-----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, QmwlS/aGuuT7+FraGFWiFa5OmsIH20x3dpBAiVW41dhD7V/+iZp+sRfCqI+z222c h9g6zAt5MswVWzxLbINJ/Q== 0000860713-97-000005.txt : 19970509 0000860713-97-000005.hdr.sgml : 19970509 ACCESSION NUMBER: 0000860713-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SNYDER OIL CORP CENTRAL INDEX KEY: 0000860713 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752306158 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10509 FILM NUMBER: 97597717 BUSINESS ADDRESS: STREET 1: 777 MAIN ST STE 2500 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173384043 MAIL ADDRESS: STREET 1: 777 MAIN STREET SUITE 2500 CITY: FORT WORTH STATE: TX ZIP: 76102 10-Q 1 3/31/97 QUARTER REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (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, 1997 -------------------- 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 1-10509 SNYDER OIL CORPORATION Delaware 75-2306158 - ------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 777 Main Street, Fort Worth, Texas 76102 - ---------------------------------- ------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (817) 338-4043 ----------------- - -------------------------------------------------------------------------------- (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 . 30,563,725 Common Shares were outstanding as of May 6, 1997 PART I. FINANCIAL INFORMATION The financial statements included herein have been prepared in conformity with generally accepted accounting principles. The statements are unaudited, but reflect all adjustments which, in the opinion of management, are necessary to fairly present the Company's financial position and results of operations. 2 SNYDER OIL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 1997 1996 ----------- ------------ (Unaudited) ASSETS Current assets Cash and equivalents $ 37,892 $ 27,922 Accounts receivable 44,085 58,944 Inventory and other 7,976 11,212 ----------- ----------- 89,953 98,078 ----------- ----------- Investments 124,015 129,681 ----------- ----------- Oil and gas properties, successful efforts method 910,182 887,721 Accumulated depletion, depreciation and amortization (274,549) (252,334) ----------- ----------- 635,633 635,387 ----------- ----------- Gas facilities and other 23,740 28,111 Accumulated depreciation and amortization (10,810) (11,798) ----------- ----------- 12,930 16,313 ----------- ----------- $ 862,531 $ 879,459 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 51,163 $ 51,867 Accrued liabilities 38,702 37,043 ----------- ----------- 89,865 88,910 ----------- ----------- Senior debt 140,751 188,231 Subordinated notes 99,913 103,094 Convertible subordinated notes 80,324 80,748 Deferred taxes payable 25,294 9,034 Other noncurrent liabilities 28,766 28,064 Minority interest 86,289 86,710 Commitments and contingencies Stockholders' equity Preferred stock, $.01 par, 10,000,000 shares authorized, 6% Convertible preferred stock, 1,033,500 shares issued and outstanding 10 10 Common stock, $.01 par, 75,000,000 shares authorized, 31,543,665 and 31,456,027 shares issued 315 315 Capital in excess of par value 260,411 260,221 Retained earnings 42,030 25,711 Common stock held in treasury, 989,800 and 250,000 shares at cost (15,712) (3,510) Unrealized gain on investments 24,275 11,921 ----------- ----------- 311,329 294,668 ----------- ----------- $ 862,531 $ 879,459 =========== =========== The accompanying notes are an integral part of these statements.
3 SNYDER OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data)
Three Months Ended March 31, 1997 1996 ------------ ------------ (Unaudited) Revenues Oil and gas sales $ 67,848 $ 36,122 Gas transportation, processing and marketing 4,209 4,451 Gains on sales of equity interests in investees 13,000 407 Gains (losses) on sales of properties 2,607 (20) Other 1,091 759 ---------- ---------- 88,755 41,719 ---------- ---------- Direct operating 14,021 10,759 Cost of gas and transportation 4,191 3,696 Exploration 1,700 514 General and administrative 5,492 3,868 Interest 6,787 3,614 Other 1,756 679 Depletion, depreciation and amortization 23,208 16,771 ---------- ---------- Income before taxes and minority interest 31,600 1,818 ---------- ---------- Provision (benefit) for income taxes Current - 25 Deferred 8,871 (335) ---------- ---------- 8,871 (310) ---------- ---------- Minority interest in subsidiaries 2,803 351 ---------- ---------- Net income 19,926 1,777 Preferred stock dividends 1,550 1,553 ---------- ---------- Net income available to common $ 18,376 $ 224 ========== ========== Net income per common share $ .59 $ .01 ========== ========== Weighted average shares outstanding 31,030 31,302 ========== ========== The accompanying notes are an integral part of these statements.
4 SNYDER OIL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Preferred Stock Common Stock Capital in Retained ------------------ ------------------ Excess of Earnings Treasury Shares Amount Shares Amount Par Value (Deficit) Stock ------ ------ ------ ------ --------- ---------- ---------- Balance, December 31, 1995 1,035 $ 10 31,430 $ 314 $ 265,911 $ (29,001) $ (2,457) Common stock grants and exercise of options - - 267 3 3,179 - (258) Issuance of common - - 399 4 3,689 - - Repurchase of common - - (640) (6) (6,243) - (795) Repurchase of preferred (1) - - - (142) - - Dividends - - - - (6,173) (8,238) - Net income - - - - - 62,950 - ------- ------ -------- ------- --------- -------- -------- Balance, December 31, 1996 1,034 10 31,456 315 260,221 25,711 (3,510) Common stock grants and exercise of options - - 88 - 190 - - Repurchase of common - - - - - - (12,202) Dividends - - - - - (3,607) - Net income - - - - - 19,926 - ------- ------ -------- ------- --------- -------- -------- Balance, March 31, 1997 (Unaudited) 1,034 $ 10 31,544 $ 315 $ 260,411 $ 42,030 $(15,712) ======= ====== ======== ======= ========= ======== ======== The accompanying notes are an integral part of these statements.
5 SNYDER OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended March 31, 1997 1996 ------------ ------------ (Unaudited) Operating activities Net income $ 19,926 $ 1,777 Adjustments to reconcile net income to net cash provided by operations Amortization of deferred credits - (534) Gains on sales of equity interests in investees (13,000) (407) (Gains) losses on sales of properties (2,607) 20 Equity in (earnings) losses of investees (222) 88 Exploration expense 1,700 514 Depletion, depreciation and amortization 23,208 16,771 Deferred taxes 8,871 (335) Minority interest in subsidiaries 2,803 351 Changes in operating assets and liabilities Decrease (increase) in Accounts receivable 14,859 (3,611) Inventory and other (74) 50 Increase (decrease) in Accounts payable (704) 16,390 Accrued liabilities (3,109) 1,050 Other liabilities 124 (5,415) ----------- ----------- Net cash provided by operations 51,775 26,709 ----------- ----------- Investing activities Acquisition, exploration and development (55,913) (14,088) Proceeds from investments 40,153 774 Outlays for investments - (165) Proceeds from sales of properties 8,380 (63) ----------- ----------- Net cash used by investing (7,380) (13,542) ----------- ----------- Financing activities Issuance of common 739 512 Increase (decrease) in indebtedness (15,639) 6,102 Dividends (3,607) (3,589) Deferred credits - (120) Repurchase of stock (12,202) - Repurchase of subordinated notes (3,716) - ----------- ----------- Net cash (used) realized by financing (34,425) 2,905 ----------- ----------- Increase in cash 9,970 16,072 Cash and equivalents, beginning of period 27,922 27,263 ----------- ----------- Cash and equivalents, end of period $ 37,892 $ 43,335 =========== =========== The accompanying notes are an integral part of these statements.
6 SNYDER OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND NATURE OF BUSINESS Snyder Oil Corporation (the "Company") is primarily engaged in the acquisition, exploration and development of oil and gas properties principally in the Rocky Mountain and Gulf Coast regions of the United States. The Company also gathers, transports and markets natural gas. The Company is also engaged in international acquisition, exploration and development, primarily through affiliates. The Company, a Delaware corporation, is the successor to a company formed in 1978. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Snyder Oil Corporation ("SOCO") and its subsidiaries (collectively, the "Company"). Affiliates in which the Company owns more than 50% but less than 100% are fully consolidated, with the related minority interest being deducted from subsidiary earnings and stockholders' equity. Affiliates being accounted for in this manner include Patina Oil & Gas Corporation ("Patina"), SOCO International Holdings, Inc. ("Holdings") and SOCO International Operations, Inc. ("Operations"). SOCO Offshore, Inc. ("SOCO Offshore") was accounted for in this manner until all remaining minority interests were acquired in June 1996. Affiliates in which the Company owns between 20% and 50% are accounted for under the equity method. Affiliates being accounted for in this manner include SOCO Perm Russia, Inc. ("SOCO Perm"), a Russian affiliate, and SOCO Tamtsag Mongolia, Inc. ("SOCO Tamtsag"), a Mongolian affiliate. Command Petroleum Limited ("Command"), an Australian affiliate, was accounted for in this manner until the Company disposed of this investment in November 1996. Affiliates in which the Company owns less than 20% are accounted for under the cost method. Affiliates being accounted for in this manner include Cairn Energy plc ("Cairn"). The Company accounts for its interest in joint ventures and partnerships using the proportionate consolidation method, whereby its share of assets, liabilities, revenues and expenses are consolidated. Producing Activities The Company utilizes the successful efforts method of accounting for its oil and gas properties. Consequently, leasehold costs are capitalized when incurred. Unproved properties are assessed periodically within specific geographic areas and impairments in value are charged to expense. During the three months ended March 31, 1997, the Company provided unproved property impairments of $296,000. Exploratory expenses, including geological and geophysical expenses and delay rentals, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined to be unsuccessful. Costs of productive wells, unsuccessful developmental wells and productive leases are capitalized and amortized on a unit-of-production basis over the life of the remaining proved or proved developed reserves, as applicable. Gas is converted to equivalent barrels at the rate of 6 Mcf to 1 barrel. Amortization of capitalized costs is generally provided on a property-by-property basis. Estimated future abandonment costs (net of salvage values) are accrued at unit-of-production rates and taken into account in determining depletion, depreciation and amortization. The Company follows Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121 requires the Company to assess the need for an impairment of capitalized costs of oil and gas properties on a property-by-property basis. If an impairment is indicated based on undiscounted expected future cash flows, then it is recognized to the extent that net capitalized costs exceed discounted expected future cash flows. During the three months ended March 31, 1997 and 1996, the Company did not provide for any such impairments. 7 Section 29 Tax Credits The Company from time to time enters into arrangements to monetize its Section 29 tax credits. These arrangements result in revenue increases of approximately $.40 per Mcf on production volumes from qualified Section 29 properties. As a result of such arrangements, the Company recognized additional gas revenues of $801,000 and $534,000 during the three months ended March 31, 1997 and 1996, respectively. These arrangements are expected to continue through 2002. Gas Imbalances The Company uses the sales method to account for gas imbalances. Under this method, revenue is recognized based on the cash received rather than the proportionate share of gas produced. Gas imbalances at year end 1996 and March 31, 1997 were insignificant. Financial Instruments The following table sets forth the book value and estimated fair values of financial instruments (in thousands):
March 31, December 31, 1997 1996 ------------------------ ----------------------- Book Fair Book Fair Value Value Value Value ----------- ----------- ---------- ---------- Cash and equivalents $ 37,892 $ 37,892 $ 27,922 $ 27,922 Investments 124,015 145,366 129,681 163,477 Senior debt (140,751) (140,751) (188,231) (188,231) Subordinated notes (99,913) (102,948) (103,094) (105,650) Convertible subordinated notes (80,324) (82,739) (80,748) (82,866) Long-term commodity contracts - 4,936 - 5,040 Interest rate swap - 40 - (19)
The book value of cash and equivalents approximates fair value because of the short maturity of those instruments. See Note (3) for a discussion of the Company's investments. The fair value of senior debt is presented at face value given its floating rate structure. The fair value of the subordinated notes and convertible subordinated notes are estimated based on their March 31, 1997 and December 31, 1996 closing prices on the New York Stock Exchange. From time to time, the Company enters into commodity contracts to hedge the price risk of a portion of its production. Gains and losses on such contracts are deferred and recognized in income as an adjustment to oil and gas sales revenue in the period to which the contracts relate. In 1994, the Company entered into a long-term gas swap arrangement in order to lock in the price differential between the Rocky Mountain and Henry Hub prices on a portion of its Rocky Mountain gas production. The contract covers 20,000 MMBtu per day through 2004. At March 31, 1997, that volume represented approximately 15% of the Company's consolidated Rocky Mountain gas production. The fair value of the contract was based on the market price quoted for a similar instrument. In September 1995, the Company entered into an interest rate swap covering $50 million of its bank debt. The agreement requires payment to a counterparty based on a fixed rate of 5.585% and requires the counterparty to pay the Company interest at the then current 30 day LIBOR rate. Accounts receivable or payable under this agreement are recorded as adjustments to interest expense and are settled on a monthly basis. The agreement matures in September 1997, with the counterparty having the option to extend it for two years. At March 31, 1997 and December 31, 1996, the fair value of the agreement was estimated at the net present value discounted at 10%. 8 Risks and Uncertainties Historically, the market for oil and gas has experienced significant price fluctuations. Prices for gas in the Rocky Mountain region, where the Company currently produces over 70% of its natural gas, have traditionally been particularly volatile. Prices are significantly impacted by the local weather, supply in the area, seasonal variations in local demand and limited transportation capacity to other regions of the country. Increases or decreases in prices received, particularly in the Rocky Mountains, could have a significant impact on the Company's future results of operations. The Company's strategy internationally is to develop a portfolio of projects that have the potential to make a major contribution to its production and reserves while limiting its financial exposure and mitigating political risk by seeking industry partners and investors to fund the majority of the required capital. Such projects are subject to a number of political and economic uncertainties, in addition to the typical risks and volatility associated with the oil and gas industry. There is no assurance that the Company's international operations will reach a level reasonably required to fully exploit the projects, nor is there any assurance of economic success should such a level be reached. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other All liquid investments with an original maturity of three months or less are considered to be cash equivalents. Certain amounts in prior years consolidated financial statements have been reclassified to conform with current classification. In the opinion of management, those adjustments to the financial statements (all of which are of a normal and recurring nature) necessary to present fairly the financial position and results of operations have been made. These interim financial statements should be read in conjunction with the 1996 annual report on Form 10-K. (3) INVESTMENTS The Company has investments in foreign and domestic energy companies and long-term notes receivable. The following table sets forth the book values and estimated fair values of these investments:
March 31, 1997 December 31, 1996 ------------------------ ------------------------ (In thousands) Book Fair Book Fair Value Value Value Value --------- --------- --------- --------- Equity method investments $ 8,649 $ 30,000 $ 8,789 $ 42,585 Marketable securities 110,503 110,503 115,558 115,558 Long-term notes receivable 4,863 4,863 5,334 5,334 --------- --------- --------- --------- $ 124,015 $ 145,366 $ 129,681 $ 163,477 ========= ========= ========= =========
The Company follows SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities", which requires that investments in marketable securities accounted for on the cost method and long-term notes receivable must be adjusted to their market value with a corresponding increase or decrease to stockholders' equity. The pronouncement does not apply to investments accounted for by the equity method. 9 Command Petroleum Limited From May 1993 to November 1996, the Company had an investment in Command, an Australian oil company, which was accounted for by the equity method. In November 1996, the Company accepted an offer for its interest in Command. The Company received 16.2 million shares of freely marketable common stock of Cairn, an international independent oil company based in Edinburgh, Scotland whose shares are listed on the London Stock Exchange. The Company recognized a gain of $65.5 million as a result of this exchange. The Company's investment in Cairn is accounted for under the cost method and is reflected as marketable securities in the table above. Immediately prior to the acceptance of Cairn's offer, the Company accrued for a transaction in which a director of the Company exchanged his option to purchase 10% of the outstanding common stock of SOCO International, Inc. (through which the investment in Command was held) and issued promissory notes to the Company totaling $591,000 for 10% of the outstanding common stock of two SOCO International, Inc. subsidiaries, Holdings and Operations. As a result of this transaction, the Company recorded a $260,000 loss. Additionally, minority interest expense of $4.3 million was recorded related to the director's 10% ownership as a result of the Command gain. The actual exchange occurred in December 1996 and the promissory notes remained outstanding at March 31, 1997. SOCO International Operations, Inc. In 1993, SOCO Perm, an affiliate of Operations, was organized by the Company and a U.S. industry participant. SOCO Perm and a Russian partner formed the Permtex joint venture to develop proven oil fields in the Volga-Urals Basin of Russia. To finance a portion of its planned development expenditures, SOCO Perm closed a private placement of its equity securities with three industry participants in 1994. As a result, the Company's investment was reduced from 75% to 41.25% and a $3.5 million gain was recorded. In 1995, the three industry participants paid the final installments of their contributions to SOCO Perm and as a result, the Company recognized an additional gain of $1.1 million. In April 1996, SOCO Perm closed a private placement which reduced the Company's interest to 34.91%. The Company recognized a gain of $2.6 million as a result of this transaction. The private placement agreement requires SOCO Perm to list its common shares on a securities exchange no later than 1998. If such listing does not occur, the new shareholders have the right to require the Company to purchase their share at a formula price. The Company's investment in SOCO Perm had a carrying cost at March 31, 1997 of $7.0 million. In 1994, the Company formed a consortium to explore the Tamtsag Basin of eastern Mongolia, then sold a portion of its interest to three industry participants. One participant committed to fund the drilling of two wells, the second purchased its interest for cash and a third participant assigned its exploration rights in the basin to the consortium. Accordingly, the Company's investment in SOCO Tamtsag, an affiliate of Operations, was reduced from 100% to 49% and a $1.5 million gain was recognized. In 1996, the Company completed the exchange of a portion of its interest to an industry participant for consulting services valued at $1.5 million. As a result of this transaction, the Company's ownership was reduced to 42% and an $832,000 gain was recognized. In August 1996, the Mongolian Parliament ratified the grant of two additional concessions in the area to SOCO Tamtsag, bringing the total acreage position to approximately 10 million acres. In January 1997, SOCO Tamtsag completed an equity sale which reduced the Company's investment to 40.3%. The Company's investment in SOCO Tamtsag had a carrying cost of $1.6 million at March 31, 1997 in addition to $4.3 million in stockholder loans, which are required on a pro rata basis by all stockholders, to SOCO Tamtsag which are included in notes receivable in the table above. The Company is currently seeking a listing of a newly formed entity, SOCO International plc ("SOCO plc"), on the London Stock Exchange and intends to conduct an offering of its shares. The Company will contribute to SOCO plc all the assets of Operations, which includes the Company's interests in Russia, Mongolia and Thailand. Certain minority interest owners in these ventures are also expected to contribute their interests. If such listing occurs, it is expected to meet the requirement to list SOCO Perm. As part of the listing, SOCO plc will also acquire Cairn's UK onshore company as well as certain assets in Yemen and Tunisia that were formerly owned by Command. The offering is expected to raise approximately $75 million of new equity capital for SOCO plc. Following the offering, the Company, which will retain all its shares, expects to have an approximate 15% to 17% interest in SOCO plc. The Company estimates the fair value of its investment in Operations at March 31, 1997 to be between $30 10 million and $37 million based on preliminary indications related to the listing. The listing and offering are subject to certain conditions and there can be no assurance that the offering will be consummated. Marketable Securities The Company had an investment in equity securities of one publicly traded foreign energy company, Cairn, accounted for on the cost method at March 31, 1997 and December 31, 1996. In the first quarter of 1997, the Company sold 4.5 million Cairn shares at an average of $8.81 per share realizing $39.2 million in proceeds. These transactions resulted in a gain of $13.0 million. The Company's total cost basis in the Cairn shares was $69.0 million at March 31, 1997. The market value of the Cairn shares approximated $110.5 million at March 31, 1997. In accordance with SFAS 115, at March 31, 1997 and December 31, 1996, respectively, investments were increased by $41.5 million and $20.4 million in gross unrealized holding gains, stockholders' equity was increased by $24.3 million and $11.9 million, minority interest liability was increased by $2.7 million and $1.3 million and deferred taxes payable were increased by $14.5 million and $7.2 million. Notes Receivable The Company holds long-term notes receivable due from SOCO Tamtsag, other privately held corporations and a director, with a book value of $4.9 million and $5.3 million at March 31, 1997 and December 31, 1996. SOCO Tamtsag shareholder loans, which bear interest at the three month LIBOR rate plus two percent, are to be repaid from the gross receipts of SOCO Tamtsag under certain circumstances (i.e., excess cash reserves). Any remaining balances mature December 31, 2009. If the listing of SOCO plc on the London Stock Exchange is consummated, these notes are expected to be contributed to the new public company. The notes from other privately held corporations are secured by certain assets, including stock and oil and gas properties. The notes from a director, which originated in connection with an option to purchase 10% of the Company's international affiliates, are unsecured and are due April 10, 1998. The Company believes that, based on existing market conditions, the March 31, 1997 balances will be recovered in the long term. At March 31, 1997 and December 31, 1996, the fair value of the notes receivable, based on existing market conditions and the anticipated future net cash flow related to the notes, approximated their carrying cost. (4) OIL AND GAS PROPERTIES AND GAS FACILITIES The cost of oil and gas properties at March 31, 1997 and December 31, 1996 both include $32.7 million of unevaluated leasehold. Such properties are held for exploration, development or resale. The following table sets forth costs incurred related to oil and gas properties and gas processing and transportation facilities:
Three Months Ended Year Ended March 31, December 31, 1997 1996 -------------- -------------- (In thousands) Proved acquisitions $ 595 $ 273,088 Acreage acquisitions 431 24,589 Development 20,259 43,075 Gas processing, transportation and other 753 3,612 Exploration 1,768 4,588 --------- ---------- $ 23,806 $ 348,952 ========= ==========
Of the $20.3 million development expenditures, the majority was concentrated in the Gulf of Mexico, the DJ Basin of Colorado, the Washakie Basin of southern Wyoming, the Green River Basin of southern Wyoming and the Piceance Basin of western Colorado. During the three months ended March 31, 1997, the Company placed 30 wells on sales, drilled one developmental dry hole and had 22 wells in progress at quarter end. 11 The exploration costs incurred in the first quarter of 1997 were primarily the result of seismic programs in the Gulf of Mexico and north Louisiana. (5) INDEBTEDNESS The following indebtedness was outstanding on the respective dates:
March 31, December 31, 1997 1996 -------------- ------------- (In thousands) SOCO bank facility $ 53,301 $ 93,731 Patina bank facility 87,450 94,500 Less current portion - - ----------- ----------- Senior debt $ 140,751 $ 188,231 =========== =========== Patina subordinated notes $ 99,913 $ 103,094 =========== =========== SOCO convertible subordinated notes $ 80,324 $ 80,748 =========== ===========
SOCO maintains a $500 million revolving credit facility ("SOCO Facility"). The facility is divided into a $400 million long-term portion and a $100 million short-term portion. The borrowing base available under the facility was $140 million at March 31, 1997. The majority of the borrowings under the facility currently bear interest at LIBOR plus .75% with the remainder at prime, with an option to select CD plus .75%. The margin on LIBOR or CD increases to 1% when the Company's consolidated senior debt becomes greater than 80% of its consolidated tangible net worth as defined. During the first quarter of 1997, the average interest rate under the revolver was 6.3%. The Company pays certain fees based on the unused portion of the borrowing base. Among other requirements, covenants require maintenance of a current working capital ratio of 1 to 1 as defined, limit the incurrence of debt and restrict dividends, stock repurchases, certain investments, other indebtedness and unrelated business activities. Such restricted payments are limited by a formula that includes proceeds from certain securities, cash flow and other items. Based on such limitations, more than $70 million was available for the payment of dividends and other restricted payments at March 31, 1997. Patina maintains a $140 million revolving credit facility ("Patina Facility"). The borrowing base available under the facility was $120 million at March 31, 1997. Effective May 1, 1997, the borrowing base was reduced to $110 million. Patina may elect that all or a portion of the facility bear interest at a rate per annum equal to: (i) the higher of (a) prime rate plus a margin equal to .25% (the "Applicable Margin") and (b) the Federal Funds Effective Rate plus .5% plus the Applicable Margin, or (ii) the rate at which Eurodollar deposits for one, two, three or six months (as selected by Patina) are offered in the interbank Eurodollar market plus a margin which fluctuates from .625% to 1.125% determined by a debt to EBITDA ratio. During the first quarter of 1997, the average interest rate under the facility was 6.9%. The Patina Facility agreement contains certain financial covenants, including but not limited to a maximum total debt to capitalization ratio, a maximum total debt to EBITDA ratio and a minimum current ratio. The bank credit agreement also contains certain negative covenants, including but not limited to restrictions on indebtedness; certain liens; guaranties, speculative derivatives and other similar obligations; asset dispositions; dividends, loans and advances; creation of subsidiaries; investments; leases; acquisitions; mergers; changes in fiscal year; transactions with affiliates; changes in business conducted; sale and leaseback and operating lease transactions; sale of receivables; prepayment of other indebtedness; amendments to principal documents; pledges of assets; issuance of securities; and non speculative commodity hedging. 12 In 1996, as part of an acquisition, Patina recorded $98.8 million of 11.75% Subordinated Notes ("Notes") due July 15, 2004 issued on July 1, 1994. The Notes were recorded at a market value of $104.6 million or 105.875% of their principal amount. Patina assumed the Notes in March 1997 when a wholly owned subsidiary was merged into Patina. During 1996, $1.5 million of the Notes were repurchased by the Company and retired. During the first quarter of 1997, $3.2 million of the Notes were repurchased by the Company and retired. Interest is payable each January 15 and July 15. The Notes are redeemable at the option of Patina, in whole or in part, at any time on or after July 15, 1999, initially at 105.875% of their principal amount, declining to 100% on or after July 15, 2001. Upon the occurrence of a change of control, as defined in the Notes, Patina would be obligated to make an offer to purchase all outstanding Notes at a price of 101% of the principal amount thereof. In addition, Patina would be obligated, subject to certain conditions, to make offers to purchase the Notes with the net cash proceeds of certain asset sales or other dispositions of assets at a price of 101% of the principal amount thereof. The Notes are unsecured general obligations of Patina and are subordinated to all senior indebtedness of Patina and to any existing and future indebtedness of Patina's subsidiaries. The Notes contain covenants that, among other things, limit the ability of Patina to incur additional indebtedness, pay dividends, engage in transactions with shareholders and affiliates, create liens, sell assets, engage in mergers and consolidations and make investments in unrestricted subsidiaries. In 1994, SOCO issued $86.3 million of 7% convertible subordinated notes due May 15, 2001. The net proceeds were $83.4 million. The notes are convertible into common stock at $22.57 per share. Under the terms of the notes, common stock dividends not paid out of retained earnings reduce the conversion price when paid. The notes are redeemable at the option of the Company on or after May 15, 1997, initially at 103.51% of principal, and at prices declining to 100% at May 15, 2000. During 1996 and the first quarter of 1997, the Company repurchased $3.8 million and $534,000, respectively, of these notes in accordance with a repurchase program. Scheduled maturities of indebtedness for the next five years are zero in 1997 and 1998, $87.5 million in 1999, $53.3 million in 2000 and $81.9 million in 2001. The long-term portions of the Patina Facility and SOCO Facility are scheduled to expire in 1999 and 2000. However, it is management's policy to renew both the short-term and long-term facilities and extend their maturities on a regular basis. Consolidated cash payments for interest were $7.8 million and $2.2 million, respectively, for the quarters ended March 31, 1997 and 1996. (6) FEDERAL INCOME TAXES At March 31, 1997, the Company had no liability for foreign taxes. A reconciliation of the United States federal statutory rate to the Company's effective income tax rate as they apply to the benefit for the three months ended March 31, 1997 and 1996 follows:
Three Months Ended March 31, 1997 1996 ------------ ------------ Federal statutory rate 35% 35% Net change in valuation allowance (4%) (56%) ----------- ---------- Effective income tax rate 31% (21%) =========== ==========
For tax purposes, Patina is not included in the Company's consolidated United States federal income tax return. The Company, excluding Patina, had regular net operating loss carryforwards of $112 million and alternative minimum tax loss carryforwards of $28.9 million at December 31, 1996. These carryforwards expire between 1997 and 2010. At December 31, 1996, the Company, excluding Patina, had long-term capital loss carryforwards of $3.9 million which will expire in 2000. At December 31, 1996, the Company, excluding Patina, also had alternative minimum tax credit carryforwards of $644,000 which are available indefinitely. Patina had regular net operating loss carryforwards of $70.2 million and alternative minimum tax loss carryforwards of $35.1 million at December 31, 1996. Utilization of $31.9 million regular net operating loss carryforwards and $31.6 million alternative minimum tax loss carryforwards 13 will be limited to $5.2 million per year. These carryforwards expire from 2006 through 2011. At December 31, 1996, Patina had alternative minimum tax credit carryforwards of $478,000 which are available indefinitely. Current income taxes shown in the financial statements reflect estimates of alternative minimum taxes. (7) STOCKHOLDERS' EQUITY A total of 75 million common shares, $.01 par value, are authorized of which 31.5 million were issued at March 31, 1997. The Company also has 2.1 million warrants outstanding. The warrants are exercisable at a price of $21.04 per share. Under the terms of the warrants, common stock dividends not paid out of retained earnings reduce the exercise price when paid and increase the number of warrants outstanding. Half of the warrants expire in each of February 1998 and February 1999. In 1996, the Company issued 666,000 shares of common stock, with 399,000 shares issued in exchange for the remaining outstanding stock of SOCO Offshore and 267,000 shares issued primarily for the exercise of stock options. In 1996, the Company repurchased 725,000 shares of common stock for $7.0 million. During the three months ended March 31, 1997, the Company issued 88,000 shares of common stock primarily for the exercise of stock options. During the first quarter of 1997, the Company repurchased 740,000 shares of common stock for $12.2 million. Quarterly dividends of $.065 per share were paid in 1996 and the first quarter of 1997. For book purposes, for the period between June 1995 and September 1996, the common stock dividends were in excess of retained earnings and as such were treated as distributions of capital. A total of 10 million preferred shares, $.01 par value, are authorized. In 1993, 4.1 million depositary shares (each representing a quarter interest in a share of $100 liquidation value stock) of 6% preferred stock were sold through an underwriting. The net proceeds were $99.3 million. The stock is convertible into common stock at $20.46 per share. Under the terms of the stock, common stock dividends not paid out of retained earnings reduce the conversion price when paid. The stock is exchangeable at the option of the Company for 6% convertible subordinated debentures on any dividend payment date. The 6% convertible preferred stock is currently redeemable at the option of the Company. The liquidation preference is $25.00 per depositary share, plus accrued and unpaid dividends. At March 31, 1997, the redemption price was $25.90 per depositary share. The redemption price declines $.15 per year to $25.00 per depositary share in 2003. During 1996, the Company repurchased 6,000 depositary shares for $142,000. The Company paid $1.6 million ($1.50 per 6% convertible depositary share per annum) in preferred dividends during the three months ended March 31, 1997 and 1996. Earnings per share are computed by dividing net income, less dividends on preferred stock, by weighted average shares outstanding. Differences between primary and fully diluted earnings per share were insignificant for all periods presented. The Company maintains a stock option plan for certain employees providing for the issuance of options at prices not less than fair market value. Options to acquire up to three million shares of common stock may be outstanding at any given time. The specific terms of grant and exercise are determined by a committee of independent members of the Board. A stock grant and option plan is also maintained by the Company whereby each nonemployee Director receives 500 common shares quarterly in payment of their annual retainer. It also provides for 2,500 options to be granted annually to each nonemployee Director. The majority of currently outstanding options vest over a three year period (30%, 60%, 100%) and expire five years from the date of grant. (8) COMMITMENTS AND CONTINGENCIES The Company rents offices at various locations under noncancelable operating leases. Minimum future payments under such leases approximate $1.9 million for the remainder of 1997, $2.4 million for 1998, $2.6 million for 1999, $2.6 million for 2000 and $1.6 million for 2001. In August 1995, the Company was sued in the United States District Court of Colorado by seven plaintiffs purporting to represent all persons who, at any time since January 1, 1960, have had agreements providing for royalties from gas production in Colorado to be paid by the Company under a number of 14 various lease provisions. In January 1997, the judge ordered that the class not be certified. All remaining liability under this suit was assumed by Patina upon its formation. In January 1996, a subsidiary of Patina was also sued in a similar but separate class action filed in stated court. In both suits, the plaintiffs allege that unspecified "post-production" costs incurred prior to calculating royalty payments were deducted in breach of the relevant lease provisions and that this fact was fraudulently concealed. The plaintiffs seek unspecified compensatory and punitive damages and a declaratory judgment prohibiting deduction of post-production costs prior to calculating royalties paid to the class. Patina has informed the Company that Patina believes the calculations are and have been proper under the relevant lease provisions, and that Patina intends to defend these and any similar suits vigorously. In September 1996, the Company and other interest owners in a lease in southern Texas were sued by the royalty owners in Texas state court in Brooks County, Texas. The Company's working interest in the lease is approximately 20%. The complaint alleges, among other things, that the defendants have failed to pay proper royalties under the lease and have breached their duties to reasonably develop the lease. The plaintiffs also claim damages for fraud and trespass, and demand actual and punitive damages. Although the complaint does not specify the amount of damages claimed, an earlier letter from plaintiffs claimed damages in excess of $50 million. The Company and the other interest owners have filed an answer denying the claims and intend to contest the suit vigorously. At this time, the Company is unable to estimate the range of potential loss, if any, from the foregoing uncertainties. However, the Company believes their resolution should not have a material adverse effect upon the Company's financial position, although an unfavorable outcome in any reporting period could have a material impact on the Company's results of operations for that period. The Company's operations are affected by political developments and federal and state laws and regulations. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic and other reasons. Numerous departments and agencies, federal, state, local and Indian, issue rules and regulations binding on the oil and gas industry, some of which carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases the Company's cost of doing business, decreases flexibility in the timing of operations and may adversely affect the economics of capital projects. The financial statements reflect favorable legal proceedings only upon receipt of cash, final judicial determination or execution of a settlement agreement. The Company is a party to various other lawsuits incidental to its business, none of which are anticipated to have a material adverse impact on its financial position or results of operations. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company is an independent energy company primarily engaged in the acquisition, exploration and development of oil and gas properties principally in the Rocky Mountain and Gulf Coast regions of the United States. The Company also gathers, transports and markets natural gas. The Company is also engaged in international acquisition, exploration and development, primarily through affiliates. In May 1996, the Company consolidated its properties in the Wattenberg Field of Colorado with those of Gerrity Oil and Gas Corporation ("GOG") to create Patina Oil and Gas Corporation ("Patina"), thereby converting its working interest in the field into a 74% interest in the field's largest producer. Patina is reflected in the Company's financial statements as a consolidated subsidiary, with the related minority interest being deducted from subsidiary earnings and stockholder's equity. Unless indicated otherwise, amounts in this discussion reflect the consolidated results of the Company, including Patina. References to the Company "excluding Patina" refer to the Company on a consolidated basis but after excluding amounts attributable to Patina. Results of Operations Total revenues for the three month period ended March 31, 1997 were $88.8 million, a $47.0 million increase from the same period in 1996. The increase was primarily due to a $31.7 million increase in oil and gas sales and a $12.6 million increase in gains on sales of equity interests in investees. The increase in oil and gas sales is a combination of a 41% rise in the price received per equivalent barrel ("BOE") and a 33% increase in BOE production. Natural gas prices rebounded toward the end of 1996 resulting in an average price for the first quarter of 1997 of $2.83 per Mcf compared to $1.78 per Mcf during the same period in 1996. Oil prices improved 18% to average $21.18 per barrel during the first quarter of 1997. The increase in gains on sales of equity interests in investees was due to sales of Cairn Energy plc ("Cairn") stock. Excluding Patina, total revenues were $59.3 million for the period ended March 31, 1997. Net income for the three month period ended March 31, 1997 was $19.9 million, an increase from the $1.8 million experienced in the same period in 1996. Patina contributed $4.1 million to the 1997 amount. Net income was positively impacted as the aforementioned price increases resulted in approximately an additional $10 million in net income. The quarter also benefitted from the Cairn sales which contributed approximately $8 million to net income. Production increases also helped but to a lesser extent as the increases were offset somewhat by higher operating and depletion, depreciation and amortization expenses. Production margin (oil and gas sales less direct operating expenses) for the quarter ended March 31, 1997 was $53.8 million, an increase of 112% from the same period in 1996. Average daily production during the first quarter of 1997 was 41,641 BOE, an increase of 34% over the same period in 1996 (an 8% increase over fourth quarter 1996 production). In addition, the average product price received increased by 41% to $18.10 per BOE. The increase in oil and gas production can be attributed primarily to the acquisition of GOG by Patina. Excluding Patina, production margin was $29.4 million and average daily production was 23,963 BOE. The increased production resulting from three acquisitions in the Gulf of Mexico during 1996 was offset by decreased production due to the sale of nonstrategic properties throughout 1996. The Company focused the last two years on divesting of noncore assets and acquiring strategic assets that allow for future growth of the Company. The Company expects to increase development during 1997 which, along with two acquisitions in the Gulf of Mexico in the fourth quarter of 1996, should result in an increase in production through 1997. Total operating expenses for the first quarter of 1997 increased by $3.3 million ($3.0 million excluding Patina) from the same period in 1996 which is in line with the increased production. Operating costs per BOE were $3.74 compared to $3.81 in the same period in 1996. 16 Gains on sales of equity interests in investees were $13.0 million during the three month period ended March 31, 1997. The 1997 gains resulted from sales of Cairn stock totaling 4.5 million shares at an average of $8.81 per share realizing $39.2 million in proceeds. Gains on sales of properties were $2.6 million during the three months ended March 31, 1997, compared to losses on sales of properties of $20,000 during the same period in 1996. The most significant gain during the first quarter of 1997 was a $2.1 million gain on the sale of an offshore block in the Gulf of Mexico which was not included in the Company's strategic plans. General and administrative expenses, net of reimbursements, for the three month period ended March 31, 1997 increased $1.6 million from the same period in 1996 but decreased $342,000 from the fourth quarter of 1996. The increase is primarily due to essentially doubling the number of properties in the DJ Basin of Colorado related to the acquisition of GOG. Excluding Patina, these expenses totaled $4.2 million during the period ended March 31, 1997. Interest expense was $6.8 million during the first quarter of 1997, $4.4 million of which was incurred by Patina, compared to $3.6 million during the same period in 1996. The majority of the increase is the result of a higher average interest rate primarily due to Patina's subordinated notes which have an effective interest rate of 11.1%. Depletion, depreciation and amortization expense during the first quarter of 1997 increased to $23.2 million from $16.8 million in the same period in 1996. The increase can be primarily attributed to the 33% increase in production volumes and, to a lesser extent, a higher total depletion, depreciation and amortization rate per BOE of $6.19 compared to $5.94 during the same period in 1996. The increase in rates is primarily due to the amortization of a noncompete agreement by Patina. Excluding Patina, total depletion, depreciation and amortization expense was $10.8 million reflecting an overall rate of $5.00 per BOE. Acquisition, Exploration and Development During the three months ended March 31, 1997, the Company incurred $23.8 million in capital expenditures, including $20.3 million for development, $1.8 million for exploration, $1.0 million for property acquisitions and $753,000 for fixed assets. Of the $20.3 million of development expenditures, $8.7 million was concentrated in the Gulf of Mexico, $2.1 million in the Washakie Basin of southern Wyoming, $1.7 million in the Green River Basin of southern Wyoming and $1.1 million in the Piceance Basin of western Colorado. In addition, Patina incurred $5.6 million of the total expenditures of the Company. During the three months ended March 31, 1997, the Company placed 30 wells on sales, drilled one developmental dry hole and had 22 wells in progress at quarter end. Exploration costs in the first quarter of 1997 were $1.8 million primarily for seismic work performed in and around the Company's major drilling projects. Patina incurred $58,000 of exploration costs in the first quarter of 1997. In Russia, drilling activity has been slower than anticipated due to difficulties in securing drilling contracts on commercially reasonable terms. During 1997, SOCO Perm Russia, Inc. expects to drill 11 wells. In Mongolia, the Mongolian Parliament ratified the grant of two additional concessions in the area to SOCO Tamtsag Mongolia, Inc. bringing the total acreage position to approximately 10 million acres. SOCO Tamtsag Mongolia, Inc. intends to drill four wells during 1997. In Thailand, the Company was awarded Block B8/38 in the Gulf of Thailand. The Company has entered into an agreement with an international oil company which will fund the drilling of an exploration well in this block. Drilling is expected to begin in the second quarter, with a second well possibly being drilled by year end. 17 Financial Condition and Capital Resources At March 31, 1997, the Company had total assets of $862.5 million. Total capitalization was $632.3 million, of which 49% was represented by stockholder's equity, 29% by subordinated debt and 22% by senior debt. During the three months ended March 31, 1997, net cash provided by operations was $51.8 million, an increase of 94% compared to the same period in 1996. Excluding Patina, net cash provided by operations was $27.8 million. As of March 31, 1997, commitments for capital expenditures, primarily for new production facilities in the Gulf of Mexico, totaled $26.8 million, $579,000 of which was attributable to Patina. The Company anticipates that 1997 expenditures for development drilling will approximate $112 million. Approximately $85 million is expected to be spent for development drilling programs, $19 million for expanded exploratory activity and $8 million for gas facilities and other activities. Approximately $48 million is targeted for continued development in the Gulf of Mexico, $38 million for expanded development of its major Rocky Mountain projects (including $15 million for Patina) and $2 million for additional leasing and seismic costs in North Louisiana. The level of these and other future expenditures is largely discretionary, and the amount of funds devoted to any particular activity may increase or decrease significantly, depending on available opportunities and market conditions. The Company plans to finance its ongoing acquisition, exploration and development expenditures using internally generated cash flow and existing credit facilities. In addition, joint ventures or future public offerings of debt or equity securities may be utilized. The Company is currently seeking a listing of a newly formed entity, SOCO International plc ("SOCO plc"), on the London Stock Exchange and intends to conduct an offering of its shares. The Company will contribute to SOCO plc all the assets of SOCO International Operations, Inc. which includes the Company's interests in Russia, Mongolia and Thailand. Certain minority interest owners in these ventures are also expected to contribute their interests. SOCO plc will also acquire Cairn's UK onshore company as well as certain assets in Yemen and Tunisia that were formerly owned by Command Petroleum Limited. The offering is expected to raise approximately $75 million of new equity capital for SOCO plc. Following the offering, the Company, which will retain all its shares, expects to have an approximate 15% to 17% interest in SOCO plc. The listing and offering are subject to certain conditions and there can be no assurance that the offering will be consummated. During the first quarter of 1997, Patina accounted for $24.0 million of the Company's net cash provided by operations. For the foreseeable future, cash generated by Patina will, however, be retained by Patina to fund its development program, reduce debt and pursue acquisitions in the DJ Basin or elsewhere. Moreover, Patina's credit facility currently prohibits the payment of dividends on its common stock. Accordingly, Patina's cash flow is intended to be used to reduce debt levels, fund a limited development program and any future acquisitions which may be consummated and may not be available to fund the Company's other operations or to pay dividends to its stockholders. During the first quarter of 1997, Patina reduced its total debt by $10.2 million. SOCO maintains a $500 million revolving credit facility (the "SOCO Facility"). The SOCO Facility is divided into a $100 million short-term portion and a $400 million long-term portion that expires on December 31, 2000. Management's policy is to renew the facility on a regular basis. Credit availability is adjusted semiannually to reflect changes in reserves and asset values. The borrowing base available under the facility at March 31, 1997 was $140 million. The majority of the borrowings under the facility currently bear interest at LIBOR plus .75% with the remainder at prime, with an option to select CD plus .75%. The margin on LIBOR or CD increases to 1% when the Company's consolidated senior debt becomes greater than 80% of its consolidated tangible net worth as defined. During the first quarter of 1997, the average interest rate under the revolver was 6.3%. Financial covenants limit debt, require maintenance of $1.0 million in minimum working capital as defined and restrict certain payments, including stock repurchases, dividends and contributions or advances to unrestricted subsidiaries. Such restricted payments are limited by a formula that includes proceeds from certain securities, cash flow and other items. Based on such limitations, more than $70 million was available for the payment of dividends and other restricted payments as of March 31, 1997. Patina maintains a $140 million revolving credit facility ("Patina Facility"). The borrowing base available under the facility was $120 million at March 31, 1997. Effective May 1, 1997, the borrowing base was reduced to $110 million. Patina may elect that all or a portion of the facility bear interest at 18 a rate per annum equal to: (i) the higher of (a) prime rate plus a margin equal to .25% (the "Applicable Margin") and (b) the Federal Funds Effective Rate plus .5% plus the Applicable Margin, or (ii) the rate at which Eurodollar deposits for one, two, three or six months (as selected by Patina) are offered in the interbank Eurodollar market plus a margin which fluctuates from .625% to 1.125% determined by a debt to EBITDA ratio. During the first quarter of 1997, the average interest rate under the facility was 6.9%. The Patina Facility agreement contains certain financial covenants, including but not limited to a maximum total debt to capitalization ratio, a maximum total debt to EBITDA ratio and a minimum current ratio. The bank credit agreement also contains certain negative covenants, including but not limited to restrictions on indebtedness; certain liens; guaranties, speculative derivatives and other similar obligations; asset dispositions; dividends, loans and advances; creation of subsidiaries; investments; leases; acquisitions; mergers; changes in fiscal year; transactions with affiliates; changes in business conducted; sale and leaseback and operating lease transactions; sale of receivables; prepayment of other indebtedness; amendments to principal documents; pledges of assets; issuance of securities; and non speculative commodity hedging. The Company from time to time enters into arrangements, primarily by Patina, to monetize its Section 29 tax credits. These arrangements result in revenue increases of approximately $.40 per Mcf on production volumes from qualified Section 29 properties. As a result of such arrangements, the Company recognized additional gas sales of $2.5 million in 1996. During the three months ended March 31, 1997, the Company recognized additional gas sales of $801,000. These arrangements are expected to increase revenues through 2002. The Company seeks to diversify its exploration and development risks by seeking partners for its significant development projects and maintains a program to divest marginal properties and assets which do not fit its long range plans. During the first quarter of 1997, the Company sold 50% of its working interest in the Wind River Basin and the Big Horn Basin area for a total of $1.7 million in proceeds. The first well was spudded in January 1997 in the Big Horn Basin and another well is expected to be drilled in the Wind River Basin during 1997. In November 1996, the Company accepted an offer from Cairn for its interest in Command. The Company received 16.2 million shares of freely marketable common stock of Cairn, and recorded a gain of $65.5 million, with no associated current tax liability. However, a deferred tax provision of $4.0 million was recorded related to this transaction. Immediately prior to the acceptance of Cairn's offer, the Company accrued for a transaction in which a director of the Company exchanged his option to purchase 10% of the outstanding common stock of SOCO International, Inc. (through which the investment in Command was held) and issued promissory notes to the Company totaling $591,000 for 10% of the outstanding common stock of two SOCO International, Inc. subsidiaries, SOCO International Holdings, Inc. and SOCO International Operations, Inc. As a result of this transaction, the Company recorded a $260,000 loss. Additionally, minority interest expense of $4.3 million was recorded related to the director's 10% ownership as a result of the Command gain. The actual exchange occurred in December 1996 and the promissory notes remained outstanding at March 31, 1997. During the three months ended March 31, 1997, the Company sold 4.5 million Cairn shares at an average of $8.81 per share realizing $39.2 million in proceeds. These transactions resulted in a pretax gain of $13.0 million. The Board has authorized the repurchase of up to $50 million of the Company's securities. During 1996 and the first quarter of 1997, the Company has repurchased 1.5 million common shares for $19.2 million, 6,000 preferred depositary shares for $142,000 and $4.3 million principal amount convertible subordinated notes for $4.0 million. Subsequent to quarter end, the Company has repurchased an additional 411,000 common shares for $6.8 million and $290,000 principal amount convertible subordinated notes for $294,000. The Company believes that its capital resources are adequate to meet the requirements of its business. However, future cash flows are subject to a number of variables including the level of production and oil and gas prices, and there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures or that increased capital expenditures will not be undertaken. 19 Inflation and Changes in Prices While certain of its costs are affected by the general level of inflation, factors unique to the petroleum industry result in independent price fluctuations. Over the past five years, significant fluctuations have occurred in oil and gas prices. Although it is difficult to estimate future prices of oil and gas, price fluctuations have had, and will continue to have, a material effect on the Company. The following table indicates the average oil and gas prices received over the last five years and highlights the price fluctuations by quarter for 1997 and 1996. Average gas prices for the three months ended March 31, 1997 and the year ended December 31, 1996 were increased by $.06 and $.08 per Mcf, respectively, by the benefit of the Company's hedging activities. Average price computations exclude contract settlements and other nonrecurring items to provide comparability. Average prices per equivalent barrel indicate the composite impact of changes in oil and gas prices. Natural gas production is converted to oil equivalents at the rate of 6 Mcf per barrel.
Average Prices ------------------------------------------- Crude Oil and Natural Equivalent Liquids Gas Barrels --------- --------- ---------- (Per Bbl) (Per Mcf) (Per BOE) Annual ------ 1996 $ 20.39 $ 1.97 $ 14.35 1995 16.96 1.35 11.00 1994 14.80 1.67 11.82 1993 15.41 1.94 13.41 1992 18.87 1.74 13.76 Quarterly --------- 1997 ---- First $ 21.18 $ 2.83 $ 18.10 1996 ---- First $ 17.95 $ 1.78 $ 12.80 Second 20.52 1.62 12.90 Third 20.25 1.78 13.60 Fourth 22.26 2.64 17.69
In March 1997, the Company received an average of $19.87 per barrel and $1.92 per Mcf for its production. 20 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - 10.14 Amended and Restated Credit Agreement dated as of April 1, 1997 among Patina Oil and Gas Corporation, the Financial Institutions Listed on Schedule I, thereto, Texas Commerce Bank National Association, as Administrative Agent, Nations Bank of Texas, N.A., as Documentary Agent, and Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co- Agents. 10.14.1 First Amendment dated as of May 1, 1997 among Patina Oil and Gas Corporation, the Financial Institutions Listed on Schedule I, thereto, Texas Commerce Bank National Association, as Administrative Agent, Nations Bank of Texas, N.A., as Documentary Agent, and Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents. 10.15 Supplemental Indenture dated as of March 31, 1997 among Gerrity Oil and Gas Corporation, Patina Oil and Gas Corporation and The Chase Manhattan Bank. 11.1 Computation of Per Share Earnings. 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 27 Financial Data Schedule. (b) No reports on Form 8-K were filed during the quarter ended March 31, 1997. 21 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. SNYDER OIL CORPORATION By /s/James H. Shonsey ------------------------ James H. Shonsey, Vice President May 7, 1997 22 EX-10 2 AMENDED & RESTATED CREDIT AGREEMENT EXHIBIT 10.14 AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 1, 1997 among PATINA OIL & GAS CORPORATION, as Borrower, The Financial Institutions Listed on Schedule 1 hereto, as Banks, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent, NATIONSBANK OF TEXAS, N.A., as Documentary Agent, and WELLS FARGO BANK, N.A., CIBC, INC., and CREDIT LYONNAIS NEW YORK BRANCH, as Co-Agents $140,000,000 TABLE OF CONTENTS PAGE ARTICLE I TERMS DEFINED....................................................... 2 SECTION 1.1. DEFINITIONS................................................. 2 ----------- SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS........................ 20 ----------------------------------- ARTICLE II THE CREDIT FACILITIES............................................. 20 SECTION 2.1. COMMITMENT................................................. 20 ---------- SECTION 2.2. METHOD OF BORROWING........................................ 22 ------------------- SECTION 2.3. METHOD OF REQUESTING LETTERS OF CREDIT..................... 23 -------------------------------------- SECTION 2.4. NOTES...................................................... 24 ----- SECTION 2.5. INTEREST RATES; PAYMENTS................................... 24 ------------------------ SECTION 2.6. MANDATORY TERMINATION OF COMMITMENTS; TERMINATION DATE AND ---------------------------------------------------------- MATURITY................................................... 26 SECTION 2.7. VOLUNTARY REDUCTION OF TOTAL COMMITMENT.................... 26 SECTION 2.8. APPLICATION OF PAYMENTS.................................... 26 SECTION 2.9. COMMITMENT FEE............................................. 26 SECTION 2.10. AGENCY AND OTHER FEES..................................... 26 ARTICLE III GENERAL PROVISIONS............................................... 27 SECTION 3.1. DELIVERY AND ENDORSEMENT OF NOTES...........................27 --------------------------------- SECTION 3.2. GENERAL PROVISIONS AS TO PAYMENTS...........................27 --------------------------------- SECTION 3.3. FUNDING LOSSES............................................. 28 -------------- SECTION 3.4. FOREIGN LENDERS, PARTICIPANTS, AND ASSIGNEES.................... 28 -------------------------------------------- ARTICLE IV BORROWING BASE.................................................... 29 SECTION 4.1. RESERVE AND RELATED ASSET REPORT; PROPOSED BORROWING BASE.. 29 --------------------------------------------------------- SECTION 4.2. DETERMINATION OF BORROWING BASE................................. 29 ------------------------------- SECTION 4.3. SPECIAL DETERMINATION OF BORROWING BASE......................... 30 --------------------------------------- SECTION 4.4. BORROWING BASE DEFICIENCY....................................... 30 ------------------------- SECTION 4.5. INITIAL BORROWING BASE.......................................... 31 ---------------------- ARTICLE V COLLATERAL......................................................... 31 SECTION 5.1. SECURITY................................................... 31 -------- SECTION 5.2. GUARANTEE.................................................. 31 --------- 1/230128.7 ARTICLE VI CONDITIONS TO BORROWINGS.......................................... 32 SECTION 6.1. RESTATEMENT OF EXISTING CREDIT AGREEMENT/CONDITIONS TO INITIAL EXTENSION OF CREDIT........................................ 32 SECTION 6.2. CONDITIONS TO EACH BORROWING AND EACH LETTER OF CREDIT..... 34 ------------------------------------------------------ SECTION 6.3. AGREEMENTS REGARDING INITIAL BORROWING..................... 35 -------------------------------------- ARTICLE VII REPRESENTATIONS AND WARRANTIES................................... 35 SECTION 7.1. CORPORATE EXISTENCE AND POWER.............................. 35 ----------------------------- SECTION 7.2. EXISTENCE AND POWER (OTHER COMPANIES)...................... 36 ------------------------------------- SECTION 7.3. CORPORATE, LIMITED LIABILITY COMPANY, PARTNERSHIP AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION..................... 36 SECTION 7.4. BINDING EFFECT............................................. 36 SECTION 7.5. FINANCIAL INFORMATION...................................... 36 SECTION 7.6. LITIGATION................................................. 37 SECTION 7.7. ERISA...................................................... 37 SECTION 7.8. TAXES AND FILING OF TAX RETURNS............................ 37 SECTION 7.9. TITLE TO PROPERTIES; LIENS................................. 37 SECTION 7.10. BUSINESS; COMPLIANCE...................................... 37 SECTION 7.11. LICENSES, PERMITS, ETC.................................... 38 SECTION 7.12. COMPLIANCE WITH LAW....................................... 38 SECTION 7.13. OWNERSHIP INTERESTS....................................... 38 SECTION 7.14. FULL DISCLOSURE........................................... 38 SECTION 7.15. SUBSIDIARIES.............................................. 39 SECTION 7.16. OBLIGATIONS OF UNRESTRICTED SUBSIDIARIES.................. 39 SECTION 7.17. ENVIRONMENTAL MATTERS..................................... 39 SECTION 7.18. MERGER DOCUMENTS.......................................... 40 SECTION 7.19. BURDENSOME OBLIGATIONS.................................... 40 SECTION 7.20. GOVERNMENT REGULATIONS.................................... 40 ARTICLE VIII AFFIRMATIVE COVENANTS...................................... 40 SECTION 8.1. INFORMATION................................................ 40 ----------- SECTION 8.2. BUSINESS OF BORROWER....................................... 42 -------------------- SECTION 8.3. MAINTENANCE OF EXISTENCE................................... 42 ------------------------ SECTION 8.4. TITLE DATA................................................. 43 ---------- SECTION 8.5. RIGHT OF INSPECTION........................................ 43 ------------------- SECTION 8.6. MAINTENANCE OF INSURANCE................................... 43 ------------------------ SECTION 8.7. PAYMENT OF TAXES AND CLAIMS................................ 44 --------------------------- SECTION 8.8. COMPLIANCE WITH LAWS AND DOCUMENTS......................... 44 ---------------------------------- SECTION 8.9. OPERATION OF PROPERTIES AND EQUIPMENT...................... 44 ------------------------------------ 1/230128.7 SECTION 8.10. FURTHER ASSURANCES........................................ 45 ------------------ SECTION 8.11. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY................ 45 ------------------------------------------ ARTICLE IX NEGATIVE COVENANTS................................................ 46 SECTION 9.1. DEBT OF BORROWER AND ITS RESTRICTED SUBSIDIARIES........... 46 SECTION 9.2. RESTRICTED PAYMENTS........................................ 46 SECTION 9.3. NEGATIVE PLEDGE............................................ 47 SECTION 9.4. CONSOLIDATIONS AND MERGERS................................. 47 SECTION 9.5. ASSET DISPOSITIONS......................................... 47 SECTION 9.6. AMENDMENTS TO MATERIAL DOCUMENTS........................... 47 SECTION 9.7. USE OF PROCEEDS............................................ 48 SECTION 9.8. INVESTMENTS................................................ 48 SECTION 9.9. TRANSACTIONS WITH AFFILIATES............................... 48 SECTION 9.10. PLANS..................................................... 48 SECTION 9.11. OIL AND GAS HEDGE TRANSACTIONS............................ 48 SECTION 9.12. OBLIGATIONS OF UNRESTRICTED SUBSIDIARIES.................. 49 SECTION 9.13. ACQUISITIONS.............................................. 49 SECTION 9.14. OPERATING LEASES.......................................... 49 SECTION 9.15. SPECULATIVE HEDGE TRANSACTIONS............................ 49 ARTICLE X FINANCIAL COVENANTS................................................ 49 ARTICLE XI DEFAULTS.......................................................... 50 SECTION 11.1. EVENTS OF DEFAULT......................................... 50 ----------------- ARTICLE XII AGENTS........................................................... 53 SECTION 12.1. APPOINTMENT AND AUTHORIZATION............................. 53 ----------------------------- SECTION 12.2. AGENTS AND AFFILIATES..................................... 53 --------------------- SECTION 12.3. ACTION BY AGENTS.......................................... 53 ---------------- SECTION 12.4. CONSULTATION WITH EXPERTS................................. 54 ------------------------- SECTION 12.5. LIABILITY OF AGENTS....................................... 54 ------------------- SECTION 12.6. DELEGATION OF DUTIES...................................... 54 -------------------- SECTION 12.7. INDEMNIFICATION........................................... 54 --------------- SECTION 12.8. CREDIT DECISION........................................... 54 --------------- SECTION 12.9. SUCCESSOR AGENT........................................... 55 --------------- ARTICLE XIII PROTECTION OF YIELD; CHANGE IN LAWS............................. 55 SECTION 13.1. BASIS FOR DETERMINING INTEREST RATE APPLICABLE TO EURODOLLAR TRANCHES INADEQUATE..................................................... 55 1/230128.7 SECTION 13.2. ILLEGALITY OF EURODOLLAR LOANS............................ 56 ------------------------------ SECTION 13.3. INCREASED COST OF EURODOLLAR TRANCHE...................... 56 ------------------------------------ SECTION 13.4. ADJUSTED BASE RATE TRANCHE SUBSTITUTED FOR AFFECTED EURODOLLAR TRANCHE........................................ 57 SECTION 13.5. CAPITAL ADEQUACY.......................................... 58 ---------------- SECTION 13.6. TAXES..................................................... 59 ----- SECTION 13.7. DISCRETION OF BANKS AS TO MANNER OF FUNDING............... 59 ------------------------------------------- ARTICLE XIV MISCELLANEOUS.................................................... 59 SECTION 14.1. NOTICES................................................... 59 SECTION 14.2. NO WAIVERS................................................ 60 SECTION 14.3. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION.............. 60 SECTION 14.4. RIGHT AND SHARING OF SET-OFFS............................. 60 SECTION 14.5. AMENDMENTS AND WAIVERS.................................... 61 SECTION 14.6. SURVIVAL.................................................. 61 SECTION 14.7. LIMITATION ON INTEREST.................................... 62 SECTION 14.8. INVALID PROVISIONS........................................ 62 SECTION 14.9. WAIVER OF CONSUMER CREDIT LAWS............................ 62 SECTION 14.10. SUCCESSORS AND ASSIGNS................................... 62 SECTION 14.11. TEXAS LAW................................................ 64 SECTION 14.12. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES............ 64 SECTION 14.13. COUNTERPARTS; EFFECTIVENESS.............................. 64 SECTION 14.14. NO THIRD PARTY BENEFICIARIES............................. 65 SECTION 14.15. COMPLETE AGREEMENT....................................... 65 SECTION 14.16. WAIVER OF JURY TRIAL..................................... 65 1/230128.7 EXHIBITS Exhibit A Note Exhibit B Pledge Agreement Exhibit C Restricted Subsidiary Guaranty Exhibit D Request for Borrowing Exhibit E Request for Letter of Credit Exhibit F Rollover Notice Exhibit G Assignment and Assumption Agreement Exhibit H Certificate of Ownership Interests 1/230128.7 SCHEDULES Schedule 1 Financial Institutions Schedule 2 Investments Schedule 3 Taxes Schedule 4 Subsidiaries Schedule 5 Obligations Schedule 6 Debt 1/230128.7 AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "AGREEMENT") is entered into effective as of the 1st day of April, 1997, among Patina Oil & Gas Corporation, a Delaware corporation ("BORROWER"), Texas Commerce Bank National Association, as Administrative Agent ("ADMINISTRATIVE AGENT"), NationsBank of Texas, N.A., as Documentary Agent ("DOCUMENTARY AGENT"), Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents ("CO-AGENTS") and the financial institutions listed on SCHEDULE 1 hereto as Banks (individually a "BANK" and collectively "BANKS") W I T N E S E T H WHEREAS, Borrower, Gerrity Oil & Gas Corporation, a Delaware corporation ("GERRITY") and SOCO Wattenberg Corporation, a Delaware corporation ("SWAT"), as Borrowers (collectively, referred to herein as the "EXISTING BORROWERS"), Agents and the financial institutions listed on Schedule 1 thereto as Banks (collectively referred to herein as "EXISTING BANKS") are parties to that certain Credit Agreement dated as of May 2, 1996, as heretofore amended (the "EXISTING CREDIT AGREEMENT"), pursuant to which credit is outstanding to the Existing Borrowers; and WHEREAS, pursuant to that certain Merger Certificate (as hereinafter defined), Gerrity will merge with and into Borrower with Borrower being the surviving corporation; and WHEREAS, pursuant to an Assignment and Assumption Agreement dated effective as of April 1, 1997 (the "BANK ASSIGNMENT AGREEMENT"), Bank One, Texas, N.A., a national banking association ("BANK ONE") has purchased and assumed certain rights and interests of Existing Banks under the Existing Credit Agreement; and WHEREAS, immediately after giving effect to the Merger and the Bank Assignment (as each term is hereinafter defined), but subject to the conditions precedent set forth herein, Borrower, Banks (including Bank One) and Agents desire to amend and restate the Existing Credit Agreement in it entirety in order, among other things, (a) to amend and restate the aggregate Commitments of Banks, and (b) to modify certain other provisions of the Existing Credit Agreement. NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower, Administrative Agent, Documentary Agent, Co-Agents and Banks hereby agree that the Existing Credit Agreement is hereby amended and restated in its entirety on the terms and conditions set forth herein. It is the intention of Borrower, Agents and Banks that this Agreement supersede and replace the Existing Credit Agreement in its entirety; provided, that (a) such amendment and restatement shall operate to renew, amend and modify the rights and obligations of the parties under the Existing Credit Agreement as provided herein, but shall not effect a novation thereof, and (b) except for such Liens securing the Obligations under and as defined in the Existing Credit Agreement which are no longer required 1/230128.7 1 pursuant to the terms of this Agreement (and which are being terminated and released pursuant to express written instruments to such effect duly filed and recorded in the appropriate jurisdictions), the Liens securing the Obligations under and as defined in the Existing Credit Agreement shall not be extinguished, but shall be carried forward and shall secure such Obligations as renewed, amended, restated and modified hereby. Borrower, Administrative Agent, Documentary Agent, Co-Agents and Banks hereby further agree as follows: ARTICLE I TERMS DEFINED SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the following meanings: "Adjusted Base Rate" means, on any day, the greater of (a) the Base Rate in effect on such day, or (b) the sum of (i) the Federal Funds Rate in effect on such day, plus (ii) one half of one percent (.5%). Each change in the Adjusted Base Rate shall become effective automatically and without notice to Borrower or any Bank upon the effective date of each change in the Federal Funds Rate or the Base Rate, as the case may be. "Adjusted Base Rate Tranche" means the portion of the principal of the Loan bearing interest with reference to the Adjusted Base Rate. "Adjusted Consolidated EBITDA" means, with respect to any Person for any period, Consolidated EBITDA of such Person for such period, adjusted to reflect all revenues and expenses (including lease operating expense, severance Taxes, additional overhead and other expenses) attributable to material oil and gas properties purchased by such Person or any of its Subsidiaries after the first day of such period as if such properties had been owned by such Person or such Subsidiaries on the first day of such period. As used in this definition, "material oil and gas properties" means oil and gas properties purchased for a purchase price of not less than $25,000,000. "Adjusted Eurodollar Rate" applicable to any Interest Period, means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/16 of 1%) by dividing (a) the applicable Eurodollar Rate by (b) 1.00 minus the Eurodollar Reserve Percentage. "Administrative Agent" means Texas Commerce Bank National Association in its capacity as Administrative Agent for Banks hereunder or any successor thereto. "Affiliate" means, as to any Person, any Subsidiary of such Person, or any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management 1/230128.7 2 and policies of such Person, whether through the ownership of voting securities or partnership interests, or by contract or otherwise. "Agent" means any of the Administrative Agent, the Documentary Agent or any Co-Agent, and "Agents" means the Administrative Agent, the Documentary Agent and the Co-Agents collectively. "Agreement" means this Amended and Restated Credit Agreement, including the Schedules and Exhibits hereto, as the same may be amended or supplemented from time to time. "Annualized" means, with respect to Adjusted Consolidated EBITDA of any Person for a period of less than four (4) complete Fiscal Quarters, the Adjusted Consolidated EBITDA of such Person for the number of complete Fiscal Quarters in such period multiplied times a fraction, the numerator of which is four (4) and the denominator of which is the number of complete Fiscal Quarters in such period. "Applicable Environmental Law" means any law, statute, ordinance, rule, regulation, order or determination of any governmental authority or any board of fire underwriters (or other body exercising similar functions), affecting any real or personal property owned, operated or leased by any Company or any other operation of any Company in any way pertaining to health, safety or the environment, including, without limitation, all applicable zoning ordinances and building codes, flood disaster laws and health, safety and environmental laws and regulations, and further including without limitation, (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (as amended from time to time, herein referred to as "CERCLA"), (b) the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Recovery Act of 1976, as amended by the Solid Waste Disposal Act of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as amended from time to time, herein referred to as "RCRA"), (c) the Safe Drinking Water Act, as amended, (d) the Toxic Substances Control Act, as amended, (e) the Clean Air Act, as amended, (f) the Occupational Safety and Health Act of 1970, as amended, (g) the laws, rules and regulations of any state having jurisdiction over any real or personal property owned, operated or leased by any Company or any other operation of any Company which relate to health, safety or the environment, as each may be amended from time to time, and (h) any federal, state or municipal laws, ordinances or regulations which may now or hereafter require removal of asbestos or other hazardous wastes or impose any liability related to asbestos or other hazardous wastes. The terms "HAZARDOUS SUBSTANCE", "PETROLEUM", "RELEASE" and "THREATENED RELEASE" have the meanings specified in CERCLA, and the terms "SOLID WASTE" and "DISPOSAL" (or "DISPOSED") have the meanings specified in RCRA; PROVIDED, HOWEVER, in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment with respect to all provisions of this Agreement; and PROVIDED FURTHER THAT, to the extent the laws of the state in which any real or personal property owned, operated or leased by any Company is located establish a meaning for "hazardous substance", "petroleum", "release", "solid waste" or "disposal" which is broader than that specified 1/230128.7 3 in either CERCLA or RCRA, such broader meaning shall apply in so far as such broader meaning is applicable to the real or personal property owned, operated or leased by such Company and located in such state. "Applicable Margin" means, for purposes of determining the interest rate applicable to the Loan at any time, the amount set forth in the table below under the applicable Type of Tranche and opposite the applicable Ratio of Consolidated Funded Debt to Adjusted Consolidated EBITDA. The Applicable Margin in effect at any time shall be based on the Ratio of Consolidated Funded Debt to Adjusted Consolidated EBITDA as of the last day of the Fiscal Quarter then most recently ended for which Borrower has provided to Banks the financial statements required by SECTION 8.1(B) hereof (in the case of the first three (3) Fiscal Quarters of each Fiscal Year) or SECTION 8.1(A) hereof (in the case of the fourth Fiscal Quarter of each Fiscal Year).
Ratio of Consolidated Funded Debt to Adjusted Base Rate Eurodollar Adjusted Consolidated EBITDA Tranches Tranches less than or equal to 1.5 to 1 0 .625% greater than 1.5 to 1 less than or equal to 2.0 to 1 0 .75% greater than 2.0 to 1 less than or equal to 2.5 to 1 0 .875% greater than 2.5 to 1 less than or equal to 3.0 to 1 0 1.000% greater than 3.0 to 1 0 1.125% ======================================================= ==== =======
"Approved Petroleum Engineer" means any one or more of Netherland, Sewell & Associates, Inc., Ryder Scott Company, Williamson Petroleum Consultants, Inc., Barnes and Click, Inc., or such other reputable firm(s) of independent petroleum engineers as shall be approved by Required Banks and, as to oil and gas properties aggregating not more than twenty percent (20%) of the total value of Borrower's and its Restricted Subsidiaries' oil and gas properties (based on the Recognized Value), Borrower's in-house staff shall be deemed an Approved Petroleum Engineer. "Assignee" has the meaning given such term in SECTION 14.10(C). "Assignment and Assumption Agreement" has the meaning given such term in SECTION 14.10(C). "Authorized Officer" means, as to any Person, its Chairman, Vice-Chairman, President, Executive Vice President(s), Senior Vice President(s) or Vice President duly authorized to act on behalf of such Person. "Availability" means, at any time, (a) the Borrowing Base in effect at such time, minus (b) the Outstanding Credit at such time. 1/230128.7 4 "Bank" means any financial institution listed on SCHEDULE 1 hereto as having a Commitment, and its successors and assigns, and "Banks" shall mean all Banks. "Bank Assignment Agreement" means that certain Assignment and Assumption Agreement dated effective as of April 1, 1997, entered into by and among Bank One and Existing Banks, pursuant to which Bank One purchased and assumed certain rights and interests of Existing Banks under the Existing Credit Agreement. "Bank One" means Bank One, Texas, N.A., a national banking association. "Base Rate" means the floating rate of interest established from time to time by Administrative Agent as its "prime rate" of interest, which rate is not the lowest rate of interest which Administrative Agent charges, each change in the Base Rate to become effective without notice to Borrower on the effective date of each such change. "Borrower" means Patina Oil & Gas Corporation, a Delaware corporation. "Borrowing" means any disbursement to Borrower under, or to satisfy the obligations of any Company under, any of the Loan Papers. Any Borrowing which will constitute an Adjusted Base Rate Tranche is referred to herein as a "Base Rate Borrowing," and any Borrowing which will constitute a Eurodollar Tranche is referred to herein as a "Eurodollar Borrowing." "Borrowing Base" has the meaning set forth in SECTION 4.2 hereof. "Borrowing Base Deficiency" means, as of any date, the amount, if any, by which (a) the Outstanding Credit on such date, exceeds (b) the Borrowing Base in effect on such date; provided, that, for purposes of computing the existence and amount of any Borrowing Base Deficiency, Letter of Credit Exposure will not constitute Outstanding Credit to the extent funds have been deposited with Administrative Agent to secure such Letter of Credit Exposure pursuant to SECTION 2.1(B). "Borrowing Date" means the Eurodollar Business Day or the Domestic Business Day, as the case may be, upon which the proceeds of any Borrowing are made available to Borrower or to satisfy the obligation of any Company. "Capital Lease" means, for any Person as of any date, any lease of property, real or personal, which would be capitalized on a balance sheet of the lessee prepared as of such date in accordance with generally accepted accounting principles. "Closing Date" means April 1, 1997. "Co-Agents" means Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch in their capacities as Co-Agents hereunder or any successor thereto, and "Co-Agent" means any one of the foregoing. 1/230128.7 5 "Code" means the Internal Revenue Code of 1986, as amended. "Commitment" means, with respect to any Bank, the amount set forth opposite such Bank's name on SCHEDULE 1 hereto, as such amount may be terminated or reduced from time to time in accordance with the provisions hereof. "Commitment Fee Percentage" means, at any time, the amount set forth in the table below opposite the applicable Ratio of Consolidated Funded Debt to Adjusted Consolidated Cash Flow. The Commitment Fee Percentage in effect at any time pursuant to the table below shall be based on the Ratio of Consolidated Funded Debt to Adjusted Consolidated EBITDA as of the last day of the Fiscal Quarter then most recently ended for which Borrower has provided to Banks the financial statements required by SECTION 8.1(B) hereof (in the case of the first three (3) Fiscal Quarters of each Fiscal Year) or SECTION 8.1(A) hereof (in the case of the fourth Fiscal Quarter of each Fiscal Year).
Ratio of Consolidated Funded Debt to Commitment Fee Adjusted Consolidated EBITDA Percentage less than or equal to 2.5 to 1 .25% greater than 2.5 to 1 less than or equal to 3.0 to 1 .30% greater than 3 to 1 .375% ======================================================= =======
"Commitment Percentage" means, with respect to any Bank at any time, the Commitment Percentage for such Bank set forth on SCHEDULE 1 hereto. "Common Stock" means Borrower's Common Stock, par value $.01 per share. "Companies" means Borrower and all direct and indirect Subsidiaries of Borrower whether existing on the date hereof or hereafter acquired or created, and "Company" means any one of the foregoing. "Consolidated Current Assets" means, for any Person at any time, the sum of (a) consolidated current assets of such Person and its Consolidated Subsidiaries including accounts or notes receivable (if properly reserved in accordance with generally accepted accounting principles), but excluding (i) prepaid expenses, and (ii) assets held for resale, plus (b) the Availability. "Consolidated Current Liabilities" means, for any Person at any time, the current liabilities of such Person and its Consolidated Subsidiaries at such time, but excluding the current portion of the principal outstanding under the Loan. "Consolidated EBITDA" means, for any Person for any period, the Consolidated Net Income of such Person for such period, plus each of the following determined for such Person and its 1/230128.7 6 Consolidated Subsidiaries on a consolidated basis for such period: (a) any provision for (or less any benefit from) income or franchise Taxes included in determining Consolidated Net Income; (b) Consolidated Net Interest Expense deducted in determining Consolidated Net Income; (c) depreciation, depletion and amortization expense deducted in determining Consolidated Net Income; and (d) other noncash charges deducted in determining Consolidated Net Income and not already deducted in accordance with clauses (b) and (c) of this definition. "Consolidated Free Cash Flow" means, for Borrower for any period, the remainder of (a) Borrower's Consolidated EBITDA for such period, minus (b) Borrower's Consolidated Net Interest Expense for such period, minus (c) all income and franchise Taxes actually paid in cash by Borrower and its Consolidated Subsidiaries during such period, minus (d) all dividends on the Preferred Stock paid during such period. "Consolidated Funded Debt" means, for Borrower at any time, all Debt of Borrower and its Consolidated Subsidiaries at such time. "Consolidated Net Income" means, for any Person as of any period, the net income (or loss) of such Person and its Consolidated Subsidiaries for such period determined in accordance with generally accepted accounting principles, but excluding: (a) the income of any other Person (other than its Consolidated Subsidiaries) in which such Person or any of its Subsidiaries has an ownership interest, unless received by such Person or its Consolidated Subsidiaries in a cash distribution; (b) any after-tax gains attributable to asset dispositions; (c) to the extent not included in clauses (a) and (b) above, any after-tax (i) extraordinary gains, (ii) non-cash gains or (iii) nonrecurring gains; and (d) non-cash or nonrecurring charges due to changes in accounting principles required by generally accepted accounting principles. "Consolidated Net Interest Expense" means, for any Person for any period, the remainder of the following for such Person and its Consolidated Subsidiaries for such period: (a) interest expense, minus (b) interest income. "Consolidated Subsidiary" or "Consolidated Subsidiaries" means, for any Person, at any time, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements as of such time. "Consolidated Total Capital" means, for any Person as of any date, the sum of (a) the Consolidated Funded Debt of such Person and its Consolidated Subsidiaries as of such date, and (b) the shareholders' equity of such Person which would be reflected on a consolidated balance sheet of such Person and its Consolidated Subsidiaries prepared as of such date in accordance with generally accepted accounting principles. "Conversion Date" has the meaning set forth in SECTION 2.5(C). 1/230128.7 7 "Credit Period" means the period commencing on the date hereof and ending on the Termination Date. "Current Financials" means the consolidated balance sheet of Borrower as of December 31, 1996, and the related consolidated statements of operations and cash flow for the Fiscal Year then ended, reported on by Arthur Anderson, LLP, copies of which have been provided to Banks. "Current Reserve Report" means that certain Estimate of Reserves and Future Revenue dated February 5, 1997, prepared as of December 31, 1996 by Netherland, Sewell & Associates, Inc. setting forth Netherland, Sewell & Associates, Inc.'s analysis of certain oil and gas properties owned by Borrower (after giving effect to the Merger) and its Restricted Subsidiaries as of December 31, 1996. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all other indebtedness (including obligations under Capital Leases, other than Capital Leases which are usual and customary oil and gas leases) of such Person on which interest charges are customarily paid or accrued, (d) all Guarantees by such Person, (e) the unfunded or unreimbursed portion of all letters of credit issued for the account of such Person, and (f) all liability of such Person as a general partner of a partnership for obligations of such partnership of the nature described in (a) through (e) preceding. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Determination" means any Periodic Determination or Special Determination. "Determination Date" means (a) each May 1 and November 1, and (b) with respect to any Special Determination, the first day of the first month which is not less than twenty (20) Domestic Business Days following the date of a request for a Special Determination. The Closing Date shall also constitute a Determination Date for purposes of this Agreement. "Distribution" by any Person, means (a) with respect to any stock issued by such Person or any partnership interest of such Person, the retirement, redemption, purchase, or other acquisition for value of any such stock or partnership interest, (b) the declaration or payment of any dividend or other distribution on or with respect to any stock or any partnership interest of any Person, and (c) any other payment by such Person with respect to such stock or partnership interest. "Documentary Agent" means NationsBank of Texas, N.A. in its capacity as Documentary Agent for Banks hereunder or any successor thereto. 1/230128.7 8 "Domestic Business Day" means any day except a Saturday, Sunday or other day on which national banks in Houston, Texas, are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office identified on SCHEDULE 1 hereto as its Domestic Lending Office or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to Borrower and Administrative Agent. "Environmental Liability" means any liability, loss, fine, penalty, charge, lien, damage, cost, or expense of any kind that results directly or indirectly, in whole or in part (a) from the violation of any Applicable Environmental Law, (b) from the release or threatened release of any hazardous substance, (c) from removal, remediation, or other actions in response to the release or threatened release of any hazardous substance, (d) from actual or threatened damages to natural resources, (e) from the imposition of injunctive relief or other orders, (f) from personal injury, death, or property damage which occurs as a result of any Company's use, storage, handling, or the release or threatened release of a hazardous substance, or (g) from any environmental investigation performed at, on, or for any real property owned by any Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Eurodollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in the applicable Eurodollar interbank market. "Eurodollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address identified on SCHEDULE 1 hereto as its Eurodollar Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Eurodollar Lending Office by notice to Borrower and Administrative Agent. "Eurodollar Rate" applicable to any Interest Period means the rate per annum determined by Administrative Agent (rounded upward, if necessary, to the next higher 1/16 of 1%) at which deposits in dollars are offered to Administrative Agent by first class banks in the eurodollar interbank market which has been selected by Administrative Agent at approximately 10:00 a.m. (Houston, Texas time) two (2) Eurodollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Tranche to which such Interest Period is to apply and for a period of time comparable to such Interest Period. Administrative Agent shall determine the Eurodollar Rate and shall notify Borrower and Banks as soon as practicable. "Eurodollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in Houston, Texas in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on 1/230128.7 9 Eurodollar Tranches is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Eurodollar Tranche" means, with respect to any Interest Period, any portion of the principal amount outstanding under the Loan which bears interest at a rate computed by reference to the Adjusted Eurodollar Rate for such Interest Period. "Event of Default" has the meaning set forth in SECTION 11.1 hereof. "Exempt Transfer" means any transfer of oil and gas properties or Related Assets (a) by Borrower to any of its Restricted Subsidiaries, or (b) by any of the Restricted Subsidiaries of Borrower to Borrower or to any other Restricted Subsidiary of Borrower. "Exhibit" refers to an exhibit attached to this Agreement and incorporated herein by reference, unless specifically provided otherwise. "Existing Banks" means the financial institutions listed on SCHEDULE 1 of the Existing Credit Agreement. "Existing Borrowers" means the Borrowers under and as defined in the Existing Credit Agreement. "Existing Credit Agreement" means that certain Credit Agreement dated as of May 2, 1996, by and among Existing Borrowers, Agents and Existing Banks as amended by that certain (i) First Amendment to Credit Agreement dated as of June 28, 1996, by and among Existing Borrowers, Agents and Existing Banks, (ii) Second Amendment to Credit Agreement dated as of October 8, 1996, by and among Existing Borrowers, Agents and Existing Banks, (iii) Third Amendment to Credit Agreement dated as of November 1, 1996, by and among Existing Borrowers, Agents and Existing Banks, and (iv) Fourth Amendment to Credit Agreement dated as of February 18, 1997, by and among Existing Borrowers, Agents and Existing Banks. "Existing Mortgages" means the mortgages, deeds of trust, security agreements, assignments, pledges and other documents, instruments and agreements which establish Liens on oil and gas properties owned by Gerrity and its Restricted Subsidiaries and on Gerrity Related Assets (as defined in the Existing Credit Agreement) to secure certain obligations under the Existing Credit Agreement. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a 1/230128.7 10 Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (b) if such rate is not so published on such next succeeding Domestic Business Day, the Federal Funds Rate for any day shall be the average rate charged to Administrative Agent on such day on such transactions as determined by Administrative Agent. "Fiscal Quarter" means the three (3) month periods ending March 31, June 30, September 30 or December 31 of each Fiscal Year. "Fiscal Year" means a twelve (12) month period ending December 31. "Gerrity" means Gerrity Oil & Gas Corporation, a Delaware corporation, which will be merged with an into Borrower pursuant to the Merger with Borrower being the surviving corporation. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions, by "comfort letter" or other similar undertaking of support or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Indenture" means that certain Indenture dated as of June 30, 1994, by and between Gerrity and Chemical Bank as Trustee, as supplemented and amended by that certain Supplemental Indenture dated as of March 31, 1997, by and among Borrower, Gerrity and The Chase Manhattan Bank (formerly known as Chemical Bank), as Trustee, which Indenture sets forth certain terms applicable to the Subordinate Notes. "Initial Borrowing Base" means a Borrowing Base in the amount of $120,000,000, which shall be in effect during the period commencing on the Closing Date and continuing until the first Special Determination or Periodic Determination after the Closing Date. "Interest Option" has the meaning given such term in SECTION 2.5(C). "Interest Period" means, with respect to each Eurodollar Tranche, the period commencing on the Borrowing or Conversion Date applicable to such Tranche and ending one (1), two (2), three (3) or six (6) months thereafter, as Borrower may elect in the applicable Request for Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Eurodollar 1/230128.7 11 Business Day shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (b) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Eurodollar Business Day of a calendar month; (c) if any Interest Period includes a date on which any payment of principal of the Loan subject to such Eurodollar Tranche is required to be made hereunder, but does not end on such date, then (i) the principal amount of each Eurodollar Tranche required to be repaid on such date shall have an Interest Period ending on such date, and (ii) the remainder of each such Eurodollar Tranche shall have an Interest Period determined as set forth above; and (d) no Interest Period shall extend past the expiration of the Credit Period. "Investment" means, with respect to any Person, any loan, advance, extension of credit, capital contribution to, investment in or purchase of the stock securities of, or interests in, any other Person; provided, that "Investment" shall not include current customer and trade accounts which are payable in accordance with customary trade terms. "Lending Office" means, as to any Bank, its Domestic Lending Office or its Eurodollar Lending Office, as the context may require. "Letter of Credit Exposure" of any Bank means, collectively, such Bank's aggregate participation in the unfunded portion of Letters of Credit outstanding at any time. "Letter of Credit Issuer" has the meaning set forth in SECTION 2.1(B). "Letters of Credit" means, collectively, letters of credit issued for the account of Borrower and its Restricted Subsidiaries pursuant to SECTION 2.1(B). "Lien" means with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of this Agreement, Borrower and its Subsidiaries shall be deemed to own subject to a Lien any asset which is acquired or held subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means the revolving credit loan made by Banks to Borrower pursuant to the Commitment. "Loan Papers" means this Agreement, the Notes, the SWAT Guarantee, the Pledge Agreement, and all other certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be amended from time to time. "Margin Regulations" mean Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, as in effect from time to time. 1/230128.7 12 "Margin Stock" means "margin stock" as defined in Regulation U. "Material Agreement" means any material written or oral agreement, contract, commitment, or understanding to which a Person is a party, by which such Person is directly or indirectly bound, or to which any assets of such Person may be subject, which is not cancelable by such Person upon notice of ninety (90) days or less without liability for further payment other than nominal penalty. "Material Debt" means Debt of Borrower or any of its Subsidiaries issued under one or more related or unrelated agreements or instruments in an aggregate principal amount exceeding $2,500,000. "Maximum Lawful Rate" means, for each Bank, the maximum rate (or, if the context so permits or requires, an amount calculated at such rate) of interest which, at the time in question would not cause the interest charged on the portion of the Loan owed to such Bank at such time to exceed the maximum amount which such Bank would be allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges under the Loan Papers. To the extent the laws of the State of Texas are applicable for purposes of determining the "Maximum Lawful Rate," such term shall mean the "indicated rate ceiling" from time to time in effect under Article 1.04, Title 79, Revised Civil Statutes of Texas, 1925, as amended, or, if permitted by applicable law and effective upon the giving of the notices required by such Article 1.04 (or effective upon any other date otherwise specified by applicable law), the "quarterly ceiling" or "annualized ceiling" from time to time in effect under such Article 1.04, whichever Administrative Agent (with the approval of Required Banks) shall elect to substitute for the "indicated rate ceiling," and VICE VERSA, each such substitution to have the effect provided in such Article 1.04, and Administrative Agent (with the approval of Required Banks) shall be entitled to make such election from time to time and one or more times and, without notice to Borrower, to leave any such substitute rate in effect for subsequent periods in accordance with subsection (h)(1) of such Article 1.04. "Merger" means the merger of Gerrity with and into Borrower pursuant to, and in accordance with, the Merger Certificate, with Borrower being the surviving corporation. "Merger Certificate" means that certain Certificate of Ownership and Merger of Gerrity Oil & Gas Corporation with and into Patina Oil & Gas Corporation dated March 21, 1997, and filed on March 26, 1997 with the Secretary of State of Delaware. "Merger Documents" means (a) the Merger Certificate, and (b) all other material documents, instruments and agreements executed or delivered by any Company pursuant to the Merger Certificate or the Merger. "Mortgages" means all mortgages, deeds of trust, security agreements, pledge agreements and similar documents, instruments and agreements creating, evidencing, perfecting or otherwise 1/230128.7 13 establishing the Liens required by ARTICLE V hereof as may have been heretofore or may hereafter be granted or assigned to Administrative Agent to secure payment of the Obligations or any part thereof. "Nonrecourse Debt" means Debt (a) secured solely by the assets acquired with the proceeds of such Debt, (b) with respect to which neither Borrower nor any of its Subsidiaries have any liability for repayment beyond the assets pledged, and (c) with respect to which Borrower has delivered to Banks an opinion in a form satisfactory to Required Banks of counsel acceptable to Administrative Agent stating that such indebtedness meets the criteria set forth in (a) and (b) preceding. "Note" means a promissory note of Borrower, payable to the order of a Bank, in substantially the form of EXHIBIT A hereto, evidencing the obligation of Borrower to repay to such Bank its Commitment Percentage of the Loan, together with all modifications, extensions, renewals and rearrangements thereof, and "Notes" means all of such Notes. "Obligations" means, collectively, all present and future indebtedness, obligations and liabilities, and all renewals and extensions thereof, or any part thereof, of Borrower and its Restricted Subsidiaries (including obligations under the SWAT Guarantee) to any Bank or to any Affiliate of any Bank (a) arising pursuant to the Existing Credit Agreement, (b) arising pursuant to the Loan Papers, and all interest accrued thereon and costs, expenses and attorneys' fees incurred in the enforcement or collection thereof, (c) arising under or in connection with any Oil and Gas Hedge Transaction entered into between Borrower or any of its Restricted Subsidiaries and any Bank or any Affiliate of any Bank, (d) arising under or in connection with any interest rate swap, cap, collar, hedge or other interest rate protection device entered into between Borrower or any of its Restricted Subsidiaries and any Bank or any Affiliate of any Bank, and (e) arising under or in connection with any other financial "derivative" product provided by any Bank or any Affiliate of any Bank to any Company, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several. It is the intention of Borrower, Agents and Banks that Borrower and its Restricted Subsidiaries shall be jointly and severally liable for all obligations of each other. "Oil and Gas Hedge Transactions" means transactions pursuant to which Borrower or any of its Subsidiaries hedge the price to be received by them for future production of hydrocarbons, including price swap agreements under which Borrower or any of its Subsidiaries agree to pay a price for a specified amount of hydrocarbons determined by reference to a recognized market on a specified future date and the contracting party agrees to pay Borrower or its Subsidiaries a fixed price for the same or similar amount of hydrocarbons. "Operating Lease" means any lease, sublease, license or similar arrangement (other than a Capital Lease and other than leases with a primary term of one year or less or which can be terminated by the lessee upon notice of one year or less without incurring a penalty) pursuant to which a Person leases, subleases or otherwise is granted the right to occupy, take possession of, or 1/230128.7 14 use property whether real, personal or mixed; provided, that "Operating Lease" shall not include oil, gas or mineral leases entered into or assigned to any Company in the ordinary course of such Company's business. "Outstanding Credit" means, at any time, the sum of (i) the aggregate Letter of Credit Exposure at such time plus (ii) the aggregate principal balance of the Loan. "Participant" has the meaning given such term in SECTION 14.10(B). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Periodic Determination" means any determination of the Borrowing Base pursuant to SECTION 4.2. "Permitted Encumbrances" means with respect to any asset: (a) Liens in favor of Banks or their Affiliates under the Loan Papers; (b) Minor defects in title which do not secure the payment of money and otherwise have no material adverse effect on the value or operation of oil and gas properties, and for the purposes of this Agreement, a minor defect in title shall include (i) those instances where record title to an oil and gas lease is in a predecessor in title to Borrower or any of its Subsidiaries, but where Borrower or any of its Subsidiaries, by reason of a farmout or other instrument is presently entitled to receive an assignment of its interest or other evidence of title and the appropriate Person is proceeding diligently to obtain such assignment, and (ii) easements, rights-of-way, servitudes, permits, surface leases and other similar rights in respect of surface operations, and easements for pipelines, streets, alleys, highways, telephone lines, power lines, railways and other easements and rights-of-way, on, over or in respect of any of the properties of Borrower (or its Subsidiaries, as applicable) that are customarily granted in the oil and gas industry; so long as, with respect to any of such minor defects in title, the same are minor defects which are customary and usual in the oil and gas industry and which are customarily accepted by a reasonably prudent operator dealing with its properties; (c) Inchoate statutory or operators' liens securing obligations for labor, services, materials and supplies furnished to oil and gas properties which are not delinquent (except to the extent permitted by SECTION 8.7); (d) Mechanic's, materialmen's, warehouseman's, journeyman's and carrier's liens and other similar liens arising by operation of law or statute in the ordinary course of business which are not delinquent (except to the extent permitted by SECTION 8.7); 1/230128.7 15 (e) Production sales contracts, gas balancing agreements and joint operating agreements; provided, that the amount of all gas imbalances known to any Authorized Officer of Borrower and the amount of all production which has been paid for but not delivered shall have been disclosed or otherwise taken into account in the Reserve Reports delivered to Banks hereunder; (f) Liens for Taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by appropriate action, as permitted by SECTION 8.7; (g) All rights to consent by, required notices to, filings with, or other actions by, governmental entities in connection with the sale or conveyance of oil and gas leases or interests therein if Borrower (or its Subsidiaries, as applicable) is entitled to such consent, the same are customarily obtained subsequent to such sale or conveyance and the appropriate Person is proceeding diligently to obtain such consent, notice or filing; (h) The terms and provisions of any of the oil and gas leases pursuant to which Borrower (or its Subsidiaries, as applicable) derives its interests; (i) Lease burdens payable to third parties which are deducted in the calculation of discounted present value in the Reserve Reports including, without limitation, any royalty, overriding royalty, net profits interest, production payment, carried interest or reversionary working interest and which have been disclosed to the Administrative Agent in writing; PROVIDED, HOWEVER, that Borrower shall not be required to disclose such lease burdens unless the same are lease burdens which are not customarily and usually found in the oil and gas industry or unless the same are lease burdens which obligate Borrower and/or its Subsidiaries, as applicable, in a fashion not customarily and usually found in the oil and gas industry; (j) All applicable laws, rules and orders of governmental authorities having jurisdiction over the affairs of Borrower; (k) Liens securing Debt incurred to finance the acquisition of the assets which are the subject of such Liens (to the extent permitted by SECTION 9.1 hereof); and (l) Liens securing the obligations due and owing under the Existing Credit Agreement (to the extent such Liens are carried forward pursuant to the terms of this Agreement). "Permitted Investment" means, with respect to Borrower or any Restricted Subsidiary, (a) readily marketable direct obligations of the United States of America, (b) fully insured time deposits and certificates of deposit with maturities of one (1) year or less of any commercial bank operating in the United States having capital and surplus in excess of $50,000,000.00, (c) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest ratings categories of Standard and Poor's Corporation or Moody's Investors Service, (d) any reverse repurchase agreement entered into with a commercial bank meeting the criteria described 1/230128.7 16 in clause (b) preceding which is secured by a fully perfected security interest in a security of the type described in clauses (a) through (c) preceding and which security has a market value at the time such reverse repurchase agreement is entered into of not less than 100% of the obligation of such commercial bank under such reverse repurchase agreement, (e) Investments by Borrower and its Restricted Subsidiaries in Borrower or Restricted Subsidiaries of Borrower, (f) Investments outstanding as of the date hereof described on SCHEDULE 2 hereof, and (g) Investments by Borrower and its Restricted Subsidiaries which when made, together with all other Investments made pursuant to this clause (g) do not exceed an amount (measured at cost) greater than five percent (5%) of the Borrowing Base then in effect. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is now or was previously covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. "Preferred Stock" means Borrower's Series A Convertible Preferred Stock containing the rights and preferences set forth in, and issued pursuant to, the Preferred Stock Designation. "Preferred Stock Designation" means the Certificate of Designation of Rights and Preferences of Series A Preferred Stock filed with the Secretary of State of Delaware on or about May 1, 1996, setting forth the rights and preferences of the Preferred Stock. "Process Agent" has the meaning set forth in SECTION 14.12. "Ratio of Consolidated Funded Debt to Adjusted Consolidated EBITDA" means, for any Person as of the last day of any Fiscal Quarter, such Person's ratio of Consolidated Funded Debt on such day to its Adjusted Consolidated EBITDA for the period of four (4) Fiscal Quarters ended on such day (or to its Annualized Adjusted Consolidated EBITDA for the period from July 1, 1996 to (a) December 31, 1996 to the extent such ratio is being calculated as of December 31, 1996, or (b) March 31, 1997 to the extent such ratio is being calculated as of March 31, 1997. "Recognized Value" means, with respect to oil and gas properties, the pre-tax value of such properties determined in accordance with Financial Accounting Standards Board Statement 69, generally known as the "standardized measure of discounted cash flow". "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Related Assets" means all pipelines, gathering systems, gas processing plants and similar assets owned by Borrower and its Restricted Subsidiaries, including, related personal property or 1/230128.7 17 other fixed assets and all easements, servitudes and similar real property interests owned by Borrower and its Restricted Subsidiaries on which such systems are located. "Related Assets Reports" means reports to be delivered by Borrower to Banks simultaneously with each delivery by Borrower of a Reserve Report pursuant to SECTIONS 4.1 AND 4.3 which shall (a) be in form and substance acceptable to Required Banks, (b) be prepared by the Approved Petroleum Engineer (with the exception of the Related Asset Report required to be delivered on or before September 15 of each year or pursuant to any Special Determination which may be prepared by Borrower's in-house staff) in accordance with customary and prudent practices of the petroleum engineering industry, and (c) which shall set forth the discounted present value of the Related Assets owned by Borrower (which valuation shall be determined as of the same date as the discounted present value of the oil and gas properties which are the subject of the Reserve Report delivered simultaneously therewith pursuant to SECTIONS 4.1 AND 4.3 as applicable) as determined by the Approved Petroleum Engineer or Borrower's in-house staff (as applicable). Each Related Asset Report shall also designate the owner (either Borrower, or one of its Restricted Subsidiaries) of each Related Asset which is the subject of such report. "Rentals" means amounts payable by a lessee under an Operating Lease. "Request for Borrowing" has the meaning set forth in SECTION 2.2. "Request for Letter of Credit" has the meaning given such term in SECTION 2.3. "Required Banks" means Banks holding greater than sixty-six and two-thirds percent (66 2/3%) of the Total Commitment. "Reserve Report" means an engineering analysis of the oil and gas properties owned by Borrower and its Restricted Subsidiaries in form and substance acceptable to Required Banks prepared by the Approved Petroleum Engineer or reviewed and approved by the Approved Petroleum Engineer (with the exception of the Reserve Reports required to be delivered on or before September 15 of each year pursuant to SECTION 4.1 or pursuant to any Special Determination pursuant to SECTION 4.3 which may be prepared by Borrower's in-house staff) in accordance with customary and prudent practices in the petroleum engineering industry and Financial Accounting Standards Board Statement 69. "Restricted Payment" means (a) any Distribution by Borrower or any of its Restricted Subsidiaries other than Distributions by such Restricted Subsidiaries to Borrower, and (b) the retirement, redemption or prepayment prior to the scheduled maturity by Borrower or a Restricted Subsidiary of Borrower of Debt of Borrower or any Restricted Subsidiary of Borrower (including without limitation, retirement, redemption or prepayment prior to the scheduled maturity of any of the Subordinate Notes). 1/230128.7 18 "Restricted Payment Limit" means (a) as of any date during the period from the Closing Date through the date of delivery to Banks of Borrower's consolidated financial statements required by SECTION 8.1(B) for the Fiscal Quarter ending March 31, 1997, an amount equal to $10,000,000, and (b) as of any date (the "MEASUREMENT DATE") on and after the date of delivery to Banks of Borrower's consolidated financial statements required by SECTION 8.1(B) for the Fiscal Quarter ending March 31, 1997, the sum of (i) $10,000,000, plus (ii) an amount equal to twenty percent (20%) of Borrower's Consolidated Free Cash Flow for the period commencing January 1, 1997 and ending on the last day of the Fiscal Quarter most recently ended as of the measurement date for which Borrower's consolidated financial statements required by SECTION 8.1(B) (in the case of the first three quarters of each Fiscal Year, and SECTION 8.1(A) in the case of the fourth Fiscal Quarter of each Fiscal Year) have been delivered to Banks. "Restricted Subsidiary" means, as of the date hereof, SWAT. "Restricted Subsidiary" shall also refer to any other Subsidiary of Borrower which Required Banks and Borrower hereafter, in their sole discretion, designate as a "Restricted Subsidiary;" provided, that no Subsidiary of Borrower will be a Restricted Subsidiary unless (a) one hundred percent (100%) of its issued and outstanding capital stock has been pledged to Administrative Agent to secure the Obligations pursuant to a Restricted Subsidiary Pledge Agreement, and (b) it has executed a Restricted Subsidiary Guaranty. "Restricted Subsidiary Guarantee" means a Guarantee in the form of EXHIBIT C attached hereto to be executed by each Restricted Subsidiary of Borrower pursuant to which such Restricted Subsidiary shall guarantee payment and performance of the Obligations. "Restricted Subsidiary Pledge Agreement" means a Pledge Agreement substantially in the form of EXHIBIT B attached hereto to be executed by Borrower or a Restricted Subsidiary pursuant to which Borrower or such Restricted Subsidiary pledges the issued and outstanding capital stock of each Restricted Subsidiary owned by Borrower or such Restricted Subsidiary of every class to Administrative Agent to secure the Obligations. "Rollover Notice" has the meaning given such term in SECTION 2.5(C). "Schedule" means a "schedule" attached to this Agreement and incorporated herein by reference, unless specifically indicated otherwise. "Section" refers to a "section" or "subsection" of this Agreement unless specifically indicated otherwise. "SOCO" means Snyder Oil Corporation, a Delaware corporation, which is the legal and beneficial owner of seventy four percent (74%) of the issued and outstanding Common Stock (on a non-diluted basis). 1/230128.7 19 "Subordinate Notes" means those certain 11 3/4% Senior Subordinate Notes due July 15, 2004, as the same are more particularly described in the Indenture. "Subsidiary" means, for any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions (including that of a general partner) are at the time directly or indirectly owned, collectively, by such Person and any Subsidiaries of such Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so on). "Surplus Commitment" has the meaning set forth in SECTION 13.5. "SWAT" means SOCO Wattenberg Corporation, a Delaware corporation, which is a wholly owned Subsidiary of Borrower. "Taxes" means all taxes, assessments, filing or other fees, levies, imposts, duties, deductions, withholdings, stamp taxes, interest equalization taxes, capital transaction taxes, foreign exchange taxes or other charges, or other charges of any nature whatsoever, from time to time or at any time imposed by law or any federal, state or local governmental agency. "Tax" means any one of the foregoing. "Termination Date" means July 15, 1999. "Total Commitment" means the aggregate of all Banks' Commitments. "Tranche" means an Adjusted Base Rate Tranche or a Eurodollar Tranche and "Tranches" means Adjusted Base Rate Tranches or Eurodollar Tranches or any combination thereof. "Type" means with reference to a Tranche, the characterization of such Tranche as an Adjusted Base Rate Tranche or a Eurodollar Tranche based on the method by which the accrual of interest on such Tranche is calculated. "Unrestricted Subsidiary" shall mean any Subsidiary of Borrower which is not a Restricted Subsidiary. SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statements of Borrower and its Consolidated Subsidiaries delivered to Banks except for changes in which Borrower's independent certified public accountants concur and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to Banks pursuant to SECTIONS 8.1(A) and (B); PROVIDED THAT, unless Borrower and Required Banks shall otherwise agree 1/230128.7 20 in writing, no such change shall modify or affect the manner in which compliance with the covenants contained in ARTICLE X are computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods. ARTICLE II THE CREDIT FACILITIES SECTION 2.1. COMMITMENT. (a) Each Bank severally agrees, subject to SECTION 2.1(C) and the other terms and conditions set forth in this Agreement, to lend to Borrower from time to time during the Credit Period amounts not to exceed in the aggregate at any one time outstanding, the amount of such Bank's Commitment reduced by an amount equal to such Bank's Letter of Credit Exposure. Each Borrowing shall (i) be in an aggregate principal amount of $500,000 or any larger integral multiple of $100,000 (except that any Adjusted Base Rate Borrowing may be in an amount equal to the Availability at such time), and (ii) be made from each Bank ratably in accordance with its respective Commitment Percentage. Subject to the foregoing limitations and the other provisions of this Agreement, Borrower may borrow under this SECTION 2.1(A), repay amounts borrowed under this SECTION 2.1(A) and request new Borrowings under this SECTION 2.1(A). (b) Administrative Agent, or such Bank designated by Administrative Agent which (without obligation to do so) consents to the same ("LETTER OF CREDIT ISSUER"), will issue Letters of Credit, from time to time during the Credit Period, upon request by Borrower, for the account of Borrower or any Restricted Subsidiary designated by Borrower, so long as (i) the sum of (A) the total Letter of Credit Exposure then existing, and (B) the amount of the requested Letter of Credit does not exceed $10,000,000, and (ii) Borrower would be entitled to a Borrowing under SECTIONS 2.1(A) AND (C) in the amount of the requested Letter of Credit. Not less than three (3) Domestic Business Days prior to the requested date of issuance of any such Letter of Credit, Borrower (and any Restricted Subsidiary of Borrower for whose account such Letter of Credit is being issued) shall execute and deliver to Letter of Credit Issuer, Letter of Credit Issuer's customary letter of credit application. Each Letter of Credit shall be in form and substance acceptable to Letter of Credit Issuer. No Letter of Credit shall have an expiration date later than the earlier of (i) the Termination Date, or (ii) one (1) year from the date of issuance. Upon the date of issuance of a Letter of Credit, Letter of Credit Issuer shall be deemed to have sold to each other Bank, and each other Bank shall be deemed to have unconditionally and irrevocably purchased from Letter of Credit Issuer, a non-recourse participation in the related Letter of Credit and Letter of Credit Exposure equal to such Bank's Commitment Percentage of such Letter of Credit and Letter of Credit Exposure. Upon request of any Bank, but not less often than quarterly, Administrative Agent shall provide notice to each Bank by telephone, teletransmission or telex setting forth each Letter of Credit issued and outstanding pursuant to the terms hereof and specifying the Letter of Credit Issuer, beneficiary and expiration date of each such Letter of Credit, each Bank's participation percentage of each such Letter of Credit and the actual dollar amount of each Bank's participation held by Letter of Credit 1/230128.7 21 Issuer(s) thereof for such Bank's account and risk. If any Letter of Credit is presented for payment by the beneficiary thereof, Administrative Agent shall cause an Adjusted Base Rate Borrowing to be made from each Bank participating in such Letter of Credit and Letter of Credit Exposure to reimburse Letter of Credit Issuer for the payment under the Letter of Credit, whether or not Borrower would then be entitled to a Borrowing pursuant to the terms hereof, and each Bank which participated in such Letter of Credit and Letter of Credit Exposure shall be obligated to lend its Commitment Percentage of such Adjusted Base Rate Borrowing. At the time of issuance of each Letter of Credit, Borrower shall pay to Administrative Agent a fee equal to the sum of (i) the greater of (A) $500, or (B) one-eighth of one percent (1/8%) per annum (based on the face amount and term of such Letter of Credit), plus (ii) the greater of (A) $500, or (B) a per annum percentage equal to the Applicable Margin in effect on the date of issuance of such Letter of Credit (based upon the amount and term of such Letter of Credit). Administrative Agent shall distribute the fee described in subclause (i) of the preceding sentence paid on issuance of such Letter of Credit to the Letter of Credit Issuer which issued such Letter of Credit. The remaining portion of such fee shall be paid to Banks participating in such Letter of Credit and Letter of Credit Exposure based on the relative amounts of their participation in such Letter of Credit and Letter of Credit Exposure. Upon the occurrence of an Event of Default, Borrower shall, on the next succeeding Domestic Business Day, deposit with Administrative Agent such funds as Administrative Agent may request, up to a maximum amount equal to the aggregate existing Letter of Credit Exposure of all Banks. Any funds so deposited shall be held by Administrative Agent for the ratable benefit of all Banks as security for the outstanding Letter of Credit Exposure and the other Obligations, and Borrower will, in connection therewith, execute and deliver such security agreements in form and substance satisfactory to Administrative Agent which it may, in its discretion, require. As drafts or demands for payment are presented under any Letter of Credit, Administrative Agent shall apply such funds to satisfy such drafts or demands. When all Letters of Credit have expired and the Obligations have been repaid in full (and the Commitments of all Banks have terminated) or such Event of Default has been cured to the satisfaction of Required Banks, Administrative Agent shall release to Borrower any remaining funds deposited under this SECTION 2.1(B). Whenever Borrower is required to make deposits under this SECTION 2.1(B) and fails to do so on the day such deposit is due, Administrative Agent or any Bank may, without notice to Borrower, make such deposit (whether by application of proceeds of any collateral for the Obligations, by transfers from other accounts maintained with any Bank or otherwise) using any funds then available to any Bank of Borrower, and of its Restricted Subsidiaries, any guarantor, or any other Person liable for all or any part of the Obligations. (c) No Bank will be obligated to lend to Borrower under this SECTION 2.1 or incur Letter of Credit Exposure, and Borrower shall not be entitled to borrow hereunder or obtain Letters of Credit hereunder (i) during the existence of any Borrowing Base Deficiency, or (ii) in an amount which would cause a Borrowing Base Deficiency. Nothing in this SECTION 2.1(C) shall be deemed to limit any Bank's obligation to fund its ratable share of Adjusted Base Rate Borrowings with respect to its participation in Letters of Credit made as a result of any drawing under any Letter of Credit. 1/230128.7 22 SECTION 2.2. METHOD OF BORROWING. (a) In order to request any Borrowing hereunder, Borrower shall hand deliver, telex or telecopy to Administrative Agent a duly completed Request for Borrowing (herein so called) prior to 12:00 noon (Houston, Texas time), (i) at least one (1) Domestic Business Day before the Borrowing Date specified for a proposed Adjusted Base Rate Borrowing, and (ii) at least three (3) Eurodollar Business Days before the Borrowing Date of a proposed Eurodollar Borrowing. Each such Request for Borrowing shall be substantially in the form of EXHIBIT D hereto, and shall specify: (i) whether such Borrowing is to be an Adjusted Base Rate Borrowing or a Eurodollar Borrowing; (ii) the Borrowing Date of such Borrowing, which shall be a Domestic Business Day in the case of an Adjusted Base Rate Borrowing, or a Eurodollar Business Day in the case of a Eurodollar Borrowing; (iii) the aggregate amount of such Borrowing; and (iv) in the case of a Eurodollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Request for Borrowing described in SECTION 2.2(A) above, Administrative Agent shall promptly notify each Bank of the contents thereof and the amount of the Borrowing to be loaned by such Bank pursuant thereto, and such Request for Borrowing shall not thereafter be revocable by Borrower. (c) Not later than 12:00 noon (Houston, Texas time) on the date of each Borrowing, each Bank shall make available its Commitment Percentage of such Borrowing, in Federal or other funds immediately available in Houston, Texas to Administrative Agent at its address set forth on SCHEDULE 1 hereto. Notwithstanding the foregoing, if Borrower delivers to Administrative Agent a Request for Borrowing prior to 10:00 a.m. (Houston, Texas time) on a Domestic Business Day requesting an Adjusted Base Rate Borrowing on such day, each Bank shall use its best efforts to make available to Administrative Agent its Commitment Percentage of such Borrowing by 1:00 p.m. (Houston, Texas time) on the same day. Unless Administrative Agent determines that any applicable condition specified in SECTION 6.2 has not been satisfied, Administrative Agent will make the funds so received from Banks available to Borrower at Administrative Agent's aforesaid address. SECTION 2.3. METHOD OF REQUESTING LETTERS OF CREDIT. (a) In order to request any Letter of Credit hereunder, Borrower shall hand deliver, telex or telecopy to Administrative Agent a duly completed Request for Letter of Credit (herein so called) prior to 12:00 noon (Houston, Texas time) at least three (3) Domestic Business Days before the date specified for issuance of such Letter of Credit. Each Request for Letters of Credit shall be substantially in the form of EXHIBIT E hereto, 1/230128.7 23 shall be accompanied by the applicable Letter of Credit Issuer's duly completed and executed letter of credit application and agreement and shall specify: (i) the requested date for issuance of such Letter of Credit; (ii) the terms of such requested Letter of Credit, including the name and address of the beneficiary, the stated amount, the expiration date and the conditions under which drafts under such Letter of Credit are to be available; and (iii) the purpose of such Letter of Credit. (b) Upon receipt of a Request for Letter of Credit described in SECTION 2.3(A) above, Administrative Agent shall promptly notify each Bank and the proposed Letter of Credit Issuer of the contents thereof, including the amount of the requested Letter of Credit, and such Request for Letter of Credit shall not thereafter be revocable by Borrower. (c) No later than 12:00 noon (Houston, Texas time) on the date each Letter of Credit is requested, unless Administrative Agent or the applicable Letter of Credit Issuer determines that any applicable condition precedent set forth in SECTION 6.2 hereof has not been satisfied, the applicable Letter of Credit Issuer will issue and deliver such Letter of Credit pursuant to the instructions of Borrower. SECTION 2.4. NOTES. Each Bank's Commitment Percentage of the Loan shall be evidenced by a single Note payable to the order of such Bank in an amount equal to such Bank's Commitment. SECTION 2.5. INTEREST RATES; PAYMENTS. (a) The principal amount of the Loan outstanding from day to day which is the subject of an Adjusted Base Rate Tranche shall bear interest at a rate per annum equal to the sum of the Applicable Margin plus the Adjusted Base Rate in effect from day to day; PROVIDED THAT in no event shall the rate charged hereunder or under the Notes exceed the Maximum Lawful Rate. Interest on any portion of the principal of the Loan subject to an Adjusted Base Rate Tranche shall be payable as it accrues on the last day of each calendar month. (b) The principal amount of the Loan outstanding from day to day which is the subject of a Eurodollar Tranche shall bear interest for the Interest Period applicable thereto at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted Eurodollar Rate; PROVIDED THAT in no event shall the rate charged hereunder or under the Notes exceed the Maximum Lawful Rate. Interest on any portion of the principal of the Loan subject to a Eurodollar Tranche having an Interest Period of one (1), two (2) or three (3) months shall be payable on the last day of the Interest Period applicable thereto. Interest on any portion of the principal of the Loan subject to a Eurodollar Tranche having an Interest Period of six (6) months shall be payable on the last day of the Interest Period applicable thereto and on the last day of each Fiscal Quarter during such Interest Period. 1/230128.7 24 (c) So long as no Default or Event of Default shall be continuing, subject to the provisions of this SECTION 2.5, Borrower shall have the option of having all or any portion of the principal outstanding under the Loan borrowed by it be the subject of an Adjusted Base Rate Tranche or one (1) or more Eurodollar Tranches, which shall bear interest at rates based upon the Adjusted Base Rate and the Adjusted Eurodollar Rate, respectively (each such option is referred to herein as an "INTEREST OPTION"); provided, that each Eurodollar Tranche shall be in a minimum amount of $500,000 and shall be in an amount which is an integral multiple of $100,000. Each change in an Interest Option made pursuant to this SECTION 2.5(C) shall be deemed both a payment in full of the portion of the principal of the Loan which was the subject of the Adjusted Base Rate Tranche or Eurodollar Tranche from which such change was made and a Borrowing (notwithstanding that the unpaid principal amount of the Loan is not changed thereby) of the portion of the principal of the Loan which is the subject of the Adjusted Base Rate Tranche or Eurodollar Tranche into which such change was made. Prior to the termination of each Interest Period with respect to each Eurodollar Tranche, Borrower shall give written notice (a "ROLLOVER NOTICE") in the form of EXHIBIT F attached hereto to Administrative Agent of the Interest Option which shall be applicable to such portion of the principal of the Loan upon the expiration of such Interest Period. Such Rollover Notice shall be given to Administrative Agent at least one (1) Domestic Business Day, in the case of an Adjusted Base Rate Tranche selection and three (3) Eurodollar Business Days, in the case of a Eurodollar Tranche selection, prior to the termination of the Interest Period then expiring. If Borrower shall specify a Eurodollar Tranche, such Rollover Notice shall also specify the length of the succeeding Interest Period (subject to the provisions of the definitions of such term), selected by Borrower. Each Rollover Notice shall be irrevocable and effective upon notification thereof to Administrative Agent. If the required Rollover Notice shall not have been timely received by Administrative Agent, Borrower shall be deemed to have elected that the principal of the Loan subject to the Interest Period then expiring be the subject of an Adjusted Base Rate Tranche upon the expiration of such Interest Period and Borrower will be deemed to have given Administrative Agent notice of such election. Subject to the limitations set forth in this SECTION 2.5(C) on the minimum amount of Eurodollar Tranches, Borrower shall have the right to convert each Adjusted Base Rate Tranche to a Eurodollar Tranche by giving Administrative Agent a Rollover Notice of such election at least three (3) Eurodollar Business Days prior to the date on which Borrower elects to make such conversion (a "CONVERSION DATE"). The Conversion Date selected by Borrower shall be a Eurodollar Business Day. Notwithstanding anything in this SECTION 2.5 to the contrary, no portion of the principal of the Loan which is the subject of an Adjusted Base Rate Tranche may be converted to a Eurodollar Tranche and no Eurodollar Tranche may be continued as such when any Default or Event of Default has occurred and is continuing, but each such Tranche shall be automatically converted to an Adjusted Base Rate Tranche on the last day of each applicable Interest Period. In no event shall more than four (4) Interest Options be in effect with respect to the Loan at any time. (d) Notwithstanding anything to the contrary set forth in SECTION 2.5(A) or (B) above, all overdue principal of and, to the extent permitted by law, overdue interest on the Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the lesser of 1/230128.7 25 (a) the sum of (i) two percent (2%), plus (ii) the Adjusted Base Rate in effect from day to day, and (b) the Maximum Lawful Rate. (e) Administrative Agent shall determine each interest rate applicable to the Loan in accordance with the terms hereof. Administrative Agent shall promptly notify Borrower and Banks by telex, telecopy or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Notwithstanding the foregoing, if at any time the rate of interest calculated with reference to the Adjusted Base Rate or the Eurodollar Rate hereunder (the "CONTRACT RATE") is limited to the Maximum Lawful Rate, any subsequent reductions in the contract rate shall not reduce the rate of interest on the Loan below the Maximum Lawful Rate until the total amount of interest accrued equals the amount of interest which would have accrued if the contract rate had at all times been in effect. In the event that at maturity (stated or by acceleration), or at final payment of any Note, the total amount of interest paid or accrued on such Note is less than the amount of interest which would have accrued if the contract rate had at all times been in effect with respect thereto, then at such time, to the extent permitted by law, Borrower shall pay to the holder of such Note an amount equal to the difference between (i) the lesser of the amount of interest which would have accrued if the contract rate had at all times been in effect and the amount of interest which would have accrued if the Maximum Lawful Rate had at all times been in effect, and (ii) the amount of interest actually paid on such Note. (g) Interest payable on the principal of any portion of the Loan subject to a Eurodollar Tranche shall be computed based on the number of actual days elapsed assuming that each calendar year consisted of 360 days. Interest payable on the principal of any portion of the Loan subject to an Adjusted Base Rate Tranche shall be computed based on the number of actual days elapsed and based on the actual number of days in the calendar year for which accrued interest is being computed. SECTION 2.6. MANDATORY TERMINATION OF COMMITMENTS; TERMINATION DATE AND MATURITY. The Commitment of each Bank shall terminate on the Termination Date. The outstanding principal balance of the Loan, all accrued but unpaid interest thereon and all other Obligations shall be due and payable in full on the Termination Date. SECTION 2.7. VOLUNTARY REDUCTION OF TOTAL COMMITMENT. (a) Borrower may, by notice to Administrative Agent one (1) Domestic Business Day prior to the effective date of any such reduction, permanently reduce the Total Commitment (and thereby permanently reduce the Commitment of each Bank ratably in accordance with such Bank's Commitment Percentage) in amounts not less than $1,000,000 or any larger multiple of $100,000. On the effective date of any such reduction in the Total Commitment, Borrower shall, to the extent required as a result of such reduction, make a principal payment on the Loan in an amount sufficient to cause the Outstanding Credit to be equal to or less than the Total Commitment as thereby reduced. Notwithstanding the foregoing, Borrower shall not be permitted to voluntarily reduce the Total Commitment (a) if, as a 1/230128.7 26 result of such reduction, Borrower would be required to prepay all or any portion of the principal amount of any Eurodollar Tranche prior to the last day of the Interest Period applicable thereto, or (b) to an amount less than the aggregate Letter of Credit Exposure of all Banks. SECTION 2.8. APPLICATION OF PAYMENTS. Each repayment pursuant to SECTIONS 2.6, 2.7, 4.4 and 4.5 shall be made together with accrued interest to the date of payment, and shall be applied to payment of the Loan in accordance with SECTION 3.2 and the other provisions of this Agreement. SECTION 2.9. COMMITMENT FEE. On the Termination Date and on the last day of each Fiscal Quarter until the Termination Date, commencing on June 30, 1997, Borrower shall pay to Administrative Agent, for the ratable benefit of each Bank, a commitment fee equal to the Commitment Fee Percentage (computed on the basis of actual days elapsed and as if each calendar year consisted of 360 days) of the average daily Availability for the Fiscal Quarter (or portion thereof) ending on such date. SECTION 2.10. AGENCY AND OTHER FEES. Borrower shall pay to each Agent and its Affiliates such fees and other amounts as Borrower shall be required to pay to such Agent and its Affiliates from time to time pursuant to any separate agreement between Borrower and such Agent or any of its Affiliates setting forth the compensation to be paid to such Agent and its Affiliates in consideration for acting as Agent hereunder and for providing other services in connection with the credit facilities provided pursuant hereto. Such fees and other amounts shall be retained by the applicable Agent and its Affiliates, and no Bank (other than the applicable Agents) shall have any interest therein. ARTICLE III GENERAL PROVISIONS SECTION 3.1. DELIVERY AND ENDORSEMENT OF NOTES. Simultaneously with the execution of this Agreement, Administrative Agent shall deliver to each Bank the Note payable to such Bank. Each Bank may endorse (and prior to any transfer of its Note shall endorse) on the schedule attached to its Note appropriate notations to evidence the date and amount of each advance of funds made by it in respect of any Borrowing, the Interest Period applicable thereto, and the date and amount of each payment of principal received by such Bank with respect to the Loan; PROVIDED that the failure by any Bank to so endorse its Note shall not affect the liability of Borrower for the repayment of all amounts outstanding under such Notes together with interest thereon. Each Bank is hereby irrevocably authorized by Borrower to endorse its Note and to attach to and make a part of any Note a continuation of any such schedule as required. SECTION 3.2. GENERAL PROVISIONS AS TO PAYMENTS. (a) Borrower shall make each payment of principal of, and interest on, the Loan and all fees payable by Borrower hereunder not later than 12:00 noon (Houston, Texas time) on the date when due, in Federal or other funds immediately 1/230128.7 27 available in Houston, Texas, to Administrative Agent at its address set forth on SCHEDULE 1 hereto. Administrative Agent will promptly (and if such payment is received by Administrative Agent by 10:00 a.m., and otherwise if reasonably possible, on the same Domestic Business Day) distribute to each Bank its Commitment Percentage of each such payment received by Administrative Agent for the account of Banks. Whenever any payment of principal of, or interest on, that portion of the Loan subject to an Adjusted Base Rate Tranche or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day (subject to the definition of Interest Period). Whenever any payment of principal of, or interest on, that portion of the Loan subject to a Eurodollar Tranche shall be due on a day which is not a Eurodollar Business Day, the date for payment thereof shall be extended to the next succeeding Eurodollar Business Day (subject to the definition of Interest Period). If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. Borrower hereby authorizes Administrative Agent to charge from time to time against Borrower's account or accounts with Administrative Agent any amount then due by Borrower. (b) Prior to the occurrence of an Event of Default, all principal payments received by Banks with respect to the Loan shall be applied first to Eurodollar Tranches outstanding under the Loan with Interest Periods ending on the date of such payment, then to the Adjusted Base Rate Tranches outstanding under the Loan, and then to Eurodollar Tranches outstanding under the Loan next maturing until such principal payment is fully applied. (c) After the occurrence of an Event of Default, all amounts collected or received by Administrative Agent or any Bank from Borrower and its Restricted Subsidiaries or in respect of any of the Assets of Borrower or any of its Restricted Subsidiaries shall be applied first to the payment of all proper costs incurred by Administrative Agent in connection with the collection thereof (including reasonable expenses and disbursements of counsel to Administrative Agent), second to the payment of all proper costs incurred by Banks in connection with the collection thereof (including reasonable expenses and disbursements of counsel to Banks), third to the reimbursement of any advances made by Banks to effect performance of any unperformed covenants of Borrower or any of its Restricted Subsidiaries under any of the Loan Papers, fourth to the payment of any unpaid fees required pursuant to SECTION 2.10, fifth to the payment of any unpaid fees required pursuant to SECTIONS 2.1(B) and 2.9, sixth, to each Bank for application to its Commitment Percentage of the outstanding balance of the Loan then outstanding (including accrued but unpaid interest thereon) in accordance with their respective Commitment Percentages, and seventh to establish the deposits required by SECTION 2.1(B) if any. All payments received by a Bank after the occurrence of an Event of Default for application to the principal of the Loan pursuant to this SECTION 3.2(C) shall be applied by such Bank in the manner provided in SECTION 3.2(B). SECTION 3.3. FUNDING LOSSES. If Borrower makes any payment of principal subject to a Eurodollar Tranche (whether pursuant to SECTION 2.6, 2.7, 4.4, 4.5, ARTICLE XI or XIII and whether as a voluntary or mandatory prepayment or otherwise) on any day other than the last day of an Interest Period applicable thereto, or if Borrower fails to borrow any Eurodollar Borrowing, after 1/230128.7 28 notice has been given to any Bank in accordance with SECTION 2.2, Borrower shall reimburse each Bank on demand for any resulting loss or expense incurred by it, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, or any loss arising from the reemployment of funds at rates lower than the cost to such Bank of such funds and related costs, which in the case of the payment or prepayment prior to the end of the Interest Period for any Eurodollar Tranche, shall include the amount, if any, by which (a) the interest which such Bank would have received absent such payment or prepayment for the applicable Interest Period exceeds (b) the interest which such Bank would receive if its Commitment Percentage of the amount of such Eurodollar Borrowing were deposited, loaned, or placed by such Bank in the interbank eurodollar market on the date of such payment or prepayment for the remainder of the applicable Interest Period. Such Bank shall promptly deliver to Borrower and Administrative Agent a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 3.4. FOREIGN LENDERS, PARTICIPANTS, AND ASSIGNEES. Each Bank, Participant (by accepting a participation interest under this Agreement), and Assignee (by executing an Assignment and Assumption Agreement) that is not organized under the laws of the United States of America or one of its states (a) represents to Administrative Agent and Borrower that (i) no Taxes are required to be withheld by Administrative Agent or Borrower with respect to any payments to be made to it in respect of the Obligations, and (ii) it has furnished to Administrative Agent and Borrower two (2) duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or other form acceptable to Administrative Agent that entitles it to exemption from U.S. federal withholding Tax on all interest payments under the Loan Papers, and (b) covenants to (i) provide Administrative Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form acceptable to Administrative Agent upon the expiration or obsolescence of any previously delivered form according to applicable laws and regulations, duly executed and completed by it, and (ii) comply from time to time with all applicable laws and regulations with regard to the withholding Tax exemption. If any of the foregoing is not true or the applicable forms are not provided, then Borrower and Administrative Agent (but without duplication) may deduct and withhold from interest payments under the Loan Papers any United States federal-income Tax at the maximum rate under the Code. ARTICLE IV BORROWING BASE SECTION 4.1. RESERVE AND RELATED ASSET REPORT; PROPOSED BORROWING BASE. As soon as available and in any event by March 15 and September 15 of each year commencing September 15, 1997, Borrower shall deliver to each Bank a Reserve Report and Related Asset Report prepared as of the immediately preceding December 31 and June 30, respectively; provided, that Borrower shall not be required to deliver a Related Asset Report unless Borrower intends to request Administrative Agent and Banks to take the value of Related Assets into account for purposes of establishing the 1/230128.7 29 Borrowing Base. On or before each April 10 and October 10 of each year commencing April 10, 1997, Borrower shall notify each Bank of the Borrowing Base and Borrower requests for the period commencing on the next Determination Date. SECTION 4.2. DETERMINATION OF BORROWING BASE. Based in part on the Reserve Reports and Related Asset Reports delivered pursuant to SECTION 4.1 (and in the case of the Scheduled Determination scheduled to occur on or around May 1, 1997 based on the Current Reserve Report), Administrative Agent shall, not later than ten (10) days prior to each Determination Date commencing with the Determination Date falling on May 1, 1997, submit a proposed Borrowing Base to become effective on such Determination Date to Banks for their approval. In the event Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base, fail to promptly approve such proposed Borrowing Base, Administrative Agent shall propose one or more alternative Borrowing Bases to Banks and shall consult with Banks regarding the proposed Borrowing Base until such time as Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base, approve a Borrowing Base and proposed by Administrative Agent. Promptly upon the approval by Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base to become effective on a Determination Date, Administrative Agent shall provide written notice of the amount of such Borrowing Base to Borrower. In the event Administrative Agent and Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base, fail to approve a Borrowing Base (and notify Borrower of the amount thereof) on or prior to any applicable Determination Date, the Borrowing Base in effect prior to such Determination Date shall remain in effect thereafter until such time as Administrative Agent and Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base, approve such Borrowing Base (which shall each become effective immediately upon notice to Borrower from Administrative Agent setting forth the amounts thereof). Any determination of a proposed Borrowing Base by Administrative Agent and any decision by Banks regarding the approval or disapproval of any Borrowing Base shall be made by Administrative Agent and Banks in their sole discretion in accordance with their respective standards for oil and gas loans, which may vary between Administrative Agent and Banks and from Bank to Bank. Without limiting the right of Administrative Agent to propose the amount of any Borrowing Base or the right of Banks to approve or disapprove such proposed Borrowing Base in their sole discretion, Borrower acknowledges and agrees that subject to Administrative Agent's and Banks' consistent application of their respective standards for similar loans, Administrative Agent and Banks (i) may make such assumptions regarding appropriate existing and projected pricing for hydrocarbons as they deem appropriate in their sole discretion, (ii) may make such assumptions regarding projected rates and quantities of future production of hydrocarbons from oil and gas properties and Related Assets owned by Borrower and its Restricted Subsidiaries as they deem appropriate in their sole discretion, (iii) may consider the projected cash requirements of Borrower and its Subsidiaries, including, without limitation, obligations under the Preferred Stock, obligations under the Subordinate Notes, and debt service and lease obligations of Borrower and its Subsidiaries, further including, without limitation, the full amount Borrower may be required to pay in connection with any redemption or repurchase of the Subordinate Notes, (iv) will not consider any asset other than oil and gas reserves and Related Assets, (v) will not consider any asset owned by an entity other than Borrower and its Restricted 1/230128.7 30 Subsidiaries, and (vi) may make such other assumptions, considerations and exclusions as each Bank deems appropriate in the exercise of its sole discretion. SECTION 4.3. SPECIAL DETERMINATION OF BORROWING BASE. In addition to the redeterminations of the Borrowing Base pursuant to SECTION 4.2, Borrower, Administrative Agent or Required Banks may each request Special Determinations of the Borrowing Base from time to time; provided, that Borrower shall not request more than two (2) Special Determinations in any Fiscal Year. In the event Administrative Agent or Required Banks request such a Special Determination, Administrative Agent shall promptly deliver notice of such request to Borrower and Borrower shall, within ten (10) days following the date of such request, deliver to Banks a Related Asset Report and a Reserve Report prepared as of the last day of the calendar month preceding the date of such request. In the event Borrower requests a Special Determination, Borrower shall deliver written notice of such request to Banks which shall include (i) a Related Asset Report and a Reserve Report prepared as of a date not more than thirty (30) days prior to the date of such request, and (ii) the amount of the Borrowing Base requested by Borrower and to become effective on the Determination Date applicable to such Special Determination. Upon receipt of such Reserve Report and Related Asset Report, Administrative Agent shall, subject to approval of Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base, redetermine the Borrowing Base in accordance with the procedure set forth in SECTION 4.2 which Borrowing Base shall become effective on the Determination Date applicable to such Special Determination (or as soon thereafter as Administrative Agent and Required Banks, or all Banks in the event of a proposed increase in the Borrowing Base, approve such Borrowing Base and provide notice thereof to Borrower). SECTION 4.4. BORROWING BASE DEFICIENCY. If a Borrowing Base Deficiency exists at any time, Borrower shall, within ninety (90) days following the date such Borrowing Base Deficiency first occurs, at its option, either (a) make a prepayment of principal on the Loan in an amount sufficient to eliminate such Borrowing Base Deficiency, and if such Borrowing Base Deficiency cannot be eliminated by prepaying the Loan in full (as a result of outstanding Letter of Credit Exposure), Borrower jointly and severally shall also deposit with Administrative Agent sufficient funds to be held by Administrative Agent as security for outstanding Letter of Credit Exposure in the manner contemplated by SECTION 2.1(B) as necessary to eliminate such Borrowing Base Deficiency, (b) submit additional oil and gas properties owned by Borrower and its Restricted Subsidiaries for consideration in connection with the determination of the Borrowing Base which Administrative Agent and Required Banks deem sufficient in their sole discretion to eliminate such Borrowing Base Deficiency, or (c) take such other action as Administrative Agent and Required Banks shall deem appropriate in their sole discretion to eliminate such Borrowing Base Deficiency. SECTION 4.5. INITIAL BORROWING BASE. Notwithstanding anything contained herein to the contrary, the Borrowing Base in effect during the period from the Closing Date until the date of the first Special or Periodic Determination after the Closing Date shall be the Initial Borrowing Base. 1/230128.7 31 ARTICLE V COLLATERAL AND GUARANTEE SECTION 5.1. SECURITY. (a) The Obligations shall be secured by first and prior Liens (subject only to Permitted Encumbrances) encumbering one hundred percent (100%) of the issued and outstanding capital stock of every class of each Restricted Subsidiary of Borrower. On or before the Closing Date, Borrower shall (i) execute and deliver to Administrative Agent (a) a Restricted Subsidiary Pledge Agreement, and (b) such UCC-1 financing statements as Administrative Agent shall request to fully evidence and perfect the Liens created by such Restricted Subsidiary Pledge Agreement, and (ii) deliver to Administrative Agent the certificate(s) evidencing the issued and outstanding capital stock of SWAT, duly endorsed or accompanied by appropriate blank stock powers. (b) The Obligations shall be further secured by first and prior Liens (subject only to Permitted Encumbrances) encumbering (i) certain oil and gas properties owned by Borrower and its Restricted Subsidiaries designated by Administrative Agent and Required Banks, and (ii) all Related Assets (to the extent Borrower has requested that the value of such Related Assets be taken into account by Administrative Agent and Required Banks for purposes of establishing the Borrowing Base). Within sixty (60) days after the Closing Date, Borrower shall deliver to Administrative Agent for the ratable benefit of each Bank, such assignments, conveyances, amendments, agreements and other writings, including, without limitation, UCC-3 amendments and assignments (each duly authorized and executed) as Administrative Agent shall deem necessary or appropriate to assign and convey the Existing Mortgages to Administrative Agent for the benefit of each Bank and to confirm, evidence and perfect the Liens created by the Existing Mortgages in favor of Administrative Agent for the ratable benefit of the Banks. SECTION 5.2. GUARANTEE. Payment and performance of the Obligations shall be fully guaranteed by each Restricted Subsidiary of Borrower pursuant to a Restricted Subsidiary Guarantee. On or before the Closing Date, Borrower shall deliver to Administrative Agent a Restricted Subsidiary Guarantee, duly authorized and executed by SWAT. ARTICLE VI CONDITIONS TO BORROWINGS SECTION 6.1. RESTATEMENT OF EXISTING CREDIT AGREEMENT/CONDITIONS TO INITIAL EXTENSION OF CREDIT. Borrower hereby acknowledges that Administrative Agent and each Bank have relied on the documents, instruments, agreements and actions referred to in this ARTICLE VI in amending and restating the Existing Credit Agreement on the terms set forth herein, and but for Borrower's execution and/or delivery and/or performance (as applicable) of the documents, instruments, agreements, conditions and obligations referred to in this ARTICLE VI, Banks and Agents would not 1/230128.7 32 have amended and restated the Existing Credit Agreement on the terms set forth herein. The obligation of each Bank to loan its Commitment Percentage of the initial Borrowing hereunder, and the obligation of Administrative Agent to issue (or cause another Bank to issue), the initial Letter of Credit issued hereunder is subject to the satisfaction of each of the following conditions: (a) CLOSING DELIVERIES. Administrative Agent shall have received each of the following documents, instruments and agreements, each of which shall be in form and substance and executed in such counterparts as shall be acceptable to Administrative Agent and Required Banks and each of which shall, unless otherwise indicated, be dated the Closing Date: (i) a Note payable to the order of each Bank in the amount of such Bank's Commitment, duly executed by Borrower; (ii) a Restricted Subsidiary Guarantee duly executed by SWAT; (iii)a Restricted Subsidiary Pledge Agreement duly executed by Borrower together with (A) certificates evidencing one hundred percent of the issued and outstanding capital stock of SWAT of every class (all certificates delivered pursuant to this SECTION 6.1(A)(III) shall be duly endorsed or accompanied by duly executed blank stock powers), and (B) such financing statements executed by Borrower as Administrative Agent shall request to perfect the Liens granted pursuant to such Pledge Agreement; (iv) a Certificate of Ownership Interests substantially in the form of EXHIBIT H, duly executed and delivered by an Authorized Officer of Borrower; (v) an opinion of Keith Crouch, Vice President and Corporate Counsel for Borrower, favorably opining as to such matters as Administrative Agent or Required Banks may request; (vi) an opinion of Gardere & Wynne, L.L.P., special counsel to Administrative Agent, in form and substance satisfactory to Administrative Agent; (vii)a Certificate executed by an Authorized Officer of Borrower stating that (A) the representations and warranties of Borrower contained in this Agreement and the other Loan Papers are true and correct in all respects, (B) no Default or Event of Default has occurred which is continuing, and (C) all conditions set forth in this SECTION 6.1 and SECTION 6.2 have been satisfied; (viii) such resolutions, certificates and other documents relating to the existence of the Companies, the corporate authority for the execution, delivery and performance of this Agreement, the Notes, the other Loan Papers, the Merger Documents, and certain other matters relevant hereto, in form and substance satisfactory to 1/230128.7 33 Administrative Agent, which resolutions, certificates and documents include resolutions of the directors of each of the Companies authorizing the execution, delivery and performance of the Loan Papers and certificates of incumbency for each Company; (ix) a Certificate executed by an Authorized Officer of Borrower confirming that the Merger has been consummated; (x) a copy of each Merger Document, together with a certificate executed by an Authorized Officer of Borrower certifying that such copies are accurate and complete and represent the complete understanding and agreement of the parties with respect to the subject matter thereof; and (xi) a copy of a notice from Borrower to the Indenture Trustee delivered pursuant to the definition of "Bank Credit Agreement" contained in the Indenture specifying that this Agreement is the "Bank Credit Agreement" as defined in the Indenture, together with evidence that such notice has been delivered to the Indenture Trustee. (b) MERGER. The Merger shall have occurred (or Administrative Agent shall be satisfied that such transactions will occur simultaneously therewith). Without limiting the foregoing, the Merger shall have been completed pursuant to the terms of the Merger Documents, and pursuant thereto the Merger Certificate shall have been duly filed with the Secretary of State of Delaware. (c) REFINANCING OF EXISTING CREDIT AGREEMENT. Borrower shall have refinanced in full (or simultaneously with the initial Borrowing hereunder, Borrower shall refinance in full) with proceeds of a Borrowing under this Agreement, all Obligations accrued and outstanding under the Existing Credit Agreement as of the Closing Date, including, without limitation, (i) the entire outstanding principal balance of the Loans made thereunder, (ii) all accrued but unpaid interest, (iii) all accrued but unpaid commitment and other fees, and (iv) all amounts payable under SECTION 3.3 of the Existing Credit Agreement as a result of the prepayment of the other Obligations thereunder. (d) NO MATERIAL ADVERSE CHANGE. In the sole discretion of each Bank, no material adverse change shall have occurred in the assets, liabilities, financial condition or prospects of any of the Companies. (e) NO LEGAL PROHIBITION. The transactions contemplated by this Agreement, the other Loan Papers and the Merger Documents shall be permitted by applicable law and regulation and shall not subject Agents, any Bank, Borrower or any of its Subsidiaries to any material adverse change in their assets, liabilities, financial condition or prospects. (f) NO LITIGATION. No litigation, arbitration or similar proceeding shall be pending which calls into question the validity or enforceability of this Agreement, the other Loan Papers, the Merger Documents or the Merger. 1/230128.7 34 (g) OTHER MATTERS. All matters related to this Agreement, the other Loan Papers, the Merger Documents, the Borrower, its Subsidiaries and the Merger shall be acceptable to Administrative Agent and each Bank in their sole discretion, and Borrower shall have delivered to Administrative Agent and each Bank such evidence as they shall request to substantiate any matters related to this Agreement, the other Loan Papers, the Merger Documents, the Borrower, its Subsidiaries and the Merger as Administrative Agent or any Bank shall request. (h) CLOSING FEES. Borrower shall have paid to each Agent any fees payable to such Agent pursuant to SECTION 2.10. SECTION 6.2. CONDITIONS TO EACH BORROWING AND EACH LETTER OF CREDIT. The obligation of each Bank to loan its Commitment Percentage of each Borrowing and the obligation of any Letter of Credit Issuer to issue Letters of Credit on the date any Letter of Credit is to be issued is subject to the further satisfaction of the following conditions: (a) timely receipt by Administrative Agent of a Request for Borrowing or Request for Letter(s) of Credit; (b) immediately before and after giving effect to such Borrowing or issuance of such Letter(s) of Credit, no Default or Event of Default shall have occurred and be continuing and neither such Borrowing nor the issuance of such Letter(s) of Credit shall cause a Default or Event of Default; (c) the representations and warranties of Borrower contained in this Agreement shall be true and correct on and as of the date of such Borrowing or the issuance of such Letter(s) of Credit; (d) the funding of such Borrowing or the issuance of such Letter(s) of Credit and all other Borrowings to be made and/or Letter(s) of Credit to be issued on the same day under this Agreement, shall not cause a Borrowing Base Deficiency; (e) following the issuance of any Letter(s) of Credit, the aggregate Letter of Credit Exposure shall not exceed $10,000,000; and (f) within sixty (60) days after the Closing Date, Borrower shall have executed and delivered to Administrative Agent for the ratable benefit of each Bank, the Mortgages and other instruments required by SECTION 5.1(B) hereof. Each Borrowing and the issuance of each Letter of Credit hereunder shall constitute a representation and warranty by Borrower that on the date of such Borrowing or issuance of such Letter of Credit the statements contained in subclauses (b), (c), (d) and (e) above are true. 1/230128.7 35 SECTION 6.3. AGREEMENTS REGARDING INITIAL BORROWING. Borrower, Agent and each Bank acknowledge and agree that Borrower has requested a Borrowing to be made on the Closing Date in the aggregate amount of $87,450,000 ($10,450,000 of which will constitute a Base Rate Borrowing, and $77,000,000 of which will constitute a Eurodollar Borrowing), all the proceeds of which are to be applied to refinance all Obligations outstanding under and as defined in the Existing Credit Agreement (the "REFINANCING BORROWING"). Each Agent and each Bank hereby waive the requirements of SECTIONS 2.2 and 6.2(A) hereof with respect to the Refinancing Borrowing to the extent, but only to the extent, such Sections require the delivery of a Notice of Borrowing as a condition precedent. Each Bank, each Agent and Borrower further acknowledge and agree that, notwithstanding the contrary provisions of SECTION 2.2(C), each Bank shall only be required to fund as part of such Borrowing the remainder, if any, of (a) its Commitment Percentage of such Refinancing Borrowing, minus (b) the amount it is to receive as a result of the application of the proceeds of the Refinancing Borrowing to refinance all Obligations outstanding under the Existing Credit Agreement. ARTICLE VII REPRESENTATIONS AND WARRANTIES Borrower represents and warrants that each of the following statements is true and correct on the date hereof, will be true and correct on the Closing Date (before and immediately after giving effect to the Merger) and will be true and correct on the occasion of each Borrowing and the issuance of each Letter of Credit: SECTION 7.1. CORPORATE EXISTENCE AND POWER. Borrower (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, (b) has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its businesses as now conducted and as proposed to be conducted, and (c) is duly qualified to transact business as a foreign corporation in each jurisdiction where a failure to be so qualified could have a material adverse effect on its financial condition or operations. SECTION 7.2. EXISTENCE AND POWER (OTHER COMPANIES). Each Company other than Borrower (a) is a corporation, limited liability company or partnership duly incorporated or organized (as applicable), validly existing and in good standing under the laws of its state of incorporation or organization (as applicable), (b) has all corporate, limited liability company or partnership power (as applicable) and all material governmental licenses, authorizations, consents and approvals required to carry on its businesses as now conducted and as proposed to be conducted, and (c) is duly qualified to transact business as foreign corporations, foreign limited liability companies or foreign partnerships (as applicable) in each jurisdiction where a failure to be so qualified could have a material adverse effect on their respective financial condition or operations. 1/230128.7 36 SECTION 7.3. CORPORATE, LIMITED LIABILITY COMPANY, PARTNERSHIP AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance of this Agreement, the Notes, and the other Loan Papers by each Company purporting to execute the same are within such Company's corporate, limited liability company or partnership powers (as applicable), when executed will be duly authorized by all necessary corporate, limited liability company or partnership action (as applicable), require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulations (including, without limitation, the Margin Regulations) or of the partnership agreement, articles of incorporation, certificate of incorporation, bylaws, regulations or other organizational documents (as applicable) of such Companies or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Company or result in the creation or imposition of any Lien on any asset of any such Company except Liens securing the Notes. SECTION 7.4. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of Borrower; the Notes and the other Loan Papers when executed and delivered in accordance with this Agreement, will then constitute valid and binding obligations of each Company executing the same; and each Loan Paper is enforceable against each Company executing the same in accordance with its terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors rights generally, and (b) the availability of equitable remedies may be limited by equitable principles of general applicability. SECTION 7.5. FINANCIAL INFORMATION. (a) The Current Financials fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of Borrower as of December 31, 1996 and its consolidated results of operations and cash flows for the periods covered thereby. (b) There has been no material adverse change in the business, financial position, results of operations or prospects of any Company since (i) December 31, 1996 to the extent this representation and warranty is made or deemed to be made as of any date prior to the receipt by Banks of the financial statements for Borrower and its Subsidiaries required to be delivered by Borrower to Banks pursuant to SECTIONS 8.1(A) and (B) hereof, prepared as of the end of the first complete Fiscal Quarter following the Closing Date, or (ii) since the date of the most recent financial statements delivered to Banks pursuant to SECTIONS 8.1(A) and (B) hereof to the extent this representation and warranty is made or deemed made as of any date after receipt by Banks of the financial statements prepared as of the end of the first complete Fiscal Quarter following the Closing Date required to be delivered by Borrower to Banks pursuant to SECTIONS 8.1(A) and (B) hereof. SECTION 7.6. LITIGATION. Except for matters disclosed in the Existing Credit Agreement or arising after the date of this Agreement which are promptly disclosed in writing to Banks, there is no action, suit or proceeding pending against, or to the knowledge of Borrower, threatened against or affecting any Company before any court or arbitrator, any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely 1/230128.7 37 affect the business, consolidated financial position or consolidated results of operations of any Company or which could in any manner draw into question the validity of the Loan Papers. SECTION 7.7. ERISA. No Company is a party to or bound by, or at any time prior to the date hereof, has been a party to, or bound by, any Plan. SECTION 7.8. TAXES AND FILING OF TAX RETURNS. Except as disclosed on SCHEDULE 3, each Company and its predecessors have filed all material tax returns required to have been filed and have paid all Taxes shown to be due and payable on such returns, including interest and penalties, and all other Taxes which are payable by such party, to the extent the same have become due and payable other than Taxes with respect to which a failure to pay would not have a material adverse effect on any Company. Except as disclosed on SCHEDULE 3, Borrower does not know of any proposed material Tax assessment against any Company, and all Tax liabilities of each Company and its predecessors are adequately provided for. Except as disclosed on SCHEDULE 3 and except as hereinafter disclosed in writing to Banks, no income tax liability of any Company or any of their respective predecessors or Subsidiaries has been asserted by the Internal Revenue Service for Taxes in excess of those already paid. SECTION 7.9. TITLE TO PROPERTIES; LIENS. Borrower and each of its Subsidiaries has good and valid title to all material assets purported to be owned by it subject only to Permitted Encumbrances. Without limiting the foregoing, (a) Borrower and its Restricted Subsidiaries have good and valid title to all oil and gas properties and all Related Assets owned by Borrower and its Restricted Subsidiaries which are included in the most recent Reserve Reports and Related Asset Reports provided to Banks (except for oil and gas properties disposed of in compliance with SECTION 9.5 to the extent this representation and warranty is made or deemed made after the Closing Date) and except for Permitted Encumbrances, and (b) the Companies have good and valid title to all material assets reflected in the Current Financials and any subsequent financial statements delivered to Banks pursuant to SECTIONS 8.1(A) and (B) hereof. SECTION 7.10. BUSINESS; COMPLIANCE. Each Company has performed and abided by all obligations required to be performed under each license, permit, order, authorization, grant, contract, agreement, or regulation to which any Company is a party or by which any Company or any of the assets of any Company are bound to the extent a failure to perform and abide by such obligations could have a material adverse effect on the assets, liabilities, financial condition, operations or prospects of such Company individually or the Companies taken as a whole; PROVIDED THAT to the extent oil and gas properties owned by any Company are operated by operators other than a Company or an Affiliate of a Company, Borrower does not have any knowledge that any such obligation remains unperformed and the appropriate Person has diligently enforced all contractual obligations of such operators to insure performance. SECTION 7.11. LICENSES, PERMITS, ETC. Each Company possesses such valid franchises, certificates of convenience and necessity, operating rights, licenses, permits, consents, authorizations, exemptions and orders of tribunals, as are necessary to carry on its business as now 1/230128.7 38 being conducted except to the extent a failure to obtain any such item would not have a material adverse effect on such Company individually or on the Companies taken as a whole; PROVIDED THAT to the extent oil and gas properties owned by any Company are operated by operators other than a Company or an Affiliate of a Company, Borrower does not have any knowledge that possession of such items has not been obtained, and the appropriate Person has diligently enforced all contractual obligations of such operators to obtain such items. SECTION 7.12. COMPLIANCE WITH LAW. The business and operations of each Company have been and are being conducted in accordance with all applicable laws, rules and regulations of all tribunals, other than laws, rules and regulations the violation of which could not (either individually or collectively) have a material adverse effect on any Company's individual financial condition or operations or on the financial condition or operations of the Companies taken as a whole (both before and after giving effect to the Merger); PROVIDED THAT to the extent oil and gas properties owned by any Company are operated by operators other than a Company or an Affiliate of a Company, Borrower does not have any knowledge of non-compliance and the appropriate Person has diligently enforced all contractual obligations of such operators to insure compliance. SECTION 7.13. OWNERSHIP INTERESTS. The Reserve Reports and Related Asset Reports most recently provided to Banks accurately reflect, and all Reserve Reports and Related Asset Reports hereafter delivered pursuant to this Agreement will reflect, in all material respects, the ownership interests in the oil and gas properties and Related Assets referred to therein (including all before and after payout calculations). SECTION 7.14. FULL DISCLOSURE. All information heretofore furnished by any Company (or any other party on any Company's behalf) to any Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by any Company or on behalf of any Company to any Agent or any Bank will be, true, complete and accurate in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. Borrower has disclosed to Banks in writing any and all facts (other than facts of general public knowledge) which might reasonably be expected to materially and adversely affect or might affect (to the extent Borrower can now reasonably foresee), the business, operations, prospects or condition, financial or otherwise, of any Company or the ability of Borrower or any Company to perform its obligations under this Agreement and the other Loan Papers. SECTION 7.15. SUBSIDIARIES. SCHEDULE 4 hereto accurately reflects, after giving effect to the Merger (i) the name and jurisdiction of incorporation of each Subsidiary of Borrower, (ii) each jurisdiction in which each Subsidiary of Borrower is qualified to transact business as a foreign corporation, partnership or limited liability company, (iii) the authorized, issued and outstanding capital stock of each such Subsidiary, including, the record (and to Borrower's knowledge, beneficial) owner of such capital stock, and (iv) all outstanding warrants, options, subscription rights, convertible securities or other rights to purchase capital stock of each Subsidiary of Borrower. 1/230128.7 39 SECTION 7.16. OBLIGATIONS OF UNRESTRICTED SUBSIDIARIES. Except as set forth on SCHEDULE 5 hereto, neither Borrower nor any of its Restricted Subsidiaries has any obligation of any nature to any Unrestricted Subsidiary of Borrower. SECTION 7.17. ENVIRONMENTAL MATTERS. No real or personal property owned or leased by any Company (including without limitation, oil and gas properties and Related Assets) and no operations conducted thereon, and to Borrower's knowledge, no operations of any prior owner, lessee or operator of any such properties, is or has been in violation of any Applicable Environmental Law other than violations which individually and in the aggregate will not have a material adverse effect on any Company individually or the Companies taken as a whole, nor is any such property or operation the subject of any existing, pending or, to Borrower's knowledge, threatened action, suit, investigation, inquiry or preceding with respect to Applicable Environmental Laws which could, individually or in the aggregate, have a material adverse effect on Borrower and its Subsidiaries taken as a whole (both before and after giving effect to the Merger). All notices, permits, licenses, and similar authorizations, if any, required to be obtained or filed in connection with the ownership or operation of any and all real and personal property owned, leased or operated by any of the Companies, including, without limitation, notices, licenses, permits and authorizations required in connection with any past or present treatment, storage, disposal, or release of hazardous substances, petroleums, or solid waste into the environment, have been duly obtained or filed except to the extent the failure to obtain or file such notices, licenses, permits and authorizations would not have a material adverse effect on any Company individually or the Companies taken as a whole (both before and after giving effect to the Merger). To Borrower's knowledge, all hazardous substances, if any, generated at any and all real and personal property owned, leased or operated by the Companies have been transported, treated, and disposed of only by carriers maintaining valid permits under RCRA and any other Applicable Environmental Laws. Except as disclosed in the Existing Credit Agreement, there has been no release or threatened release of any quantity of any hazardous substances or petroleum on, to or from any real or personal property owned, leased, or operated by the Companies which was not in compliance with Applicable Environmental Laws other than releases which would not, individually or in the aggregate, have a material adverse effect on any Company individually or the Companies taken as a whole (both before and after giving effect to the Merger). Except as disclosed in the Existing Credit Agreement, no Company has any contingent liability in connection with any release or threatened release of any hazardous substance, petroleum, or solid waste into the environment which could have a material adverse effect on any Company individually or the Companies taken as a whole. SECTION 7.18. MERGER DOCUMENTS. Borrower has provided Administrative Agent with a true and correct copy of each Merger Document. No rights or obligations of any party to any of the Merger Documents have been waived in any material respect, and no party to any of the Merger Documents is in default of its obligations thereunder. Each of the Merger Documents is a valid, binding and enforceable obligation of the parties thereto in accordance with its terms and is in full force and effect. 1/230128.7 40 SECTION 7.19. BURDENSOME OBLIGATIONS. Except as disclosed in writing to Banks prior to the date hereof, neither any Company nor the properties of any Company is subject to any law or regulation or subject to any restriction under the certificate or articles of incorporation, partnership agreement, regulations or other organizational documents of any Company or under any agreement or instrument to which any Company is a party or by which any of their respective properties may be subject or bound, which is so unusual or burdensome as to be likely in the foreseeable future to have a material adverse effect on the assets, liabilities, financial condition, operations or prospects of any Company individually or the Companies taken as a whole. SECTION 7.20. GOVERNMENT REGULATIONS. No Company is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 (as any of the preceding acts have been amended) or any other law or regulation which regulates the incurring by it of Debt, including, but not limited to, laws relating to common carriers or the sale of electricity, gas, steam, water or other public utility services. ARTICLE VIII AFFIRMATIVE COVENANTS Borrower agrees that, so long as any Bank has any commitment to lend or participate in Letter of Credit Exposure hereunder or any amount payable under any Note remains unpaid or any Letter of Credit remains outstanding: SECTION 8.1. INFORMATION. Borrower will deliver, or cause to be delivered, to each Bank: (a) as soon as available and in any event within ninety (90) days after the end of each Fiscal Year of Borrower, consolidated balance sheets of Borrower as of the end of such Fiscal Year and the related consolidated statements of income and cash flow for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported by Borrower in accordance with generally accepted accounting principles and audited by Arthur Anderson LLP or other independent public accountants of nationally recognized standing acceptable to Administrative Agent; (b) as soon as available and in any event within forty-five (45) days after the end of each of the first three (3) Fiscal Quarters of each Fiscal Year of Borrower, consolidated balance sheets of Borrower as of the end of such quarter and the related consolidated statements of income and cash flow for such quarter and for the portion of Borrower's Fiscal Year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous Fiscal Year. All financial statements delivered pursuant to this SECTION 8.1(B) shall be certified as to fairness of presentation, generally accepted 1/230128.7 41 accounting principles and consistency by the chief financial officer or the chief accounting officer of Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in SECTIONS 8.1(A) and (B), a certificate of an Authorized Officer of Borrower, (i) setting forth in reasonable detail the calculations required to establish whether Borrower was in compliance with the requirements of ARTICLE X on the date of such financial statements, (ii) stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto, and (iii) stating whether or not such financial statements fairly reflect the business and financial condition of Borrower as of the date of the delivery of such financial statements; (d) immediately upon any Authorized Officer of Borrower becoming aware of the occurrence of any Default, including, without limitation, a Default under ARTICLE X, a certificate of an Authorized Officer of Borrower setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the stockholders of Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all final registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), post effective amendments thereto and annual, quarterly or special reports which Borrower shall have filed with the Securities and Exchange Commission; (g) promptly notify Banks (i) of any material adverse change in the financial condition of Borrower or any of its Subsidiaries, or (ii) of the occurrence of any acceleration of the maturity of any Debt owing by Borrower or any of its Subsidiaries or any default under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such default or acceleration might have a material adverse effect upon their financial condition; (h) immediately upon receipt of the same, a copy of any notice received by Borrower of the occurrence of any Event of Default under and as defined in the Indenture or any event which with notice, lapse of time or both, would, unless cured or waived, become an Event of Default; (i) promptly upon receipt of same, any notice or other information received by Borrower or any Subsidiary of Borrower indicating any potential, actual or alleged (i) non-compliance with or violation of the requirements of any Applicable Environmental Law which could result in liability to Borrower or any Subsidiary for fines, clean up or any other remediation obligations or any other liability in excess of $250,000 in the aggregate; (ii) release or threatened release of any toxic or hazardous waste, substance, or constituent, or other substance into the 1/230128.7 42 environment which release would impose on Borrower or any Subsidiary a duty to report to a governmental authority or to pay cleanup costs or to take remedial action under any Applicable Environmental Law which could result in liability to Borrower or any Subsidiary for fines, clean up and other remediation obligations or any other liability in excess of $250,000 in the aggregate; or (iii) the existence of any Lien arising under any Applicable Environmental Law securing any obligation to pay fines, clean up or other remediation costs or any other liability in excess of $250,000 in the aggregate. Without limiting the foregoing, Borrower shall provide to Banks promptly upon receipt of same copies of all environmental consultants or engineers reports received by Borrower or any Subsidiary of Borrower which would render the representation and warranty contained in SECTION 7.17 untrue or inaccurate in any respect; (j) In the event any notification is provided by Borrower to any Bank or Administrative Agent pursuant to SECTION 8.1(I) hereof or Administrative Agent or any Bank otherwise learns of any event or condition under which any such notice would be required, then, upon request of Required Banks, Borrower shall, within ninety (90) days of such request, cause to be furnished to each Bank a report by an environmental consulting firm acceptable to Administrative Agent and Required Banks, stating that a review of such event, condition or circumstance has been undertaken (the scope of which shall be acceptable to Administrative Agent and Required Banks) and detailing the findings, conclusions, and recommendations of such consultant. Borrower shall bear all expenses and costs associated with such review and updates thereof, as well as all remediation or curative action recommended by any such environmental consultant; and (k) from time to time such additional information regarding the financial position or business of Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. SECTION 8.2. BUSINESS OF BORROWER. The primary business of Borrower and its Subsidiaries will be the acquisition, exploration for, development, production, transportation, processing and marketing of liquid or gaseous hydrocarbons and accompanying elements and related businesses. SECTION 8.3. MAINTENANCE OF EXISTENCE. Borrower shall, and shall cause each Restricted Subsidiary to, at all times (a) maintain its corporate, partnership or limited liability company existence in its state of incorporation or organization except to the extent any Restricted Subsidiary ceases to be in existence as a result of a merger or consolidation expressly permitted pursuant to SECTION 9.4, and (b) maintain its good standing and qualification to transact business in all jurisdictions where the failure to maintain good standing or qualification to transact business could have a material adverse effect on the financial condition or operations of Borrower or any of its Restricted Subsidiaries individually or Borrower and its Restricted Subsidiaries taken as a whole. SECTION 8.4. TITLE DATA. Borrower shall, upon the reasonable request of Required Banks, cause to be delivered to Administrative Agent such title opinions and other information in its 1/230128.7 43 possession, control or direction regarding title to the oil and gas properties owned by Borrower and its Restricted Subsidiaries as are appropriate to determine the status thereof. SECTION 8.5. RIGHT OF INSPECTION. Borrower will permit, and will cause each of its Subsidiaries to permit, any officer, employee or agent of Administrative Agent or any Bank to visit and inspect any of the assets of Borrower and its Subsidiaries, examine Borrower's and its Subsidiaries' books of record and accounts, take copies and extracts therefrom, and discuss the affairs, finances and accounts of Borrower and its Subsidiaries with any of Borrower's and its Subsidiaries' officers, accountants and auditors, all at such reasonable times and as often as Administrative Agent or any Bank may desire, all at the expense of Borrower. Banks covenant and agree to preserve the confidentiality of any information with respect to which Borrower or any of its Subsidiaries have an obligation of confidentiality to a third party (to the extent such obligation has been disclosed to Banks), except to the extent Banks are required to disclose such information pursuant to any applicable law, rule or regulation of any governmental body or pursuant to the order of any court of competent jurisdiction. SECTION 8.6. MAINTENANCE OF INSURANCE. Borrower will, and will cause each of its Subsidiaries to (and will use its best efforts to cause all operators of oil and gas properties owned by Borrower and its Subsidiaries and Related Assets to) at all times maintain or cause to be maintained insurance covering such risks as are customarily carried by businesses similarly situated including, without limitation, the following: (a) workmen's compensation insurance; (b) employer's liability insurance; (c) comprehensive general public liability and property damage insurance in respect of all activities in which Borrower or any of its Subsidiaries might incur personal liability for the death or injury of an employee or third person, or damage to or destruction of another's property; (d) insurance against loss or damage by fire, lightning, hail, tornado, explosion and other similar risk; (e) reservoir damage insurance; and (f) comprehensive automobile liability insurance. All loss payable clauses or provisions in all policies of insurance maintained by Borrower pursuant to this SECTION 8.6 shall be endorsed in favor of and made payable to Administrative Agent for the ratable benefit of Banks, as their interests may appear. Administrative Agent for the ratable benefit of Banks shall have the right to collect, and Borrower hereby assigns to Administrative Agent for the ratable benefit of Banks, any and all monies that may become payable under any such policies of insurance by reason of damage, loss or destruction of any property which stands as security for the Obligations or any part thereof, and Administrative Agent may, at its election, either apply for the ratable benefit of Banks all or any part of the sums so collected toward payment of the Obligations (or the portion thereof with respect to which such property stands as security), whether or not such Obligations are then due and payable, in such manner as Administrative Agent may elect or release same to Borrower. SECTION 8.7. PAYMENT OF TAXES AND CLAIMS. Borrower will, and will cause each of its Subsidiaries to, pay (a) all Taxes imposed upon it or any of its assets or with respect to any of its franchises, business, income or profits before any material penalty or interest accrues thereon, and (b) all material claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a 1/230128.7 44 Lien (other than a Permitted Encumbrance) on any of its assets; provided, however, no payment of Taxes or claims shall be required if (i) the amount, applicability or validity thereof is currently being contested in good faith by appropriate action promptly initiated and diligently conducted in accordance with good business practices and no material part of the property or assets of Borrower or any of its Subsidiaries are subject to levy or execution, (ii) Borrower, as and to the extent required in accordance with generally accepted accounting principles, shall have set aside on its books, reserves (segregated to the extent required by generally accepted accounting practices) deemed by it to be adequate with respect thereto, and (iii) Borrower has notified Administrative Agent of such circumstances, in detail satisfactory to Administrative Agent. SECTION 8.8. COMPLIANCE WITH LAWS AND DOCUMENTS. Borrower will, and will cause each of its Subsidiaries to, comply with all laws, their respective articles and certificates of incorporation, bylaws, partnership agreements, regulations and similar organizational documents and all Material Agreements to which Borrower or any Subsidiary of Borrower is a party, if a violation, alone or when combined with all other such violations, could have a material adverse effect on the financial condition or operations of Borrower or any of its Restricted Subsidiaries individually or Borrower and its Restricted Subsidiaries taken as a whole. SECTION 8.9. OPERATION OF PROPERTIES AND EQUIPMENT. (a) Borrower will, and will cause each of its Subsidiaries to, maintain, develop and operate their respective oil and gas properties and Related Assets in a good and workmanlike manner, and observe and comply with all of the terms and provisions, express or implied, of all oil and gas leases relating to such properties so long as such oil and gas leases are capable of producing hydrocarbons and accompanying elements in paying quantities, to the extent that the failure to so observe and comply could have a material adverse effect on the financial condition or operations of Borrower individually or Borrower and its Subsidiaries taken as a whole. (b) Borrower will, and will cause each of its Subsidiaries to, comply in all respects with all contracts and agreements applicable to or relating to their respective oil and gas properties or the production and sale of hydrocarbons and accompanying elements therefrom, except to the extent a failure to so comply could not have a material adverse effect on the financial condition or operations of Borrower individually or Borrower and its Subsidiaries taken as a whole. (c) Borrower will, and will cause each of its Subsidiaries at all times to, maintain, preserve and keep all operating equipment used with respect to the oil and gas properties of Borrower in proper repair, working order and condition, and make all necessary or appropriate repairs, renewals, replacements, additions and improvements thereto so that the efficiency of such operating equipment shall at all times be properly preserved and maintained, provided that no item of operating equipment need be so repaired, renewed, replaced, added to or improved, if Borrower shall in good faith determine that such action is not necessary or desirable for the continued efficient and profitable operation of the business of Borrower and its Subsidiaries. 1/230128.7 45 (d) With respect to the oil and gas properties of Borrower and its Subsidiaries which are operated by operators other than Borrower or one of its Subsidiaries, Borrower and its Subsidiaries shall not be obligated to directly perform any undertakings contemplated by the covenants and agreements contained in this SECTION 8.9 which are performable only by such operators and are beyond the control of Borrower, but shall be obligated to seek to enforce such operators' contractual obligations to maintain, develop and operate the oil and gas properties subject to such operating agreements. SECTION 8.10. FURTHER ASSURANCES. Borrower will execute and deliver or cause to be executed and delivered such other and further instruments or documents and take such further action as in the judgment of Administrative Agent may be required to carry out the provisions and purposes of the Loan Papers including without limitation to create, preserve, protect and perfect the Liens of the Administrative Agent for the ratable benefit of the Banks as required by SECTION 5.1. SECTION 8.11. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNITY. Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with all Applicable Environmental Laws, including, without limitation, (a) all licensing, permitting, notification and similar requirements of Applicable Environmental Laws, and (b) all provisions of Applicable Environmental Law regarding storage, discharge, release, transportation, treatment and disposal of hazardous substances, petroleum, solid waste or other contaminants. Borrower will, and will cause each of its Subsidiaries to, promptly pay and discharge when due all debts, claims, liabilities and obligations with respect to any clean-up or remediation measures necessary to comply with Applicable Environmental Laws. Borrower hereby indemnifies and agrees to defend and hold Banks and their successors and assigns harmless from and against any and all claims, demands, causes of action, loss, damage, liabilities, costs and expenses (including reasonable attorneys' fees and court costs) of any and every kind or character, known or unknown, fixed or contingent, asserted against or incurred by any of the Banks at any time and from time to time including, without limitation, those asserted or arising subsequent to the payment or other satisfaction of the Loan, by reason of or arising out of the ownership, construction, occupancy, operation, use and maintenance of any of the collateral for the Loan, including matters arising out of the negligence of Banks; provided, however, this indemnity shall not apply with respect to matters caused by or arising out of (i) the gross negligence or willful misconduct of Banks (IT BEING THE EXPRESS INTENTION HEREBY THAT BANKS SHALL BE INDEMNIFIED FROM THE CONSEQUENCES OF THEIR NEGLIGENCE); and (ii) the construction, occupancy, operation, use and maintenance of the collateral for the Loan by any owner, lessee or party in possession of the collateral for the Loan subsequent to the ownership of the collateral for the Loan by Borrower or any of its Subsidiaries (as applicable), provided further, however, that this subclause (ii) shall not exclude from the foregoing indemnity and agreement, liability, claims, demands, causes of action, loss, damage, costs and expenses imposed by reason of the ownership of the collateral for the Loan by Banks after purchase by Banks at any foreclosure sale or transfer in lieu thereof from Borrower or any Restricted Subsidiary in partial or entire satisfaction of the Loan (unless the same shall be solely attributable to the subsequent use of the collateral by Banks during their ownership thereof). The foregoing indemnity and agreement applies to the violation of any Applicable Environmental Law prior to the payment or other satisfaction of the 1/230128.7 46 Loan and any act, omission, event or circumstance existing or occurring on or about the collateral for the Loan (including without limitation the presence on the collateral for the Loan or release from the collateral for the Loan of asbestos or other hazardous substances or solid waste disposed of or otherwise present in or released prior to the payment or other satisfaction of the Loan). It shall not be a defense to the covenant of Borrower to indemnify that the act, omission, event or circumstance did not constitute a violation of any Applicable Environmental Law at the time of its existence or occurrence. The provisions of this SECTION 8.11 shall survive the repayment of the Loan and shall continue thereafter in full force and effect. In the event of the transfer of the Loan or any portion thereof, Banks or any prior holder of the Loan and any participants shall continue to be benefitted by this indemnity and agreement with respect to the period of such holding of the Loan. ARTICLE IX NEGATIVE COVENANTS Borrower agrees that, so long as any Bank has any commitment to lend or participate in Letter of Credit Exposure hereunder or any amount payable under any Note remains unpaid or any Letter of Credit remains outstanding: SECTION 9.1. DEBT OF BORROWER AND ITS RESTRICTED SUBSIDIARIES. Neither Borrower nor any Restricted Subsidiary of Borrower will incur, become or remain liable for any Debt other than (a) Debt secured by Permitted Encumbrances described in subpart (k) of the definition of Permitted Encumbrances, (b) Nonrecourse Debt, (c) the Loan, (d) the Subordinate Notes, (e) Debt outstanding on the Closing Date described on SCHEDULE 6 hereto, and (f) Guarantees by Borrower or a Restricted Subsidiary of Borrower of Debt and other liabilities of Borrower or other Restricted Subsidiaries of Borrower provided that such Debt and other liabilities are permitted pursuant to this Agreement; PROVIDED, that the Debt permitted pursuant to SECTION 9.1(A) and (B) incurred by Borrower and its Restricted Subsidiaries shall not exceed $1,000,000 in the aggregate. SECTION 9.2. RESTRICTED PAYMENTS. Neither Borrower nor any Restricted Subsidiary of Borrower will declare or make any Restricted Payment; provided, that, so long as no Default, Event of Default or Borrowing Base Deficiency then exists, and provided that no Default or Event of Default would result therefrom Borrower shall be permitted to (a) declare and pay accrued dividends on the Preferred Stock, (b) repurchase any of its Common Stock or Preferred Stock or warrants, options or other rights to acquire such Common Stock or Preferred Stock, and (c) repurchase, redeem or defease Subordinate Notes, so long as, at any date, the sum of (x) the aggregate amount of all such dividends declared and paid pursuant to clause (a) above during the period commencing on the Closing Date to and including such date, plus (y) the aggregate amount paid by Borrower and the Restricted Subsidiaries in respect of the repurchase of all such Common Stock or Preferred Stock or warrants, options or other rights to acquire such Common Stock or Preferred Stock pursuant to clause (b) above, plus (z) an amount equal to the excess of the aggregate repurchase, redemption or defeasance price paid by Borrower for all Subordinate Notes repurchased, redeemed or defeased by Borrower subsequent to the Closing Date over the sum of (i) 101% of the aggregate principal 1/230128.7 47 balance of all such Subordinate Notes on the date of repurchase, redemption or defeasance, plus (ii) accrued but unpaid interest on all such Subordinate Notes redeemed, repurchased or defeased on the date of redemption, repurchase or defeasance, shall not exceed the Restricted Payment Limit in effect at such date. SECTION 9.3. NEGATIVE PLEDGE. Neither Borrower nor any Restricted Subsidiary will create, assume or suffer to exist any Lien on any asset owned by it (other than Permitted Encumbrances). SECTION 9.4. CONSOLIDATIONS AND MERGERS. Neither Borrower nor any Subsidiary of Borrower will consolidate or merge with or into any other Person; provided, that so long as no Default or Event of Default exists or will result (a) Borrower may merge or consolidate with another Person so long as Borrower is the surviving corporation, (b) any Restricted Subsidiary of Borrower may merge or consolidate with or into another Restricted Subsidiary of Borrower, (c) any Unrestricted Subsidiary may merge with or into another Unrestricted Subsidiary, (d) any Unrestricted Subsidiary may merge with any other Person other than a Restricted Subsidiary so long as such Unrestricted Subsidiary is the surviving corporation, and (e) any Restricted Subsidiary may merge with any other Person so long as such Restricted Subsidiary is the surviving corporation and is a wholly owned Subsidiary of Borrower after giving effect thereto. SECTION 9.5. ASSET DISPOSITIONS. Except as provided in this SECTION 9.5, neither Borrower nor any Restricted Subsidiary shall sell, lease, abandon or otherwise transfer any of its assets to any other Person other than pursuant to an Exempt Transfer. Borrower and its Restricted Subsidiaries shall be permitted to sell or otherwise dispose of any asset other than (a) oil and gas properties, (b) Related Assets, (c) debt and equity securities issued by any Restricted Subsidiary, and (d) accounts (as such term is defined in the Uniform Commercial Code). Borrower and its Restricted Subsidiaries shall be permitted to sell oil and gas properties and Related Assets; provided that the aggregate value of all oil and gas properties and Related Assets sold by Borrower and its Restricted Subsidiaries during any period between Periodic Determinations shall not exceed the greater of (i) $5,000,000, or (ii) five percent (5%) of the Borrowing Base then in effect. SECTION 9.6. AMENDMENTS TO MATERIAL DOCUMENTS. Borrower will not, nor will Borrower permit any of its Restricted Subsidiaries to, (a) enter into any material modification or amendment of, grant any material consent under, or waive any material right or obligation of any Person under (i) its certificate or articles of incorporation, bylaws, partnership agreement, regulations or other organizational documents, or (ii) any of the Merger Documents, or (b) enter into any modification or amendment of, grant any consent under, or waive any right or obligation of any Person under (i) the Indenture, or (ii) the Subordinate Notes. SECTION 9.7. USE OF PROCEEDS. The proceeds of Borrowings under the Commitment will not be used for any purpose other than (a) working capital, (b) to finance the acquisition, exploration and development of oil and gas properties and Related Assets and the transportation, processing and marketing of hydrocarbons by Borrower and its Restricted Subsidiaries, (c) Restricted Payments 1/230128.7 48 permitted pursuant to SECTION 9.2, (d) Investments permitted pursuant to SECTION 9.8, and (e) to refinance the obligations outstanding under the Existing Credit Agreement. None of the proceeds of the Loan nor any Letter of Credit issued hereunder will be used, directly or indirectly, (i) for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (ii) in violation of applicable law or regulation (including, without limitation, the Margin Regulations). SECTION 9.8. INVESTMENTS. Neither Borrower nor any Restricted Subsidiary of Borrower will, directly or indirectly, make any Investment other than Permitted Investments. SECTION 9.9. TRANSACTIONS WITH AFFILIATES. Borrower will not, and Borrower will not permit any of its Subsidiaries to, engage in any material transaction with an affiliated Person (other than, in the case of Borrower and its Restricted Subsidiaries, with each other) unless such transaction is generally as favorable to Borrower or such Subsidiary as could be obtained in an arm's length transaction with an unaffiliated Person in accordance with prevailing industry customs and practices. SECTION 9.10. PLANS. Borrower will not, and Borrower will not permit any of its Subsidiaries to, create, adopt or become bound by any Plan. SECTION 9.11. OIL AND GAS HEDGE TRANSACTIONS. Borrower will not, and Borrower will not permit any of its Restricted Subsidiaries to, enter into Oil and Gas Hedge Transactions which would cause the volume of (a) (i) the aggregate notional volume of oil which is the subject of oil Oil and Gas Hedge Transactions in existence at any time to exceed seventy-five percent (75%) of Borrower's and its Restricted Subsidiaries' anticipated production of oil from proved, developed producing reserves during the entire term of such existing Oil and Gas Hedge Transactions, and (ii) the notional volume of oil with respect to which a settlement is required on a particular settlement date under such Oil and Gas Hedge Transactions to exceed seventy-five percent (75%) of Borrower's and its Restricted Subsidiaries' anticipated production of oil from proved, developed producing reserves for the period (a "SETTLEMENT PERIOD") from the immediately preceding settlement date under any oil Oil and Gas Hedge Transaction (or the commencement of such Oil and Gas Hedge Transactions in the event there is no prior settlement date) to such settlement date, and (b) (i) the aggregate notional volume of gas which is the subject of gas Oil and Hedge Transactions in existence at any time to exceed seventy-five percent (75%) of Borrower's and its Restricted Subsidiaries' anticipated production of gas from proved, developed producing reserves during the entire term of such existing Oil and Gas Hedge Transactions, and (ii) the notional volume of gas with respect to which a settlement is required on a particular settlement date under such gas Oil and Gas Hedge Transactions to exceed seventy-five percent (75%) of Borrower's and its Restricted Subsidiaries' anticipated production of gas from proved, developed producing reserves for any Settlement Period. SECTION 9.12. OBLIGATIONS OF UNRESTRICTED SUBSIDIARIES. Except as expressly permitted by SECTION 9.2, Borrower will not, nor will Borrower permit any of its Restricted Subsidiaries to, incur any liability or obligation to any Unrestricted Subsidiary of Borrower of any nature, or have any 1/230128.7 49 liability (whether by operation of law or otherwise) for any liability, Debt or obligation of any Unrestricted Subsidiary. SECTION 9.13. ACQUISITIONS. Borrower will not, nor will Borrower permit any of its Restricted Subsidiaries to, acquire, in a single transaction or a series of related transactions, all or substantially all of the assets or capital stock (or other outstanding equity interests of any Person) or all or substantially all of the assets comprising a division of any Person; provided, that nothing contained in this SECTION 9.13 shall prohibit Borrower or any Restricted Subsidiary of Borrower from making any acquisition of assets consisting of oil and gas properties or any other acquisition which is also a Permitted Investment. SECTION 9.14. OPERATING LEASES. Borrower will not, nor will Borrower permit any of its Subsidiaries to, incur, become, or remain liable under any Operating Lease which would cause the aggregate amount of all Rentals payable by Borrower and its Restricted Subsidiaries in any Fiscal Year to be greater than $1,500,000. SECTION 9.15. SPECULATIVE HEDGE TRANSACTIONS. Borrower will not, nor will Borrower permit any of its Restricted Subsidiaries to, enter into any commodity, interest rate, currency or other swap, option, collar or other derivative transaction pursuant to which Borrower or such Restricted Subsidiary speculates on the movement of commodity prices, securities prices, interest rates, financial markets, currency markets or other items; provided, that nothing contained in this SECTION 9.15 shall prohibit Borrower from (a) entering into interest rate swaps or other interest rate hedge transactions pursuant to which Borrower hedges interest rate risk with respect to the interest reasonably anticipated to be incurred pursuant to this Agreement, (b) entering into Oil and Gas Hedge Transactions permitted by SECTION 9.11 hereof, or (c) making Permitted Investments. ARTICLE X FINANCIAL COVENANTS Borrower agrees that, so long as any Bank has any commitment to lend or participate in Letter of Credit Exposure hereunder or any amount payable under any Note remains unpaid or any Letter of Credit remains outstanding: (a) Borrower will not permit its ratio of Consolidated Current Assets to its Consolidated Current Liabilities as of the end of any Fiscal Quarter to be less than 1 to 1. (b) Borrower will not permit its ratio of Consolidated Funded Debt to Consolidated Total Capital as of (i) the end of any Fiscal Quarter during the Fiscal Year ending December 31, 1997, to exceed .55 to 1, and (ii) the end of any Fiscal Quarter ending on or after March 31, 1998, to exceed .50 to 1. 1/230128.7 50 (c) Borrower will not permit its Ratio of Consolidated Funded Debt to Adjusted Consolidated EBITDA as of the end of any Fiscal Quarter commencing with the Fiscal Quarter ending March 31, 1997, to exceed 3.5 to 1. ARTICLE XI DEFAULTS SECTION 11.1. EVENTS OF DEFAULT. If one or more of the following events (collectively "EVENTS OF DEFAULT" and individually an "EVENT OF DEFAULT") shall have occurred and be continuing: (a) Borrower shall fail to pay when due any principal of any Note or any reimbursement obligation with respect to any Letters of Credit when due; (b) Borrower shall fail to pay any accrued interest due and owing on any Note or any fees or any other amount payable hereunder when due and such failure shall continue for a period of five (5) days; (c) Borrower shall fail to observe or perform any covenant or agreement contained in ARTICLE IX or X; (d) Borrower or any Restricted Subsidiary shall fail to observe or perform any covenant or agreement contained in this Agreement or the other Loan Papers (other than those covered by SECTIONS 11.1(A), (B) and (C)) for thirty (30) days after written notice thereof has been given to Borrower by Administrative Agent at the request of any Bank, provided, that, as to Defaults under SECTION 8.1(D) and (G), Borrower shall not be entitled to more than one (1) notice and period of cure during each calendar year, and as to each other type of Default, Borrower shall not be entitled to more than two (2) notices and periods of cure during any calendar year; (e) Borrower shall fail to cause the financial statements described in SECTION 8.1(A) to be accompanied by the opinion without qualification (except for qualifications required by changes in accounting methods with which Borrower's auditors concur) of the accountants preparing such opinion, that such financial statements were prepared in accordance with generally accepted accounting principles and fairly present the consolidated financial position and results of operations of Borrower; (f) any representation, warranty, certification or statement made or deemed to have been made by any Company in this Agreement or by any Company or any other Person on behalf of any Company in any other Loan Paper or any other certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made; 1/230128.7 51 (g) any Company shall fail to pay any Material Debt at maturity or any event or condition (i) shall occur which results in the acceleration of the maturity of any Material Debt of any Company, or (ii) shall occur and continue for a period of thirty (30) days (or such shorter cure period as is provided pursuant to the terms of such Material Debt) which entitles (or, with the giving of notice or lapse of time or both, would unless cured or waived, entitle) the holder of such Material Debt to accelerate the maturity thereof; (h) any Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (i) an involuntary case or other proceeding shall be commenced against any Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against any Company under the federal bankruptcy laws as now or hereafter in effect; (j) one (1) or more judgments or orders for the payment of money aggregating in excess of $1,000,000 shall be rendered against any Company and such judgment or order (i) shall continue unsatisfied and unstayed (unless bonded with a supersedeas bond at least equal to such judgment or order) for a period of thirty (30) days or (ii) is not fully paid and satisfied at least ten (10) days prior to the date on which any of its assets may be lawfully sold to satisfy such judgment or order; (k) one (1) or more judgments or orders for the payment of money aggregating in excess of the sum of (i) ten percent (10%) of the Borrowing Base then in effect, PLUS (ii) (A) the amount of such judgment which is covered by insurance to the satisfaction of Administrative Agent and its counsel, and (B) any amounts which Borrower or any of its Restricted Subsidiaries has deposited with Administrative Agent to be held by Administrative Agent as security for the payment of such judgment shall be rendered against Borrower or any of its Subsidiaries, whether or not otherwise bonded or stayed; (l) an Event of Default shall occur under and as defined in the Indenture; (m) any Company shall incur Environmental Liabilities which, individually or when considered in the aggregate for all Companies, exceeds $10,000,000; 1/230128.7 52 (n) this Agreement or any other Loan Paper shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by Borrower or any Restricted Subsidiary of Borrower, or Borrower or any Restricted Subsidiary of Borrower shall deny that it has any further liability or obligation under any of the Loan Papers, or any Lien created by the Loan Papers shall for any reason (other than the release thereof in accordance with the Loan Papers) cease to be a valid, first priority, perfected Lien upon any of the property purported to be covered thereby; (o) any Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) shall become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 30% of the total voting power of all classes of capital stock then outstanding of SOCO entitled (without regard to the occurrence of any contingency) to vote in elections of directors of SOCO; (p) at any date, more than fifty percent (50%) of the Person's comprising SOCO's board of directors are Persons who were not directors of SOCO one year prior to such date; or (q) SOCO shall cease, for any reason, to be the legal and beneficial owner of more than fifty percent (50%) of the total voting power of all classes of capital stock then outstanding of Borrower entitled (without regard to the occurrence of any contingency) to vote in elections of directors of Borrower; then, and in every such event, Administrative Agent shall without presentment, notice or demand (unless expressly provided for herein) of any kind (including, without limitation, notice of intention to accelerate and acceleration), all of which are hereby waived, (a) if requested by Required Banks, terminate the Commitment and it shall thereupon terminate, and (b) if requested by Required Banks, take such other actions as may be permitted by the Loan Papers including, declaring the Notes, or any of them, (together with accrued interest thereon) to be, and the Notes, or any of them, shall thereupon become, immediately due and payable; PROVIDED THAT (c) in the case of any of the Events of Default specified in SECTION 11.1(H) or (I), without any notice to Borrower or any other act by Administrative Agent or Banks, the Commitment shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable. ARTICLE XII AGENTS SECTION 12.1. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the other Loan Papers as are delegated to such Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto, PROVIDED THAT, as between and among Banks and Agents, no Agent will prosecute, settle or compromise any claim 1/230128.7 53 against Borrower or release or institute enforcement proceedings, except with the consent of Required Banks. Each Bank and Borrower agree that none of the Agents are a fiduciary for Banks or for Borrower but each simply is acting in the capacity described herein to alleviate administrative burdens for both Borrower and Banks and that no Agent has any duties or responsibilities to Banks or Borrower except those expressly set forth herein. SECTION 12.2. AGENTS AND AFFILIATES. Each Agent in its individual capacity and not as Agent hereunder shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent hereunder and each Agent in its individual capacity and not as Agent hereunder may accept deposits from, lend money to, and generally engage in any kind of business with Borrower and its Subsidiaries and Affiliates as if such parties were not Agents hereunder. SECTION 12.3. ACTION BY AGENTS. The obligations of Agents hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, no Agent shall be required to take any action with respect to any Default or Event of Default, except as expressly provided in ARTICLE XI. Notwithstanding the administrative authority delegated to Agents, no Agent shall without the prior written approval of all Banks cause or permit any modification of the Loan Papers which would (a) increase the Commitment of any Bank or subject any Bank to any additional obligations, (b) forgive any of the principal or reduce the rate of interest on the Loan or any fees hereunder, (c) postpone the date fixed for payment of principal of or interest on the Loan or any fees hereunder including the Termination Date, (d) change the percentage of the Total Commitment, or the number of Banks which shall be required for Banks or any of them to take any action under SECTION 14.5 or any other provision of this Agreement, (e) permit Borrower to assign any of its rights hereunder, (f) amend or waive any of the provisions of ARTICLE IV or of the definitions contained in SECTION 1.1 applicable thereto, or (g) provide for the release or substitution of collateral for the Loan other than releases required pursuant to sales of collateral which are expressly permitted under SECTION 9.5. Subject to the foregoing, each Agent shall make such requests or take such actions in respect of Borrower as the Required Banks shall direct. Further, subject to the foregoing, each Agent shall grant such waivers, consents or approvals in favor of Borrower as the Required Banks shall direct. SECTION 12.4. CONSULTATION WITH EXPERTS. Each Agent may consult with legal counsel (who may be counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 12.5. LIABILITY OF AGENTS. None of the Agents nor any of their respective directors, officers, agents, or employees shall be liable for any action taken or not taken by such Agent in connection herewith (a) with the consent or at the request of Required Banks, or (b) in the absence of its own gross negligence or willful misconduct, IT BEING THE INTENTION OF BANKS THAT SUCH PARTIES SHALL NOT BE LIABLE FOR THE CONSEQUENCES OF THEIR ORDINARY NEGLIGENCE. None of the Agents nor any of their respective officers, 1/230128.7 54 directors, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder, (ii) the performance or observance of any of the covenants or agreements of Borrower, (iii) the satisfaction of any condition specified in ARTICLE VI, except receipt of items required to be delivered to Administrative Agent, or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. No Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties or upon any oral notice which Agent believes will be confirmed in writing by the proper party or parties. If any Agent fails to take any action required to be taken by it under the Loan Papers after the occurrence of an Event of Default and within a reasonable time after being requested to do so by any Bank (after such requesting Bank has obtained the approval of such other Banks as required), such Agent shall not suffer or incur any liability as a result thereof, but such requesting Bank may request such Agent to resign, whereupon such Agent shall so resign pursuant to SECTION 12.9. SECTION 12.6. DELEGATION OF DUTIES. Each Agent may execute any of its duties hereunder by or through officers, directors, employees, attorneys, or agents. SECTION 12.7. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment Percentage, indemnify each Agent (to the extent not reimbursed by Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such Agent's gross negligence or willful misconduct) that such Agent may suffer or incur in connection with this Agreement or any action taken or omitted by such Agent hereunder, including without limitation, matters arising out of such Agent's own negligence. IT BEING THE INTENTION OF EACH BANK THAT EACH AGENT SHALL BE INDEMNIFIED FOR THE CONSEQUENCES OF ITS ORDINARY NEGLIGENCE. SECTION 12.8. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 12.9. SUCCESSOR AGENT. Each Agent may resign at any time by giving written notice thereof to Banks and Borrower. In addition, Borrower may, prior to a Default, request the designation by Banks of a successor Agent. Upon any such request by Borrower or resignation by an Agent, Required Banks shall have the right to appoint a successor Agent, which shall be one of Banks. If no successor Agent shall have been so appointed by Required Banks and accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or Borrower's request for a successor Agent, then the retiring Agent may, on behalf of Banks, appoint a successor Agent (as applicable), which shall (a) be a commercial bank organized under the laws 1/230128.7 55 of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000 and (b) unless the successor Agent is a Bank, be reasonably acceptable to Borrower. Upon the acceptance of its appointment as a successor Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any Agent's resignation hereunder, the provisions of this SECTION 12.9 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. Borrower shall be entitled to recommend a successor Agent at the time of designation of any successor Agent pursuant to this SECTION 12.9. Banks shall give due consideration to the successor nominated by Borrower, but shall have no obligation to approve such nominee. ARTICLE XIII PROTECTION OF YIELD; CHANGE IN LAWS SECTION 13.1. BASIS FOR DETERMINING INTEREST RATE APPLICABLE TO EURODOLLAR TRANCHES INADEQUATE. If on or prior to the first day of any Interest Period with respect to a Borrowing: (a) Administrative Agent is advised by any Bank that deposits in dollars (in the applicable amounts) are not being offered to such Bank(s) in the relevant market for such Interest Period, or (b) Banks having fifty percent (50%) or more of the aggregate amount of the Total Commitment advise Administrative Agent that the Adjusted Eurodollar Rate as determined by Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their respective shares of the requested Borrowing which will be subject to a Eurodollar Tranche for such Interest Period, Administrative Agent shall give notice thereof to Borrower and Banks, whereupon the obligations of Banks to allow interest to be computed by reference to the Adjusted Eurodollar Rate shall be suspended until Administrative Agent notifies Borrower that the circumstances giving rise to such suspension no longer exist. Unless Borrower notifies Administrative Agent at least two (2) Domestic Business Days before the date of any Borrowing for which a Request for Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as an Adjusted Base Rate Borrowing. SECTION 13.2. ILLEGALITY OF EURODOLLAR LOANS. (a) If, after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Eurodollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Eurodollar Lending Office) to make, maintain or fund any portion of the Loan subject to a Eurodollar Tranche and such Bank shall so notify Administrative Agent, Administrative 1/230128.7 56 Agent shall forthwith give notice thereof to the other Banks and Borrower. Until such Bank notifies Borrower and Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to maintain or fund any portion of the Loan subject to a Eurodollar Tranche shall be suspended. Before giving any notice to Administrative Agent pursuant to this SECTION 13.2, such Bank shall designate a different Eurodollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any portion of the Loan outstanding subject to a Eurodollar Tranche to maturity and shall so specify in such notice, Borrower shall immediately convert the principal amount of the Loan which is subject to a Eurodollar Tranche to an Adjusted Base Rate Tranche of an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the unaffected Eurodollar Tranches of the other Banks). (b) No Bank shall be required to make the Loan (or any portion thereof) hereunder if the making of the Loan (or any portion thereof) would be in violation of any law applicable to such Bank. SECTION 13.3. INCREASED COST OF EURODOLLAR TRANCHE. If after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (a) shall subject any Bank (or its Lending Office) to any tax, duty or other charge with respect to maintaining or funding any portion of the Loan subject to a Eurodollar Tranche, its Note or its obligation to allow interest to be computed by reference to the Adjusted Eurodollar Rate shall change the basis of taxation of payments to any Bank (or its Lending Office) of the principal of or interest on any portion of the Loan which is subject to any Eurodollar Tranche or any other amounts due under this Agreement in respect of any portion of the Loan which is subsequent to any Eurodollar Tranche or its obligation to allow interest to be computed by reference to the Adjusted Eurodollar Rate (except for changes in the rate of Tax on the overall net income of such Bank or its Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Lending Office is located); or (b) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurodollar Tranche any such requirement included in an applicable Eurodollar Reserve Percentage) against assets of, deposits with or for the account of or credit extended by, any Bank's Lending Office or shall impose on any Bank (or its Lending Office) or the applicable interbank Eurodollar market or any other condition affecting Eurodollar Tranches, its Note or its obligation to allow interest to be computed by reference to the Adjusted Eurodollar Rate; 1/230128.7 57 and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of funding or maintaining any portion of the Loan subject to a Eurodollar Tranche, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within five (5) days after demand by such Bank (with a copy to the Administrative Agent), Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. Each Bank will promptly notify Borrower and Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this SECTION 13.3 and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this SECTION 13.3 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 13.4. ADJUSTED BASE RATE TRANCHE SUBSTITUTED FOR AFFECTED EURODOLLAR TRANCHE. If (a) the obligation of any Bank to fund or maintain any portion of the Loan subject to a Eurodollar Tranche has been suspended pursuant to SECTION 13.2, or (b) any Bank has demanded compensation under SECTION 13.3 and Borrower shall, by at least five (5) Eurodollar Business Days prior notice to such Bank through the Administrative Agent, have elected that the provisions of this SECTION 13.4 shall apply to such Bank, then, unless and until such Bank notifies Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) any Tranche which would otherwise be characterized by such Bank as a Eurodollar Tranche shall instead be deemed an Adjusted Base Rate Tranche (on which interest and principal shall be payable contemporaneously with the unaffected Eurodollar Tranches of the other Banks); and (b) after all of its Eurodollar Tranches have been repaid, all payments of principal which would otherwise be applied to repay Eurodollar Tranches shall be applied to repay its Adjusted Base Rate Tranches instead. SECTION 13.5. CAPITAL ADEQUACY. If after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof, by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law), shall: (a) impose, modify or deem applicable any reserve, special deposit, compensatory loan, deposit insurance, capital adequacy, minimum capital, capital ratio or similar requirement against all or any assets held by, deposits or accounts with, credit extended by or to, or commitments to extend credit or any other acquisition of funds by any Bank (or its Lending Office), or impose on 1/230128.7 58 any Bank (or its Lending Office) any other condition, with respect to the maintenance by such Bank of all or any part of its Commitment; or (b) subject any Bank (or its Lending Office) to, or cause the termination or reduction of a previously granted exemption with respect to, any Tax with respect to the maintenance by such Bank of all or any part of its Commitment (other than Taxes assessed against such Bank's overall net income); and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of maintaining its Commitment or to reduce the amount of any sums received or receivable by it (or its Lending Office) under this Agreement or any other Loan Paper, or to reduce the rate of return on such Bank's equity in connection with this Agreement, as the case may be, by an amount which such Bank deems material then, in any such case, within five (5) days of demand by such Bank (or its Lending Office) (with a copy to Administrative Agent), Borrower shall pay to such Bank (or its Lending Office) such additional amount or amounts as will compensate such Bank for any additional cost, reduced benefit, reduced amount received or reduced rate of return. Each Bank will promptly notify Borrower and Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this SECTION 13.5. A certificate of any Bank claiming compensation under this SECTION 13.5 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. Without limiting the foregoing, in the event any event or condition described in this SECTION 13.5 shall occur or arise which relates to the maintenance by any Bank of that part of its Commitment which is in excess of its Commitment Percentage of the Borrowing Base then in effect (such excess portion of such Commitment of any Bank is hereinafter referred to as its "SURPLUS COMMITMENT"), such Bank shall notify Administrative Agent and Borrower of the occurrence of such event or the existence of such condition and of the amount of a fee (to be computed on a per annum basis with respect to such Bank's Surplus Commitment) which such Bank determines in good faith will compensate such Bank for such additional cost, reduced benefit, reduced amount received or reduced rate of return. Within five (5) Domestic Business Days following receipt of such notice, Borrower shall notify such Bank whether it accepts or rejects such fee (if Borrower fails to timely respond to such notice it will be deemed to have accepted such fee). If Borrower rejects such fee, the applicable Commitment of each Bank will be automatically and permanently reduced to the Borrowing Base applicable to such Commitment and then in effect. If Borrower accepts such fee, such fee shall accrue from and after the date of such Bank's notice and shall be payable in arrears (based on the daily average balance of such Bank's Surplus Commitment) on the last day of each Fiscal Quarter and on the Termination Date. Such fee shall be in lieu of any amounts to which such Bank would otherwise be entitled in respect of its Surplus Commitment pursuant to the other provisions of this SECTION 13.5 for the period on and after the date of such notice unless such Bank determines that such fee is not adequate to fully compensate such Bank for any additional cost, reduced benefit, reduced amount received or reduced rate of return such Bank may thereafter incur in respect of such Bank's Surplus Commitment. In that event such Bank shall be entitled to such additional compensation to which such Bank is otherwise entitled pursuant to this SECTION 13.5. 1/230128.7 59 SECTION 13.6. TAXES. All amounts payable by Borrower under the Loan Papers (whether principal, interest, fees, expenses, or otherwise) to or for the account of each Bank shall be paid in full, free of any deductions or withholdings for or on account of any Taxes. If Borrower is prohibited by law from paying any such amount free of any such deductions and withholdings, then (at the same time and in the same manner that such original amount is otherwise due under the Loan Papers) Borrower shall pay to or for the account of such Bank such additional amount as may be necessary in order that the actual amount received by such Bank after deduction and/or withholding (and after payment of any additional Taxes due as a consequence of the payment of such additional amount, and so on) will equal the amount such Bank would have received if such deduction or withholding were not made. SECTION 13.7. DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding any provisions of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Commitment in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained the Loan (or any portion thereof) subject to a Eurodollar Tranche during the Interest Period for the Loan (or any portion thereof) through the purchase of deposits having a maturity corresponding to the last day of such Interest Period and bearing an interest rate equal to the Adjusted Eurodollar Rate for such Interest Period. ARTICLE XIV MISCELLANEOUS SECTION 14.1. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telecopy or similar writing) and shall be given (a) if to Agent or any Bank, to such party at its address, telex or telecopy number set forth on SCHEDULE 1 hereof, or (b) if to Borrower or any of its Subsidiaries, at the address, telex or telecopy number for Borrower set forth on the signature page hereto or such other address, telex or telecopy number as such party may hereafter specify for the purpose by notice to Administrative Agent and Borrower, as the case may be. Each such notice, request or other communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this SECTION 14.1 and the appropriate answerback is received or receipt is otherwise confirmed, (b) if given by mail, one (1) Domestic Business Day after deposit in the mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered at the address specified in this SECTION 14.1; PROVIDED THAT notices to Administrative Agent under ARTICLE II or XIII shall not be effective until received. 1/230128.7 60 SECTION 14.2. NO WAIVERS. No failure or delay by any Agent or any Bank in exercising any right, power or privilege hereunder or under any Note or other Loan Paper shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law or in any of the other Loan Papers. SECTION 14.3. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION. (a) Borrower shall pay (i) all out-of-pocket expenses of Administrative Agent, including reasonable fees and disbursements of special counsel for Administrative Agent, in connection with the preparation of this Agreement and the other Loan Papers and, if appropriate, the recordation of the Loan Papers, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder, and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by each Agent and each Bank, including fees and disbursements of counsel in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom, fees of auditors and consultants incurred in connection therewith and investigation expenses incurred by each Agent and each Bank in connection therewith. Borrower shall indemnify each Bank against any Taxes imposed by reason of the execution and delivery of this Agreement or the Notes. (b) Borrower agrees to indemnify each Agent and each Bank and hold each Agent and each Bank harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel for each Agent and each Bank in connection with any investigative, administrative or judicial proceeding, whether or not such Bank shall be designated a party thereto) which may be incurred by any Agent or any Bank relating to or arising out of this Agreement or any actual or proposed use of proceeds of the Loan; PROVIDED THAT no Bank shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct, IT BEING THE INTENTION HEREBY THAT EACH BANK AND EACH AGENT SHALL BE INDEMNIFIED FOR THE CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE. SECTION 14.4. RIGHT AND SHARING OF SET-OFFS. (a) Upon the occurrence and during the continuance of any Event of Default, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under this Agreement and any Note held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Bank agrees promptly to notify Borrower after any such setoff and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Bank under this SECTION 14.4(A) are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Bank may have. 1/230128.7 61 (b) Each Bank agrees that if it shall, by exercising any right of setoff or counterclaim or otherwise, receive payment after the occurrence and during the continuance of an Event of Default of a proportion of the aggregate amount of principal and interest due with respect to the Loan which is greater than the proportion received by any other Bank in respect of the Loan, the Bank receiving such proportionately greater payment shall purchase such participations in the interests in the Loan held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loan held by Banks shall be shared by Banks ratably in accordance with their respective Commitment Percentages; PROVIDED THAT nothing in this SECTION 14.4 shall impair the right of any Bank to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of Borrower other than its indebtedness under the Loan. Borrower agrees, to the fullest extent it may effectively do so under applicable law, that Participants may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of Borrower in the amount of such participation. SECTION 14.5. AMENDMENTS AND WAIVERS. Any provision of this Agreement, the Notes or the other Loan Papers may be amended or waived if, but only if such amendment or waiver is in writing and is signed by Borrower and Required Banks (and, if the rights or duties of any Agent are affected thereby, by such Agent); PROVIDED THAT no such amendment or waiver shall, unless signed by all Banks, (a) increase the Commitment of any Bank or subject any Bank to any additional obligation, (b) forgive any of the principal of or reduce the rate of interest on the Loan or any fees hereunder, (c) postpone the date fixed for any payment of principal of or interest on the Loan or any fees hereunder including the Termination Date, (d) change the percentages of the Total Commitment, or the number of Banks which shall be required for the Banks or any of them to take any action under this SECTION 14.5 or any other provision of this Agreement, (e) permit Borrower to assign any of its rights hereunder, (f) amend or waive any of the provisions of ARTICLE IV or the definitions contained in SECTION 1.1 applicable thereto, or (g) provide for release or substitution of collateral for the Obligations or any part thereof other than releases required pursuant to sales of collateral which are expressly permitted by SECTION 9.5 hereof. Borrower, Agent and each Bank further acknowledge that any decision by any Agent or any Bank to enter into any amendment, waiver or consent pursuant hereto shall be made by such Bank or Agent in its sole discretion, and in making any such decision each such Agent and each such Bank shall be permitted to give due consideration to any credit or other relationship any such Agent or any such Bank may have with Borrower, any Affiliate of Borrower, or any other Unrestricted Subsidiary of Borrower. SECTION 14.6. SURVIVAL. All representations, warranties and covenants made by Borrower herein or in any certificate or other instrument delivered by it or in its behalf under the Loan Papers shall be considered to have been relied upon by Banks and shall survive the delivery to Banks of such Loan Papers or the extension of the Loan (or any part thereof), regardless of any investigation made by or on behalf of Banks. SECTION 14.7. LIMITATION ON INTEREST. Regardless of any provision contained in the Loan Papers, Banks shall never be entitled to receive, collect, or apply, as interest on the Loan, any 1/230128.7 62 amount in excess of the Maximum Lawful Rate, and in the event Banks ever receive, collect or apply as interest any such excess, such amount which would be deemed excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and if the Loan is paid in full, any remaining excess shall promptly be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Lawful Rate, Borrower and Banks shall, to the extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof and (c) amortize, prorate, allocate and spread, in equal parts, the total amount of the interest throughout the entire contemplated term of the applicable Notes, so that the interest rate is the Maximum Lawful Rate throughout the entire term of the Notes; PROVIDED, HOWEVER, that if the unpaid principal balance thereof is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Lawful Rate, Banks shall refund to Borrower the amount of such excess and, in such event, Banks shall not be subject to any penalties provided by any laws for contracting for, charging, taking, reserving or receiving interest in excess of the Maximum Lawful Rate. SECTION 14.8. INVALID PROVISIONS. If any provision of the Loan Papers is held to be illegal, invalid, or unenforceable under present or future laws effective during the term thereof, such provision shall be fully severable, the Loan Papers shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of the Loan Papers a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. SECTION 14.9. WAIVER OF CONSUMER CREDIT LAWS. Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees that such Chapter 15 shall not govern or in any manner apply to the Loan. SECTION 14.10. SUCCESSORS AND ASSIGNS. (a) Each Loan Paper binds and inures to the parties to it, any intended beneficiary of it, and each of their respective successors and permitted assigns. No Company may assign or transfer any rights or obligations under any Loan Paper without first obtaining all Banks' consent, and any purported assignment or transfer without all Banks' consent is void. No Bank may transfer, pledge, assign, sell any participation in, or otherwise encumber its portion of the Obligations except as permitted by clauses (b) or (c) below. (b) Any Bank may (subject to the provisions of this section, in accordance with applicable law, in the ordinary course of its business, and at any time) sell to one or more Persons (each a "PARTICIPANT") participating interests in its portion of the Obligations. The selling Bank remains a "Bank" under the Loan Papers, the Participant does not become a "Bank" under the Loan Papers, and the selling Bank's obligations under the Loan Papers remain unchanged. The selling Bank remains solely responsible for the performance of its obligations and remains the holder of its 1/230128.7 63 share of the outstanding Loan for all purposes under the Loan Papers. Borrower and each Agent shall continue to deal solely and directly with the selling Bank in connection with that Bank's rights and obligations under the Loan Papers, and each Bank must retain the sole right and responsibility to enforce due obligations of the Companies. Participants have no rights under the Loan Papers except certain voting rights as provided below. Subject to the following, each Bank may obtain (on behalf of its Participants) the benefits of ARTICLE XIII with respect to all participations in its part of the Obligations outstanding from time to time so long as Borrower is not obligated to pay any amount in excess of the amount that would be due to that Bank under ARTICLE XIII calculated as though no participations have been made. No Bank may sell any participating interest under which the Participant has any rights to approve any amendment, modification, or waiver of any Loan Paper except as to matters in SECTIONS 14.5(A) through 14.5(G). (c) Each Bank may make assignments to the Federal Reserve Bank. Each Bank may also assign to one or more assignees (each an "ASSIGNEE") all or any part of its rights and obligations under the Loan Papers so long as (i) the assignor Bank and Assignee execute and deliver to each Agent and Borrower for their consent and acceptance (that may not be unreasonably withheld) an assignment and assumption agreement in substantially the form of EXHIBIT G (an "ASSIGNMENT AND ASSUMPTION AGREEMENT") and pay to Administrative Agent a processing fee of $2,500, (ii) the Assignee acquires an identical percentage interest in the Commitment of the assignor Bank and an identical percentage of the interests in the outstanding Loan held by such assignor Bank, and (iii) the conditions (including, without limitation, minimum amounts of the Total Commitment that may be assigned or that must be retained) for that assignment set forth in the applicable Assignment and Assumption Agreement are satisfied. The "Effective Date" in each Assignment and Assumption Agreement must (unless a shorter period is agreeable to Borrower and Administrative Agent) be at least five (5) Domestic Business Days after it is executed and delivered by the assignor Bank and Assignee to Administrative Agent and Borrower for acceptance. Once that Assignment and Assumption Agreement is accepted by Administrative Agent and Borrower, then, from and after the Effective Date stated in it (i) Assignee automatically becomes a party to this Agreement and, to the extent provided in that Assignment and Assumption Agreement, has the rights and obligations of a Bank under the Loan Papers, (ii) the assignor Bank, to the extent provided in that Assignment and Assumption Agreement, is released from its obligations to fund Borrowings under this Agreement and its reimbursement obligations under this Agreement and, in the case of an Assignment and Assumption Agreement covering all of the remaining portion of the assignor Bank's rights and obligations under the Loan Papers, that Bank ceases to be a party to the Loan Papers, (iii) Borrower shall execute and deliver to the assignor Bank and Assignee the appropriate Notes in accordance with this Agreement following the transfer, (iv) upon delivery of the Notes under clause (iii) preceding, the assignor Bank shall return to Borrower all Notes previously delivered to that Bank under this Agreement, and (v) SCHEDULE 1 is automatically deemed to be amended to reflect the name, address, telecopy number, and Commitment of Assignee and the remaining Commitment (if any) of the assignor Bank, and Administrative Agent shall prepare and circulate to Borrower and Banks an amended SCHEDULE 1 reflecting those changes. 1/230128.7 64 SECTION 14.11. TEXAS LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER LOAN PAPERS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE OBLIGATIONS IS LOCATED NECESSARILY GOVERN (A) THE PERFECTION AND PRIORITY OF THE LIENS IN FAVOR OF AGENT AND BANKS WITH RESPECT TO SUCH PROPERTY, AND (B) THE EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH PROPERTY. SECTION 14.12. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. (a) Borrower hereby irrevocably submits to the jurisdiction of any Texas State or Federal court sitting in the Northern District of Texas over any action or proceeding arising out of or relating to this Agreement or any other Loan Papers, and Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Texas State or Federal court. Borrower hereby irrevocably appoints The Corporation Company (the "PROCESS AGENT"), with an office on the date hereof at 1675 Broadway, Denver, Colorado 80202, as its agent to receive on behalf of Borrower proper service of copies of the summons and complaint and any other process which may be made by mailing or delivering a copy of such process to Borrower (as applicable) in care of the Process Agent at the Process Agent's above address, and Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on their behalf. As an alternative method of service, Borrower also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Borrower at its address specified in SECTION 14.1. Borrower agrees that a final judgment on any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this SECTION 14.12 shall affect any right of Banks to serve legal process in any other manner permitted by law or affect the right of any Bank to bring any action or proceeding against Borrower or any of its Subsidiaries or their properties in the courts of any other jurisdictions. (c) To the extent that Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Borrower hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the other Loan Papers. SECTION 14.13. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when Administrative Agent shall have received counterparts hereof signed by all of the parties hereto or, in the case of any Bank as to which an executed counterpart shall not have been received, 1/230128.7 65 Administrative Agent shall have received telegraphic or other written confirmation from such Bank of execution of a counterpart hereof by such Bank. SECTION 14.14. NO THIRD PARTY BENEFICIARIES. It is expressly intended that there shall be no third party beneficiaries of the covenants, agreements, representations or warranties herein contained other than Participants and Assignees permitted pursuant to SECTION 14.10 and Affiliates of any Bank which hold any part of the Obligations. SECTION 14.15. COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS, AGENTS AND BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANKS, AGENTS AND BORROWER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG BANKS, AGENTS AND BORROWER. SECTION 14.16. WAIVER OF JURY TRIAL. BORROWER, AGENTS AND BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND FOR ANY COUNTERCLAIM THEREIN. [Remainder of page intentionally left blank] 1/230128.7 66 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective Authorized Officers effective as of the day and year first above written. BORROWER: PATINA OIL & GAS CORPORATION, a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Vice President 1625 Broadway Denver, Colorado 80202 Attn: David J. Kornder Telecopy No.: (303) 592-8600 with a copy to: Thomas J. Edelman 595 Madison Avenue 27th Floor New York, New York 10022 Telecopy No.: 212-888-6877 BANKS: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /S/ DALE S. HURD Dale S. Hurd, Senior Vice President NATIONSBANK OF TEXAS, N.A. By: /S/ J. SCOTT FOWLER J. Scott Fowler, Vice President 1/230128.7 67 CIBC, Inc. By: /S/ ALEKSANDRA K. DYMANUS Aleksandra K. Dymanus, Authorized Signatory CREDIT LYONNAIS NEW YORK BRANCH By: /S/ PASCAL POUPELLE Pascal Poupelle, Senior Vice President WELLS FARGO BANK, N.A. By: /S/ GREGORY J. PETRUSKA Gregory J. Petruska, Vice President BANK ONE, TEXAS, N.A. By: /S/ BRAD BARTEK Brad Bartek, Vice President ADMINISTRATIVE AGENT: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /S/ DALE S. HURD Dale S. Hurd, Senior Vice President DOCUMENTARY AGENT: NATIONSBANK OF TEXAS, N.A. By: /S/ J. SCOTT FOWLER J. Scott Fowler, Vice President 1/230128.7 68 CO-AGENTS: CIBC, INC. By: /S/ ALEKSANDRA K. DYMANUS Aleksandra K. Dymanus, Authorized Signatory CREDIT LYONNAIS NEW YORK BRANCH By: /S/ PASCAL POUPELLE Pascal Poupelle, Senior Vice President WELLS FARGO BANK, N.A. By: /S/ GREGORY J. PETRUSKA Gregory J. Petruska, Vice President 1/230128.7 69 EXHIBIT A NOTE $_______________ Houston, Texas April 1, 1997 FOR VALUE RECEIVED, the undersigned, Patina Oil & Gas Corporation, a Delaware corporation ("MAKER"), promises to pay to the order of [NAME OF BANK OR LENDING OFFICE] ("PAYEE"), at the offices of Texas Commerce Bank National Association, as Administrative Agent (herein so called), at 1111 Fannin, 9th Floor, Houston, Texas 77002, for Payee and the other Banks hereinafter described, the principal sum of [AMOUNT OF SUCH BANK'S COMMITMENT] ($___________), or so much thereof as may be advanced and outstanding, together with interest, as hereinafter described. This Note has been executed and delivered pursuant to, and is subject to and governed by, the terms of that certain Amended and Restated Credit Agreement dated effective as of April 1, 1997 (as hereafter renewed, extended, amended, or supplemented, the "AGREEMENT") among Maker, Payee, Administrative Agent, NationsBank of Texas, N.A., as Documentary Agent, Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents, and the other Banks named therein and is one of the "NOTES" referred to therein. Unless otherwise defined herein or unless the context hereof otherwise requires, each term used herein with its initial letter capitalized has the meaning given to such term in the Agreement. Maker also promises to pay interest on the unpaid principal amount hereof in like money at the offices of Administrative Agent above referenced from the date hereof at the rates applicable to amounts outstanding under the Loan provided in the Agreement. Accrued interest shall be due and payable on the expiration of each Interest Period with respect to any part of the principal outstanding hereunder which is subject to a Eurodollar Tranche with an Interest Period then expiring. The principal balance of this Note shall be paid at the times and in the amounts required by the Agreement. The entire outstanding principal balance hereof and all accrued but unpaid interest thereon shall be due and payable in full on the Termination Date. Upon and subject to the terms and conditions of the Agreement, Maker shall be entitled to prepay the principal of or interest on this Note from time to time and at any time, in whole or in part. Upon the occurrence and continuance of an Event of Default, and upon the conditions stated in the Agreement, Administrative Agent may, at its option, and shall, to the extent required in accordance with the terms of the Agreement, declare the entire unpaid principal of and accrued interest on this Note immediately due and payable (provided that, upon the occurrence of certain Events of Default, and upon the conditions stated in the Agreement, such acceleration shall be automatic), without notice (except as otherwise required by the Agreement), demand, or 1/230128.7 70 presentment, all of which are hereby waived, and the holder hereof shall have the right to offset against this Note any sum or sums owed by the holder hereof to Maker. All past-due principal of and, to the extent permitted by law, accrued interest on this Note shall, at the option of the holder hereof, bear interest at the lesser of (a) the Maximum Lawful Rate or (b) the Adjusted Base Rate plus 2% until paid. Notwithstanding the foregoing, if at any time, any rate of interest calculated under SECTION 2.5 of the Agreement (the "CONTRACT RATE") exceeds the Maximum Lawful Rate, the rate of interest hereunder shall be limited to the Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall not reduce the rate of interest on this Note below the Maximum Lawful Rate until the total amount of interest accrued equals the amount of interest which would have accrued (including the amount of interest which would have accrued prior to the payment or prepayment of any portion of this Note) if the Contract Rate had at all times been in effect. In the event that at maturity (stated or by acceleration), or at final payment of this Note, the total amount of interest paid or accrued on this Note is less than the amount of interest which would have accrued if the Contract Rate had at all times been in effect with respect thereto, then at such time the Maker shall pay to the holder of this Note an amount equal to the difference between (a) the lesser of the amount of interest which would have accrued if the Contract Rate had at all times been in effect and the amount of interest which would have accrued if the Maximum Lawful Rate had at all times been in effect, and (b) the amount of interest actually paid or accrued on this Note. PATINA OIL & GAS CORPORATION, a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 1/230128.7 71
LOANS, MATURITIES, AND PAYMENTS OF PRINCIPAL AND INTEREST Payee's Commitment Expiration of Rate of Interest Unpaid Borrowing Percentage of Interest Applicable to Amount of Amount of Principal Notation Made Date Borrowing Period Tranche Principal Paid Interest Paid Balance By =============== ============== ============= ================ ============= ============= ============= ================ =============== ============== ============= ================ ============= ============= ============= ================
1/230128.7 72 EXHIBIT B PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Pledge Agreement") is dated as of the 1st day of April, 1997, by and between PATINA OIL & GAS CORPORATION, a Delaware corporation ("PLEDGOR"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Banks (as defined herein) (Texas Commerce Bank National Association in its capacity as Administrative Agent for the Banks is hereinafter referred to as "PLEDGEE"). W I T N E S S E T H: WHEREAS, Pledgor, Pledgee, NationsBank of Texas, N.A., as Documentary Agent, Wells Fargo Bank, N.A., CIBC, Inc., and Credit Lyonnais, as Co-Agents, Texas Commerce Bank National Association, individually, NationsBank of Texas, N.A., individually, Wells Fargo Bank, N.A., individually, CIBC, Inc., individually, Credit Lyonnais New York Branch, individually, and Bank One, Texas, N.A., individually (Texas Commerce Bank National Association, individually, NationsBank of Texas, N.A., individually, Wells Fargo Bank, N.A., individually, CIBC, Inc., individually, Credit Lyonnais New York Branch, individually, and Bank One, Texas, N.A., individually are herein collectively referred to as "BANKS") are parties to that certain Amended and Restated Credit Agreement (the "CREDIT AGREEMENT") dated effective as of April 1, 1997, pursuant to which Banks have agreed to (i) make a revolving credit loan to Pledgor, and (ii) issue and participate in Letters of Credit for the account of Pledgor and its Restricted Subsidiaries (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, it is a condition to the agreement of Banks to make the Loan and issue and participate in Letters of Credit and Letter of Credit Exposure under the Credit Agreement that Pledgor execute and deliver this Pledge Agreement in favor of Pledgee. NOW, THEREFORE, for valuable consideration, receipt of which is hereby acknowledged and confessed, Pledgor agrees with Pledgee as follows: 1. PLEDGE. Upon the terms hereof, Pledgor hereby grants to Pledgee, for the ratable benefit of each Bank and any holder from time to time of the Notes, a security interest in and to the rights, titles and interests of Pledgor in and to all of the following rights, interests and property: (a) all of the issued and outstanding shares of capital stock and other investment property issued by SOCO Wattenberg Corporation, a Delaware corporation, and any other Restricted Subsidiary of Pledgor, now owned or hereafter acquired, (collectively, the "RESTRICTED SUBSIDIARIES" and individually, a "RESTRICTED SUBSIDIARY"), including, without limitation, the shares of the Restricted 1/230128.7 73 Subsidiaries owned by Pledgor on the date hereof (the "PLEDGED SHARES"); and (b) any and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to, all or any of the Pledged Shares described in clause (a) preceding (the rights, interests and property described in clauses (a) and (b) preceding are collectively referred to herein as the "COLLATERAL"). 2. SECURED OBLIGATION. The security interest herein granted (the "SECURITY INTEREST") shall secure payment and performance of the Obligations. 3. REPRESENTATIONS AND WARRANTIES; RELATED COVENANTS. Pledgor represents, warrants, covenants and agrees to and with Administrative Agent, for the benefit of each Bank, that: (a) Pledgor is the legal and beneficial owner of the Pledged Shares issued by the Restricted Subsidiaries; (b) the Pledged Shares are duly authorized and issued, fully paid and non-assessable, and all documentary, stamp or other taxes or fees owing in connection with the issuance, transfer and/or pledge thereof hereunder have been paid; (c) no dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Collateral; (d) the Collateral is free and clear of all Liens, options, warrants, puts, calls or other rights of third persons, and restrictions, other than (i) those Liens arising under this Pledge Agreement or any other of the Loan Papers and Liens for Taxes not yet due and payable, and (ii) restrictions on transferability imposed by applicable state and federal securities laws; (e) Pledgor has full right and authority to pledge the Pledged Shares and other Collateral for the purposes and upon the terms set out herein; (f) certificates representing the Pledged Shares have been delivered to Pledgee, together with a duly executed blank stock power with signatures guaranteed, for each certificate; (g) the Pledged Shares constitute all of the issued and outstanding capital stock of the Restricted Subsidiaries of every class; and (h) the Restricted Subsidiaries have not issued, and there are not outstanding, any options, warrants or other rights to acquire capital stock of the Restricted Subsidiaries. 4. COVENANTS. (a) Pledgor covenants and agrees to, from time to time, promptly execute and deliver to Pledgee all such other assignments, certificates, supplemental writings and financing statements as Pledgee reasonably requests in order to perfect or evidence the Security Interest. Pledgor further agrees that if Pledgor shall at any time acquire any additional shares of the capital stock or other investment property issued by any Restricted Subsidiary, and whether such acquisition shall be by purchase, exchange, reclassification, dividend, or otherwise, Pledgor shall forthwith (and without the necessity for any request or demand by Pledgee) deliver the certificates representing such capital stock or investment property to Pledgee, in the same manner and with the same effect as described in paragraphs 1 and 3 hereof. Such capital stock or investment property shall constitute "PLEDGED SHARES" and "COLLATERAL" and shall be subject to the Liens herein created, for the purposes and upon the terms and conditions set forth in this Pledge Agreement and the other Loan Papers. Pledgor further covenants and agrees that, without the prior written consent of all Banks, Pledgor shall not (i) transfer any of Pledgor's rights, titles or interests in and to the Collateral or any part thereof; or (ii) create any other Lien or otherwise encumber any of the Collateral, or permit any of the Collateral to ever be or become subject to any Lien, attachment, execution, sequestration, other legal or equitable process or any Lien or encumbrance of any kind, except the Security Interest. 1/230128.7 74 (b) Pledgor will promptly execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments, registration statements, and all other documents and papers Pledgee may reasonably request in connection with the obtaining of any consent, approval, registration, qualification, or authorization of any other Person necessary or appropriate for the effective exercise of any rights under this Pledge Agreement. Without limiting the generality of the foregoing, Pledgor agrees that in the event Pledgee shall exercise any rights to sell, transfer, or otherwise dispose of, or vote, consent, or take any other action in connection with any of the Collateral pursuant to this Pledge Agreement, Pledgor shall execute and deliver all applications, certificates, and other documents as Pledgee may reasonably request and shall otherwise promptly, fully and diligently cooperate with Pledgee and any other necessary Persons, in making any application for the prior consent or approval of any other Person to the exercise by Pledgee of any rights relating to all or any of the Collateral. Furthermore, because Pledgor agrees that Pledgee's remedies at law for failure of Pledgor to comply with the provisions of this paragraph 4(b) would be inadequate and that such failure would not be adequately compensable in damages, Pledgor agrees that the covenants of this paragraph 4(b) may be specifically enforced. (c) Pledgor will preserve, warrant, and defend the Liens created hereby in the Collateral against the claims of all Persons whomsoever; will maintain and preserve such Liens at all times as contemplated by the Loan Papers; will not at any time assign, transfer, or otherwise dispose of its right, title and interest in and to any of the Collateral; will not at any time directly or indirectly create, assume, or suffer to exist any Lien, warrant, put, option, or other rights of third Persons and restrictions, other than the Liens created by this Pledge Agreement in and to the Collateral or any part thereof; and will not do or suffer any matter or thing whereby the Liens created by this Pledge Agreement in and to the Collateral might or could be impaired. 5. CONVERSIONS; ETC. Should the Collateral, or any part thereof, ever be in any manner converted by any Restricted Subsidiary into another property of the same or another type or any money or other proceeds ever be paid or delivered to Pledgor as a result of Pledgor's rights in the Collateral, then, in any such event (except as otherwise provided herein), all such property, money and other proceeds shall be and/or become part of the Collateral, and Pledgor covenants forthwith to pay or deliver to Pledgee (as pledgeholder for the pro rata benefit of each Bank as provided above) all of the same which is susceptible of delivery; and at the same time, if any Bank deems it necessary and so requests, Pledgor will properly endorse or assign the same to Pledgee (as pledgeholder for the pro rata benefit of each Bank as provided above). Without limiting the generality of the foregoing, Pledgor hereby agrees that the shares of capital stock or other investment property of the surviving corporation in any merger or consolidation involving any Restricted Subsidiary shall be deemed to constitute the same property as the Collateral. With respect to any such property of a kind requiring an additional security agreement, financing statement or other writing to perfect a security interest therein in favor of Pledgee (as pledgeholder for the pro rata benefit of each Bank as provided above), Pledgor will forthwith execute and deliver to Pledgee whatever any Bank shall deem necessary or proper for such purpose. 1/230128.7 75 6. NO DUTY TO FIX OR PRESERVE RIGHTS. Neither Pledgee nor any Bank shall have any duty to fix or preserve rights against prior parties to the Collateral or shall ever be liable for failure to use diligence to collect any amount payable with respect to the Pledged Shares, or any part thereof, but shall be liable only to account to Pledgor for what such Bank may actually collect or receive thereon. 7. RIGHTS OF PARTIES BEFORE AND AFTER THE OCCURRENCE OF A DEFAULT. (a) EXERCISING SHAREHOLDER RIGHTS PRIOR TO A DEFAULT. Unless and until a Default shall occur, (i) Pledgor shall be entitled to receive all cash dividends paid out of net income on a current basis to Pledgor in respect of or attributable to the Pledged Shares or other Collateral. Notwithstanding the foregoing, Pledgee shall be entitled to receive, whether or not a Default has occurred, (A) any and all other Distributions, including, but not limited to, stock dividends, liquidating Distributions or other Distributions in property made on or with respect to the Pledged Shares or any other Collateral and any proceeds of Collateral, whether resulting from subdivision, combination, or reclassification of the outstanding capital stock or other investment property issued by any Restricted Subsidiary or as a result of any merger, consolidation, acquisition, or other exchange of assets (whether or not permitted by any Loan Paper), or to which any Restricted Subsidiary is a party, and (B) all sums paid on any Collateral upon liquidation or dissolution or reduction of capital, repurchase, retirement, or redemption. All such sums, dividends, distributions, proceeds, or other property described in clauses (A) and (B) preceding shall, if received by any Person other than Pledgee, be held in trust for the benefit of Pledgee and shall forthwith be delivered to Pledgee (accompanied by proper instruments of assignment and/or stock and/or bond powers executed by Pledgor in accordance with Pledgee's instructions) to be held subject to the terms of this Pledge Agreement. Any cash proceeds of the Collateral, other than cash dividends which Pledgor is then permitted to receive and retain under the Loan Papers, which come into the possession of Pledgee may, at Pledgee's option, be applied in whole or in part to the Obligations (to the extent then due), be released in whole or in part to or on the written instructions of Pledgor for any general or specific purpose otherwise permitted by the Loan Papers, or be retained in whole or in part by Pledgee as additional security for the payment and performance of the Obligations. All interest and other amounts earned from any investment of such proceeds may be dealt with by Pledgee in the same manner as other cash proceeds; and (ii) Pledgor shall have the right to vote and give consents with respect to all of the Collateral and to consent to, ratify, or waive notice of any and all meetings; PROVIDED THAT such right shall in no case be exercised for any 1/230128.7 76 purpose contrary to, or in violation of, any of the terms or the provisions of this Pledge Agreement, the Credit Agreement, or any other Loan Paper. (b) EXERCISING SHAREHOLDER RIGHTS AFTER THE OCCURRENCE OF A DEFAULT. Upon the occurrence of a Default, Pledgee, without the consent of Pledgor, may: (i) At any time vote or consent in respect of any of the Pledged Shares and authorize any Collateral to be voted and such consents to be given, ratify and waive notice of any and all meetings, and take such other action as shall seem desirable to Pledgee, in its discretion, to protect or further the interests of Banks and Pledgee in respect of any of the Pledged Shares as though it were the outright owner thereof, and Pledgor hereby irrevocably constitutes and appoints Pledgee its sole proxy and attorney-in-fact, with full power of substitution to vote and act with respect to any and all Pledged Shares standing in the name of Pledgor or with respect to which Pledgor is entitled to vote and act. The proxy and power of attorney herein granted are coupled with interests, are irrevocable, and shall continue throughout the term of this Pledge Agreement; (ii) In respect of any Pledged Shares, join in and become a party to any plan of recapitalization, reorganization, or readjustment (whether voluntary or involuntary) as shall seem desirable to Pledgee in respect of any such Pledged Shares, and deposit any such Pledged Shares under any such plan; make any exchange, substitution, cancellation, or surrender of such Pledged Shares required by any such plan and take such action with respect to any such Pledged Shares as may be required by any such plan or for the accomplishment thereof; and no such disposition, exchange, substitution, cancellation, or surrender shall be deemed to constitute a release of Pledged Shares from the Lien of this Pledge Agreement; (iii)Receive all payments of whatever kind made upon or with respect to any Collateral; and (vi) Transfer into its name, or into the name or names of its nominee or nominees, all or any of the Collateral. (c) RIGHT OF SALE AFTER THE OCCURRENCE OF A DEFAULT. Upon the occurrence of a Default, Pledgee may sell, without recourse to judicial proceedings, with the right (except at private sale) to bid for and buy, free from any right of redemption, the Pledged Shares or any part thereof, upon five (5) days' notice (which notice is agreed to be reasonable notice for the purposes hereof) to Pledgor of the time and place of sale, for cash, upon credit or for future delivery, at Pledgee's option and in Pledgee's complete discretion: 1/230128.7 77 (i) At public sale, including a sale at any broker's board or exchange; (ii) At private sale in any manner which will not require the Pledged Shares, or any part thereof, to be registered in accordance with The Securities Act of 1933 (as amended, the "ACT") or the rules and regulations promulgated --- thereunder, or any other law or regulation, at the best price reasonably obtainable by Pledgee at any such private sale or other disposition in the manner mentioned above. Pledgee is also hereby authorized, but not obligated, to take such actions, give such notices, obtain such consents, and do such other things as Pledgee may deem required or appropriate in the event of sale or disposition of any of the Pledged Shares. Pledgor understands that Pledgee may in its discretion approach a restricted number of potential purchasers and that a sale under such circumstances may yield a lower price for the Pledged Shares, or any portion thereof, than would otherwise be obtainable if the same were registered and sold in the open market. Pledgor agrees (a) that in the event Pledgee shall so sell the Pledged Shares, or any portion thereof, at such private sale or sales, Pledgee shall have the right to rely upon the advice and opinion of any member firm of a national securities exchange as to the best price reasonably obtainable upon such a private sale thereof (any expense borne by Pledgee in obtaining such advice to be paid by Pledgor as an expense related to the exercise by Pledgee of its rights hereunder), and (B) that such reliance shall be conclusive evidence that Pledgee handled such matter in a commercially reasonable manner. In case of any sale by the Pledgee of the Pledged Shares on credit or for future delivery, the Pledged Shares sold may be retained by Pledgee until the selling price is paid by the purchaser, but Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for the Pledged Shares so sold. In case of any such failure, such Pledged Shares so sold may be again similarly sold. In connection with the sale of the Pledged Shares, Pledgee is authorized, but not obligated, to limit prospective purchasers to the extent deemed necessary or desirable by Pledgee to render such sale exempt from the registration requirements of the Act, and any applicable state securities laws, and no sale so made in good faith by Pledgee shall be deemed not to be "commercially reasonable" because so made. If Pledgee determines to exercise its right to sell all or any of the Pledged Shares, and if in the opinion of Gardere & Wynne, L.L.P. or such other reputable law firm selected by Pledgee ("LAW FIRM"), it is necessary or advisable to have such securities registered under the provisions of such Act, or any similar law relating to the registration of securities, Pledgor agrees, at its own expense, to (i) execute and deliver all such instruments and documents, and to do or cause to be done other such acts and things as may be necessary or, in the opinion of Law Firm, advisable to register such securities under the provisions of such Act or any applicable similar law relating to the registration of securities, and Pledgor will use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as Pledgee shall 1/230128.7 78 reasonably request, and to make all amendments thereof and/or to the related prospectus which, in the opinion of Law Firm, are necessary or desirable, all in conformity with the requirements of such Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such securities under state "blue sky" or securities laws and to obtain the necessary approval of any Tribunal (as hereinafter defined) to the sale of such securities, all as reasonably requested by Pledgee; and (iii) at the request of Pledgee, indemnify and hold harmless, and to cause the Restricted Subsidiaries to agree to indemnify and hold harmless, Pledgee, each Bank, any underwriters (and any Person controlling any of the foregoing), and their respective employees, officers, agents, attorneys, and accountants (collectively, the "INDEMNIFIED PARTIES") from and against any loss, liability, claim, damage and expense (including without limitation, reasonable fees of counsel incurred in connection therewith) under such Act or otherwise, insofar as such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under such Act or other securities laws, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon any omission or any alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of any Indemnified Party; provided that Pledgor shall not be liable in any case to the extent that any such loss, liability, claim, damage, or expense arises out of or is based upon any untrue statement or alleged untrue statement or an omission or an alleged omission made in reliance upon and in conformity with written information furnished to Pledgor and/or the Restricted Subsidiaries by an Indemnified Party. As used in this Paragraph 9(c) and in Paragraph 15(a), the term "TRIBUNAL" means any court or governmental department, commission, board, bureau, agency or instrumentality of the United State or of a state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereinafter constituted or existing. (d) OTHER RIGHTS AFTER A DEFAULT. Upon the occurrence of a Default, Pledgee, at its election (but subject to the terms and conditions of the Credit Agreement) may exercise any and all rights available to a secured party under the Uniform Commercial Code as enacted in the State of Texas or other applicable jurisdiction, as amended, in addition to any and all other rights afforded by the Loan Papers, at law, in equity, or otherwise. (e) APPLICATION OF PROCEEDS. Pledgee shall apply the proceeds of any sale or other disposition of the Pledged Shares in the manner provided in the Credit Agreement. 8. NOTICES. Whenever this Pledge Agreement requires or permits any consent, approval, notice, request, or demand from one party to another, the consent, approval, notice, request, or demand must be given in the manner provided in Section 14.1 of the Credit Agreement. 9. RIGHT TO FILE AS FINANCING STATEMENT. Pledgee or any Bank shall have the right at any time to execute and file this Pledge Agreement as a financing statement, but the failure of Pledgee or any Bank to do so shall not impair the validity or enforceability of this Pledge Agreement. 1/230128.7 79 10. WAIVER OF CERTAIN RIGHTS. (a) To the full extent that it may lawfully so agree, Pledgor agrees that it will not at any time plead, claim or take the benefit of any appraisement, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Pledge Agreement, or the absolute sale of all or any part of the Pledges Shares or the possession thereof by any purchaser at any sale hereunder, and Pledgor hereby waives the benefit of all such laws to the extent it lawfully may. Each right, power and remedy of Pledgee provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Pledgee of any one or more of such rights, power or remedies shall not preclude the simultaneous or later exercise by Pledgee of any or all such other rights, powers or remedies. No failure or delay on the part of Pledgee to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Pledgee with respect to any such remedies shall operate as a waiver thereof, or limit or impair Pledgee's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. (b) Except to the extent required under the Credit Agreement or any other Loan Paper, Pledgor hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever in respect of the Notes as well as any requirement that the Pledgee or any holder of any of the Notes exhausts any right or remedy or takes any action in connection with the Notes or the Loan Papers before exercising any right or remedy under this Pledge Agreement. The obligations of Pledgor hereunder shall not be affected or impaired by reason of the happening from time to time of any of the following, although without notice to or the consent of Pledgor: (i) the waiver by Pledgee or any of the holders of the Notes of the performance or observance by Pledgor or any other Borrower of any of its agreements, covenants, terms or conditions contained in the Loan Papers or in any Note; (ii) the voluntary or involuntary liquidation, dissolution, sale of all or substantially all of the assets, marshaling of assets and liabilities, receivership, conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, winding up, or other similar proceedings affecting Pledgor, the Restricted Subsidiaries or any Borrower; (iii)the release by operation of law of Pledgor or any other Borrower from the performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Loan Papers; or (iv) the release of any security for the Notes, whether under this Pledge Agreement or any of the Loan Papers. 1/230128.7 80 11. AMENDMENTS. This Pledge Agreement may be amended only by an instrument in writing executed jointly by Pledgor and Pledgee (subject to the approval of the requisite Banks as provided in the Credit Agreement) and supplemented only by documents delivered or to be delivered in accordance with the express terms hereof. 12. MULTIPLE COUNTERPARTS. This Pledge Agreement may be executed in a number of identical counterparts, each of which shall be deemed an original for all purposes and all of which shall constitute, collectively, one agreement; but, in making proof of this Pledge Agreement, it shall not be necessary to produce or account for more than one such counterpart. 13. PARTIES BOUND; ASSIGNMENT. This Pledge Agreement shall be binding on Pledgor and Pledgor's successors and assigns and shall inure to the benefit of Pledgee and Pledgee's successor and assigns. 14. INVALID PROVISIONS. If any provision of this Pledge Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable, this Pledge Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Pledge Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 15. COMPLETE AGREEMENT. THIS PLEDGE AGREEMENT AND THE OTHER LOAN PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG PLEDGEE AND PLEDGOR AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF PLEDGOR AND PLEDGEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN PLEDGOR AND PLEDGEE. 16. WAIVER OF JURY TRIAL. PLEDGOR, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, AND THE PLEDGEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THEIR RIGHT TO A JURY TRIAL IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND FOR ANY COUNTERCLAIM THEREIN. 17. TEXAS LAW. THIS PLEDGE AGREEMENT AND THE OTHER LOAN PAPERS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE OBLIGATIONS IS LOCATED NECESSARILY GOVERN (A) THE 1/230128.7 81 PERFECTION AND PRIORITY OF THE LIENS IN FAVOR OF PLEDGEE WITH RESPECT TO SUCH PROPERTY, AND (B) THE EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH PROPERTY. EXECUTED as of April 1, 1997. PLEDGOR: PATINA OIL & GAS CORPORATION, a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Vice President ACCEPTED AND AGREED as of the 1st day of April, 1997, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent for the Banks By: /S/ DALE S. HURD Dale S. Hurd, Senior Vice President 1/230128.7 82 EXHIBIT C GUARANTY THIS GUARANTY (this "GUARANTY") is dated as of the 1st day of April, 1997, by SOCO Wattenberg Corporation, a Delaware corporation ("GUARANTOR"), in favor of TEXAS COMMERCE BANK NATIONAL ASSOCIATION, NATIONSBANK OF TEXAS, N.A., CIBC, INC., CREDIT LYONNAIS NEW YORK BRANCH, WELLS FARGO BANK, N.A., and BANK ONE, TEXAS, N.A. and each of their successors and assigns as permitted pursuant to Section 14.10 of the Credit Agreement (Texas Commerce Bank National Association [acting as Bank but not as Administrative Agent], NationsBank of Texas, N.A. [acting as a Bank but not as Documentary Agent], CIBC, Inc., Credit Lyonnais New York Branch and Wells Fargo Bank, N.A. [each acting as a Bank but not as Co-Agents] and Bank One, Texas, N.A. acting as a Bank, and each of their successors and assigns are collectively referred to herein as "Noteholders"). W I T N E S S E T H: WHEREAS, Patina Oil & Gas Corporation, a Delaware corporation ("BORROWER"), Noteholders, Texas Commerce Bank National Association, as Administrative Agent ("ADMINISTRATIVE AGENT"), NationsBank of Texas, N.A., as Documentary Agent and CIBC, Inc., Credit Lyonnais and Wells Fargo Bank, N.A., as Co-Agents are parties to that certain Amended and Restated Credit Agreement (the "CREDIT AGREEMENT") dated effective as of April 1, 1997, pursuant to which Noteholders have agreed to (i) make a revolving credit loan to Patina, and (ii) issue and participate in Letters of Credit issued on behalf of Borrower and certain of its Restricted Subsidiaries (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, Noteholders have required, as a condition to making the Loan under the Credit Agreement, that Guarantor execute and deliver this Guaranty; and WHEREAS, Guarantor has determined that valuable benefits will be derived by it as a result of the Credit Agreement and the Loan to be made by Banks thereunder; and WHEREAS, Guarantor has further determined that the benefits accruing to it from the Credit Agreement exceed Guarantor's anticipated liability under this Guaranty. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Guarantor hereby covenants and agrees as follows: 1. Guarantor hereby absolutely and unconditionally guarantees the prompt, complete and full payment when due, no matter how such shall become due, of the Obligations, and further guarantees that Borrower will properly and timely perform the Obligations. Notwithstanding any contrary provision in this Guaranty, however, Guarantor's maximum liability under this Guaranty GUARANTY (SWAT) - Page 83 83 is limited, to the extent, if any, required so that its liability is not subject to avoidance under applicable Debtor Relief Laws (as such term is defined in Paragraph 8 hereof). 2. If Guarantor is or becomes liable for any indebtedness owing by Borrower to Noteholders by endorsement or otherwise than under this Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights of Noteholders hereunder shall be cumulative of any and all other rights that Noteholders may ever have against Guarantor. The exercise by Noteholders of any right or remedy hereunder or under any other instrument, at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 3. In the event of default by Borrower in payment of the Obligations, or any part thereof, when such Obligations become due, either by their terms or as the result of the exercise of any power to accelerate, Guarantor shall, on demand, and without further notice of dishonor and without any notice having been given to Guarantor previous to such demand of the acceptance by Noteholders of this Guaranty, and without any notice having been given to such Guarantor previous to such demand of the creating or incurring of such Obligations, pay the amount due thereon to Noteholders at the Administrative Agent's office as set forth in the Credit Agreement, and it shall not be necessary for any Noteholder, in order to enforce such payment by Guarantor, first, to institute suit or exhaust its remedies against Borrower or others liable on such Obligations, to have Borrower joined with Guarantor in any suit brought under this Guaranty or to enforce their rights against any security which shall ever have been given to secure such indebtedness; provided, however, that in the event Noteholders elect to enforce and/or exercise any remedies they may possess with respect to any security for the Obligations prior to demanding payment from Guarantor, Guarantor shall nevertheless be obligated hereunder for any and all sums still owing to Noteholders on the Obligations and not repaid or recovered incident to the exercise of such remedies. 4. Notice to Guarantor of the acceptance of this Guaranty and of the making, renewing or assignment of the Obligations and each item thereof, are hereby expressly waived by Guarantor. 5. Each payment on the Obligations shall be deemed to have been made by Borrower unless express written notice is given to Administrative Agent at the time of such payment that such payment is made by Guarantor as specified in such notice. 6. If all or any part of the Obligations at any time are secured, Guarantor agrees that Noteholders may at any time and from time to time, at their discretion and with or without valuable consideration, allow substitution or withdrawal of collateral or other security and release collateral or other security or compromise or settle any amount due or owing under the Credit Agreement or amend or modify in whole or in part the Credit Agreement or any Loan Papers executed in connection with same without impairing or diminishing the obligations of Guarantor hereunder. Guarantor further agrees that if Borrower executes in favor of Noteholders any collateral agreement, mortgage or other security instrument, the exercise by Noteholders of any right or remedy thereby conferred on Noteholders shall be wholly discretionary with Noteholders, and that the exercise or failure to exercise any such right or remedy shall in no way impair or diminish the obligation of Guarantor hereunder. Guarantor further agrees that Noteholders and Administrative Agent shall not be liable for their failure to use diligence in the collection of the Obligations or in preserving the GUARANTY (SWAT) - Page 84 84 liability of any person liable for the Obligations, and Guarantor hereby waives presentment for payment, notice of nonpayment, protest and notice thereof (including, notice of acceleration), and diligence in bringing suits against any Person liable on the Obligations, or any part thereof. 7. Guarantor agrees that Noteholders, in their discretion, may (i) bring suit against all guarantors (including, without limitation, Guarantor hereunder) of the Obligations jointly and severally or against any one or more of them, (ii) compound or settle with any one or more of such guarantors for such consideration as the Noteholders may deem proper, and (iii) release one or more of such guarantors from liability hereunder, and that no such action shall impair the rights of Noteholders to collect the Obligations (or the unpaid balance thereof) from other such guarantors of the Obligations, or any of them, not so sued, settled with or released. Guarantor agrees, however, that nothing contained in this paragraph, and no action by Noteholders permitted under this paragraph, shall in any way affect or impair the rights or obligations of such guarantors among themselves. 8. Guarantor represents and warrants to Noteholders that (i) Guarantor is a corporation duly organized and validly existing under the laws of the State of Delaware; and (ii) Guarantor possesses all requisite authority and power to authorize, execute, deliver and comply with the terms of this Guaranty; this Guaranty has been duly authorized and approved by all necessary action on the part of Guarantor and constitutes a valid and binding obligation of Guarantor enforceable in accordance with its terms, except as the enforcement thereof may be limited by applicable Debtor Relief Laws; and no approval or consent of any court or governmental entity is required for the authorization, execution, delivery or compliance with this Guaranty which has not been obtained (and copies thereof delivered to Noteholders). As used in this Paragraph 8, "DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments or similar debtor relief laws from time to time in effect affecting the rights of creditors generally. 9. Guarantor covenants and agrees that until the Obligations are paid and performed in full, except as otherwise provided in the Credit Agreement or unless Noteholders give their prior written consent to any deviation therefrom, it will (i) at all times maintain its existence and authority to transact business in any State where Guarantor has assets and operations; and (ii) promptly deliver to Noteholders and to Administrative Agent such information respecting its business affairs, assets and liabilities as Noteholders may reasonably request. The failure of Guarantor to comply with the terms of this paragraph shall be a Default under the Credit Agreement. 10. This Guaranty is for the benefit of the Noteholders, their successors and assigns, and in the event of an assignment by Noteholders (or their successors or assigns) of the Obligations, or any part thereof, the rights and benefits hereunder, to the extent applicable to the Obligations so assigned, may be transferred with such Obligations. Subject to the preceding paragraph hereof, this Guaranty is binding, not only on Guarantor, but on the legal representatives, successors and assigns of Guarantor. GUARANTY (SWAT) - Page 85 85 11. No modification, consent, amendment or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by Required Banks, and then shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Guarantor in any case shall, of itself, entitle Guarantor to any other or further notice or demand in similar or other circumstances. No delay or omission by Noteholders in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such power preclude other or further exercise thereof, or the exercise of any other right or power hereunder. All rights and remedies of Noteholders hereunder are cumulative of each other and of every other right or remedy which Noteholders may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 12. No provision herein or in any promissory note, instrument or any other Loan Paper executed by Borrower or Guarantor evidencing the Obligations shall require the payment or permit the collection of interest in excess of the Maximum Lawful Rate. If any excess of interest in such respect is provided for herein or in any such promissory note, instrument, or any other Loan Paper, the provisions of this paragraph shall govern, and neither Borrower nor Guarantor shall be obligated to pay the amount of such interest to the extent that it is in excess of the amount permitted by law. The intention of the parties being to conform strictly to any applicable federal or state usury laws now in force, all promissory notes, instruments and other Loan Papers executed by Borrower or Guarantor evidencing the Obligations shall be held subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts having jurisdiction. 13. If Guarantor should breach or fail to perform any provision of this Guaranty, Guarantor agrees to pay Noteholders all costs and expenses (including court costs and reasonable attorneys fees) incurred by Noteholders in the enforcement hereof. 14. The liability of Guarantor under this Guaranty shall in no manner be impaired, affected or released by the insolvency, bankruptcy, making of an assignment for the benefit of creditors, arrangement, compensation, composition or readjustment of Borrower, or any proceedings affecting the status, existence or assets of Borrower or other similar proceedings instituted by or against Borrower and affecting the assets of Borrower. 15. Guarantor understands and agrees that any amounts of Guarantor on account with Noteholders may be offset to satisfy the obligations of Guarantor hereunder. 16. Guarantor hereby subordinates and makes inferior any and all indebtedness now or at any time hereafter owed by Borrower to Guarantor to the Obligations evidenced by the Credit Agreement and agrees after the occurrence of a Default under the Credit Agreement, or any event which with notice, lapse of time, or both, would constitute a Default under the Credit Agreement, not to permit Borrower to repay, or to accept payment from Borrower of, such indebtedness or any part thereof without the prior written consent of Noteholders. GUARANTY (SWAT) - Page 86 86 17. Guarantor hereby waives any and all rights of subrogation to which Guarantor may otherwise be entitled against Borrower, or any other guarantor of the Obligations, as a result of any payment made by Guarantor pursuant to this Guaranty. 18. As of the date hereof, the fair saleable value of the property of Guarantor is greater than the total amount of liabilities (including contingent and unliquidated liabilities) of Guarantor, and Guarantor is able to pay all of its liabilities as such liabilities mature and Guarantor does not have unreasonably small capital within the meaning of Section 548, Title 11, United States Code, as amended. In computing the amount of contingent or liquidated liabilities, such liabilities have been computed at the amount which, in light of all the facts and circumstances existing as of the date hereof, represents the amount that can reasonably be expected to become an actual or matured liability. 19. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable, such provision shall be fully severable; this Guaranty shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Guaranty a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 20. (a) Except to the extent required for the exercise of the remedies provided in the other security instruments, Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of any Texas state or federal court over any action or proceeding arising out of or relating to this Guaranty or any other Loan Paper, and Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Texas state or federal court. Guarantor hereby irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of venue of any Litigation arising out of or in connection with this Guaranty or any of the Loan Papers brought in district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division. Guarantor hereby irrevocably waives any claim that any Litigation brought in any such court has been brought in an inconvenient forum. Guarantor hereby agrees to designate and maintain an agent for service of process in Dallas, Texas in connection with any such Litigation and to deliver to Noteholders evidence thereof. Guarantor hereby irrevocably consents to the service of process out of any of the aforementioned courts in any such Litigation by the mailing of copies thereof by certified mail, return receipt requested, postage prepaid, to Guarantor's office at 1625 Broadway Blvd., Suite 2200, Denver, Colorado 80202. Guarantor irrevocably agrees that any legal proceeding against Noteholders shall be brought in the district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division. Nothing herein shall affect the right of Noteholders to commence legal proceedings or otherwise proceed against Guarantor in any jurisdiction or to serve process in any manner permitted by applicable law. As used herein, the term "LITIGATION" means any proceeding, claim, lawsuit or investigation (i) conducted or threatened by or before any court or governmental department, commission, board, bureau, agency or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, GUARANTY (SWAT) - Page 87 87 county, parish, or municipality, whether now or hereafter constituted or existing, or (ii) pending before any public or private arbitration board or panel. (b) Nothing in this PARAGRAPH 20 shall affect any right of the Noteholders to serve legal process in any other manner permitted by law or affect the right of any Noteholder to bring any action or proceeding against Guarantor either jointly or severally in the courts of any other jurisdictions. (c) To the extent that Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Guarantor hereby irrevocably waives such immunity in respect of its obligations under this Guaranty and the other Loan Papers. 21. THIS GUARANTY AND THE OTHER LOAN PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG THE NOTEHOLDERS, THE ADMINISTRATIVE AGENT AND THE GUARANTOR AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE NOTEHOLDERS, THE ADMINISTRATIVE AGENT AND THE GUARANTOR. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE NOTEHOLDERS, THE ADMINISTRATIVE AGENT AND THE GUARANTOR. 22. GUARANTOR, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, AND THE NOTEHOLDERS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THEIR RIGHT TO A JURY TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER LOAN PAPERS. 23. THIS GUARANTY AND THE OTHER LOAN PAPERS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE OBLIGATIONS IS LOCATED NECESSARILY GOVERN (A) THE PERFECTION AND PRIORITY OF THE LIENS IN FAVOR OF ADMINISTRATIVE AGENT AND BANKS WITH RESPECT TO SUCH PROPERTY, AND (B) THE EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH PROPERTY. EXECUTED effective as of the date first above written. GUARANTOR: SOCO WATTENBERG CORPORATION, a Delaware corporation GUARANTY (SWAT) - Page 88 88 By: /S/ DAVID J. KORNDER David J. Kornder, Vice President 89 EXHIBIT D REQUEST FOR BORROWING Reference is made to that certain Amended and Restated Credit Agreement dated effective as of April 1, 1997 (as from time to time amended, the "AGREEMENT") by and among Patina Oil & Gas Corporation ("PATINA"), Texas Commerce Bank National Association, as Administrative Agent, NationsBank of Texas, N.A., as Documentary Agent, Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents, and certain Banks as named and defined therein. Terms which are defined in the Agreement and which are used but not defined herein are used herein with the meanings given them in the Agreement. Pursuant to the terms of the Agreement, Patina hereby requests a Borrowing in the amount of $_____________ to be advanced on , . Patina requests that the Borrowing to be made hereunder shall be [AN ADJUSTED BASE RATE BORROWING] [A EURODOLLAR BORROWING] and shall have the Interest Periods all as set forth below: TYPE OF BORROWING AGGREGATE AMOUNT INTEREST PERIOD Patina and the Authorized Officer of Patina signing this instrument hereby certify that: (a) Such officer is the duly elected, qualified and acting officer of Patina as indicated below such officer's signature hereto. (b) The representations and warranties of Patina set forth in the Agreement and the Loan Papers delivered to Administrative Agent and Banks are true and correct on and as of the date hereof, with the same effect as though such representations and warranties had been made on and as of the date hereof or, if such representations and warranties are expressly limited to particular dates, as of such particular dates. No material changes have occurred in the financial condition of Patina or any of its Subsidiaries since the date of the last financial reports delivered to Banks pursuant to SECTION 8.1 of the Agreement. (c) There does not exist on the date hereof, any condition or event which constitutes a Default or Event of Default, nor will any such Default or Event of Default exist upon Patina's receipt and application of the proceeds requested hereby. Patina will use the proceeds hereby requested in compliance with the applicable provisions of the Agreement. 90 (d) Patina has performed and complied with all agreements and conditions in the Agreement required to be performed or complied with by Patina on or prior to the date hereof, and each of the conditions precedent to the Borrowing contained in the Agreement remain satisfied in all material respects. (e) After giving effect to the Borrowing requested hereby, (i) the Outstanding Credit will not be in excess of the Borrowing Base on the date requested for the making of such Borrowing. IN WITNESS WHEREOF, this instrument is executed as of ----, ----------------------- 19-- . PATINA OIL & GAS CORPORATION, a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 91 EXHIBIT E REQUEST FOR LETTER OF CREDIT Reference is made to that certain Amended and Restated Credit Agreement dated effective as of April 1, 1997 (as from time to time amended, the "AGREEMENT"), by and among Patina Oil & Gas Corporation ("PATINA"), Texas Commerce Bank National Association, as Administrative Agent, NationsBank of Texas, N.A., as Documentary Agent, Wells Fargo Bank, N.A., CIBC, Inc., and Credit Lyonnais New York Branch, as Co-Agents, and certain other Banks as named and defined therein. Terms which are defined in the Agreement and which are used but not defined herein are used herein with the meanings given them in the Agreement. Pursuant to the terms of the Agreement, Patina hereby requests ________________ ("ISSUER") to issue a Letter of Credit for the account of Patina or _______________________, a Restricted Subsidiary of Patina, as follows: TYPE OF COMMITMENT: Requested Amount $ Requested Date of Issuance Requested Expiration Date Summary of Terms (provide a brief description of conditions under which the drafts under such Letter of Credit are to be available) Beneficiary (Name/Address) Such Letter of Credit is more particularly described in the Letter of Credit Application and Agreement of Issuer which is attached hereto. Patina and the Authorized Officer of Patina signing this instrument hereby certify that: (a) Such officer is the duly elected, qualified and acting officer of Patina as indicated below such officer's signature hereto. (b) The representations and warranties of Patina set forth in the Agreement and the other Loan Papers delivered to Administrative Agent and Banks are true and correct on and as of the date hereof, with the same effect as though such representations and warranties had been made on and as of the date hereof, or if such representations and warranties are expressly limited to particular dates, as of such particular dates. No material changes have 1 occurred in the financial condition of Patina since the date of the last financial reports delivered to Banks pursuant to Section 8.1 of the Agreement. (c) There does not exist on the date hereof any condition or event which constitutes a Default or Event of Default, nor will any such Default or Event of Default exist upon the issuance of the Letter of Credit requested hereby. Patina will use the Letter of Credit solely for purposes permitted by the Agreement. (d) Patina has performed and complied with all agreements and conditions in the Agreement required to be performed or complied with by Patina on or prior to the date hereof, and each of the conditions precedent to the issuance of Letters of Credit contained in the Agreement remain satisfied in all material respects. (e) After the issuance of the Letter of Credit requested hereby, the sum of (A) the outstanding principal balance of the Loan, plus (B) the Letter of Credit Exposure, will not be in excess of the Borrowing Base in effect on the date requested for the issuance of such Letter of Credit. IN WITNESS WHEREOF, this instrument is executed as of ________________, 19__. PATINA OIL & GAS CORPORATION a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 2 EXHIBIT F ROLLOVER NOTICE Reference is made to that certain Amended and Restated Credit Agreement dated effective as of April 1, 1997 (as from time to time amended, the "AGREEMENT"), by and among Patina Oil & Gas Corporation ("PATINA"), Texas Commerce Bank National Association, as Administrative Agent, NationsBank of Texas, N.A., as Documentary Agent, Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais, as Co-Agents, and certain Banks as named and defined therein. Terms which are defined in the Agreement and which are used but not defined herein are used herein with the meanings given them in the Agreement. o Reference is hereby made to the existing Eurodollar Tranche outstanding under the Loan in the amount of $________ which is subject to an Interest Period expiring on _________________, 199__. Patina hereby requests that on the expiration of such Interest Period the portion of the principal of the Loan which is subject to such Tranche be made the subject of o an Adjusted Base Rate Tranche or o a Eurodollar Tranche having an Interest Period of ____ months. o Patina hereby requests that on __________________, 199__, a portion of the principal of the Loan in the amount of $______ which is currently the subject of an Adjusted Base Rate Tranche be made the subject of a Eurodollar Tranche having an Interest Period of _____ months. Patina and the Authorized Officer of Patina signing this instrument hereby certify that: (a) Such officer is the duly elected, qualified and acting officer of Patina as indicated below such officer's signature hereto; (b) There does not exist on the date hereof any condition or event which constitutes a Default or Event of Default; and (c) The representations and warranties of Patina set forth in the Agreement and the Loan Papers delivered to Administrative Agent and Banks are true and correct on and as of the date hereof, with the same effect as though such representations and warranties had been made on and as of the date hereof or, if such representations and warranties are expressly limited to particular dates, as of such particular dates. 3 IN WITNESS WHEREOF, this instrument is executed as of , 19 . --------------- ---- PATINA OIL & GAS CORPORATION a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 4 EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "AGREEMENT") is dated _____________________, 199__, among __________________________ ("ASSIGNOR") and ______________________________ ("ASSIGNEE") and Texas Commerce Bank National Association, as Administrative Agent for the Banks ("ADMINISTRATIVE AGENT"). BACKGROUND. A. Reference is made to that certain Amended and Restated Credit Agreement dated effective as of April 1, 1997 (as it may hereafter be amended or otherwise modified from time to time, being referred to as the "CREDIT AGREEMENT") among Patina Oil & Gas Corporation, (the "BORROWER"), the financial institutions parties thereto as Banks thereunder, Administrative Agent, NationsBank of Texas, N.A., as Documentary Agent, and Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais, as Co-Agents. Unless otherwise defined, terms are used herein as defined in the Credit Agreement. B. This Agreement is made with reference to the following facts: (i) Assignor is a Bank under and as defined in the Credit Agreement and, as such, presently holds a percentage of the rights and obligations of Banks under the Credit Agreement. (ii) As of the date hereof, the Total Commitment is $__________, Assignor's Commitment is $______________, and Assignor's Commitment Percentage is _______%. (iii) As of the date hereof, Assignor's Commitment Percentage of the outstanding principal balance of the Loan is $_______________. (iv) On the terms and conditions set forth below, Assignor desires to sell and assign to Assignee, and Assignee desires to purchase and assume from Assignor, as of the Effective Date (as defined below) ___________ percent (_______%) (the "ASSIGNED PERCENTAGE") of the Total Commitment (such Assigned Percentage constitutes percent ( %) of Assignor's Commitment). 1 AGREEMENT. NOW, THEREFORE, Assignor and Assignee hereby agree as follows: 1. By this Agreement, and effective as of _____________, 199_ (which must be at least five (5) Domestic Business Days after the execution and delivery of this Agreement to Borrower and each Agent for acceptance), Assignor hereby sells and assigns to Assignee, without recourse and, except as provided in PARAGRAPH 2 of this Agreement, without representation and warranty, and Assignee hereby purchases and assumes from Assignor, Assignor's rights and obligations under the Credit Agreement, to the extent of the Assigned Percentage of the Loan, the Letter of Credit Exposure, and the Commitment as in effect on the Effective Date. 2. Assignor (a) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement, any other Loan Paper or any other instrument or document furnished pursuant thereto, or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan Paper or any other instrument or document furnished pursuant thereto; and (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any Person or the performance or observance by Borrower or any Person of any of its obligations under the Loan Papers or any other instrument or document furnished pursuant thereto. 3. Assignee (a) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered to Assignor pursuant to SECTION 8 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (b) agrees that it will, independently and without reliance upon the Administrative Agent, Documentary Agent, Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Papers; (c) appoints and authorizes Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Papers as are delegated to Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (d) agrees that it will perform in accordance with their terms all of the obligations which, by the terms of the Credit Agreement and the other Loan Papers, are required to be performed by it as a Bank; (e) specifies, as its address for notice and Domestic Lending Office and Eurodollar Lending Office, the offices set forth beneath its name on the signature pages hereof, and (f) if Assignee is not organized under the laws of the United States of America or one of its states, Assignee (a) represents and warrants to Assignor, Administrative Agent and Borrower that (i) no Taxes are required to be withheld by Administrative Agent or Borrower with respect to any payments to be made to Assignee in respect of the Obligations and (ii) Assignee has furnished to Administrative Agent and Borrower two (2) duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or other form acceptable 2 to Administrative Agent that entitles Assignee to exemption from U.S. federal withholding Tax on all interest payments under the Loan Papers, (b) covenants to (i) provide Administrative Agent and Borrower a new form 4224, Form 1001, Form W-8, or other form acceptable to Administrative Agent upon the expiration or obsolescence of any previously delivered form according to applicable laws and regulations, duly executed and completed by Assignee, and (ii) comply from time to time with all applicable laws and regulations with regard to the withholding Tax exemption, and (c) agrees that if any of the foregoing is not true or the applicable forms are not provided, then Borrower and Administrative Agent (without duplication) may deduct and withhold from interest payments under the Loan Papers any United States federal income Tax at the maximum rate under the Code. 4. Borrower acknowledges its obligations under the Credit Agreement, and agrees, within five (5) Domestic Business Days after receiving an executed copy of this Agreement to execute and deliver to Administrative Agent, in exchange for the Note or Notes originally delivered to Assignor, new Notes to the order of Assignor and Assignee in amounts equal to their respective amounts of the Commitments. 5. As of the Effective Date, (a) Assignee shall be a party to the Credit Agreement and, to the extent provided in this Agreement, have the rights and obligations of a Bank thereunder, (b) Assignor shall, to the extent provided in this Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and other Loan Papers, and (c) Assignor's Commitment Percentage shall be ______%, and Assignee's Commitment Percentage shall be --%. 6. From and after the Effective Date, Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, fees and other amounts with respect thereto) to Assignee. Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. This Agreement shall not become effective until (a) counterparts of this Agreement are executed and delivered by Assignor and Assignee to Borrower, Administrative Agent and each Bank, (b) Borrower, each Agent and each Bank execute such counterparts, and (c) Administrative Agent receives a processing fee of $2,500 from Assignor or Assignee. 8. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without reference to principles of conflict of laws. ASSIGNOR: By: Its: 3 ASSIGNEE: ADDRESS FOR NOTICE: By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President Attn: Tel: Fax: DOMESTIC LENDING OFFICE: EURODOLLAR LENDING OFFICE: Attn: Tel: Fax: ADMINISTRATIVE AGENT: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent By: /S/ DALE S. HURD Dale S Hurd, Its: Senior Vice President BORROWER: Accepted and approved this ____ day of ________________________, 199_: 4 Patina Oil & Gas Corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 5 EXHIBIT H CERTIFICATE OF OWNERSHIP INTEREST This Certificate of Ownership Interest (this "CERTIFICATE") is executed and delivered pursuant to that certain Amended and Restated Credit Agreement dated effective as of April 1, 1997 (as amended from time to time, the "AGREEMENT"), by and among Patina Oil & Gas Corporation ("PATINA"), Texas Commerce Bank National Association, as Administrative Agent, NationsBank of Texas, N.A., as Documentary Agent, Wells Fargo Bank, N.A., CIBC, Inc., and Credit Lyonnais, as Co-Agents, and certain Banks as named and defined therein. Unless otherwise defined herein, all capitalized terms shall have the meanings given such terms in the Agreement. In order to induce each Bank to enter into the Agreement and to make the Loan thereunder, Patina hereby represents and warrants to each Bank that after giving effect to the Merger, Patina holds good and valid title, beneficially and of record, subject only to Permitted Encumbrances, to the working interests and net revenue interests in and to all material oil and gas properties which are set forth in the Current Reserve Report. Patina acknowledges and agrees that each Bank is relying on this Certificate and the representations and warranties herein contained in entering into the Agreement and committing to make Loan thereunder, and but for Patina's execution and delivery of this Certificate, Banks would not enter into the Agreement and commit to extend credit thereunder. Executed effective as of the 1st day of April, 1997. PATINA OIL & GAS CORPORATION, a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 6 SCHEDULE 1
FINANCIAL INSTITUTIONS BANKS Commitment Amount Commitment Percentage Texas Commerce Bank National $27,500,000 19.643% Association NationsBank of Texas, N.A. $25,000,000 17.857% CIBC, Inc. $22,500,000 16.071% Credit Lyonnais New York Branch $22,500,000 16.071% Wells Fargo Bank, N.A. $22,500,000 16.071% Bank One, Texas, N.A. $20,000,000 14.287% Totals: $140,000,000 100% ================================ ===================== ======================
BANKS DOMESTIC LENDING OFFICE EURODOLLAR LENDING OFFICE ADDRESS FOR NOTICE Texas Commerce Bank 2200 Ross Avenue, 2200 Ross Avenue, 2200 Ross Avenue, 3rd Floor 3rd Floor 3rd Floor National Association Dallas, Texas 75201 Dallas, Texas 75201 Dallas, Texas 75201 Fax No. (214) 965-2389 Fax No. (214) 965-2389 Fax No. (214) 965-2389 NationsBank of Texas, 901 Main Street, 901 Main Street, 901 Main Street, 64th Floor N.A. 64th Floor 64th Floor 64th Floor Dallas, Texas 75202 Dallas, Texas 75202 Dallas, Texas 75202 Fax No. (214) 508-1285 Fax No. (214) 508-1285 Fax No. (214) 508-1285 CIBC, Inc. 2727 Paces Ferry Road, 2727 Paces Ferry Road, 909 Fannin, Suite 1200 Suite 1200 Suite 1200 Atlanta, GA 30339 Atlanta, GA 30339 Houston, Texas 77010 Fax No. (770) 319-4950 Fax No. (770) 319-4950 Fax No. (713) 650-3727 Credit Lyonnais New York 1000 Louisiana, 1000 Louisiana, 1000 Louisiana, Branch Suite 5360 Suite 5360 Suite 5360 Houston, Texas 77002 Houston, Texas 77002 Houston, Texas 77002 Fax No. (713) 751-0307 Fax No. (713) 751-0307 Fax No. (713) 751-0307 Wells Fargo Bank, N.A. 633 Seventeenth Street, 633 Seventeenth Street, 633 Seventeenth Street, 3rd Floor, North Tower 3rd Floor, North Tower 3rd Floor, North Tower Denver, Colorado 80270 Denver, Colorado 80270 Denver, Colorado 80270 Fax No. (303) 293-5120 Fax No. (303) 293-5120 Fax No. (303) 293-5120 Bank One, Texas, N.A. 500 Throckmorton, Throckmorton, 500 Throckmorton, 10th Floor 10th Floor 10th Floor Ft. Worth, Texas 76102 Ft. Worth, Texas 76102 Ft. Worth, Texas 76102 Fax No. (817) 884-5622 Fax No. (817) 884-5622 Fax No. (817) 884-5622 ======================== ========================== ========================== ==========================
Administrative Agent - Address: 1111 Fannin, 9th Floor with a copy to: 2200 Ross Avenue, 3rd Floor Houston, Texas 77002 Dallas, Texas 75201 Attn: Gale Manning Attn: Tim Perry Fax: (713) 750-3810 Fax: (214) 965-2389 Documentary Agent - Address: 901 Main Street, 64th Floor Dallas, Texas 75202 Fax: (214) 508-1285 SCHEDULE 2 INVESTMENTS None SCHEDULE 3 TAXES 1. Audit of federal income tax return for 1993. The claimed deficiency, which Borrower will contest vigorously, is approximately $1,064,000. 2. Audit of Colorado income tax return for 1992. A notice of deficiency for taxes of $136,760 has been received, which Borrower is appealing. Borrower has established reserves for this deficiency, plus interest. 3. Audit of Colorado sales and use taxes for 1990 through 1993. A notice of deficiency has been received, which Borrower is appealing. Borrower has established a reserve of $50,000. 4. Audit of Colorado severance tax returns for 1991 through 1993. A notice of deficiency for taxes of $478,363 has been received, which Borrower is protesting. Borrower has established a reserve of $511,000. SCHEDULE 4
SUBSIDIARIES Name and Qualified Issued and Outstanding Options, State of Incorporation Jurisdictions Stock and Holder Warrants, Etc. - ---------------------- ------------- ---------------- -------------- SOCO Wattenberg Colorado 1,000 None Corporation Nebraska Common Delaware Patina Oil & Gas Corporation Patina Well Services, Inc. Colorado 100 None Colorado Patina Oil & Gas Corporation
SCHEDULE 5 OBLIGATIONS None SCHEDULE 6
DEBT 3/31/97 (000's) Senior Bank Debt 87,450 Senior Subordinated Notes 99,891 Total Debt 187,341 =======
EX-10 3 1ST AMENDMENT TO AMENDED & RESTATED CREDIT AGREE. EXHIBIT 10.14.1 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This First Amendment to Amended and Restated Credit Agreement (this "AMENDMENT") is entered into as of the 1st day of May, 1997, by and among Patina Oil & Gas Corporation ("BORROWER"), Texas Commerce Bank National Association, as Administrative Agent ("ADMINISTRATIVE AGENT"), NationsBank of Texas, N.A., as Documentary Agent ("DOCUMENTARY AGENT"), Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents ("CO-AGENTS") and the financial institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) as Banks (individually a "BANK" and collectively "BANKS"). W I T N E S E T H: WHEREAS, Borrower, Administrative Agent, Documentary Agent, Co-Agents and Banks are parties to that certain Amended and Restated Credit Agreement dated as of April 1, 1997 (as amended through the date hereof, the "CREDIT AGREEMENT") (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, pursuant to the Credit Agreement, Banks have made a certain revolving credit loan to Borrower; and WHEREAS, subject to the terms and conditions set forth herein, Borrower, Agents and Banks desire to (i) amend certain provisions of the Credit Agreement, and (ii) set forth the amount of the Borrowing Base to be effective from the date hereof until the next Determination Date, all as more particularly set forth herein. NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Borrower, each Agent and each Bank hereby agree as follows: SECTION 1. AMENDMENTS. In reliance on the representations, warranties, covenants and agreements contained in this Amendment, the Credit Agreement shall be amended effective May 1, 1997 in the manner provided in this Section 1. 1.1. AMENDMENT TO DEFINITIONS. The definitions of "CONSOLIDATED FREE CASH FLOW," "LOAN PAPERS" and "TERMINATION DATE" contained in Section 1.1 of the Credit Agreement shall be amended to read in full as follows: "Consolidated Free Cash Flow" means, for Borrower for any period, the remainder of (a) Borrower's Consolidated EBITDA for such period, minus (b) 1/233405.2 1 Borrower's Consolidated Net Interest Expense for such period, minus (c) all income and franchise Taxes actually paid in cash by Borrower and its Consolidated Subsidiaries during such period. "Loan Papers" means this Agreement, the Notes, the Restricted Subsidiary Guarantee, the Restricted Subsidiary Pledge Agreement, the First Amendment, all Mortgages now or at any time hereafter delivered pursuant to SECTION 5.1, and all other certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be amended from time to time. "Termination Date" means July 15, 2000. 1.2. ADDITIONAL DEFINITIONS. Section 1.1 of the Credit Agreement shall be amended to add the following definition to such Section: "First Amendment" means the First Amendment to Amended and Restated Credit Agreement dated as of May 1, 1997, entered into by and among Borrower, Agents, and Banks. SECTION 2. BORROWING BASE. In accordance with SECTION 4.2 of the Credit Agreement, effective May 1, 1997 and continuing until the earlier of (i) the next Periodic Determination, or (ii) the next Special Determination, the Borrowing Base shall be $110,000,000. SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Agents and Banks to enter into this Amendment, Borrower hereby represents and warrants to each Agent and each Bank that: (a) each representation and warranty of Borrower and the Restricted Subsidiaries contained in the Loan Papers are true and correct in all material respects as of the date hereof (except to the extent that such representations and warranties are expressly made as of a particular date, in which event such representations and warranties were true and correct as of such date); (b) neither a Default nor an Event of Default has occurred which is continuing; and (c) Borrower has no defenses to payment, counterclaims or rights of set-off with respect to the Obligations on the date hereof. SECTION 4. MISCELLANEOUS. 4.1 REAFFIRMATION OF LOAN PAPERS; EXTENSION OF LIENS. Any and all of the terms and provisions of the Credit Agreement and the Loan Papers shall, except as amended and modified hereby, remain in full force and effect. Borrower hereby extends the Liens securing the Obligations until the Obligations have been paid in full, and agrees that the amendments and modifications herein contained shall in no manner affect or impair the Obligations or the Liens securing payment and performance thereof. 1/233405.2 2 4.2 PARTIES IN INTEREST. All of the terms and provisions of this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 4.3 LEGAL EXPENSES. Borrower hereby agrees to pay on demand all reasonable fees and expenses of counsel to Administrative Agent incurred by Administrative Agent in connection with the preparation, negotiation and execution of this Amendment and all related documents. 4.4 COUNTERPARTS. This Amendment may be executed in counterparts, and all parties need not execute the same counterpart; however, no party shall be bound by this Amendment until this Amendment has been executed by Borrower, Agents and all Banks at which time this Amendment shall be binding on, enforceable against and inure to the benefit of Borrower, Agents and all Banks. Facsimiles shall be effective as originals. 4.5 COMPLETE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 4.6 HEADINGS. The headings, captions and arrangements used in this Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Amendment, nor affect the meaning thereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective Authorized Officers on the date and year first above written. BORROWER: PATINA OIL & GAS CORPORATION, a Delaware corporation By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 1/233405.2 3 ADMINISTRATIVE AGENT: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /S/ DALE S. HURD Dale S. Hurd, Its: Senior Vice President DOCUMENTARY AGENT: NATIONSBANK OF TEXAS, N.A. By: /S/ J. SCOTT FOWLER J. Scott Fowler, Its: Vice President CO-AGENTS: CIBC, INC. By: /S/ ALEKSANDRA K. DYMANUS Aleksandra K. Dymanus, Its: Authorized Signatory CREDIT LYONNAIS NEW YORK BRANCH By: /S/ PASCAL POUPELLE Pascal Poupelle, Its: Senior Vice President WELLS FARGO BANK, N.A. By: /S/ GREGORY J. PETRUSKA Gregory J. Petruska, Its: Vice President 1/233405.2 4 BANKS: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /S/ DALE S. HURD Dale S. Hurd, Its: Senior Vice President NATIONSBANK OF TEXAS, N.A. By: /S/ J. SCOTT FOWLER J. Scott Fowler, Its: Vice President CIBC, INC. By: /S/ ALEKSANDRA K. DYMANUS Aleksandra K. Dymanus, Its: Authorized Signatory CREDIT LYONNAIS NEW YORK BRANCH By: /S/ PASCAL POUPELLE Pascal Poupelle, Its: Senior Vice President WELLS FARGO BANK, N.A. By: /S/ GREGORY J. PETRUSKA Gregory J. Petruska, Its: Vice President BANK ONE, TEXAS, N.A. By: /S/ BRAD BARTEK Brad Bartek, Its: Vice President 1/233405.2 5 SWAT hereby acknowledges and agrees that the terms and provisions of this Amendment as set forth above shall not in any manner release, diminish, impair, reduce or adversely effect the obligations of SWAT under, in connection with, or related to any Loan Paper (to the extent a party thereto), including, without limitation, the Restricted Subsidiary Guarantee executed and delivered by SWAT pursuant to SECTION 5.2 of the Credit Agreement, and SWAT hereby waives any common law, equitable, statutory or other rights which SWAT might otherwise have as a result of, or in connection with, the amendments and modifications contained in this Amendment. SOCO WATTENBERG CORPORATION By: /S/ DAVID J. KORNDER David J. Kornder, Its: Vice President 1/233405.2 6 EX-10 4 SUPPLEMENTAL INDENTURE EXHIBIT 10.15 SUPPLEMENTAL INDENTURE DATED AS OF MARCH 31, 1997 AMONG GERRITY OIL & GAS CORPORATION PATINA OIL & GAS CORPORATION AND THE CHASE MANHATTAN BANK (FORMERLY KNOWN AS CHEMICAL BANK), AS TRUSTEE 11 3/4% SENIOR SUBORDINATED NOTES DUE 2004 1 This Supplemental Indenture dated as of March 31, 1997 is among Gerrity Oil & Gas Corporation, a Delaware corporation (the "Company"), Patina Oil & Gas Corporation, a Delaware corporation ("Patina"), and The Chase Manhattan Bank (formerly known as Chemical Bank), as Trustee, and supplements, amends and modifies that certain Indenture dated as of June 30, 1994 between the Company and the Trustee (the "Indenture"): RECITALS: WHEREAS, The Company is a wholly owned subsidiary of Patina; WHEREAS, the Company will merge with and into Patina (the "Merger") pursuant to a Certificate of Ownership and Merger to be filed with the Secretary of State of the State of Delaware; WHEREAS, As a result of the Merger, Patina will be the corporation surviving the Merger, and the outstanding capital stock of the Company will be converted into capital stock of Patina; WHEREAS, the Merger will be effected pursuant to Section 253 of the General Corporation Law of the State of Delaware ("DGCL"), which permits effectuation of such a merger without a vote of stockholders of either constituent corporation and without any action by the Board of Directors of the Company; WHEREAS, Patina and the Company intend that Patina shall assume the obligations of the Company with respect to the Indenture; WHEREAS, the Merger complies with Section 5.01 of the Indenture because Patina (the Person into which the Company is to be merged) is a corporation organized and validly existing under the laws of the State of Delaware, and because Patina, by its execution and delivery hereof, expressly assumes all of the obligations of the Company on all of the Securities and under the Indenture; WHEREAS, the Company has delivered to the Trustee the Officer's Certificate required by Clause (v) of Section 5.01 of the Indenture, including the arithmetic computations demonstrating compliance with clauses (iii) and (iv) of Section 5.01; WHEREAS, the Company has delivered to the Trustee the Opinion of Counsel required by Clause (v) of Section 5.01 of the Indenture; WHEREAS, this Supplemental Indenture is executed and delivered pursuant to Section 9.01(2) of the Indenture; NOW, THEREFORE, in consideration of the premises, the covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto covenant and agree as follows: 1 ARTICLE I Section 1.1 Definitions. Capitalized terms used but not defined herein are defined in the Indenture and are used herein with the meanings ascribed to them therein. Section 1.2 Assumption of the Company's Obligations under the Indenture. Patina shall, effective as of the effective time of the Merger under the DGCL (the "Effective Time"), assume, and shall thereafter timely pay, perform and discharge, each and every obligation of the Company under and with respect to the Securities and the Indenture. Section 1.3 No Default. Immediately after giving effect to the Merger, no Event of Default, and no event that, after notice or lapse of time, or both, would become an Event of Default, has happened or is continuing. ARTICLE II Section 2.1 Effectiveness.Although this Supplemental Indenture may be executed and delivered by the parties hereto prior thereto, the provisions hereof shall not become effective unless and until the Merger becomes effective under the DGCL and, under such circumstances, shall become effective concurrently with the Effective Time of such Merger. From and after the Effective Time, the Indenture, as hereby supplemented, amended and modified, shall remain in full force and effect. Section 2.2 References. Each reference in the Indenture or this Supplemental Indenture to any article, section, term or provision of the Indenture shall mean and be deemed to refer to such article, section, term or provision of the Indenture, as modified by this Supplemental Indenture, except where the context otherwise indicates. Section 2.3 Benefit. All the covenants, provisions, stipulations and agreements contained in this Supplemental Indenture are and shall be for the sole and exclusive benefit of the parties hereto, their successors and assigns, and of the holders and registered owners from time to time of the Securities, as hereby amended and supplemented. Section 2.4 Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to be a single instrument. Section 2.5 Governing Law. This Supplemental Indenture shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of such state without regard to principles of conflicts of laws, except as may otherwise required by mandatory provisions of law. 2 Section 2.6 Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 2.7 Recitals. The recitals contained herein shall be taken as statements of Patina, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Supplemental Indenture. IN WITNESS WHEREOF, the said Gerrity Oil & Gas Corporation, Patina Oil & Gas Corporation and The Chase Manhattan Bank have each caused this Supplemental Indenture to be executed in its corporate name by the officer whose name is subscribed below, all as of the day and year first above written. GERRITY OIL & GAS CORPORATION By: /S/ BRIAN J. CREE Name: Brian J. Cree, Title: Executive Vice President and Chief Operating Officer PATINA OIL & GAS CORPORATION By: /S/ DAVID J. KORNDER Name: David J. Kornder, Title: Vice President THE CHASE MANHATTAN BANK, as Trustee By: /S/ WANDA EILAND Name: Wanda Eiland, Title: 3 EX-11 5 COMPUTATION OF PER SHARE EARNINGS SNYDER OIL CORPORATION COMPUTATION OF PER SHARE EARNINGS (Unaudited)
Year Ended December 31, Three Months ------------------------------------------------- Ended March 31, 1994 1995 1996 1997 ------------- ------------- ------------- --------------- (In thousands except per share data) Net income (loss) $12,372 ($39,831) $62,950 $19,926 Dividends on preferred stock (10,806) (6,210) (6,210) (1,550) ------------- ------------- ------------- ------------ Net income (loss) available to common $1,566 ($46,041) $56,740 $18,376 ============= ============= ============= ============ Weighted average shares outstanding 23,704 30,186 31,308 31,030 Assumed exercise of vested common stock options net of treasury shares repurchased 290 138 179 163 Assumed conversion of 6% preferred stock 4,881 4,881 5,051 5,051 ------------- ------------- ------------- ----------- Weighted average common stock and equivalents outstanding 28,875 35,205 36,538 36,244 ============= ============= ============= =========== Primary net income (loss) per common share: Net income (loss) $0.52 ($1.32) $2.01 $0.64 Dividends on preferred stock (0.45) (0.21) (0.20) (0.05) ------------- ------------- ------------- ----------- Net income (loss) available to common $0.07 ($1.53) $1.81 $0.59 ============= ============= ============= =========== Fully diluted net income (loss) per common share: Net income (loss) $0.43 ($1.13) $1.72 $0.55 Dividends on preferred stock 0.00 0.00 0.00 0.00 ------------- ------------- ------------- ----------- Net income (loss) available to common $0.43 ($1.13) $1.72 $0.55 ============= ============= ============= ===========
EX-12 6 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 SNYDER OIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Three Year Ended December 31, Months Ended --------------------------------------------------------- March 31, 1992 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- ------------ (Dollars in thousands) Income (loss) before taxes, minority interest and extraordinary item $15,027 $22,538 $13,510 ($40,604) $74,701 $31,600 Interest expense 4,997 5,315 10,337 21,679 23,587 6,787 -------- -------- -------- -------- -------- -------- Earnings before taxes, minority interest, extraordinary item and fixed charges $20,024 $27,853 $23,847 ($18,925) $98,288 $38,387 ======== ======== ======== ======== ======== ======== Interest expense $ 4,997 $ 5,315 $10,337 $21,679 $23,587 $ 6,787 Preferred stock dividends of majority owned subsidiary - - - - 1,520 502 -------- -------- -------- -------- -------- -------- Total fixed charges $ 4,997 $ 5,315 $10,337 $21,679 $25,107 $ 7,289 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 4.01 5.24 2.31 N/A (1) 3.91 5.27 ======== ======== ======== ======== ======== ======== (1) Earnings were inadequate to cover fixed charges by $40.6 million.
1 SNYDER OIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS (Unaudited)
Three Year Ended December 31, Months Ended --------------------------------------------------------- March 31, 1992 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- ------------ (Dollars in thousands) Income (loss) before taxes, minority interest and extraordinary item $15,027 $22,538 $13,510 ($40,604) $74,701 $31,600 Interest expense 4,997 5,315 10,337 21,679 23,587 6,787 -------- -------- -------- -------- -------- -------- Earnings before taxes, minority interest, extraordinary item and fixed charges $20,024 $27,853 $23,847 ($18,925) $98,288 $38,387 ======== ======== ======== ======== ======== ======== Interest expense $ 4,997 $ 5,315 $10,337 $21,679 $23,587 $6,787 Preferred stock dividends 4,800 9,100 10,806 6,210 6,210 1,550 Adjustment to tax effect preferred stock dividends - - - - 429 690 Preferred stock dividends of majority owned subsidiary - - - - 1,520 502 -------- -------- -------- -------- -------- -------- Total fixed charges $ 9,797 $14,415 $21,143 $27,889 $31,746 $9,529 ======== ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred dividends 2.04 1.93 1.13 N/A (1) 3.10 4.03 ======== ======== ======== ======== ======== ======== (1) Earnings were inadequate to cover combined fixed charges and preferred dividends by $46.8 million.
2 EX-27 7 FDS --
5 1,000 3-mos Dec-31-1997 Jan-1-1997 Mar-31-1997 37,892 0 44,085 0 3,102 89,953 928,790 281,728 862,531 89,865 320,988 0 10 315 311,004 862,531 72,057 88,755 36,879 46,912 3,456 0 6,787 31,600 8,871 19,926 0 0 0 19,926 .59 .55
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