by our facilities, the volumes of natural gas produced from our reserves, the margin on third-party product purchased for resale, as well as the timely collection of our receivables will affect net cash provided by operating activities in the future. Our future growth will be dependent upon obtaining additions to dedicated plant reserves, increasing our production, completing acquisitions, developing new projects, operating our facilities efficiently and obtaining financing at favorable terms. We believe that our cash and cash equivalents, the amounts available to be borrowed under the Revolving Credit Facility, together with net cash provided by operating activities, will provide us with sufficient funds to connect new reserves, maintain our existing facilities, complete our current capital expenditure program, make any scheduled debt principal payments and 13 make any scheduled dividend payments on our preferred stock. 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 additional capital is in some cases 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 acquisitions, sell existing assets or a combination of 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 additional financing. We also believe that cash and cash equivalents, 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 2001, and in 2002 and 2003. While several of our plants have experienced declines in dedicated reserves, overall we have been successful in connecting additional reserves to more than offset the natural declines. Higher gas prices, greater demand for natural gas, improved technology, e.g., 3-D seismic, well fracturing and horizontal drilling, and increased pipeline capacity from the Rocky Mountain region have stimulated drilling in many of our operating areas. The overall level of drilling will depend upon, among other factors, the prices for oil and gas, the drilling budgets of third-party producers, the energy and environmental policy and regulation by governmental agencies and the availability of foreign oil and gas, none of which is within our control. 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 Securities and Exchange Commission for an aggregate of $200 million of debt securities and preferred stock, along with the shares of common stock, if any, into which those securities are convertible, and $62 million of debt securities, preferred stock or common stock. Our sources and uses of funds for the quarter ended March 31, 2001 are summarized as follows (dollars in thousands):
Sources of funds: Borrowings under revolving credit facility....................... $248,250 Proceeds from the dispositions of property and equipment......... 38,075 Net cash provided by operating activities........................ 106,544 Proceeds from exercise of common stock options................... 955 Other............................................................ - -------- Total sources of funds......................................... $393,824 ======== Uses of funds: Payments related to long-term debt (including debt issue costs).. $301,953 Capital expenditures............................................. 25,908 Re-purchase of $2.28 Cumulative Perpetual Preferred Stock........ 129 Dividends paid................................................... 4,205 Contributions to equity investees................................ 169 -------- Total uses of funds............................................ $332,364 ========
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 2.4 Bcf at an average cost of $5.03 per Mcf at March 31, 2001 compared to 4.7 Bcf at an average cost of $2.21 per Mcf at March 31, 2000 under storage contracts at various third-party facilities. At March 31, 2001, we had hedging contracts in place for anticipated sales of approximately 2.1 Bcf of stored gas at a weighted average price of $5.61 per Mcf for the stored inventory. We held NGLs in storage under exchange agreements of 5,831MGal, consisting primarily of propane and normal butane, at an average cost of $.44 per gallon and 4,700 MGal at an average cost of $.30 per gallon at March 31, 2001 and 2000, respectively, at various third-party storage facilities. At March 31, 2001, we had no significant hedging contracts in place for anticipated sales of stored NGLs. Preferred Stock Repurchase Program In the first quarter of 2001, we purchased in open market transactions a total of 5100 shares of our $2.28 cumulative preferred stock for a total cost, including broker commissions, of approximately $129,000, or an average of $25.25 per share of preferred stock. These shares will be retired. Our board of directors has authorized the re-purchase from time to time of up to an additional $1.0 million of preferred stock in open market transactions. 14 Capital Investment Program We expect capital expenditures related to existing operations to be approximately $136.4 million during 2001, consisting of the following: (i) approximately $71.8 million related to gathering, processing and pipeline assets, of which $8.5 million is for maintaining existing facilities; (ii) approximately $56.9 million related to exploration and production activities; and (iii) approximately $7.7 million for miscellaneous items. Overall, capital expenditures in the Powder River basin coal bed methane development and in southwest Wyoming operations represent 49% and 10%, respectively, of the total 2001 budget. This budget will be increased to provide for acquisitions if approved by our board of directors. As of March 31, 2001, we have expended $26.1 million, consisting of the following: (i) $7.8 million related to gathering, processing and pipeline assets, of which $1.3 million is for maintaining existing facilities; (ii) $15.1 million related to exploration and production activities; and (iii) $3.2 million for miscellaneous items. Coal Bed Methane - We continue to develop our Powder River basin coal bed methane gathering system and our coal seam gas reserves in Wyoming. The Powder River Basin coal bed methane area is currently one of the largest on-shore plays for the development of natural gas in the United States. In the first quarter of 2001, we continued to be the largest producer of natural gas (together with our partner), the largest gatherer of natural gas and the largest gas transporter out of the basin. At March 31, 2001, we held the drilling rights on approximately 800,000 gross acres, or 530,000 net acres, in the basin. As of December 31, 2000, we had established proven developed and undeveloped reserves totaling 350 Bcf on a portion of this acreage. This represented a 50% increase in proved reserves as compared to December 31, 1999. As of December 31, 2000, we also estimated that there was a net total of 1.6 Tcf of probable reserves on an unaudited and unrisked basis associated with undeveloped acreage in this area. There can be no assurance, however, as to the ultimate recovery of these probable reserves. The average drilling, completion and gathering cost for our coal bed methane gas wells is approximately $70,000 to $90,000 per well with proved reserves per well of approximately 320 MMcf. Our average finding and development costs in this area are estimated to be $.32 per Mcf. As deeper wells are drilled to the Big George coal, reserves per well are expected to increase as will the average cost per well. It is expected that the deeper Big George wells will result in a higher rate of return. Total production from wells in which we own an interest has increased from an average of approximately 128 MMcf/D at December 31, 1999 to 208 MMcf/D at March 31, 2001. In addition to the revenues earned from the production of our coal bed methane gas, we also earn fees for gathering and transporting the natural gas. At March 31, 2001, we were gathering 265 MMcf per day of our own production and of other third-party producers. Of that volume, approximately 136 MMcf per day was transported through our MIGC pipeline. Future drilling on federal acreage will be delayed subject to completion of the Powder River Basin Oil & Gas Environmental Impact Statement. This study is anticipated to be completed in the second quarter of 2002. Our drilling plans for 2001 are not expected to be substantially impacted by this study due to our large inventory of non-federal drilling locations and the issuance of drilling permits by the Bureau of Land Management, BLM, for approximately 250 well locations to prevent drainage of federal acreage. Additionally, the Wyoming Department of Environmental Quality, DEQ, has revised some standards for surface water discharge that have allowed the issuance of most of the permits that apply to the Cheyenne and Belle Fourche drainage areas. We continue to work with both the Wyoming DEQ and Montana DEQ to allow water discharge in the Powder River drainage area in which most of our Big George prospects are located. The majority of wells on our acreage producing from the Wyodak formation drain into the Cheyenne and Belle Fourche drainage areas. We have water discharge permits in place for approximately 70 percent of the 840 gross wells currently planned for drilling in 2001. We can make no assurance that the conditions under which additional permits will be granted will not impact the level of drilling or the timing of production. Our capital budget in this area provides for expenditures of approximately $67.2 million during 2001. This capital budget includes approximately $46.8 million for drilling costs for our interest in approximately 840 wells, production equipment and undeveloped acreage and $20.4 million for compression. Depending upon future drilling success, we may need to make additional capital expenditures to continue expansion in this basin. Due to drilling and regulatory uncertainties which are beyond our control, we can make no assurance that we will incur this level of capital expenditure. In the first quarter of 2001, capital expenditures in this area totaled $12.7 million. In December 1998, we joined with other industry participants to form Fort Union Gas Gathering, L.L.C., to construct a 106-mile long, 24-inch gathering pipeline and treater to gather and treat natural gas in the Powder River basin in northeast Wyoming. We own a 13% equity interest in Fort Union and are the construction manager and field operator. The gathering header has a capacity of approximately 435 MMcf/D with expansion capability and in March 2001 it had throughput of approximately 261 MMcf/D. The header delivers coal bed methane gas to a treating facility near Glenrock, Wyoming and accesses interstate pipelines serving gas markets in the Rocky Mountain and Midwest regions of the United States. The 15 gathering header and treating system initially went into service in September 1999 and was project financed, requiring a cash investment by us of approximately $900,000. In conjunction with the project financing, we also entered into a ten year agreement for firm gathering services on 60 MMcf/D of capacity at $.14 per Mcf on Fort Union beginning in December 1999. In the fourth quarter of 2000, we and the other participants in the Fort Union Gas Gathering, L.L.C. approved an expansion of the system. Construction of the 62 mile expansion has begun and will increase the system capacity by an additional 200 MMcf/D. This project is expected to be completed in the third quarter of 2001. This expansion, which is anticipated to cost $25.7 million, will be project financed and will require an additional cash investment by us of approximately $500,000. Also in connection with the expansion, we will increase our commitment for firm gathering services by an additional 23 MMcf/D of capacity at $.14 per Mcf . Southwest Wyoming. Our facilities in southwest Wyoming are comprised of the Granger and Lincoln Road facilities, or collectively the Granger Complex, and our Red Desert facility. These facilities have a combined operational capacity of 327 MMcf/D and processed an average of 181 MMcf/D in the first quarter of 2001. Our capital budget in this area provides for expenditures of approximately $13.1 million during 2001. This capital budget includes approximately $5.8 million for drilling costs and production equipment and approximately $7.3 million related to the gathering systems and plant facilities. Due to drilling and regulatory uncertainties which are beyond our control, we can make no assurance that we will incur this level of capital expenditure. During the first quarter of 2001, we expended $4.4 million in this area. Under a 1997 agreement with an active producer in this area, we established a 1.8 million acre area of mutual interest (AMI), in which we participate in approximately 248,000 gross acres, or approximately 35,400 net acres. Approximately 4,000 gross acres, or approximately 600 net acres have proven reserves. We have also entered into agreements with the producer, or its assigns, for the gathering and processing of natural gas, which may be developed on 16 prospects within the AMI. Through March 31, 2001, we participated in 20 gross development wells, or 2 net development wells, in the Jonah field of southwest Wyoming. We did not participate in any exploratory wells in the Hoback basin during the first quarter of 2001. We expect to participate in the drilling of 18 gross wells, or 2 net wells in this area during 2001. The average drilling and completion costs per gross well are approximately $2.4 million and the average well depth in this area approximates 13,000 feet. Our average finding and development costs are estimated to be $.57 per Mcf . We have established proven developed and undeveloped reserves totaling 52 Bcf at December 31, 2000. This represents a 73% increase as compared to December 31, 1999. We also estimate a net total of 278 Bcf of reserves on an unaudited and unrisked basis associated with undeveloped acreage in this area. There can be no assurance, however, as to the ultimate recovery of these probable reserves. Financing Facilities Revolving Credit Facility. The Revolving Credit Facility is with a syndicate of banks and provides for a maximum borrowing commitment of $250 million consisting of an $83 million 364-day Revolving Credit Facility, or Tranche A, and a three-year $167 million Revolving Credit Facility, or Tranche B. At March 31, 2001, no amounts were outstanding under this facility. The Revolving Credit Facility bears interest at certain spreads over the Eurodollar rate, or the greater of the Federal Funds rate or the agent bank's 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%. At March 31, 2001, the annual interest rate payable on any borrowings under this facility would have been 6.5%. We are required to maintain a total debt to capitalization ratio of not more than 55%, and a senior debt to capitalization ratio of not more than 40% through December 31, 2001 and of not more than 35% thereafter. The agreement also requires a quarterly test of the ratio of EBITDA (excluding some non- recurring items) for the last four quarters, to interest and dividends on preferred stock for the same period. The ratio must exceed 1.80 to 1.0 through September 30, 2001 and increases periodically to 3.25 to 1.0 by December 31, 2002. This facility is guaranteed and secured via a pledge of the stock of our significant subsidiaries. We generally utilize excess daily funds to reduce any outstanding balances on the Revolving Credit Facility and associated interest expense. 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, 2001 are as indicated in the following table (dollars in thousands):
Interest Final Issue Date Amount Rate Maturity Principal Payments Due ---------- ------- ----------------- ----------------------------------------------- October 27, 1992 $ 25,000 7.99% October 27, 2003 $8,333 on each of October 27, 2001 through 2003 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 ------- $150,000 ========
16 Under our agreement with Prudential, 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, a total debt to capitalization ratio of not more than 60% through December 31, 2001 and of not more than 55% thereafter and a senior debt to capitalization ratio of not more than 40% through March 2002 and not more than 35% thereafter. This agreement also requires an EBITDA to interest ratio of not less than 2.75 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 4.50 to 1.0 increasing to a ratio of not less than 5.50 to 1.0 by March 31, 2002. EBITDA in these calculations excludes certain non-recurring items. In addition, this agreement contains a calculation limiting dividends under which approximately $75.0 million was available at March 31, 2001. We are currently paying an annual fee of 0.50% on the amounts outstanding on the Master Shelf Agreement. This fee will continue until we receive an implied investment grade rating on our senior secured debt. Borrowings under the Master Shelf Agreement are guaranteed and secured via a pledge of the stock of our significant subsidiaries. Senior Subordinated Notes. In 1999, we sold $155.0 million of Senior Subordinated Notes in a private placement with a final maturity of 2009 due in a single payment which were subsequently exchanged for registered publicly tradable notes under the same terms and conditions. The Subordinated Notes bear interest at 10% and were priced at 99.225% to yield 10.125%. These notes contain maintenance covenants which include limitations on debt incurrence, restricted payments, liens and sales of assets. The Subordinated Notes are unsecured and are guaranteed on a subordinated basis by some of our subsidiaries. We incurred approximately $5.0 million in offering commissions and expenses which have been capitalized and are being amortized over the term of the notes. Covenant Compliance. We were in compliance with all covenants in our debt agreements at March 31, 2001. Taking into account all the covenants contained in these agreements, we had approximately $202 million of available borrowing capacity at March 31, 2001. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- 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 counter parties, consisting primarily of financial institutions and other natural gas companies. We conduct our standard credit review of OTC counter parties 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 counter parties 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 counter parties 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 counter parties 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. For the remaining three quarters of 2001, we have entered into hedging positions for approximately 50,000 MMbtus per day of its equity gas volumes at an average of $4.34 per MMbtu. These positions represent approximately 48 percent of the Western's projected equity gas volumes in 2001.For 2002, Western has hedged approximately 52,000 MMbtus per day, or 35 percent of its projected 2002 equity gas production, with collar structures providing for an average minimum price of $3.71 per MMbtu and an average maximum price of $6.32 per MMbtu. These prices are NYMEX-equivalents. As of March 31, 2001, we had purchased puts for 125,000 barrels per month, for the remainder of 2001, of NYMEX monthly average settlement of $23.96 per barrel to hedge a portion of our equity production of natural gasoline, condensates, butanes and crude oil. As of March 31, 2001, we had purchased puts for 125,000 barrels per month, for the remainder of 2001, of OPIS Mt. Belvieu monthly average settlement of $.434 per gallon to hedge a portion of our equity production of propane for 2001. As of March 31,2001, we had purchased puts for 60,000 barrels per month, for the remainder of 2001, of OPIS Mt. Belvieu monthly average settlement of $.3175 per gallon of purity ethane to hedge a portion of our equity production of ethane for 2001. As of March 31, 2001, we did not hold any crude oil or NGL futures, swaps or options for settlement beyond 2001. 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 such trading including predetermined stop-loss requirements and net open positions limits. Speculative futures, swap and option positions are marked-to-market at the end of each accounting 18 period and any gain or loss is recognized in income for that period. Net gains or losses from such speculative activities for the quarters ended March 31, 2001 and 2000 were not material. Foreign Currency Derivative Market Risk. As a normal part of our business, we enter into physical gas transactions which are payable in Canadian dollars. We enter into forward purchases and sales of Canadian dollars from time to time to fix the cost of our future Canadian dollar denominated natural gas purchase, sale, storage and transportation obligations. This is done to protect marketing margins from adverse changes in the U.S. and Canadian dollar exchange rate between the time the commitment for the payment obligation is made and the actual payment date of such obligation. As of March 31, 2001, the net notional value of such contracts was approximately $6.8 million in Canadian dollars, which approximates its fair market value. Accounting for Derivative Instruments and Hedging Activities. In June 1998, the Financial Accounting Standards Board, the FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for fiscal years beginning after June 15, 2000. Under SFAS No. 133, which was subsequently amended by SFAS No. 138, we are required to recognize the change in the market value of all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending upon the nature of the underlying transaction. Also on January 1, 2001, we adopted mark-to-market accounting for the remainder of our marketing activities which, for various reasons, are not designated or qualified as hedges under SFAS 133. Upon the adoption of SFAS No. 133 and mark-to-market accounting on January 1, 2001, the impact was a decrease in a component of stockholders' equity through Accumulated other comprehensive income of $22.5 million, an increase to Current assets of $52.6 million, an increase to Current liabilities of $86.9 million, an increase to Other long-term liabilities of $1.2 million and a decrease in Deferred income taxes payable of $12.9 million. Of the $22.5 million decrease to Accumulated other comprehensive income resulting from the January 1, 2001 adoption of SFAS 133, $14.1 million was reversed in the first quarter of 2001 with gains and losses from the underlying transactions recognized through operating income. An additional $7.1 million of this transition entry is currently anticipated to be recognized through operating income in the remaining three quarters of 2001. The non-cash impact to our results of operations in the first quarter of 2001 resulting from the adoption of mark-to-market accounting for our marketing activities resulted in additional pre-tax income of $5.0 million. 19 Principal Facilities The following tables provide information concerning our principal facilities at March 31, 2001. We also own and operate several smaller treating, processing and transmission facilities located in the same areas as our other facilities.
Average for the Quarter Ended March 31, 2001 Gas Gas ------------------------------------------- Gathering Throughput Gas Gas NGL Year Placed System Capacity Throughput Production Production Plant Facilities (1) In Service Miles (2) (MMcf/D) (3) (MMcf/D) (4) (MMcf/D) (5) (MGal/D) (5) - --------------------------------- ----------- ------------- ------------ ------------ --------------- ------------ Texas Gomez Treating................. 1971 385 280 100 93 - Midkiff/Benedum................ 1955 2,188 165 144 95 860 Mitchell Puckett Gathering..... 1972 91 120 82 54 1 Louisiana Toca (7)(8).................... 1958 - 160 120 115 96 Wyoming Coal Bed Methane Gathering..................... 1990 444 223 252 235 - Fort Union Gas Gathering....... 1999 106 450 261 261 - Granger (7)(9)(10)............. 1987 492 235 149 127 268 Hilight Complex (7)............ 1969 626 80 64 60 67 Kitty/Amos Draw (7)............ 1969 314 17 9 6 37 Lincoln Road (10).............. 1988 149 50 18 16 20 Newcastle (7).................. 1981 146 5 3 2 16 Red Desert (7)................. 1979 111 42 14 12 23 Reno Junction (9).............. 1991 - - - - 80 Oklahoma Chaney Dell.................... 1966 2,065 180 71 56 108 Westana........................ 1986 958 45 59 53 61 New Mexico San Juan River (6)............. 1955 140 60 26 21 7 Utah Four Corners Gathering......... 1988 104 15 2 2 3 ----- ----- ----- ----- ----- Total......................... 8,319 2,127 1,374 1,208 1,647 ===== ===== ===== ===== =====
Average for the Quarter Ended March 31, 2001 ----------------------------- Pipeline Gas Year Placed Transmission Capacity Throughput Transmission Facilities (1) In Service Miles (2) (MMcf/D) (2) (MMcf/D) (4) - --------------------------------- ----------- ------------ ----------- ----------- MIGC (11)(13).................... 1970 245 130 183 MGTC (12)........................ 1963 252 18 13 ----- ----- ----- Total.......................... 497 148 196 ===== ===== =====
Footnotes on following page. 20 (1) Our interest in all facilities is 100% except for Midkiff/Benedum (73%), Newcastle (50%) and Fort Union gathering system (13%). 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 system miles, interconnect and transmission miles, and pipeline capacity are as of March 31, 2001. (3) Gas throughput capacity is as of March 31, 2001 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 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 acquired the remaining 28% interest in Lincoln Road in December 2000. We are currently processing all gas gathered through the Lincoln Road gathering system at our Granger facility. (11) MIGC is an interstate pipeline located in Wyoming and is regulated by the Federal Energy Regulatory Commission. (12) MGTC is a public utility located in Wyoming and is regulated by the Wyoming Public Service Commission. (13) Pipeline capacity represents capacity at the Powder River junction only and does not include northern delivery points. 21 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Western Gas Resources, Inc., Mountain Gas Resources, Inc., v. R.I.S. Resources International Corporation, a British Columbia, Canada corporation, RIS Resources (USA) Inc., a Texas Corporation, United States District Court, Colorado, Civil Action No. 00-S-599. Our wholly-owned subsidiary, Mountain Gas, was a defendant in prior litigation, styled as 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, which was settled in 2000, on all issues for substantially less than the amount claimed. Western Gas and Mountain Gas filed a complaint against RIS Resources (USA), Inc., Mountain Gas' jointventure partner in the Bird Canyon pipeline in Wyoming, for reimbursement of 50% of the settlement amount, which was paid in full by Mountain Gas. RIS asserted counterclaims for slander of title and intentional interference with prospective business advantage seeking an unspecified amount of damages, including punitive damages and other relief. On May 8, 2001, the Company and RIS entered a confidential settlement of the litigation pursuant to which Mountain Gas acquired all of RIS' interest in the Bird Canyon pipeline. The parties have filed with the court a joint stipulation of dismissal with prejudice of the litigation. Each party will bear its own fees and costs. Western Gas Resources, Inc., v. Amerada Hess Corporation, District Court, Denver County, Colorado, Civil Action No. 00-CV-1433. We were a defendant in prior litigation, styled as 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, which was settled in 2000 for an amount which did not have a material impact on the Company's results of operations or financial position. We are seeking reimbursement from Amerada Hess under a contractual indemnity. We have amended our original complaint and requested a jury trial in this case. Both parties filed cross motions for summary judgment. The trial court postponed the trial date for this case scheduled for the last week of April 2001. The trial court indicated that it will rule on the parties' cross motions for summary judgment on liability, and will re-instate a new trial date if necessary, after this ruling. 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. 22 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 10.24 Sixth Amendment dated April 26, 2001 to Loan Agreement dated April 29, 1999 by and among Western Gas Resources, Inc. and NationsBank, as agent, and the Lenders. 10.25 Letter Amendment No. 5 dated March 30, 2001 to Second Amended and Restated Master Shelf Agreement dated December 19, 1991 by and between Western Gas Resources, Inc and The Prudential Insurance Company of America. 10.26 Intercreditor Agreement dated April 26, 2001 by and among Western Gas Resources, Inc., Bank of America, N.A., and The Prudential Insurance Company of America. (b) Reports on Form 8-K: A report on Form 8-K was filed on March 30, 2001 to notify our stockholders of the adoption of a stockholder rights plan and the rights dividend distribution, which is incorporated herein by reference. 23 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 14, 2001 By: /s/ LANNY F. OUTLAW ------------------- Lanny F. Outlaw Chief Executive Officer and President Date: May 14, 2001 By: /s/WILLIAM J. KRYSIAK --------------------- William J. Krysiak Vice President - Finance (Principal Financial and Accounting Officer) 24 EX-10.24 2 dex1024.txt SIXTH AMENDMENT TO LOAN AGREEMENT Exhibit 10.24 SIXTH AMENDMENT TO LOAN AGREEMENT --------------------------------- THIS SIXTH AMENDMENT TO LOAN AGREEMENT (herein called this "Amendment") is made as of the 26th day of April, 2001 by and among Western Gas Resources, Inc. ("Borrower"), and Bank of America, N.A. ("Agent"), and the Lenders under the Loan Agreement referred to below. W I T N E S S E T H: WHEREAS, Borrower, Agent, and Lenders have entered into that certain Loan Agreement dated as of April 29, 1999 (as amended, restated, or supplemented to the date hereof, the "Original Agreement"), for the purposes and consideration therein expressed, pursuant to which Lenders made and became obligated to make loans to Borrower as therein provided; and WHEREAS, Borrower, Agent, and Lenders desire to amend the Original Agreement for the purposes described herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement, in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. Definitions and References -------------------------- (S) 1.I. Defined Terms. Unless the context otherwise requires or unless ------------- otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. As used herein, the following terms shall have the following meanings: "Amendment" means this Sixth Amendment to Loan Agreement. --------- "Loan Agreement" means the Original Agreement as amended by this Amendment. -------------- ARTICLE II. Amendment --------- (S) 2.1. The definition of "Tranche A Maturity Date" in Section 1.1 of the Loan Agreement is hereby amended in its entirety to read as follows: "'Tranche A Maturity Date' means April 26, 2002." ------------------------- ARTICLE III. Conditions of Effectiveness --------------------------- (S) 3.II. Effective Date. This Amendment shall become effective as of the -------------- date first above written when, and only when, (i) Agent shall have received for the pro rata distribution to each Lender in accordance with each Lender's Percentage Share of the Tranche A Commitment, an amendment fee in the amount of $83,333.34 in immediately available funds, and (ii) Agent shall have additionally received all of the following: (1) This Amendment, duly authorized, executed and delivered by Borrower, Agent, and each Lender, and in form and substance satisfactory to Agent. (2) A certificate of a duly authorized officer of Borrower dated the date of this Amendment certifying: (i) that all of the representations and warranties set forth in Article IV hereof are true and correct at and as of the time of such effectiveness; and (ii) as to such other corporate matters as Agent shall deem necessary. (c) Payment of fees and disbursements of Thompson & Knight L.L.P. relating to this Amendment and the Loan Agreement as provided in the Loan Agreement. (d) Agent shall have additionally received such other documents as Agent may reasonably request. ARTICLE IV. Representations and Warranties ------------------------------ (S) 4.I. Representations and Warranties of Borrower. In order to induce ------------------------------------------ each Lender to enter into this Amendment, Borrower represents and warrants on the date hereof and as of the Effective Date to each Lender that: (1) The representations and warranties contained in Article V of the Original Agreement are true and correct at and as of the time of the effectiveness hereof (except as 2 such representations and warranties have been modified by the transactions contemplated herein). (2) Borrower is duly authorized to execute and deliver this Amendment and Borrower is and will continue to be duly authorized to borrow monies and to perform its obligations under the Loan Agreement. Borrower has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment. (3) The execution and delivery by Borrower of this Amendment, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the certificate of incorporation and bylaws of Borrower or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of this Amendment. (4) When duly executed and delivered, this Amendment, the Loan Agreement, and each other Loan Document, as affected hereby, will be a legal and binding obligation of each Related Person that is a party hereto and thereto enforceable against such Related Person in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. (5) The audited Consolidated financial statements of Borrower dated as of December 31, 2000 fairly present the Consolidated financial position at such date of Borrower and the Consolidated statement of operations and the changes in Consolidated financial position for the periods ending on such date for Borrower. Copies of such financial statements have heretofore been delivered to Agent. Since December 31, 2000, no material adverse change has occurred in the financial condition or business or in the Consolidated financial condition or business of Borrower. ARTICLE V. Miscellaneous ------------- (S) 5.I. Ratification of Agreements. The Original Agreement as hereby -------------------------- amended is hereby ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The Loan Documents, as they may be amended or affected by this Amendment, are hereby ratified and confirmed in all respects. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of 3 Lenders under the Loan Agreement, the Notes, or any other Loan Document nor constitute a waiver of any provision of the Loan Agreement, the Notes, or any other Loan Document. (S) 5.II. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of Borrower herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower hereunder or under the Loan Agreement to any Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower under this Amendment and under the Loan Agreement. (S) 5.III. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Loan Agreement pertaining to Loan Documents apply hereto. (S) 5.IV. Governing Law. This Amendment shall be governed by and ------------- construed in accordance the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. (S) 5.V. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. THIS AMENDMENT 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 OF THE PARTIES. 4 IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. WESTERN GAS RESOURCES, INC. By:________________________________ Name: Title: BANK OF AMERICA, N.A., as Agent and Lender By:________________________________ Name: Title: SOCIETE GENERALE SOUTHWEST AGENCY, a Lender By:________________________________ Name: Title: ABN AMRO BANK N.V., a Lender By:________________________________ Name: Title: By:________________________________ Name: Title: CREDIT LYONNAIS NEW YORK BRANCH, a Lender By:________________________________ Name: Title: FLEET NATIONAL BANK, a Lender By:________________________________ Name: Title: UNION BANK OF CALIFORNIA, N.A., a Lender By:________________________________ Name: Title: By:________________________________ Name: Title: BANK ONE, NA, a Lender By:________________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION, a Lender By:________________________________ Name: Title: CONSENT AND AGREEMENT --------------------- Each of the undersigned hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, and (ii) ratifies and confirms its respective Guaranty dated as of April 29, 1999 made by it in favor of Agent for the benefit of each Lender, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. Date: April 26, 2001 MIGC, INC. WESTERN GAS RESOURCES TEXAS, INC. MOUNTAIN GAS RESOURCES, INC. LANCE OIL & GAS COMPANY, INC. WESTERN GAS WYOMING, L.L.C. By:_________________________________ Name: Title: CONSENT AND AGREEMENT --------------------- The undersigned hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, and (ii) ratifies and confirms its Guaranty dated as of October 14, 1999 made by it in favor of Agent for the benefit of each Lender, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. Date: April 26, 2001 MGTC, INC. By:_________________________________ Name: Title: EX-10.25 3 dex1025.txt LETTER AMENDMENT #5 TO 2ND AMENDED & RESTATED Exhibit 10.25 LETTER AMENDMENT NO. 5 TO SECOND AMENDED AND RESTATED MASTER SHELF AGREEMENT March 30, 2001 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 January 31, 1996), as amended by Letter Amendment No. 1 dated November 21, 1997, Letter Amendment No. 2 dated March 31, 1999, Limited Waiver, Consent, Release and Amendment No. 3 dated June 1, 1999 and Limited Waiver, Consent, Release and Amendment No. 4 dated August 25, 2000 (as amended, the "Agreement") among the undersigned, Western Gas Resources, Inc. (the "Company") and you. Unless otherwise defined herein, the terms defined in the Agreement shall be used herein as therein defined. It is hereby agreed by you and us as follows: The Agreement is, effective the date first above written, hereby amended as follows: (a) Paragraph 6C(3). Limitation on Investments and New Businesses. Clause (iii) of paragraph 6C(3) of the Agreement is amended in full to read as follows: "(iii) make any acquisitions of, capital contributions to, or other investments in, any Persons which exceed in the aggregate $500,000 other than (a) capital contributions to and investments in any joint venture described in Schedule 6C(3) or in the Wholly Owned Subsidiaries, (b) acquisitions of equity in corporations or partnerships having as their primary business gas processing, transmission and gathering, oil and gas production and storage or gas marketing and related activities or electric power generation or marketing which do not exceed in the aggregate 10%of Consolidated Net Tangible Assets, (c) deposits with, investments in obligations of and time deposits in any domestic bank or domestic branches of foreign banks which, at the time such deposit or investment is made, are rated A or better by Standard & Poor's Rating Group or Moody's Investor Service, Inc. or B or better by Thomson Bank Watch, 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 and (d) 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" On and after the effective date of this Letter Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", or words of like import referring to the Agreement, and each reference in the Notes to "the Agreement", "thereunder", "thereof", or words of like import referring to the Agreement, shall mean the Agreement as amended by this Letter Amendment. The Agreement, as amended by this Letter Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Letter Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of any provision of the Agreement. This Letter Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same Letter Amendment. If you agree to the terms and provisions hereof, please evidence your agreement by executing and returning at least a counterpart of this Letter Amendment to the Company at its address at 12200 N. Pecos Street, Denver, CO 80234, Attention of Vice President-Finance. This Letter Amendment shall become effective as of the date first above written when and if counterparts of this Letter Amendment shall have been executed by us and you and the consent attached hereto shall have been executed by the Guarantors. Very truly yours, WESTERN GAS RESOURCES, INC. By:______________________________ Title: Agreed as of the date first above written: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By:______________________________ Vice President PRUCO LIFE INSURANCE COMPANY By:______________________________ Vice President -2- CONSENT 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 and Pruco Life Insurance Company (together, "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 January 31, 1996) as amended by Letter Amendment No. 1 dated November 21, 1997, Letter Amendment No. 2 dated March 31, 1999, Limited Waiver, Consent, Release and Amendment No. 3 dated June 1, 1999 and Limited Waiver, Consent, Release and Amendment No. 4 dated August 25, 2000 (as amended, the "Agreement"). Prudential and the Company are entering into that certain Letter Amendment No. 5 to Second Amended and Restated Master Shelf Agreement, dated as of March 30, 2001 (the "Amendment"). Each of the undersigned hereby consents to the Amendment and each hereby confirms and agrees that its Guaranty is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects except that, upon the effectiveness of, and on and after the date of this consent, all words of like import referring to the Agreement shall mean the Agreement as amended by the Amendment, as the same may be further amended or modified from time to time. Dated as of March 30, 2001 LANCE OIL & GAS COMPANY, INC. MGTC, INC. MIGC, INC. MOUNTAIN GAS RESOURCES, INC. WESTERN GAS RESOURCES - TEXAS, INC. WESTERN GAS WYOMING, L.L.C. By:___________________________________________ William J. Krysiak, as Vice President - Finance of each of the above-named companies. EX-10.26 4 dex1026.txt INTERCREDITOR AGREEMENT Exhibit 10.26 INTERCREDITOR AGREEMENT ----------------------- This INTERCREDITOR AGREEMENT (as amended from time to time, herein called this "Agreement"), is entered into by and among the Lenders (as such term is defined in the Bank Revolver Agreement) (herein sometimes called the "Revolver Banks"), BANK OF AMERICA, N.A., successor in interest to NATIONSBANK, N.A., as Agent for the Revolver Banks (the "Agent"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, for itself and on behalf of any corporation or other entity (a "Prudential Affiliate"), all of the voting securities or interest of which is owned by The Prudential Insurance Company of America (herein sometimes collectively called "Prudential"; the Revolver Banks, the Agent, and Prudential are herein sometimes collectively called the "Lenders" and individually called a "Lender"). W I T N E S S E T H: WHEREAS, WESTERN GAS RESOURCES, INC., a Delaware corporation (herein called the "Company"), the Revolver Banks and the Agent have entered into that certain Loan Agreement dated as of April 29, 1999 (herein, as from time to time amended, supplemented or restated, called the "Bank Revolver Agreement"), pursuant to which, among other things, the Revolver Banks have agreed to make certain loans to the Company and the Company has executed in favor of each Revolver Bank a promissory note (such promissory notes, as from time to time supplemented or amended and all promissory notes given in renewal and extension thereof are collectively referred to herein as the "Revolver Notes"); WHEREAS, the Company and one or more of the Revolver Banks or Prudential may, from time to time, enter into interest rate swap agreements with respect to various obligations of the Company (herein, as hereafter executed and amended from time to time, collectively called the "Swap Agreements"); WHEREAS, payment of certain obligations of the Company to the Revolver Banks and the Agent arising under or in connection with the Bank Revolver Agreement and the Swap Agreements from time to time is guaranteed pursuant to those certain Guaranties dated as of April 29, 1999 from each of Mountain Gas Resources, Inc., a Delaware corporation ("MGR"), Western Gas Resources Texas, Inc., a Texas corporation ("WGRT"), MGTC, Inc., a Wyoming corporation ("MGTC") and MIGC, Inc., a Delaware corporation ("MIGC"), WGR Canada, Inc., a New Brunswick corporation ("Canada"), Lance Oil & Gas Company, Inc., a Delaware corporation ("Lance"), and Western Gas Wyoming, L.L.C., a Wyoming limited liability company ("WGW") (MGR, WGRT, MGTC, MIGC, Canada, Lance, and WGW being herein and sometimes collectively called the "Guarantors" and individually called a "Guarantor") in favor of the Revolver Banks and the Agent (herein, as amended from time to time, collectively called the "Bank Guaranties"); WHEREAS, the Company has heretofore executed and delivered to Prudential those certain Senior Notes dated October 27, 1992, September 22, 1993, December 27, 1993, October 27, 1994, and July 28, 1995 issued pursuant to a Master Shelf Agreement dated as of December 19, 1991 by and between the Company and Prudential, as amended and restated pursuant to that certain Amended and Restated Master Shelf Agreement dated as of December 19, 1991 (herein, as amended from time to time, called the "Prudential Agreement"; the Bank Revolver Agreement, the Swap Agreements, and the Prudential Agreement and collectively referred to herein as the "Credit Agreements") and may issue additional Senior Notes pursuant to the Prudential Agreement, in each case evidencing indebtedness of the Company to Prudential (the Senior Notes dated October 27, 1992, September 22, 1993, December 27, 1993, October 27, 1994, and July 28, 1995 and any additional Senior Notes issued pursuant to the Prudential Agreement being herein called the "Prudential Notes"); WHEREAS, each Guarantor has heretofore executed and delivered to Prudential its guaranty (herein, as amended from time to time, collectively called the "Prudential Guaranties"), guaranteeing payment of obligations of the Company to Prudential arising under or in connection with the Prudential Notes and the Prudential Agreement and, to the extent Prudential enters into a Swap Agreement, any such Swap Agreement (by amendment to the Prudential Guaranties); WHEREAS, hereafter subsidiaries of the Company may from time to time issue additional guaranties in favor of the Revolver Banks or any of them in connection with the Bank Revolver Agreement, in favor of any Swap Lenders (as hereinafter defined) in connection with any Swap Agreements, or in favor of Prudential in connection with the Prudential Notes and the Prudential Agreement (any such guaranty being an "Additional Guaranty" and any subsidiaries executing an Additional Guaranty herein being collectively called the "Additional Guarantors"; the Bank Guaranties, the Prudential Guaranties and the Additional Guaranties herein being collectively called the "Subject Guaranties" and individually called a "Subject Guaranty"); WHEREAS, the Company has executed and delivered to the Agent for the benefit of the Revolver Banks that certain Pledge Agreement dated as of April 29, 1999, pursuant to which the Company has granted to the Agent a security interest in all of its ownership interests in its subsidiaries, and MIGC has executed and delivered to the Agent for the benefit of the Revolver Banks that certain Stock Pledge Agreement dated as of April 29, 1999, pursuant to which MIGC has granted to the Agent a security interest in all of its ownership interests in MGTC (such Pledge Agreements as from time to time amended, supplemented or restated are herein being collectively called the "Bank Pledge Agreements"); WHEREAS, the Company has executed and delivered to Prudential that certain Pledge Agreement dated as of April 29, 1999, pursuant to which the Company has granted to Prudential a security interest in all of its ownership interests in its subsidiaries, and MIGC has executed and delivered to Prudential that certain Pledge Agreement dated as of April 29, 1999, pursuant to which MIGC has granted to Prudential a security interest in all of its ownership interests in 2 MGTC (such Pledge Agreements as from time to time amended, supplemented or restated are herein being collectively called the "Prudential Pledge Agreements"); WHEREAS, subsidiaries of the Company may from time to time create additional pledge agreements in favor of the Revolver Banks or any of them in connection with the Bank Revolver Agreement, in favor of any Swap Lenders in connection with any Swap Agreements, or in favor of Prudential in connection with the Prudential Notes and the Prudential Agreement (any such pledge agreement being an "Additional Pledge Agreement" and any subsidiaries executing an Additional Pledge Agreement herein being collectively called the "Additional Pledgors"; the Bank Pledge Agreements, the Prudential Pledge Agreements, and the Additional Pledge Agreements herein being collectively called the "Pledge Agreements" and individually called a "Pledge Agreement"); WHEREAS, the Agent, Prudential, and the Revolver Banks have entered into that certain Intercreditor Agreement dated as of as of April 29, 1999 (as amended, supplemented, or restated to the date hereof, the "Existing Intercreditor Agreement") to evidence their agreement with respect to certain payments that may be received by the Lenders under or in connection with the Subject Guaranties; and WHEREAS, the Lenders desire to amend and restate the Existing Intercreditor Agreement as provided herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the Lenders hereby agree that the Existing Intercreditor Agreement is hereby amended and restated to read in its entirety as follows: 1. If, after the occurrence and during the continuance of a "Default" or "Event of Default" under any Credit Agreement (as "Default" or "Event of Default" is defined in each Credit Agreement) any Lender shall at any time obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) from any Guarantor pursuant to a Subject Guaranty (each date on which a Lender receives any such payment or recovery is herein called a "Calculation Date") in excess of its Proportionate Share (as defined below) calculated as of such date of payments or other recoveries then or therewith obtained by all Lenders with respect to the Subject Guaranties, such Lender shall purchase from the other Lenders such participation(s) in the Indebtedness (as defined below) of the Company held by such other Lenders that is guaranteed pursuant to such other Lenders' Subject Guaranty or Subject Guaranties, as shall be necessary to cause such purchasing Lender to share such payment or other recovery ratably with such selling Lenders; provided, however, -------- ------- that if all or any portion of such payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded, and each selling Lender shall repay to the purchasing Lender the purchase price, to the ratable extent of such recovery, together with an amount equal to such selling Lender's ratable share (according to the proportion of (x) the amount of such selling Lender's required repayment to the purchasing Lender to (y) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in 3 respect of the total amount so recovered. Notwithstanding the foregoing, if a Swap Amount is not due and owing on a Calculation Date or does not actually become due and owing within 30 days of such Calculation Date, and as a result of the inclusion of the Swap Amount in calculating a Swap Lender's Proportionate Share, such Swap Lender receives a greater portion of any payment or other recovery from any Guarantor than it would have if the Swap Amount had not been included in such calculation (such amount is herein called an "Excess Amount"), then such Swap Lender shall immediately purchase from each other Lender such participation(s) in the Indebtedness of the Company held by such other Lender that is guaranteed pursuant to such other Lender's Subject Guaranty or Subject Guaranties in an amount equal to such other Lender's Proportionate Share as of such Calculation Date (after being recalculated to exclude the Swap Amount) of the Excess Amount plus such other Lender's Proportionate Share of any interest earned by the Swap Lender or such Excess Amount. As used herein the following definitions shall have the meanings set forth below: (a) The term "Proportionate Share", as used herein, shall mean a fraction (i) the numerator of which is the sum of the Indebtedness owing to such Lender plus the Swap Amount and/or Make-Whole Amount (as such terms are defined below) owing to such Lender and (ii) the denominator of which is the sum of the Indebtedness owing to all Lenders plus the Swap Amount and/or Make-Whole Amount owing to all Lenders; (b) The term "Indebtedness", as used herein, shall mean with respect to each Calculation Date, the aggregate outstanding principal amount of indebtedness of the Company under the Bank Revolver Agreement, the Revolver Notes, the Prudential Agreement, and the Prudential Notes; (c) The term "Make-Whole Amount" as used herein shall mean with respect to Prudential, the "Yield Maintenance Amount" as defined in the Prudential Agreement except that (for purposes of this Agreement only) the "Reinvestment Yield", which is defined in the Prudential Agreement and used in computing such Yield Maintenance Amount, shall be the rate of 1.29% per annum with respect to the 7.51% Notes, 1.32% per annum with respect to the 7.99% Notes, 1.35% per annum with respect to the 6.77% Notes, 1.40% per annum with respect to the 7.23% Notes, 1.40% per annum with respect to the 9.05% Notes, 1.45% per annum with respect to the 9.24% Notes, and 1.55% per annum with respect to the 7.61% Notes [initial spread over comparable U.S. treasuries at time of commitment used to set the coupon, which is payable quarterly] above the Reinvestment Yield, as it would otherwise be calculated under the Prudential Agreement, and with respect to additional Prudential Notes issued under the Prudential Agreement, the initial spread over comparable average life U.S. treasuries at time of commitment to purchase such Prudential Notes above the Reinvestment Yield, as it would otherwise be calculated under the Prudential Agreement; and (d) The term "Swap Amount", as used herein, shall mean with respect to each Lender (a "Swap Lender") on each Calculation Date and on each Determination Date, the aggregate amount of all breakage, unwinding and all related costs under all Swap 4 Agreements which would be due and owing thereunder to such Swap Lender on such Calculation Date or Determination Date if any such Swap Agreement was terminated on such date whether or not such Swap Amount is actually due and owing on such date. 2. If any Lender shall at any time obtain any payment or other recovery (whether voluntary, involuntary, or otherwise) under a Pledge Agreement (each date on which a Lender receives any such payment or recovery is herein called a "Determination Date") in excess of its Proportionate Share (as defined below) calculated as of such date of payments or other recoveries then or therewith obtained by all Lenders under a Pledge Agreement, such Lender shall purchase from the other Lenders such participation(s) in the Indebtedness of the Company held by such other Lenders that is secured by the Pledge Agreements, as shall be necessary to cause such purchasing Lender to share such payment or other recovery ratably with such selling Lenders; provided, however, that if all -------- ------- or any portion of such payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded, and each selling Lender shall repay to the purchasing Lender the purchase price, to the ratable extent of such recovery, together with an amount equal to such selling Lender's ratable share (according to the proportion of (x) the amount of such selling Lender's required repayment to the purchasing Lender to (y) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Notwithstanding the foregoing, if a Swap Amount is not due and owing on a Determination Date or does not actually become due and owing within 30 days of such Determination Date, and as a result of the inclusion of the Swap Amount in calculating a Swap Lender's Proportionate Share, such Swap Lender receives a greater portion of any payment or other recovery with respect to the Pledged Interests under any Pledge Agreement than it would have if the Swap Amount had not been included in such calculation (such amount is herein called a "Pledge Agreement Excess Amount"), then such Swap Lender shall immediately purchase from each other Lender such participation(s) in the Indebtedness of the Company held by such other Lender that is secured under such other Lender's Pledge Agreement in an amount equal to such other Lender's Proportionate Share as of such Determination Date (after being recalculated to exclude the Swap Amount) of the Pledge Agreement Excess Amount plus such other Lender's Proportionate Share of any interest earned by the Swap Lender or such Pledge Agreement Excess Amount. As used herein, the term "Pledged Interests" shall mean all of the personal property of the Company, MIGC or any Additional Pledgor in which a security interest is granted pursuant to the Pledge Agreements; and 3. Each of the Company and each Guarantor, by signing the Consent and Agreement attached hereto, agrees that each Lender so purchasing a participation from another Lender pursuant to Section 1 or 2 hereof may, to the fullest extent permitted by law, exercise all its rights of payment (including rights of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the Company and such Guarantor in the amount of such participation. By its execution of the Consent and Agreement, the Company hereby agrees that it shall cause each Additional Guarantor and each Additional Pledgor to execute and deliver to Lenders a Consent and Agreement substantially in the form attached hereto concurrently with the delivery of its respective Additional Guaranty or Additional Pledge Agreement, as applicable. 5 4. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which Section 2 hereof applies, such Lender shall exercise its rights in respect of such secured claim in a manner consistent with the rights of the other Lenders in accordance with Section 1 hereof. 5. All security interests of the Lenders in the Pledged Interests shall be pari passu regardless of the order of filing of any financing statements with - ---------- respect thereto or the taking of any other action relevant to the determination of the perfection or priority of such security interests. Except for the filings to be made by the Agent on behalf of the Revolver Banks, each Lender shall be responsible for the preparation and filing of its respective financing statement covering the Pledged Interests. The Lenders hereby direct the Agent to receive and maintain physical possession, of all certificates (the "Certificates") evidencing the Pledged Interests. The Agent will hold the Certificates to perfect each Lender's security interest in the Pledged Interests. The Agent will hold the Certificates in its capacity as collateral agent for Revolver Lenders and as bailee on behalf of Prudential and any subsequent holder of Prudential Notes. Prudential hereby acknowledges that the Agent is acting on its behalf solely as a bailee and has no fiduciary obligation to Prudential or any subsequent holder of Prudential Notes. 6. Prior to the occurrence of an Acceleration Event, no Lender shall exercise any remedy or other right available to it with respect to any Pledged Interest. Concurrently with the occurrence of any event described in either clause (i) or (ii) of the definition of Acceleration Event, the Lender so accelerating its Note shall give written notice of such Acceleration Event to the Agent, in its capacity as collateral agent and bailee, and each other Lender. After the occurrence of an Acceleration Event, upon ten (10) days notice to Agent and each other Lender, any Lender may exercise remedies pursuant to its respective Pledge Agreement; provided that all proceeds from any such exercise of remedies shall be subject to the sharing provisions of Section 2 hereof. As used herein, the following definitions shall have the meanings set forth below: (a) The term "Acceleration Event", as used herein, shall mean (i) the failure by the Company to pay in full the outstanding principal balance of and any accrued and unpaid interest on any Note on the final maturity date of such Note; (ii) the acceleration of the outstanding principal balance of and any accrued and unpaid interest on, any Note by any Lender or by any person or entity acting on behalf of any Lender; or (iii) the Company or MIGC (A) suffers the entry against it of a judgment, decree or order or 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; (B) 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 6 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 (C) 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; and (b) The term "Note", as used herein, shall mean any of the Revolver Notes or the Prudential Notes. 7. This Agreement shall in all respects be a continuing, absolute, unconditional and irrevocable agreement, and shall remain in full force and effect until all obligations of the Guarantors and the Additional Guarantors to the Lenders shall have been satisfied in full, all obligations of all Lenders to the other Lenders hereunder shall have been satisfied in full and all Pledge Agreements have been terminated. Each Lender agrees that this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the obligations of the Company, any of the Guarantors or any of the Additional Guarantors is rescinded or must otherwise be restored by any Lender, upon the insolvency, bankruptcy or reorganization of the Company, any of the Guarantors or any of the Additional Guarantors or otherwise, as though such payment had not been made. 8. In order to induce Prudential to enter into this Agreement, each of the Revolver Banks and the Agent severally represent and warrant to Prudential that it has full corporate power, and has taken all action necessary, to execute and deliver this Agreement and to fulfill its respective obligations hereunder, and that no governmental or other authorizations are required in connection herewith, and that this Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, regulatory and similar laws of general application and by general principles of equity. 9. In order to induce the Revolver Banks and the Agent to enter into this Agreement, Prudential represents and warrants to the Revolver Banks and the Agent that it has full corporate power, and has taken all action necessary, to execute and deliver this Agreement and to fulfill its obligations hereunder, and that no governmental or other authorizations are required in connection herewith, and that this Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, regulatory and similar laws of general application and by general principles of equity. 10. This Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the Lenders and each of their respective successors, transferees and assigns. Without limiting the generality of the foregoing sentence, any Lender may assign or otherwise transfer (in whole or in part) to any other person or entity the obligations of the Company, any of 7 the Guarantors, any of the Additional Guarantors or any of the Additional Pledgors to such Lender (with respect to the Revolver Banks, subject to the provisions of the Revolver Bank Agreement), and such other person or entity shall thereupon become vested with all rights and benefits, and become subject to all the obligations, in respect thereof granted to or imposed upon such Lender under this Agreement, subject, however, to any contrary provisions in such assignment or transfer (with respect to the Revolver Banks, subject to the provisions of the Revolver Bank Agreement). Prudential will cause any Prudential Affiliate who purchases any Note to execute a copy of this Agreement and deliver it to each Lender. 11. None of the provisions of this Agreement shall inure to the benefit of the Company, any of the Guarantors, any of the Additional Guarantors, any of the Additional Pledgors or any other person than the Lenders; consequently, the Company, the Guarantors, the Additional Guarantors, the Additional Pledgors and any and all other persons shall not be entitled to rely upon, or to raise as a defense, in any manner whatsoever, the provisions of this Agreement or the failure of any Lender to comply with such provisions. 12. No amendment to or waiver of any provision of this Agreement, nor consent to any departure by any Lender herefrom, shall in any event be effective unless the same shall be in writing and signed by all the Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. All notices and other communications provided to any Lender under this Agreement shall be in writing or by facsimile and addressed, delivered or transmitted to such Lender at its address or facsimile number set forth (a) on Annex 1 hereto, or (b) at such other address or facsimile number as may be designated by such Lender in a notice to the other Lenders. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by prepaid courier service, shall be deemed given received; any notice, if transmitted by facsimile, shall be deemed given when transmitted if actually received, and the burden of proving receipt shall be on the transmitting Lender. 14. No failure or delay on the part of any Lender in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof of the exercise of any other power or right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 15. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS. THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING BETWEEN THE 8 PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. 17. EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY LENDER IN CONNECTION HEREWITH. EACH LENDER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE OTHER LENDERS ENTERING INTO THIS AGREEMENT. 18. This Agreement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of April 26, 2001 by their duly authorized officers. BANK OF AMERICA, N.A. By:____________________________________ Name: Title: 10 -----END PRIVACY-ENHANCED MESSAGE-----