-----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, F6o5nBxfjnk0yI0eobEGUcytpAe7jWGtYqTILlHtq04cEcogFfJc+XHjcj01ApWM jMMmQBF15oOSSdeFLB21nA== 0000930661-97-002004.txt : 19970815 0000930661-97-002004.hdr.sgml : 19970815 ACCESSION NUMBER: 0000930661-97-002004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROSS TIMBERS OIL CO CENTRAL INDEX KEY: 0000868809 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752347769 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10662 FILM NUMBER: 97662985 BUSINESS ADDRESS: STREET 1: 810 HOUSTON ST STREET 2: STE 2000 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8178702800 MAIL ADDRESS: STREET 1: 810 HOUSTON STREET STREET 2: STE 2000 CITY: FORT WORTH STATE: TX ZIP: 76102 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1997 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-10662 ------- CROSS TIMBERS OIL COMPANY (Exact name of registrant as specified in its charter) Delaware 75-2347769 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 810 Houston Street, Suite 2000, Fort Worth, Texas 76102 ------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (817) 870-2800 ---------------------------------------------------- (Registrant's telephone number, including area code) NONE ------------------------------------------------------------------------- (Former name, former address and former fiscal year, if change 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 ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding as of August 1, 1997 ---------------------------- -------------------------------- Common stock, $.01 par value 26,386,034 ================================================================================ CROSS TIMBERS OIL COMPANY FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at June 30, 1997 and December 31, 1996 ......................... 3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 .................................................. 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 ........................................................... 5 Notes to Consolidated Financial Statements........................ 6-8 Report of Independent Public Accountants ......................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................. 10-15 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders .............. 16 Item 6. Exhibits and Reports on Form 8-K ................................. 16-17 Signatures ....................................................... 18 2 P A R T I. F I N A N C I A L I N F O R M A T I O N CROSS TIMBERS OIL COMPANY CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
(in thousands) JUNE 30, 1997 DECEMBER 31, (Unaudited) 1996 ----------- ------------ ASSETS Current Assets: Cash and cash equivalents........................................ $ 6,995 $ 3,937 Accounts receivable, net......................................... 28,805 44,320 Deferred income tax benefit...................................... 107 558 Other current assets............................................. 3,118 2,965 --------- --------- Total Current Assets ........................................... 39,025 51,780 --------- --------- Property and Equipment, at cost - successful efforts method: Producing properties............................................. 692,725 639,990 Undeveloped properties........................................... 15,943 2,493 Gas gathering and other.......................................... 17,910 16,470 --------- --------- Total Property and Equipment.................................... 726,578 658,953 Accumulated depreciation, depletion and amortization.............. (218,174) (208,392) --------- --------- Net Property and Equipment...................................... 508,404 450,561 --------- --------- Investment in Equity Securities, at market value.................. 8,325 16,714 --------- --------- Other Assets...................................................... 6,895 4,015 --------- --------- TOTAL ASSETS...................................................... $ 562,649 $ 523,070 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities......................... $ 38,694 $ 45,729 Payable to Royalty Trust......................................... 1,675 2,770 Accrued stock incentive compensation............................. 420 483 Short-term debt (Note 2)......................................... - 3,000 --------- --------- Total Current Liabilities....................................... 40,789 51,982 --------- --------- Long-term Debt (Note 2)........................................... 341,500 314,757 --------- --------- Deferred Income Tax............................................... 16,532 10,323 --------- --------- Other Long-term Liabilities....................................... 3,170 3,340 --------- --------- Commitments (Note 3) Stockholders' Equity: Series A Convertible preferred stock ($.01 par value, 25,000,000 shares authorized, 1,138,729 issued at liquidation value of $25)............................................................ 28,468 28,468 Common stock ($.01 par value, 100,000,000 shares authorized, 30,755,835 and 28,209,976 shares issued)........................ 308 282 Additional paid-in capital....................................... 202,709 164,577 Treasury stock (4,395,744 and 2,578,781 shares).................. (72,438) (40,219) Unrealized gain on investment in equity securities............... 1,219 638 Retained earnings (deficit)...................................... 392 (11,078) --------- --------- Total Stockholders' Equity..................................... 160,658 142,668 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $ 562,649 $ 523,070 ========= =========
See Accompanying Notes to Consolidated Financial Statements. 3 CROSS TIMBERS OIL COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - --------------------------------------------------------------------------------
(in thousands, except per share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ --------------- 1997 1996 1997 1996 -------- ------- ------ ------ REVENUES Oil....................................... $18,669 $18,544 $38,583 $34,847 Gas....................................... 21,897 15,423 51,421 31,033 Gas gathering, processing and marketing... 2,389 2,387 5,122 6,240 Other..................................... 3,014 381 4,337 696 ------- ------- ------- ------- Total Revenues............................ 45,969 36,735 99,463 72,816 ------- ------- ------- ------- EXPENSES Production................................ 10,787 9,503 21,130 19,169 Exploration (Note 1)...................... 575 - 575 - Taxes on production and property.......... 3,749 2,710 7,926 5,463 Depreciation, depletion and amortization.. 11,548 8,746 22,517 17,847 General and administrative................ 4,007 7,100 7,542 9,660 Gas gathering and processing.............. 2,059 1,887 4,157 2,778 Interest expense, net..................... 6,515 3,590 11,790 7,541 Trust development costs................... 207 283 281 471 ------- ------- ------- ------- Total Expenses............................ 39,447 33,819 75,918 62,929 ------- ------- ------- ------- INCOME BEFORE INCOME TAX................... 6,522 2,916 23,545 9,887 ------- ------- ------- ------- INCOME TAX Current................................... (168) (340) 88 79 Deferred.................................. 2,510 1,449 8,182 3,330 ------- ------- ------- ------- Total Income Tax Expense (Benefit)........ 2,342 1,109 8,270 3,409 ------- ------- ------- ------- NET INCOME................................. 4,180 1,807 15,275 6,478 Preferred Stock Dividends................. 445 - 890 - ------- ------- ------- ------- EARNINGS AVAILABLE TO COMMON STOCK......... $ 3,735 $ 1,807 $14,385 $ 6,478 ======= ======= ======= ======= EARNINGS PER COMMON SHARE (Note 4)......... $ 0.14 $ 0.07 $ 0.54 $ 0.24 ======= ======= ======= ======= DIVIDENDS DECLARED PER COMMON SHARE........ $ 0.055 $ 0.05 $ 0.11 $ 0.10 ======= ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........................ 26,332 27,447 26,629 27,524 ======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements. 4 CROSS TIMBERS OIL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------------
(in thousands) (Note 5) SIX MONTHS ENDED JUNE 30, ------------------------ 1997 1996 --------- -------- OPERATING ACTIVITIES Net income............................................................ $ 15,275 $ 6,478 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization............................ 22,517 17,847 Exploration expense................................................. 575 - Stock appreciation right compensation............................... (63) (3,390) Performance share compensation...................................... 1,459 712 Deferred income tax................................................. 8,182 3,330 Gain from sale of property and equity securities.................... (3,167) (91) Other non-cash items................................................ 1,177 453 Changes in working capital (a)........................................ 6,774 4,164 --------- -------- CASH PROVIDED BY OPERATING ACTIVITIES................................. 52,729 29,503 --------- -------- INVESTING ACTIVITIES Sale of equity securities............................................. 17,405 - Investment in equity securities....................................... (6,479) (16,093) Sale of property and equipment........................................ 17,077 28,327 Producing property acquisitions....................................... (49,417) (9,622) Undeveloped property acquisitions..................................... (13,449) (34) Exploration and development costs..................................... (30,999) (11,073) Gas gathering and other additions..................................... (6,796) (2,676) --------- -------- CASH USED BY INVESTING ACTIVITIES..................................... (72,658) (11,171) --------- -------- FINANCING ACTIVITIES Proceeds from long-term debt.......................................... 268,250 46,000 Payments on long-term debt............................................ (214,780) (47,700) Dividends............................................................. (3,780) (2,759) Proceeds from exercise of stock options............................... 280 818 Purchase of treasury stock............................................ (26,983) (15,054) --------- -------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES.......................... 22,987 (18,695) --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 3,058 (363) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................... 3,937 2,212 --------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ 6,995 $ 1,849 ========= ======== (a) CHANGES IN WORKING CAPITAL Accounts receivable................................................. 15,457 $ 1,832 Other current assets................................................ (88) (853) Accounts payable, accrued liabilities and payable to Royalty Trust.. (8,595) 3,185 --------- -------- DECREASE IN WORKING CAPITAL.......................................... $ 6,774 $ 4,164 ========= ========
See Accompanying Notes to Consolidated Financial Statements. 5 CROSS TIMBERS OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. INTERIM FINANCIAL STATEMENTS The accompanying consolidated financial statements of Cross Timbers Oil Company ("the Company"), with the exception of the consolidated balance sheet at December 31, 1996, have not been audited by independent public accountants. In the opinion of the Company's management, the accompanying financial statements reflect all adjustments necessary to present fairly the financial position at June 30, 1997 and the results of operations for the three and six-month periods ended June 30, 1997 and 1996 and cash flows of the Company for the six-month periods ended June 30, 1997 and 1996. All such adjustments are of a normal recurring nature. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, these financial statements should be read with the Company's consolidated financial statements included in the Company's 1996 annual report on Form 10-K. Exploration Expense As of June 30, 1997, the Company has incurred $575,000 of exploration costs, primarily composed of geological and geophysical costs related to the 1997 exploration program. Exploration costs were not significant in prior periods. 2. LONG-TERM DEBT Senior Debt On May 28, 1997, the Company entered into a new Revolving Credit Agreement with commercial banks ("loan agreement"). The loan agreement has an initial borrowing base and commitment of $317 million, which was subsequently reduced to $312 million following the sale of certain producing properties. The borrowing base is redetermined annually based upon the value of the Company's proved oil and gas reserves. If outstanding borrowings are greater than the redetermined borrowing base, outstanding borrowings must be reduced to the level of the redetermined borrowing base within a specified period. Otherwise, borrowings under the loan agreement do not mature until June 30, 2002, but may be prepaid at any time without penalty. Other provisions of the loan agreement are generally the same as the prior Revolving Credit Agreement. On June 30, 1997, outstanding bank borrowings and short-term borrowings were $214 million and $2.5 million, respectively, with $98 million of unused borrowing capacity. Short-term borrowings at June 30, 1997 are classified as long-term debt because of the Company's ability and intent to refinance this debt on a long-term basis. Subordinated Debt In January 1997, $29.7 million principal amount of the Company's 5 1/4% convertible subordinated notes was converted by note holders into 1,928,242 shares of common stock and $29,000 was redeemed. As of January 21, 1997, no 5 1/4% convertible subordinated notes remained outstanding. On April 2, 1997, the Company sold $125 million of 9 1/4% senior subordinated notes ("Notes") to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933. The Notes were effectively registered with the Securities and Exchange Commission ("Commission") in June 1997 (Note 3) and are general unsecured indebtedness that is subordinate to bank borrowings under the loan agreement. The Notes mature on April 1, 2007 and interest is payable each April 1 and October 1. The Notes are redeemable at the option of the Company on April 1, 2002 at a price of 104.625%, and thereafter at prices declining ratably annually to 100% on April 1, 2005, plus accrued interest through the redemption date. In addition, on or prior to April 1, 2000, the Company may, subject to certain requirements, redeem up to one-third of the Notes with the net proceeds from one or more public equity offerings at a price equal to 109.25% 6 plus accrued interest. Upon a change in control (as defined) of the Company, Note holders have the right to require the Company to purchase all or a portion of their Notes at 101% plus accrued interest. 3. COMMITMENTS The Company has entered contracts with two purchasers to sell a total of 60,000 Mcf of gas per day from June through October 1997 for delivery in Oklahoma at a weighted average sales price of $1.97 per Mcf, before Btu and gathering charge adjustments. The Company has also entered in a commodity price swap agreement effectively fixing the Company's gas price on notional volumes of 10,000 Mcf per day of Oklahoma deliveries from June through October at $1.93 per Mcf, before Btu and gathering charge adjustments. For the period of November 1997 through March 1998, the Company has agreed to sell 15,000 Mcf of gas per day for delivery at Opal, Wyoming, with a $.27 per Mcf delivery point differential ("basis"). The Nymex price from which such basis will be deducted has not yet been set by the Company. The Company entered a registration rights agreement with the purchasers of the Notes (Note 2) to use its best efforts to register notes with the Commission that could be exchanged for the Notes, and to effect the offering of such exchange. The registration was completed on May 14, 1997 and the exchange offering was consummated on June 16, 1997. 4. COMMON SHARES OUTSTANDING AND EARNINGS PER COMMON SHARE On March 19, 1997, the Company effected a three-for-two common stock split. All share and per share amounts have been restated to reflect the stock split on a retroactive basis. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which changes the method of computing and disclosing earnings per share for periods after December 15, 1997. The Company has determined that basic and diluted earnings per share (as defined by SFAS No. 128) would be the same as primary and fully diluted earnings per share, respectively, disclosed for the three and six months ended June 30, 1997 and 1996. 5. SUPPLEMENTAL CASH FLOW INFORMATION The following are total interest and income tax payments during each of the periods (in thousands):
Six Months Ended June 30, ------------------------- 1997 1996 ------------ ----------- Interest.... $9,010 $7,212 Income tax.. 686 6
The accompanying consolidated statements of cash flows excludes the following non-cash equity transactions during the six-month periods ended June 30, 1997 and 1996: - Conversion of $29.7 million principal amount of 5 1/4% convertible subordinated notes into 1,928,242 shares of common stock in January 1997 (Note 2) - Vesting of 102,750 and issuance of 59,250 performance shares during 1997 and vesting of 237,375 performance shares during 1996 (Note 6) - Receipt of 76,949 shares (valued at $1,528,000) and 223,786 shares (valued at $3,417,000) of common stock for the option price of exercised stock options in 1997 and 1996, respectively 7 6. STOCK INCENTIVE PLANS In May 1997, the stockholders approved the 1997 Stock Incentive Plan ("1997 Plan") under which 1,500,000 shares of common stock are available for grant. In May 1997, 1,007,000 stock options were granted under the 1997 Plan which vest and become exercisable in equal amounts over a five-year period, with provision for accelerated vesting of half the options when the common stock price reaches $25 and the remainder when the price reaches $30. Additionally, 54,000 performance shares were granted under the 1997 Plan that vest when the common stock price reaches $25. During the six months ended June 30, 1997, the Company recognized total performance share compensation of $1,459,000 related to these grants, the vesting of 102,750 performance shares in January and the grant of 5,250 performance shares in January and February. 7. ACQUISITIONS From July 1996 through June 1997, the Company purchased 22% of the outstanding units of beneficial interest in the Royalty Trust ("Units") at a cost of $18.2 million, funded primarily with bank debt. The Board of Directors has authorized the purchase of up to two million, or 33%, of the outstanding Units. On July 19, 1996, the Company acquired primarily gas-producing properties in the Green River Basin of southwestern Wyoming from Enserch Exploration ("Enserch Acquisition") for an adjusted purchase price of $39.4 million. The properties primarily consist of operated interests in the Fontenelle, Nitchie Gulch and Pine Canyon fields. On November 21, 1996, the Company acquired additional interests in the Fontenelle Unit, the most significant property included in the Enserch Acquisition, for an estimated adjusted purchase price of $12.5 million. These acquisitions were funded by bank debt and cash flow from operations. On December 2, 1996, the Company acquired primarily gas-producing properties in the Northern Val Verde area of the Permian Basin of West Texas. The properties are primarily operated interests in the Henderson, Ozona and Davidson Ranch fields. The adjusted purchase price of $28.1 million was funded by bank debt and cash flow from operations. On May 14, 1997, the Company acquired primarily gas-producing properties and undeveloped acreage in Oklahoma, Kansas and Texas for an estimated adjusted purchase price of $39 million from a subsidiary of Burlington Resources Inc. The properties are primarily operated interests. Approximately 30% of the purchase price is attributable to 124 square miles (79,500 net acres) of undeveloped acreage primarily located in Texas County, Oklahoma. The Company funded the acquisition with bank debt and cash flow from operations. These acquisitions have been recorded using the purchase method of accounting. The following presents unaudited pro forma results of operations for the six months ended June 30, 1996 and the year ended December 31, 1996, as if these acquisitions had been consummated as of January 1, 1996. Pro forma results of operations for the six months ended June 30, 1997 are not currently available. These pro forma results are not necessarily indicative of future results.
Pro Forma (Unaudited) ------------------------------- (in thousands, except Six Months Ended Year Ended per share data) June 30, December 31, 1996 1996 ---------------- ----------- Revenues............................ $ 83,710 $179,690 ========= ======== Earnings available to common stock.. $ 6,220 $ 19,287 ========= ======== Earnings per common share........... $ 0.23 $ 0.72 ========= ========
8 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Cross Timbers Oil Company: We have reviewed the accompanying consolidated balance sheet of Cross Timbers Oil Company (a Delaware Corporation) as of June 30, 1997 and the related consolidated statements of operations for the three and six-month periods ended June 30, 1997 and 1996, and the consolidated statements of cash flows for the six-month periods ended June 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Cross Timbers Oil Company as of December 31, 1996 included in the Company's 1996 annual report on Form 10-K, and in our report dated March 13, 1997, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the consolidated balance sheet included in the Company's 1996 annual report on Form 10-K from which it has been derived. ARTHUR ANDERSEN LLP Fort Worth, Texas July 24, 1997 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with management's discussion and analysis contained in the Company's 1996 annual report on Form 10-K, as well as with the consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q.
OIL AND GAS PRODUCTION AND PRICES - --------------------------------- QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------------------- --------------------------------------- Increase Increase 1997 1996 (Decrease) 1997 1996 (Decrease) ---------- ---------- ----------- ---------- ----------- ---------- TOTAL PRODUCTION Oil (Bbls) ................... 1,016,903 852,047 19% 1,949,226 1,725,051 13% Gas (Mcf) ................... 11,919,809 8,472,441 41% 23,191,882 16,955,184 37% BOE ........................... 3,003,538 2,264,120 33% 5,814,540 4,550,915 28% AVERAGE DAILY PRODUCTION Oil (Bbls) .................... 11,175 9,363 19% 10,769 9,478 14% Gas (Mcf) .................... 130,987 93,104 41% 128,132 93,160 38% BOE ........................... 33,006 24,880 33% 32,125 25,005 28% AVERAGE SALES PRICE Oil per Bbl ................... $18.36 $21.76 (16%) $19.79 $20.20 (2%) Gas per Mcf ................... $1.84 $1.82 1% $2.22 $1.83 21%
_______________________ Bbl - Barrel Mcf - Thousand cubic feet BOE - Barrels of oil equivalent (six Mcf equal one Bbl) Total oil production increased from comparable 1996 periods primarily because of new drills, workovers and acquisitions, partially offset by property sales and natural decline. Increased gas production is primarily attributable to acquisitions and new drills, partially offset by property sales and natural decline. Crude oil prices declined during the second quarter of 1997 as global production capacity outpaced demand. While demand is generally expected to remain strong, crude prices during the remainder of 1997 will be dependent upon OPEC's ability to control quotas among its members. The average posted price for West Texas Intermediate ("WTI"), a benchmark crude, was $18.09 for second quarter 1997 compared to $20.04 for second quarter 1996. The Company's average oil price includes oil marketing margins which are partially offset by lower priced sour crude sales and transportation charges. With increased domestic consumption, natural gas prices have remained relatively strong. Gas prices during the last half of the year will be affected by gas storage levels and changes in weather-related demand. The Company has entered sales contracts and commodity price swap agreements effectively fixing its price from June through October 1997 on 60,000 Mcf per day at an average price of $1.97 and 10,000 Mcf per day at $1.93, before Btu and gathering charge adjustments. The Company has also agreed to sell 15,000 Mcf per day from November 1997 through March 1998 for delivery at Opal, Wyoming, with a $.27 per Mcf delivery point differential ("basis"). See Note 3 to Consolidated Financial Statements. 10 RESULTS OF OPERATIONS - --------------------- QUARTER ENDED JUNE 30, 1997 COMPARED WITH QUARTER ENDED JUNE 30, 1996 Second quarter 1997 earnings available to common stock were $3.7 million, double the second quarter 1996 net income of $1.8 million. Improved earnings are primarily the result of record oil and gas production. Total revenues for the 1997 quarter were $46 million, a $9.2 million (25%) increase over second quarter 1996 revenues. Oil revenue remained relatively unchanged, as the 19% increase in oil volumes was offset by the 16% decrease in oil prices. Gas revenue increased $6.5 million (42%) as a result of the 41% increase in gas production. Gas gathering, processing and marketing revenues from second quarter 1996 to second quarter 1997 remained relatively unchanged, as increased volumes were offset by reduced margins. Other revenues of $3 million for second quarter 1997 include a $1.3 million gain on the sale of producing properties and facilities, a $400,000 realized gain on sale of equity securities, and lawsuit settlement proceeds of $1.3 million. Other revenues of $400,000 in second quarter 1996 include recognition of interest rate swap commitment income. Expenses for second quarter 1997 totaled $39.4 million as compared to $33.8 million for second quarter 1996. Production expense increased $1.3 million (14%) and depreciation, depletion and amortization ("DD&A") increased $2.8 million (32%) primarily as a result of production increases related to acquisitions and development. Taxes on production and property increased $1 million (38%) over the second quarter of 1996 primarily because of increased gas revenue. Second quarter 1997 results also include $575,000 of exploration expense, which is primarily composed of geological and geophysical costs related to the 1997 exploration program. Exploration costs were not significant in prior periods. General and administrative expense decreased $3.1 million (44%) primarily because of a decline in stock incentive compensation from $4.6 million in second quarter 1996 to $1.4 million in second quarter 1997. Stock incentive compensation for second quarter 1997 includes stock appreciation right ("SAR") compensation of $300,000 and performance share compensation of $1.1 million, as compared to SAR compensation of $3.9 million and performance share compensation of $700,000 in second quarter 1996. Decreased SAR compensation is primarily because virtually all stock options with SARs were exercised as of June 30, 1996. Increased performance share compensation is the result of performance shares granted during May 1997. Net interest expense increased $2.9 million (81%) primarily because of a 49% increase in weighted average borrowings to fund property acquisitions and treasury stock purchases, combined with an increase in the weighted average interest rate from 6.2% in the second quarter of 1996 to 7.7% in the second quarter of 1997. The increased interest rate is primarily attributable to senior subordinated debt that was issued in April 1997. Gas gathering expense increased $200,000 (9%) primarily because of lease payments that began following the sale and operating leaseback of the Major County, Oklahoma gathering system in November 1996. SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996 Earnings available to common stock for the six months ended June 30, 1997 were $14.4 million, compared to net income of $6.5 million for the same 1996 period. Improved earnings were primarily the result of higher production and gas prices. Total revenues for the first half of 1997 were $99.5 million, or $26.7 million (37%) higher than revenues for the first half of 1996. Oil revenue increased $3.7 million (11%) as the result of the 13% increase in production. Gas revenue increased $20.4 million (66%) because of the 37% increase in production combined with the 21% price increase. Gas gathering, processing and marketing revenues decreased $1.1 million (18%) because of lower gas marketing margins. Other revenues of $4.3 million for the first half of 1997 include a $1.6 million gain realized on sale of equity securities, a $1.5 million gain on sale of producing properties and facilities, and $1.3 million from a lawsuit settlement. Other revenues of $700,000 in 1996 include recognition of interest rate swap commitment income. 11 Expenses for the six months ended June 30, 1997 totaled $75.9 million, or 21% above total expenses of $62.9 million for the first half of 1996. Production expense increased $2 million (10%) primarily as a result of the 1996 acquisitions. DD&A increased $4.7 million (26%) primarily because of increased production related to acquisitions and development. Taxes on production and property increased $2.5 million (45%) primarily because of increased oil and gas revenues. Results for the first half of 1997 also include $575,000 of exploration expense, which is primarily composed of geological and geophysical costs related to the 1997 exploration program. Exploration costs were not significant in prior periods. General and administrative expense decreased $2.1 million (22%) primarily because of a decline in stock incentive compensation from $4.4 million for the first half of 1996 compared to $1.7 million for the first half of 1997. Stock incentive compensation for the first six months of 1997 includes SAR compensation of $200,000 and performance share compensation of $1.5 million, as compared to SAR compensation of $3.7 million and performance share compensation of $700,000 for the first six months of 1996. Decreased SAR compensation is primarily because virtually all stock options with SARs were exercised as of June 30, 1996. Increased performance share compensation is primarily the result of performance shares granted in May 1997. Net interest expense increased $4.2 million (56%) as a result of a 35% increase in weighted average borrowings that were used to fund capital expenditures and treasury stock purchases, combined with an increase in the weighted average interest rate from 6.2% for the first half of 1996 to 7.3% for the 1997 period. The increased interest rate is primarily attributable to senior subordinated debt that was issued in April 1997. Gas gathering expense increased $1.4 million (50%) related to the lease rentals that began following the sales and operating leasebacks of the Tyrone plant in March 1996 and the Major County, Oklahoma gathering system in November 1996. COMPARATIVE EXPENSES PER BARREL OF OIL EQUIVALENT PRODUCTION The following are expenses on a barrel of oil equivalent (BOE) basis:
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------------- --------------------------- Increase Increase 1997 1996 (Decrease) 1997 1996 (Decrease) -------- -------- --------- ----- ----- ---------- Production........................... $3.59 $4.20 (15%) $3.63 $4.21 (14%) Taxes on production and property..... 1.25 1.20 4% 1.36 1.20 13% Depreciation, depletion and amortization (DD&A) (a)........... 3.60 3.74 (4%) 3.65 3.60 1% General and administrative (G&A)..... 1.33 3.14 (58%) 1.30 2.12 (39%) Interest............................. 2.17 1.59 36% 2.03 1.66 22%
_____________________________ (a) Includes only DD&A directly related to oil and gas production. The following are explanations of the more significant variances: Production- Decreased production expense per BOE is primarily because of lower operating costs of gas-producing properties acquired in 1996, the timing of workovers, and operating efficiencies initiated after acquiring operated properties. Taxes on Production and Property- Increased taxes per BOE are primarily because of increased production taxes resulting from an increase in higher-taxed gas production, higher gas prices and an increase in purchaser deductions from gas revenue. G&A- Decreased G&A per BOE is primarily because of the decline in stock incentive compensation. Excluding stock incentive compensation, G&A per BOE was $0.88 and $1.12 for the quarters ended June 30, 1997 and 1996, respectively, and was $1.01 and $1.15 per BOE for the first six months of 1997 and 1996, respectively. 12 Interest- Increased interest per BOE is primarily the result of an increase in the weighted average interest rate, as well as the result of financing expenditures for other than oil and gas producing properties (undeveloped properties, investment in equity securities and treasury stock purchases) with long-term borrowings. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- CASH FLOW AND WORKING CAPITAL Cash provided by operating activities was $52.7 million for the first half of 1997 compared to $29.5 million for the comparable 1996 period. Operating cash flow (defined as cash provided by operating activities before changes in working capital) increased 81% from $25.3 million for the first six months of 1996 to $46 million for the same 1997 period. Stock appreciation right payments reduced operating cash flow for the first half of 1996 by approximately $7 million. During the six months ended June 30, 1997, proceeds from bank and short-term borrowings and the sale of senior subordinated notes of $268.3 million, operating activities of $52.7 million, property and equity security sales of $34.5 million and stock option exercises of $300,000 were used to fund property acquisitions, development costs, other capital additions and investments in equity securities of $107.1 million, debt payments of $214.8 million, treasury stock purchases of $27 million and dividends of $3.8 million. The resulting increase in cash and cash equivalents for the period was $3.1 million. Total current assets decreased $12.8 million during the first half of 1997. The most significant change in current assets was a $15.5 million decrease in accounts receivable, primarily because of lower product prices. Total current liabilities decreased $11.2 million during the first half 1997. Accounts payable and accrued liabilities declined $7 million primarily because of lower gas gathering, processing and marketing payables attributable to lower gas prices. Short-term debt declined $3 million because of increased bank borrowing capacity following the sale of senior subordinated notes in April 1997. See Note 2 to Consolidated Financial Statements. ACQUISITIONS AND DEVELOPMENT Exploration and development expenditures for the first six months of 1997 totaled $31 million. This compares with development expenditures of $11.1 million during the first half of 1996. Although actual exploration and development expenditures may vary significantly due to many factors, the Company anticipates its 1997 expenditures for exploration and development activities to approximate its previously announced $70 million budget. Annual exploration and development expenditures in 1998 and 1999 are expected to be from $70 to $90 million, depending on drilling results, property acquisitions and commodity prices. Higher-risk expenditures, including step-out development and exploratory drilling, are targeted at up to 20% of these amounts. Such expenditures are expected to be funded by cash flow from operations. During the six months ended June 30, 1997, the Company's purchases of equity securities (for non-trading purposes) totaled $6.5 million. Proceeds from sales of equity securities totaled $17.4 million. On April 10, 1997, the Company announced that its Board of Directors authorized the purchase of up to two million shares of the Company's common stock, or about 7% of shares outstanding. These purchases are in addition to the three million share program (adjusted for the March 1997 three-for-two stock split) announced in May 1996, which was completed in April 1997. Through July, 381,500 shares have been purchased at a total cost of $6.1 million under the new two million share program. On May 14, 1997, the Company acquired primarily gas-producing properties and undeveloped acreage in Oklahoma, Kansas and Texas for an estimated adjusted purchase price of $39 million from a subsidiary of Burlington Resources Inc. The properties are primarily operated interests. Approximately 30% of the purchase price is attributable 13 to 124 square miles (79,500 net acres) of undeveloped acreage primarily located in Texas County, Oklahoma. The Company funded the acquisition with bank debt and cash flow from operations. The Company plans to make strategic acquisitions totaling $260 to $280 million between June 1997 and the end of 1999. Additional expenditures may be made for repurchase of up to 1.6 million shares remaining under the currently authorized two million share common stock repurchase program. As of the end of June, the Company had completed drilling 30 oil wells and 28 gas wells in 1997. A total of 30 recompletions and workovers were also completed in the first six months of 1997. Oil development during the first half of 1997 focused on the Prentice Northeast Unit and University Block 9 Field of West Texas and the Southeast Maljamar Unit of southeastern New Mexico, while gas development has been concentrated in the Fontenelle Unit in the Green River Basin of Wyoming. Twenty of the 30 oil wells drilled to date have been drilled in the Prentice Northeast Unit with initial production rates exceeding 100 barrels of oil per day. Thirty-one wells are to be drilled on this unit by year-end. The first Devonian well under the 1997 budget was completed in the University Block 9 Field during the second quarter, with an initial daily production rate of 500 barrels of oil. Fifteen wells are to be drilled in the University Block 9 Field by year-end. Fourteen of the 28 gas wells drilled are located in the Fontenelle Unit, with daily production averaging over 1,000 Mcf per well. Thirty wells are expected to be completed in the Fontenelle Unit by year-end. DEBT AND EQUITY During the first half of 1997, long-term debt increased $26.7 million and short-term debt decreased $3 million because of increased borrowings to partially fund property acquisitions, treasury stock purchases and investment in equity securities, partially offset by the $29.7 million conversion of the Company's 5 1/4% subordinated notes into common stock. See Note 2 to Consolidated Financial Statements. Stockholders' equity at June 30, 1997 increased $18 million from year-end primarily because of the $29.7 million conversion of subordinated notes into common stock, increased capital of $8.8 million related to stock option exercises and performance share grants, and first six months earnings of $14.4 million, partially offset by treasury stock additions of $32.2 million and common stock dividends of $2.9 million. A three-for-two common stock split was effected on March 19, 1997. All share and per share amounts have been restated for the effect of this stock split. During April 1997, the Company sold $125 million of 9 1/4% senior subordinated notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933. The notes were effectively registered with the Securities and Exchange Commission in June 1997 and are general unsecured indebtedness that is subordinate to bank borrowings under the Revolving Credit Agreement. The notes mature on April 1, 2007 and interest is payable each April 1 and October 1. On May 28, 1997, the Company entered into a new Revolving Credit Agreement with commercial banks ("loan agreement"). The loan agreement has an initial borrowing base and commitment of $317 million, which was subsequently reduced to $312 million following the sale of certain producing properties. The borrowing base is redetermined annually based upon the value of the Company's proved oil and gas reserves. If outstanding borrowings are greater than the redetermined borrowing base, outstanding borrowings must be reduced to the level of the redetermined borrowing base within a specified period. Otherwise, borrowings under the loan agreement do not mature until June 30, 2002, but may be prepaid at any time without penalty. Other provisions of the loan agreement are generally the same as the prior Revolving Credit Agreement. See Note 2 to Consolidated Financial Statements. 14 COMMON STOCK DIVIDENDS In May 1997, the Board of Directors of the Company declared a second quarter common stock dividend of $0.055 per share, or a total of $1.5 million, paid in July 1997. Common stock dividends paid by the Company or its predecessors from September 1992 through January 1997 were at the rate of $0.05 per share. ACCOUNTING PRONOUNCEMENTS - ------------------------- In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which changes the method of computing and disclosing earnings per share for periods ending after December 15, 1997. Upon the Company's adoption as of December 31, 1997, restatement of some prior periods may require disclosure of diluted earnings which was not required under previous accounting standards since the dilution was less than 3%. The Company has determined that basic and diluted earnings per share (as defined by SFAS No. 128) would be the same as primary and fully diluted earnings per share, respectively, disclosed for the three and six months ended June 30, 1997 and 1996. 15 P A R T I I. O T H E R I N F O R M A T I O N ITEMS 1. THROUGH 3. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Stockholders at the Annual Meeting on May 20, 1997, and by proxy, elected three incumbent directors, Steffen E. Palko, J. Luther King, Jr. and J. Richard Seeds. Of 20,451,572 shares represented at the meeting, 20,406,186 shares (99.8%) were voted for Mr. Palko, 20,406,186 shares (99.8%) were voted for Mr. King and 20,406,111 shares (99.8%) were voted for Mr. Seeds. Other directors continuing in office are Charles B. Chitty, Scott G. Sherman and Bob R. Simpson. Mr. Chitty subsequently resigned on June 10, 1997. One proposal by the Board of Directors was approved by stockholders at the Annual Meeting, with the following vote tabulation: Approval of the 1997 Stock Incentive Plan
---------------------------------------------------------------------------------- Shares Shares Shares Broker For Against Abstained Non-Votes ------------------- ------------------ -------------- --------------- 17,142,229 83.8% 2,923,268 14.3% 24,706 0.1% 361,369 1.8%
ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number and Description --------------- 3.1 Bylaws of Cross Timbers Oil Company, as amended and restated on May 20, 1997 10.1 Revolving Credit Agreement dated May 28, 1997, among Cross Timbers Oil Company, Morgan Guaranty Trust Company of New York, NationsBank of Texas, N.A. and the other banks party thereto 10.2 Cross Timbers Oil Company Management Group Employee Severance Protection Plan 11 Computation of per share earnings 15.1 Awareness letter of Arthur Andersen LLP 16 (b) Reports on Form 8-K The Company filed the following reports on Form 8-K during the quarter ended June 30, 1997 and through August 14, 1997: On April 9, 1997, the Company filed a report on Form 8-K dated April 2, 1997 regarding its completion of the sale of $125 million of 9 1/4% Senior Subordinated Notes due 2007 pursuant to Rule 144A of the Securities Act of 1933. On June 2, 1997, the Company filed a report on Form 8-K dated May 20, 1997 regarding announcements made at its annual meeting of shareholders. 17 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. CROSS TIMBERS OIL COMPANY Date: August 14, 1997 By /s/ BENNIE G. KNIFFEN --------------------------------------- Bennie G. Kniffen Senior Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) 18 EX-3.1 2 BYLAWS OF CROSS TIMBERS OIL COMPANY EXHIBIT 3.1 BYLAWS OF CROSS TIMBERS OIL COMPANY (The "Corporation") ARTICLE I OFFICES SECTION 1.1. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 1.2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.1. All meetings of the stockholders for the election of directors shall be held in the City of Fort Worth, State of Texas, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the States of Delaware or Texas as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2.2. Annual meetings of stockholders, commencing with the year 1992, shall be held on the third Tuesday in May at 10:00 a.m., if not a legal holiday, and if a legal holiday, then on the next secular business day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which time they shall elect a board of directors, and transact such other business as may be properly brought before the meeting. SECTION 2.3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. 1 SECTION 2.4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder, which shall be open to the inspection of any stockholder for any purpose germane to the meeting during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman, Chief Executive Officer or the President or by the Board of Directors or by the affirmative vote of the holders of 80% or more of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Such request shall state the purpose or purposes of the proposed meeting. SECTION 2.6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to notice of such meeting. SECTION 2.7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 2.8. The holders of a majority in voting power of the stock of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the Certificate of Incorporation or by these Bylaws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 2.9. When a quorum is present at any meeting, the affirmative vote of the holders of a majority in voting power of the stock of the Corporation having voting power, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of these Bylaws, the Certificate of Incorporation, the rules 2 or regulations of any stock exchange applicable to the Corporation, as otherwise required by law or pursuant to any regulation applicable to the Corporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. SECTION 2.10. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. SECTION 2.11. Subject to the rights of the holders of any series of preferred stock then outstanding, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly-called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders unless all of the stockholders entitled to vote thereon consent thereto in writing. SECTION 2.12. Only individuals nominated for election to the Board of Directors of the Corporation pursuant to and in accordance with the provisions of this Section 2.12 may be elected to and may serve upon the Board of Directors of the Corporation. Subject to the rights of holders of any class or series of stock of the Corporation having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, nominations for election of directors may be made either by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. Subject to the foregoing, only a stockholder of record entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting of stockholders and only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the attention of the Board of Directors, with a copy to the President and the Secretary of the Corporation, and has been received not later than 120 days in advance of the scheduled date for the next annual meeting of stockholders. Each such notice required by this Section 2.12 shall set forth: (a) the name and address, as they appear on the Corporation's books and records, of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; 3 (d) whether the proponent intends or is part of a group which intends to solicit proxies from other stockholders in support of such nominee; and (e) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors. To be effective, each notice given hereunder must be accompanied by the written consent of each nominee to serve as a director of the Corporation if elected. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not properly brought before the meeting in accordance with the provisions hereof and, if he should so determine, he shall declare to the meeting that such nomination was not properly brought before the meeting and shall not be considered. SECTION 2.13. At a meeting of the stockholders of the Corporation, only such business shall be conducted as shall have been properly brought before the meeting in accordance with these Bylaws. To be properly brought before a meeting, business must (a) be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise be properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise (i) be properly requested to be brought before the meeting by a stockholder of record entitled to vote in the election of directors generally, and (ii) constitute a proper subject to be brought before such meeting. For business to be properly brought before a meeting of stockholders, any stockholder who intends to bring any matter (other than in connection with the election of directors) before a meeting of stockholders and is entitled to vote on such matter must deliver written notice of such stockholder's intent to bring such matter before the meeting of stockholders, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation. Such notice must be received by the Secretary not later than the following dates: (i) with respect to an annual meeting of stockholders, sixty days in advance of such meeting if such meeting is to be held on a day which is within thirty days preceding the anniversary of the previous year's annual meeting, or ninety days in advance of such meeting if such meeting is to be held on or after the anniversary of the previous year's annual meeting; and (ii) with respect to an annual meeting of stockholders held at a time other than within the time period set forth in the immediately preceding clause (i), or at a special meeting of stockholders, the close of business on the tenth day following the date of public disclosure of the date of such meeting. For purposes of this Section 2.13, notice shall be deemed to first be given to stockholders when disclosure of such date of the meeting of stockholders is first made in a press release reported by the Dow Jones News Services, Associated Press or comparable national news service, or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. 4 A stockholder's notice to the Secretary required by this Section 2.13 shall set forth as to each matter the stockholder proposes to bring before the meeting of stockholders (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder intending to propose such business; (iii) a representation that the stockholder is a holder of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to present such proposal; (iv) any material interest of the stockholder in such business; and (v) whether the proponent intends or is part of a group which intends to solicit proxies from other stockholders in support of such proposal. No business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.13 of these Bylaws. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting and in accordance with the provisions hereof and, if he should so determine, he shall so declare to the meeting that any such business not properly brought before the meeting shall not be transacted. SECTION 2.14. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors of the Corporation may, to the extent not prohibited by law, adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the Chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such Chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the Chairman of the meeting, may to the extent not prohibited by law include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the Chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the Chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. SECTION 2.15. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. 5 The inspector or inspectors so appointed shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election. SECTION 2.16. At any meeting of stockholders, the Chairman or Vice Chairman (or in the event there might be more than one vice chairman, the vice chairmen in the order designated by the directors or, in the absence of any designation, in the order of election) of the Corporation (in such order) shall act as the Chairman of the meeting, and the stockholders shall not have the right to elect a different person as Chairman of the meeting. The Chairman of the meeting shall have the authority to determine when the election polls shall be closed in connection with any vote to be taken at the meeting. ARTICLE III DIRECTORS SECTION 3.1. The business and affairs of the Corporation shall be managed by a board of directors, which shall have and may exercise all of the powers of the Corporation, except such as are expressly conferred upon the stockholders by law, by the Certificate of Incorporation or by these Bylaws. Subject to the rights of the holders of shares of any series of preferred stock then outstanding to elect additional directors under specified circumstances, the Board of Directors shall consist of not less than three nor more than twenty-one persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by either (i) the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors, (ii) the affirmative vote of the holders of 80% or more of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, or (iii) the Certificate of Incorporation. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the Class I directors to expire at the 1991 annual meeting of stockholders, the term of the Class II directors to expire at the 1992 annual meeting of stockholders, and the term of the Class III directors to expire at the 1993 annual meeting of stockholders, and with the members of each class to hold office until their successors have been elected and qualified. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those 6 directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. SECTION 3.2. Subject to the rights of the holders of any series of preferred stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time only for cause and only by the affirmative vote of a majority of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. "Cause" shall be exclusively defined to mean: (a) conviction of a felony, (b) proof beyond a reasonable doubt of the gross negligence or willful misconduct of such director which is materially detrimental to the Corporation, or (c) proof beyond a reasonable doubt of a breach of fiduciary duty of such director which is materially detrimental to the Corporation. SECTION 3.3. Subject to the rights of holders of any series of any preferred stock then outstanding, newly-created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled by a majority vote of the directors then in office even though less than a quorum or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, than an election of directors may be held in the manner provided by statute. MEETINGS OF THE BOARD OF DIRECTORS SECTION 3.4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 3.5. The first meeting of each newly elected Board of Directors shall be held immediately following the meeting of stockholders at which such directors were elected, and no notice of such meeting to the newly elected directors shall be necessary in order to legally constitute the meeting, provided a quorum shall be present. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 3.6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. SECTION 3.7. Special meetings of the Board may be called by the Chairman of the Board on 48 hours' notice to each director, either personally or by mail, facsimile, or by telegram. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of a majority of the directors (unless the Board consists of only one director; in which case special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of the sole director). 7 SECTION 3.8. At all meetings of the Board, a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, these Bylaws or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.9. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.10. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS SECTION 3.11. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by applicable law and provided in the resolution of the Board of Directors, shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of the State of Delaware (the "Act") to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. 8 SECTION 3.12. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS SECTION 3.13. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES SECTION 4.1. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or facsimile. SECTION 4.2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS SECTION 5.1. The officers of the Corporation shall be chosen by the Board of Directors and shall be a chairman of the board, one or more vice chairman, a chief executive officer, a president, one or more vice presidents, a secretary, a treasurer and such other additional officers as the Board of Directors shall determine to be necessary. The Board of Directors may also choose assistant vice presidents and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. The Chairman shall be elected from among the directors. 9 SECTION 5.2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, a chief executive officer, one or more vice presidents, a secretary and a treasurer. SECTION 5.3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. SECTION 5.4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors or a committee thereof. SECTION 5.5. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors then in office. Such removal shall be without prejudice to the contract rights, if any, of the person so removed, provided, however, that the election or appointment of an officer shall not, of itself, create contract rights. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. CHAIRMAN OF THE BOARD SECTION 5.6. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders of the Corporation. The Chairman shall formulate and submit to the Board of Directors or a committee designated thereby matters of general policy of the Corporation and shall perform such other duties as usually pertain to the office or as may be prescribed by the Board of Directors. THE VICE CHAIRMAN SECTION 5.7. The Vice Chairman shall, in the absence of the Chairman, preside at all meetings of the Board of Directors and of the stockholders. In the event there may be more than one vice chairman, the vice chairmen in the order designated by the Board of Directors shall preside in the Chairman's absence and, in the absence of any designation, in the order of election. The Vice Chairman shall perform such other duties and have such other powers as the Chairman, or the Board of Directors may from time to time prescribe. THE CHIEF EXECUTIVE OFFICER SECTION 5.8. The Chief Executive Officer shall be the senior officer of the Corporation and shall perform such duties as usually pertain to the office or as may be prescribed by the Board of Directors. 10 THE PRESIDENT SECTION 5.9. The President shall be the chief operating officer of the Corporation and, subject to the control of the Board of Directors, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall keep the Board of Directors fully informed and shall consult them concerning the business of the Corporation. SECTION 5.10. The President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. THE VICE PRESIDENTS SECTION 5.11. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one vice president, the vice presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the President, the Board of Directors or any committee of the Board of Directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY SECTION 5.12. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation and he, or any assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. SECTION 5.13. The Assistant Secretary (or if there be more than one, the assistant secretaries in the order designated by the Board of Directors, or if there by no such designation, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 11 THE TREASURER AND ASSISTANT TREASURERS SECTION 5.14. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. SECTION 5.15. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. SECTION 5.16. If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration of the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 5.17. The Assistant Treasurer, (or if there be more than one, the assistant treasurers in the order designated by the Board of Directors, or if there be no such designation, then in the order of their election) shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES SECTION 6.1. The shares of the Corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or Vice President and the Treasurer or an assistant treasurer, or the Secretary or an assistant secretary of the Corporation. Upon the face or back of each stock certificate issued to represent any partially paid shares, or upon the books and records of the Corporation in the case of uncertificated partially paid shares, shall be set forth the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Certificates shall also contain such legends or statements as may be required by law and any agreement between the Corporation and the holder thereof. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other 12 special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Act, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the Act or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 6.2. Any or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES SECTION 6.3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Board of Directors may, in it discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK SECTION 6.4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt 13 of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be cancelled and issuance of new uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney and filed with the Secretary of the Corporation or the transfer agent. SECTION 6.5. Every stockholder or transferee shall furnish the Secretary or a transfer agent with the address to which notice of meetings and all other notices may be served upon or mailed to him or her, and in default thereof, he or she shall not be entitled to service or mailing of any such notice. FIXING RECORD DATE SECTION 6.6. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (c) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which the notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (ii) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (iii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 14 REGISTERED STOCKHOLDERS SECTION 6.7. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to vote as such owner, and to hold such person registered on its books liable for calls and assessments as the owner of such shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE VII MISCELLANEOUS/DIVIDENDS SECTION 7.1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, and applicable law, may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation. SECTION 7.2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall determine to be in the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT SECTION 7.3. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. CHECKS SECTION 7.4. All checks, demands, drafts, or other orders for payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. CONTRACTS SECTION 7.5. The Board of Directors may authorize any officer, officers, agent, or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. 15 DEPOSITS SECTION 7.6. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as the Board of Directors or officers may select. FISCAL YEAR SECTION 7.7. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SEAL SECTION 7.8. The corporate seal, if any, shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION SECTION 7.9. (a) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the written request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Notwithstanding the foregoing, but subject to paragraph (c) of this Section 7.9, the Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. (b) The Corporation shall pay the expenses (including attorneys' fees) incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Section or otherwise. (c) If a claim for indemnification or payment of expenses under this Section is not paid in full within sixty days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in 16 part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. (d) The rights conferred on any person by this Section shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. (e) The Corporation's obligation, if any, to indemnify or advance expenses to any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise. (f) Any repeal or modification of the foregoing provisions of this Section shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VIII AMENDMENTS SECTION 8.1. The Board of Directors may amend or repeal these Bylaws or adopt new Bylaws; provided that, the power to adopt, amend or repeal Bylaws conferred upon the Board of Directors shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws. 17 EX-10.1 3 REVOLVING CREDIT AGREEMENT EXHIBIT 10.1 - -------------------------------------------------------------------------------- $500,000,000 REVOLVING CREDIT AGREEMENT among CROSS TIMBERS OIL COMPANY, as Borrower The Several Banks from Time to Time Parties Hereto MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and NATIONSBANK OF TEXAS, N.A., as Syndication Agent Dated as of May 28, 1997 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1 --------- DEFINITION OF TERMS ------------------- ARTICLE 2 --------- THE REVOLVING CREDIT LOANS -------------------------- 2.01. Revolving Loan Commitments....................................... 21 -------------------------- 2.02. Manner of Borrowing.............................................. 23 ------------------- 2.03. Interest Rate.................................................... 25 ------------- 2.04. Borrowing Base Increase Fee...................................... 25 --------------------------- 2.05. Maximum Number of Eurodollar Borrowings.......................... 25 --------------------------------------- ARTICLE 3 --------- GUARANTY -------- 3.01. Guaranty......................................................... 26 -------- ARTICLE 4 --------- NOTES AND NOTE PAYMENTS ----------------------- 4.01. Notes............................................................ 26 ----- 4.02. Prepayments...................................................... 26 ----------- 4.03. Payment of Interest on the Notes................................. 27 -------------------------------- 4.04. Calculation of Interest Rates.................................... 27 ----------------------------- 4.05. Manner and Application of Payments............................... 28 ---------------------------------- 4.06. Pro Rata Treatment............................................... 28 ------------------ 4.07. Lending Office................................................... 29 -------------- 4.08. Taxes............................................................ 29 ----- 4.09. Sharing of Payments, etc......................................... 30 ------------------------ ARTICLE 5 --------- BORROWING BASE -------------- 5.01. Borrowing Base Tests............................................. 31 -------------------- 5.02. Initial Borrowing Base........................................... 32 ---------------------- 5.03. Subsequent Determination of Borrowing Base....................... 32 ------------------------------------------ 5.04. Special Determination of Borrowing Base.......................... 35 --------------------------------------- 5.05. Interim Sales of Mineral Properties.............................. 36 ----------------------------------- 5.06. Borrowing Base Deficiency........................................ 36 ------------------------- 5.07. Reserve Report and Gas Report Matters............................ 39 ------------------------------------- ARTICLE 6 --------- REPRESENTATIONS AND WARRANTIES ------------------------------ 6.01. Organization and Good Standing................................... 40 ------------------------------ 6.02. Authorization and Power.......................................... 40 ----------------------- 6.03. No Conflicts or Consents......................................... 41 ------------------------ 6.04. Enforceable Obligations.......................................... 41 ----------------------- 6.05. No Liens......................................................... 41 -------- 6.06. Financial Condition.............................................. 41 ------------------- 6.07. Full Disclosure.................................................. 42 --------------- 6.08. No Default....................................................... 42 ---------- -ii- 6.09. Material Agreements.............................................. 42 ------------------- 6.10. No Litigation.................................................... 42 ------------- 6.11. Burdensome Contracts............................................. 42 -------------------- 6.12. Estimated Oil and Gas Reserves................................... 42 ------------------------------ 6.13. Use of Proceeds; Margin Stock.................................... 42 ----------------------------- 6.14. Taxes............................................................ 43 ----- 6.15. Principal Office, Etc............................................ 43 --------------------- 6.16. ERISA............................................................ 43 ----- 6.17. Compliance with Law.............................................. 43 ------------------- 6.18. Government Regulation............................................ 44 --------------------- 6.19. Insider.......................................................... 44 ------- 6.20. No Subsidiaries.................................................. 44 --------------- 6.21. Environmental Matters............................................ 44 --------------------- 6.22. Title to Properties.............................................. 45 ------------------- 6.23. Gas Marketing Subsidiaries' Obligations.......................... 45 --------------------------------------- 6.24. Representations and Warranties................................... 45 ------------------------------ 6.25. Survival of Representations, Etc................................. 46 -------------------------------- ARTICLE 7 --------- CONDITIONS PRECEDENT -------------------- 7.01. Commitment....................................................... 46 ---------- 7.02. All Advances..................................................... 48 ------------ -iii- ARTICLE 8 --------- AFFIRMATIVE COVENANTS --------------------- 8.01. Financial Statements, Reports and Documents...................... 49 ------------------------------------------- 8.02. Payment of Taxes and Other Indebtedness.......................... 51 --------------------------------------- 8.03. Maintenance of Existence and Rights; Conduct of Business......... 51 -------------------------------------------------------- 8.04. Notice of Default................................................ 51 ----------------- 8.05. Other Notices.................................................... 52 ------------- 8.06. Compliance with Loan Papers...................................... 52 --------------------------- 8.07. Compliance with Material Agreements.............................. 52 ----------------------------------- 8.08. Operations and Properties........................................ 52 ------------------------- 8.09. Books and Records; Access........................................ 52 ------------------------- 8.10. Compliance with Law.............................................. 52 ------------------- 8.11. Leases........................................................... 53 ------ 8.12. Development and Maintenance...................................... 53 --------------------------- 8.13. Insurance........................................................ 53 --------- 8.14. Authorization and Approvals...................................... 53 --------------------------- 8.15. Experienced Management........................................... 53 ---------------------- 8.16. ERISA Compliance................................................. 54 ---------------- 8.17. Further Assurances............................................... 54 ------------------ 8.18. Environmental.................................................... 54 ------------- 8.19. Pledge of Properties............................................. 55 -------------------- 8.20. Gas Marketing Subsidiaries Guaranties............................ 55 ------------------------------------- 8.21. Guaranty of Cross Timbers Trading Company........................ 55 ----------------------------------------- -iv- ARTICLE 9 --------- NEGATIVE COVENANTS ------------------ 9.01. Limitation on Indebtedness....................................... 55 -------------------------- 9.02. Negative Pledge.................................................. 56 --------------- 9.03. Dividends and Distributions...................................... 56 --------------------------- 9.04. Limitation on Investments........................................ 57 ------------------------- 9.05. Alteration of Material Agreements................................ 57 --------------------------------- 9.06. Certain Transactions............................................. 57 -------------------- 9.07. Limitation on Sale of Properties................................. 57 -------------------------------- 9.08. Name, Fiscal Year and Accounting Method.......................... 58 --------------------------------------- 9.09. Current Ratio.................................................... 58 ------------- 9.10. Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets............................................... 58 ------------------ 9.11. Lines of Business................................................ 58 ----------------- 9.12. No Amendments.................................................... 58 ------------- 9.13. Purchase of Substantial Assets................................... 59 ------------------------------ 9.14. Guaranties....................................................... 59 ---------- 9.15. Leases; Sale and Leaseback....................................... 59 -------------------------- 9.16. Restriction on Loans............................................. 59 -------------------- 9.17. Speculative Trading.............................................. 59 ------------------- 9.18. Hedging Agreements............................................... 60 ------------------ 9.19. Prepayment or Redemption of Subordinated Indebtedness............ 60 ----------------------------------------------------- 9.20. Payments Respecting Permitted Margin Debt........................ 60 ----------------------------------------- 9.21. Strict Compliance................................................ 60 ----------------- -v- ARTICLE 10 ---------- EVENTS OF DEFAULT ----------------- 10.01. Events of Default................................................ 60 ----------------- 10.02. Remedies Upon Event of Default................................... 63 ------------------------------ 10.03. Performance by Banks............................................. 64 -------------------- ARTICLE 11 ---------- AGENCY PROVISIONS ----------------- 11.01. Appointment and Authorization.................................... 64 ----------------------------- 11.02. Consultation with Counsel........................................ 64 ------------------------- 11.03. Documents........................................................ 65 --------- 11.04. Resignation...................................................... 65 ----------- 11.05. Responsibility................................................... 65 -------------- 11.06. Notices of Event of Default...................................... 66 --------------------------- 11.07. Independent Investigation........................................ 66 ------------------------- 11.08. Indemnification.................................................. 66 --------------- 11.09. Forwarding of Information to Banks............................... 66 ---------------------------------- 11.10. Benefit of Article 11............................................ 67 --------------------- ARTICLE 12 ---------- SPECIAL PROVISIONS FOR EURODOLLAR AND CD LOANS; YIELD PROTECTION ---------------------------------------------------------------- 12.01. Inadequacy of Pricing............................................ 67 --------------------- 12.02. Illegality....................................................... 67 ---------- -vi- 12.03. Increased Costs for Loans........................................ 68 ------------------------- 12.04. Effect on Other Loans............................................ 69 --------------------- 12.05. Payments Not At End of Interest Period........................... 69 -------------------------------------- 12.06. Capital Adequacy................................................. 69 ---------------- ARTICLE 13 ---------- MISCELLANEOUS ------------- 13.01. Modification..................................................... 70 ------------ 13.02. Accounting Terms and Reports..................................... 70 ---------------------------- 13.03. Waiver........................................................... 70 ------ 13.04. Payment of Expenses; Documentary Taxes; Indemnification.......... 71 ------------------------------------------------------- 13.05. Notices.......................................................... 72 ------- 13.06. Governing Law.................................................... 72 ------------- 13.07. Choice of Forum; Consent to Service of Process and Jurisdiction; Waiver of Rights to Jury Trial................................... 73 ------------------------------ 13.08. Invalid Provisions............................................... 73 ------------------ 13.09. Maximum Interest Rate............................................ 74 --------------------- 13.10. Offset........................................................... 74 ------ 13.11. Article 14.10(b)................................................. 74 ---------------- 13.12. Entirety......................................................... 74 -------- 13.13. Headings......................................................... 75 -------- 13.14. Survival......................................................... 75 -------- 13.15. Successors and Assigns........................................... 75 ---------------------- 13.16. Foreign Banks, Participants, and Assignees....................... 76 ------------------------------------------ -vii- 13.17. No Third Party Beneficiary....................................... 77 -------------------------- 13.18. Acknowledgements................................................. 77 ---------------- 13.19. Multiple Counterparts............................................ 77 --------------------- 13.20. Notice and Acknowledgment of No Oral Agreements.................. 77 ----------------------------------------------- -viii- REVOLVING CREDIT AGREEMENT -------------------------- This REVOLVING CREDIT AGREEMENT (the "Loan Agreement") is entered into as of this 28th day of May, 1997 by and among CROSS TIMBERS OIL COMPANY, a Delaware corporation (hereinafter called "Company"), each Bank which from time to time become parties hereto, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent for Banks (herein the "Administrative Agent") and NATIONSBANK OF TEXAS, N.A. as Syndication Agent for Banks (herein the "Syndication Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Company, Agents, and certain Banks parties hereto have entered into the Prior Loan Agreement (as defined herein); and WHEREAS, Company desires to increase the credit available under the Prior Loan Agreement and to amend and restate the Prior Loan Agreement in its entirety by entering into this Loan Agreement; and WHEREAS, Company and Banks are willing to increase the credit available under the Prior Loan Agreement and to amend and restate the Prior Loan Agreement in its entirety upon the terms and subject to the conditions set forth in this Loan Agreement. WHEREAS, J. P. Morgan Securities, Inc. and NationsBanc Capital Markets, Inc., have acted in the capacity of Arrangers for Company and Banks in connection with the consummation of the transactions contemplated by this Loan Agreement. NOW, THEREFORE, in consideration of the mutual promises herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: ARTICLE 1 --------- DEFINITION OF TERMS ------------------- For the purposes of this Loan Agreement, unless the context otherwise requires, the following terms shall have the respective meanings assigned to them in this Article 1 or in the section or recital referred to below: "Adjusted PV Borrowing Base Test": Section 5.01(a)(ii). ------------------------------- "Adjusted CD Rate" shall, with respect to each Interest Period, mean on any ---------------- day thereof the quotient of (a) the CD Quoted Rate with respect to such Interest Period divided by (b) the remainder of 1.00 minus the CD Reserve Requirement in ---------- ----- effect on such day. "Adjusted InterBank Rate" shall, with respect to each Interest Period, mean ----------------------- on any day thereof the quotient of (a) the InterBank Offered Rate with respect to such Interest Period, divided by (b) the remainder of 1.00 minus the ---------- ----- Eurodollar Reserve Requirement in effect on such day. "Administrative Agent": The preamble, and as otherwise provided in Article -------------------- 11. "Advance": Section 2.01. ------- "Affected Borrowings": Section 12.01. ------------------- "Affiliate" of any Person shall mean any 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 and policies of such Person, whether through the beneficial or record ownership of a majority of the outstanding voting securities or equity interests or by contract or otherwise. "Agent" or "Agents": Administrative Agent and Syndication Agent, and as ----- ------ otherwise provided in Article 11. "Applicable Margin" shall mean, at such times and from time to time as the ----------------- Borrowing Base Percentage then in effect is within one of the following ranges, with respect to any Borrowing, the percentage per annum set forth below opposite the relevant type of Borrowing and the relevant range. Type of Borrowing Applicable Margin ----------------- ----------------- A. Floating Base Borrowing: ----------------------- Range 1: The Borrowing Base ------- Percentage is less than or equal to 75% 0.00% Range 2: The Borrowing Base ------- Percentage is greater than 75% 1/4% -2- B. Eurodollar Borrowing: -------------------- Range 1: The Borrowing Base ------- Percentage is less than or equal to 50% 3/4% Range 2: The Borrowing Base ------- Percentage is greater than 50% but less than or equal to 75% 1% Range 3: The Borrowing Base ------- Percentage is greater than 75% 1 1/4% C. CD Borrowing: ------------ Range 1: The Borrowing Base ------- Percentage is less than or equal to 50% 7/8% Range 2: The Borrowing Base ------- Percentage is greater than 50% but less than or equal to 75% 1 1/8% Range 3: The Borrowing Base ------- Percentage is greater than 75% 1 3/8% provided, however, that with respect to any Eurodollar Borrowing or CD Borrowing, if the Applicable Margin for such Borrowing is established while the Borrowing Base Percentage is within one of the ranges set forth above, but the Borrowing Base Percentage subsequently should become within one of the other ranges set forth above during the Interest Period in effect for such Borrowing, then (i) if, as of the Business Day (or Eurodollar Business Day) that the Borrowing Base Percentage changes, 30 days or more remain until the termination of such Interest Period, then the Applicable Margin for such Borrowing shall automatically change on such Business Day (or Eurodollar Business Day) without prior notice to Company to the Applicable Margin for the actual Borrowing Base Percentage then in effect or (ii) if, as of the Business Day (or Eurodollar Business Day) that the Borrowing Base Percentage changes, less than 30 days remain until the termination of such Interest Period, then the Applicable Margin then in effect shall not change until the termination of such Interest Period. "Approved Property Sale" shall mean the anticipated sale by Company of ---------------------- certain specific Mineral Properties included in the Borrowing Base in effect at the Closing Date, which sale shall occur after the Closing and which sale and the terms thereof have been previously disclosed to -3- Banks. If consummated, the Approved Property Sale will effect a $5,000,000 reduction to the Borrowing Base then in effect. "Arrangers": J. P. Morgan Securities, Inc. and NationsBanc Capital --------- Markets, Inc. "Assignee": Section 13.15. -------- "Assumed Amortization Schedule": Section 5.01(a)(iii). ----------------------------- "Bank" or "Banks": The Banks identified on the signature pages ---- ----- hereof, and each Assignee which becomes a Bank pursuant to Section 13.15 and their respective successors. "Base Dedicated Percentage": Section 5.06(a). ------------------------- "Beneficial Owner" shall be determined in accordance with Rules 13d-3 ---------------- and 13d-5 promulgated by the Security and Exchange Commission under the Securities Exchange Act of 1934 as it may be amended from time to time, or any successor provision thereto, except that a Person shall be deemed to have "beneficial ownership" of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. "Borrowing": Section 2.01. --------- "Borrowing Base": Section 5.01. -------------- "Borrowing Base Assets": Section 5.01(a)(i). --------------------- "Borrowing Base Deficiency": Section 5.06(a). ------------------------- "Borrowing Base Deficiency Certificate": Section 5.06(a). ------------------------------------- "Borrowing Base Percentage" shall mean, for the purpose of determining ------------------------- the applicable commitment fee under Section 2.01(c) hereof or the interest rate under Section 2.03 hereof, the Total Outstandings as a percentage of the Borrowing Base then in effect. "Borrowing Base Tests" shall mean, collectively, the PV Borrowing Base -------------------- Test, the Adjusted PV Borrowing Base Test and the Cash Flow Borrowing Base Test. "Business Day" shall mean any day except a Saturday, Sunday or other ------------ day on which commercial banks in New York City or Fort Worth, Texas are authorized by law to close. "Capital Lease" shall mean, 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, together with any other lease by such lessee which is in substance a financing lease, including without limitation, any lease under which (i) such lessee has or will have an option to purchase the property subject thereto at a nominal amount or an -4- amount less than a reasonable estimate of the fair market value of such property as of the date such lease is entered into or (ii) the term of the lease approximates or exceeds the expected useful life of the property leased thereunder. "Capital Stock" shall mean any and all shares, interests, ------------- participations, or equivalents (however designated) of capital stock of a corporation and any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Cash Flow" shall mean for any period, (i) the gross cash operating --------- revenues properly allocable to Proved Reserves attributable to the Mineral Properties (except that at least eighty-five percent (85%) of such Proved Reserves shall consist of Proved Developed Producing Reserves) and operations of the Gas Marketing Subsidiaries which are not subject to any Lien except Permitted Liens, and (ii) the cash dividends and distributions projected to be paid to Company or any Subsidiary on account of its CRT Units that are not subject to any Lien (except as provided below), less the following cash items: ---- royalties, operating costs (including, with respect to the Gas Marketing Subsidiaries, any lease or rental payments respecting the Lease Agreements), severance and wellhead taxes, general and administrative expenses and current income and other taxes, if any, properly allocable to such period, cash capital expenditures made during such period, to the extent such items are properly allocable to the Mineral Properties or such Gas Marketing Subsidiaries, and the scheduled installments of interest due on the Loan (based upon the Projected Interest Rate), the outstanding Permitted Margin Debt, and the Subordinated Indebtedness during such period. If any CRT Units are pledged to secure outstanding Permitted Margin Debt, only the dividends and distributions allocable to that portion of the CRT Units that have a value in excess of the publicly traded value of the CRT Units that are necessary under any collateral maintenance provisions to secure the Permitted Margin Debt shall be utilized in determining the Cash Flow attributable to the CRT Units. Cash Flow shall be determined for the purpose of establishing the Cash Flow Borrowing Base Test according to Section 5.01(a)(iii). "Cash Flow Borrowing Base Test": Section 5.01(a)(iii). ----------------------------- "Cash Flow Projections": Section 5.03. --------------------- "CD Advance" shall mean any principal amount under a Note with respect ---------- to which the interest rate is calculated by reference to the Adjusted CD Rate for a particular Interest Period. "CD Borrowing" shall mean any Borrowing composed of CD Advances. ------------ "CD Quoted Rate" shall mean, with respect to any Interest Period, the -------------- rate of interest determined by Administrative Agent to be the arithmetic average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each Reference Bank of its certificates of deposit in an amount comparable to the -5- unpaid principal amount of the CD Advance of such Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "CD Reserve Requirement" shall, on any day, mean 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 (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any changes in the CD Reserve Requirement. "CERCLA" shall mean the Comprehensive Environmental Response, ------ Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, as amended. "Change in Control" shall mean an occurrence where (a) any Person, or ----------------- any Persons acting together in a manner which would constitute a "group" (a "Group") for purposes of Section 13(d) of the Securities Exchange Act of 1934 as it may be amended from time to time, or any successor provision thereto, together with any Affiliates thereof, (i) become the Beneficial Owners of capital stock of the Company through a purchase, merger or other acquisition transaction, entitling such Person or Persons and its or their Affiliates to exercise more than 50% of the total voting power of all classes of the Company's capital stock entitled to vote generally in the election of directors or (ii) shall succeed in having sufficient of its or their nominees who are not supported by a majority of the then current board of directors of the Company elected to the board of directors of the Company such that such nominees, when added to any existing directors remaining on the board of directors of the Company after such election who are Affiliates of or acting in concert with any such Persons, shall constitute a majority of the board of directors of the Company, (b) a plan is adopted relating to the liquidation or dissolution of the Company or (c) the Company shall consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person other than a Subsidiary, or any other Person shall consolidate with or merge into the Company (other than, in the case of this clause (c), pursuant to any consolidation or merger where Persons who are Beneficial Owners of the Company's capital stock entitled to vote generally in the election of directors immediately prior thereto become the Beneficial Owners of shares of capital stock of the surviving corporation entitling such Persons to exercise more than 50% of the total voting power of all classes of such surviving corporation's capital stock entitled to vote generally in the election of directors or persons holding similar positions). "Closing Date" shall mean the date of this Loan Agreement as set ------------ forth in the preamble hereof. "Collateral Documents": Section 8.19. -------------------- -6- "Commitment" shall mean at any time Banks' commitment to make the Loan ---------- and any Borrowing thereunder available to Company in an aggregate amount at any time not to exceed the lesser of (i) the Borrowing Base then in effect or (ii) the Facility Amount. With respect to each Bank, its Commitment shall never exceed its Percentage of the lesser of (i) the Borrowing Base then in effect or (ii) the Facility Amount. The amount of each Bank's Commitment may be terminated or reduced from time to time in accordance with the provisions hereof. The initial Commitment is $317,000,000. "Company": The preamble. ------- "Consequential Loss" shall, with respect to Company's payment of all ------------------ or any portion of the then-outstanding principal amount of a Bank's Eurodollar Advance or CD Advance on a day other than the last day of the Interest Period related thereto, mean any loss, cost or expense incurred by such Bank as a result of the timing of such payment or in redepositing such principal amount, including the sum of (i) the interest which, but for such payment, such Bank would have earned in respect of such principal amount so paid, for the remainder of the Interest Period applicable to such sum, reduced, if such Bank is able to redeposit such principal amount so paid for the balance of such Interest Period, by the interest earned by such Bank as a result of so redepositing such principal amount plus (ii) any expense or penalty incurred by such Bank on ---- redepositing such principal amount. "Consolidated Current Assets" shall mean, as of any date, the current --------------------------- assets which would be reflected on a consolidated balance sheet of Company and the Subsidiaries prepared as of such date in accordance with Generally Accepted Accounting Principles, but excluding (i) all accounts receivable in respect of products, goods and/or services which were delivered or performed by Company or any Subsidiary at least 90 days prior to such date (or, with respect to receivables attributable to proceeds of production from the Mineral Properties, periods longer than 90 days if such receivables are otherwise payable in the ordinary course of business at periods longer than 90 days) and any notes receivable due from any Subsidiary, (ii) Intangible Assets, and (iii) assets held primarily for resale other than hydrocarbons severed from the Mineral Properties in the ordinary course of business and gas and other hydrocarbons (including by-products thereof) that are held by the Gas Marketing Subsidiaries for resale; provided, further, Company's Consolidated Current Assets shall include an amount equal to the difference, if any, between the Borrowing Base then in effect and the Total Outstandings. "Consolidated Current Liabilities" shall mean, as of any date, the -------------------------------- current liabilities which would be reflected on a consolidated balance sheet of Company and the Subsidiaries prepared as of such date in accordance with Generally Accepted Accounting Principles, but excluding (i) current maturities of funded Indebtedness of Company and Subsidiaries; (ii) accrued stock appreciation right expenses of Company, as reflected on the most recent financial statement of such Persons which are delivered to Banks pursuant to this Loan Agreement; and (iii) Permitted Margin Debt. "Conversion Date": Section 2.02(c). --------------- -7- "CRT Units" shall mean any publicly traded units of Cross Timbers Royalty --------- Trust. "CT Energy" shall mean Cross Timbers Energy Services, Inc., a Texas --------- corporation, and a Subsidiary of Company. "CT Operating" shall mean Cross Timbers Operating Company, a Texas ------------ corporation, and a Subsidiary of Company. "Determination Date" shall mean each June 30. ------------------ "Dividends", in respective of any corporation, shall mean: --------- (1) Cash distributions or any other distributions on, or in respect of, any class of capital stock of such corporation, except for distributions made solely in shares of stock of the same class: and (2) Any and all funds, cash or other payments in respect of the redemption, repurchase or acquisition of such stock, unless such stock shall be redeemed or acquired through the exchange of such stock with stock of the same class. "Dollars" and the sign "$" shall mean lawful currency of the United States ------- - of America. "Environmental Laws" shall mean CERCLA, RCRA and any other applicable laws, ------------------ statutes, regulations, judicial interpretations, ordinances, rules, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other government restriction of the United States or any state where the Mineral Properties are located or any other Governmental Authority having jurisdiction over Company or the Subsidiaries or any of their respective properties or assets, pertaining to health or the environment, as they now exist or are hereafter enacted and/or amended, including, without limitation, those matters relating to the emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- amended, together with all regulations issued pursuant thereto. "Eurodollar Advance" shall mean any principal amount under a Note with ------------------ respect to which the interest rate is calculated by reference to the Adjusted Interbank Rate for a particular Interest Period. "Eurodollar Borrowing" shall mean any Borrowing composed of Eurodollar -------------------- Advances. -8- "Eurodollar Business Day" shall mean a Business Day on which dealings in ----------------------- Dollars are carried out in the London interbank market. "Eurodollar Reserve Percentage" shall mean, 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 New York City with deposits exceeding five billion dollars 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 Eurodollar Advances 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). "Event of Default": Article 10. ---------------- "Excess Interest Amount": Section 4.03(b). ---------------------- "Facility Amount" shall mean, on any date, $500,000,000. --------------- "FDIC Percentage" shall mean for any Interest Period the net annual --------------- assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%) actually incurred by Morgan Guaranty Trust Company of New York to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of Morgan Guaranty Trust Company of New York in the United States during the most recent period for which such rate has been determined prior to the commencement of such Interest Period. "Federal Funds Rate" means, for any day, the rate per annum (rounded ------------------ upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if such day is not a Business Day, the -------- Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by Administrative Agent. "Floating Base Advance" shall mean any principal amount under a Note with --------------------- respect to which the interest rate is calculated by reference to the Floating Base Rate. "Floating Base Borrowing" shall mean any Borrowing composed of Floating ----------------------- Base Advances. -9- "Floating Base Rate" shall mean, for any day, a rate per annum equal to the ------------------ higher of (i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Gas Marketing Subsidiary" shall mean (i) Ringwood, (ii) CT Energy, (iii) ------------------------ Timberland, and (iv) any other Subsidiary of Company whose assets, business or operations consists primarily of gas gathering and transmission pipelines and/or the sale, resale, transportation, processing and marketing of natural gas and by-products thereof. "Gas Report" means a report delivered by Company to Banks pursuant to ---------- Section 5.03, Section 5.04 or Section 8.01(d). "Gas Subsidiaries' Loan Value": Section 5(a)(i). ---------------------------- "Generally Accepted Accounting Principles" shall mean those generally ---------------------------------------- accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the date hereof so as to properly reflect the financial condition, and the results of operations and changes in financial position, of Company and the Subsidiaries, except that any accounting principle or practice required to be changed by the said Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of the said Boards) in order to continue as a generally accepted accounting principle or practice may so be changed on or as of the date such change is adopted. "Governmental Authority" shall mean any government (or any political ---------------------- subdivision or jurisdiction thereof), court, bureau, agency or other governmental authority having jurisdiction over Company or any Subsidiary or any of its or their business, operations or properties. "Guaranty" of any Person shall mean any contract, agreement or -------- understanding of such Person pursuant to which such Person guarantees, or in effect guarantees, any Indebtedness of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including without limitation agreements: (1) to purchase such Indebtedness or any property constituting security therefor; (2) to advance or supply funds (a) for the purchase or payment of such Indebtedness, or (b) to maintain working capital or other balance sheet conditions, or otherwise to advance or make available funds for the purchase or payment of such Indebtedness; (3) to purchase property, securities or services primarily for the purpose of assuring the holder of such Indebtedness of the ability of the Primary Obligor to make payment of the Indebtedness; or -10- (4) otherwise to assure the holder of the Indebtedness of the Primary Obligor against loss in respect thereof; except that "Guaranty" shall not ------ ---- include the endorsement by Company or a Subsidiary in the ordinary course of business of negotiable instruments or documents for deposit or collection. "Hedge Agreement" shall mean any commodity pricing agreement, forward sale, --------------- "price swap" agreement or commodity rate-shifting agreement or similar agreement or contractual relationship between Company or any Subsidiary and any Person (including any Bank) pursuant to which Company holds a position in the price of any quantity of crude oil, natural gas or other hydrocarbons to be produced from the Mineral Properties such that the price derived from the first sale of any quantity of oil, gas or other hydrocarbons produced from the Mineral Properties is established prior to the actual production of such oil, gas or other hydrocarbons; provided, however, that a Hedge Agreement shall not include any monthly spot sales of Company's gas production from the Mineral Properties that occur in the ordinary course of its business. A Hedge Agreement shall also include the option of Company or any Subsidiary to buy or sell a Hedge Agreement. "Indebtedness" with respect to any Person shall mean as of any date, all ------------ liabilities and contingent liabilities which would be reflected on a balance sheet and related notes thereto of such Person prepared as of such date in accordance with Generally Accepted Accounting Principles, including without limitation: (i) all obligations for money borrowed; (ii) all obligations under conditional sale or other title retention agreements and all obligations issued or assumed as full or partial payment for property, whether or not any such obligations represent obligations for borrowed money; (iii) all indebtedness secured by a lien existing on property owned or acquired by such Person subject to any such lien, whether or not the obligations secured thereby shall have been assumed; (iv) all obligations, direct or indirect, to any joint venture, partnership or other entity of which such Person is a member; (v) all obligations under any Guaranty, note purchase agreement and other document having similar effect; (vi) all obligations for accounts payable or trade credit; (vii) indebtedness of any joint venture, partnership or other Person for which such Person is directly or indirectly liable; (viii) all obligations under any Capital Lease, operating lease or any other leases only to the extent such leases would be treated as indebtedness in accordance with Generally Accepted Accounting Principles; (ix) all obligations under an Interest Swap Agreement; and (x) all obligations under a Hedge Agreement. "Indenture" shall mean that certain Indenture dated as of April 1, 1997, --------- from Company to The Bank of New York, Trustee, pursuant to which the securities and notes evidencing the Subordinated Indebtedness are issued. "Intangible Assets" of any Person shall mean those assets of such Person ----------------- which are (i) deferred assets, other than prepaid insurance and prepaid taxes; (ii) patents, copyrights, trademarks, trade names, franchises, goodwill, experimental expenses and other similar assets which would be classified as intangible assets on a balance sheet of such Person, prepared in accordance with Generally Accepted Accounting Principles; (iii) unamortized debt discount and -11- expense; and (iv) assets located, and notes and receivables due from obligors domiciled, outside of the United States of America. "Interbank Offered Rate" shall mean, with respect to each Interest Period, ---------------------- the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Advance of such Reference Banks to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Interest Period" shall mean, with respect to a Eurodollar Advance or CD --------------- Advance, a period commencing: (i) on the borrowing date of such Eurodollar Advance or CD Advance made pursuant to Section 2.01 of this Loan Agreement; or (ii) on the Conversion Date pertaining to such Eurodollar Advance or CD Advance, if such Eurodollar Advance or CD Advance is made pursuant to a conversion as described in Section 2.02(c) hereof; or (iii) on the date of borrowing specified in the Request for Borrowing in the case of a rollover to a successive Interest Period, and ending one, two, three or six months thereafter (in the case of a Eurodollar Advance), or 30, 60, 90 or 180 days thereafter (in the case of a CD Advance) as Company shall elect in accordance with Section 2.02(c) of this Loan Agreement; provided, that: (A) any Interest Period which would otherwise end on a day which is not a Business Day (or in the case of a Eurodollar Advance, a Eurodollar Business Day) shall be extended to the next succeeding Business Day or Eurodollar Business Day (as the case may be) unless, in the case of a Eurodollar ------ Advance, 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) in the case of a Eurodollar Advance, 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 or at the end of such Interest Period) shall, subject to clause (A) above, end on the last Eurodollar Business Day of a calendar month; (C) if the Interest Period for any Eurodollar Advance or CD Advance would otherwise end after the Maturity Date, such Interest Period shall end on the Maturity Date; and (D) If (i) certificates of deposit are bid by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each Reference Bank -12- of its certificates of deposit having maturities longer than the Interest Periods set forth above for a CD Advance, or (ii) deposits in dollars are offered to each of the Reference Banks in the London interbank market for periods of time which are longer than the Interest Periods set forth above for a Eurodollar Advance, then, subject to the approval of all Banks, longer Interest Periods shall be made available to Company for such CD Advances and Eurodollar Advances which are identical to the longer maturities of certificates of deposit or deposits in dollars as set forth above, but such longer Interest Periods shall be further subject to subclauses (A), (B) and (C) immediately above. "Interest Swap Agreement" shall mean an agreement between Company and any ----------------------- Person (including any Bank) pursuant to which, with the intent to protect against fluctuations in interest rates or the exchange of notional interest obligations, either generally or under certain circumstances, such Persons agree to exchange a series of cash flows or revenues measured by different interest rates, and includes agreements providing for the exchange of a fixed rate of interest for a floating rate of interest and vice versa, one floating rate of interest for another floating rate of interest or fixed rate of interest in one currency for a floating rate of interest in another currency. "Investment" in any Person shall mean any investment, whether by means of ---------- share purchase, loan, advance, extension of credit, capital contribution or otherwise, in or to such Person, the Guaranty of any Indebtedness of such Person, or the subordination of any claim against such Person to other Indebtedness of such Person. "Lease Agreements" shall mean the documents evidencing (i) the equipment ---------------- and facilities lease transaction among Timberland, as Lessee, NationsBank Leasing Corporation and BancBoston Leasing Investment, Inc., as Owner Participants, and Wilmington Trust Company, Trustee, as Lessor, pursuant to which Timberland leases its Tyrone gas processing plant and related gas gathering facilities and systems and (ii) the equipment and facilities lease transaction among Ringwood, as Lessee, NationsBank Leasing Corporation and Banc One Leasing Corporation, as Owner Participants, and Wilmington Trust Company, Trustee, as Lessor, pursuant to which Ringwood leases its gas gathering facility in Major County, Oklahoma. "Lien" shall mean any lien, mortgage, security interest, tax lien, pledge, ---- encumbrance, conditional sale or title retention arrangement, or any other interest in property designed to secure the repayment of Indebtedness, whether arising by agreement or under any statute or law, or otherwise. "Loan" shall mean the Revolving Credit Loans. ---- "Loan Agreement": The preamble. -------------- "Loan Papers" shall mean this Loan Agreement, the Notes (including any ----------- renewals, extensions and refundings thereof), the Guaranties of the Gas Marketing Subsidiaries, and any agreements, certificates or documents (and with respect to this Loan Agreement, and such other agreements and documents, any amendments or supplements thereto or modifications thereof) -13- executed or delivered pursuant to the terms of this Loan Agreement. Loan Papers also include any Collateral Documents executed by Company and the Gas Marketing Subsidiaries pursuant to Section 8.19 hereof. "Majority Banks" shall mean, at any time, Banks holding Notes representing -------------- at least fifty-one percent (51.00%) of the aggregate unpaid principal amount of the Loan, or if no Loans are at the time outstanding, Banks having at least fifty-one percent (51.00%) of the Commitment. "Material Adverse Effect" means any circumstance or event which (i) would ----------------------- have or has had any adverse effect whatsoever upon the validity or enforceability of any Loan Papers, (ii) is or would be material and adverse to the financial condition or business operations of Company or any Subsidiary, taken as a whole (iii) has impaired or would impair the ability of Company to perform any of its material Obligations or substantially all of its Obligations under the Loan Papers, or (iv) causes an Event of Default or any event which, with notice or lapse of time or both, would become an Event of Default. "Maturity Date: shall mean June 30, 2002. ------------- "Maximum Rate" shall mean, on any day, the highest nonusurious rate of ------------ interest (if any) permitted by applicable law on such day. Banks hereby notify Company that, and disclose to Company that, for purposes of Tex. Rev. Civ. Stat. Ann. Art. 5069-1.04, as it may from time to time be amended, the "applicable rate ceiling" shall be the "indicated rate" ceiling from time to time in effect as limited by Art. 5069-1.04(b); provided, however, that to the extent permitted by applicable law, Banks reserve the right to change the "applicable rate ceiling" from time to time by further notice and disclosure to Company; and, provided further, that the "highest nonusurious rate of interest permitted by applicable law" for purposes of this Loan Agreement and the Notes shall not be limited to the applicable rate ceiling under Art.E5069-1.04 if federal laws or other state laws now or hereafter in effect and applicable to this Loan Agreement, and the Notes (and the interest contracted for, charged and collected hereunder or thereunder) shall permit a higher rate of interest. "Mineral Properties" shall mean, as of any date, Company's interest in and ------------------ to (i) oil, gas and/or mineral leases, royalty and overriding royalty interests, production payments, net profits interests and mineral fee interests, (ii) unitization, communitization and pooling arrangements (and all properties covered and units created thereby), whether arising by contract or operation of law, which include all or any part of the foregoing, (iii) lands subject to any of the foregoing, (iv) equipment, fixtures, rights-of-way, easements, goods, chattels, accounts, accounts receivable, contract rights, chattel paper, general intangibles, and other items of personal property related to, located on or used in connection with the foregoing; (v) processing facilities, pipelines, salt water disposal wells and facilities, transportation rights and facilities, and other equipment, machinery, rights or facilities related to or used in connection with the marketing, transporting, producing, processing, or gathering of oil, gas or hydrocarbons. Mineral Properties shall not include beneficial ownership interests in oil and gas royalty interests or other oil and gas interests attributable to CRT Units or Non-CT Royalty Trust Units. -14- "Net Revenue" shall mean for each Reference Period shall mean the remainder ----------- of (i) all cash proceeds received by Company or any Gas Marketing Subsidiary during such Reference Period on account of (a) the sale of oil, gas and/or other mineral production received by Company or any Gas Marketing Subsidiary for the Reference Period and attributable to the Mineral Properties and/or the business and operations of the Gas Marketing Subsidiaries; (b) the processing, transporting, gathering or marketing of oil, gas and/or mineral production received by Company or any Gas Marketing Subsidiary for the Reference Period and attributable to the Mineral Properties and/or the business and operations of the Gas Marketing Subsidiaries; (c) fees for the disposal of salt water (or similar liquid) on the Mineral Properties received by Company for the Reference Period, (d) settlement, buy-out, compromise or renegotiation of any gas purchase or sales contract which affects any of the Mineral Properties, (e) amounts received by Company during such Reference Period on account of any Hedge Agreement, and (f) the cash dividends and distributions projected to be paid to Company or any Subsidiary during such Reference Period on account of its CRT Units minus (i) ----- the actual cash payments made by Company or any Gas Marketing Subsidiary during such Reference Period on account of the operating expenses attributable to the Mineral Properties and/or the business and operations of the Gas Marketing Subsidiaries, including without limitation, [w] taxes, other than franchise taxes, [x] normal leasehold operator's expenses charged by third party operators, including overhead expenses of third party operators which are allowed as operating expenses pursuant to relevant operating agreements, [y] with respect to the Mineral Properties operated by Company or an Affiliate of Company, such expenses charged by Company or its Affiliate which are allowed as "Direct Charges" under the Accounting Procedure recommended by the Council of Petroleum Accountant Societies and [z] amounts paid by Company on account of any Hedge Agreement and (ii) the payments of interest made by Company during such Reference Period for scheduled installments of interest due on the Subordinated Indebtedness, but only to the extent that such payments of interest are permitted according to the Indenture and payments made by Company or any Subsidiary during such Reference Period on any Permitted Margin Debt that is secured by any CRT Units. "Non-CT Royalty Trust Units" shall mean any units of beneficial or direct -------------------------- ownership in any royalty trust other than CRT Units. "Notes" shall mean the Notes executed by Company and delivered to Banks ----- pursuant to the terms of this Agreement, together with any renewals, extensions or modifications thereof. "Note" shall mean any of the Notes. "Obligation" shall mean all present and future indebtedness, obligations, ---------- and liabilities of Company to Banks or any of them, and all renewals and extensions thereof, or any part thereof, arising pursuant to this Loan Agreement or represented by the Notes, and all interest accruing thereon, and attorneys' fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several; together with all indebtedness, obligations and liabilities of Company evidenced or arising pursuant to any of the other Loan Papers, and all renewals and extensions thereof, or part thereof or any Interest Swap Agreement between Company and any -15- Bank or Banks that involves the swap or exchange of interest rates under this Loan Agreement or any Hedge Agreement between Company and any Bank or Banks. "Other Taxes": Section 4.08. ----------- "Participant": Section 13.15. ----------- "PBGC" shall mean the Pension Benefit Guaranty Corporation, and any ---- successor to all or any of the Pension Benefit Guaranty Corporation's functions under ERISA. "Percentage" shall mean, with respect to any Bank, such Bank's ---------- proportionate share of the Commitment in effect from time to time, as set forth in Schedule I hereto. "Permitted Liens" shall mean, as of any date: (i) pledges or deposits made --------------- to secure payment of worker's compensation (or to participate in any fund in connection with worker's compensation), unemployment insurance, pensions or social security programs; (ii) contractual liens for the benefit of operators of the Mineral Properties, but only to the extent that such operators are not asserting a claim or right to exercise their rights under such contractual liens, except for such claims and rights of operators which Company contests in good faith and for which adequate reserves are maintained according to Generally Accepted Accounting Principles; (iii) liens imposed by mandatory provisions of law such as for materialmen's, mechanic's, warehousemen's and other like liens arising in the ordinary course of business; (iv) liens for taxes, assessments and governmental charges or levies imposed upon a Person or upon such Person's income or profits or property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate reserves have been provided; (v) good faith deposits in connection with tenders, leases, real estate bids or contracts (other than contracts involving the borrowing of money), pledges or deposits to secure public or statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to secure the payment of taxes, assessments, customs duties as other similar charges; (vi) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such do not impair the use of real property for the uses intended, and none of which is violated in any material respect by existing or proposed structures or land use; (vii) the terms and provisions of the leases, assignments, unit agreements and other instruments of conveyance or transfer applicable to or affecting the Mineral Properties; (viii) the terms and provisions of the assignments and other title transfer documents under which Company acquired the Mineral Properties including any right retained by a predecessor in title of Company to purchase hydrocarbons produced therefrom; (ix) any inconsequential, insignificant or immaterial liens or encumbrances against any Mineral Property which does not interfere with or impair Company's ownership of, or right or ability to receive proceeds of production from, such property, and which, singularly or collectively with other inconsequential, insignificant or immaterial liens or encumbrances, do not result in a Material Adverse Effect on Company or any Subsidiary, (x) the Liens granted by Timberland to third-party lessors covering its compressor station and interconnect facility, pursuant to certain lease agreements between Timberland and such lessors, (xi) Liens granted pursuant to the Lease Agreements, (xii) Liens against Investments of Company or its Subsidiaries that are Capital Stock in publicly traded companies engaged -16- primarily in the oil and gas industry, CRT Units and Non-CT Royalty Trust Units that are pledged to secure Permitted Margin Debt, (xiii) any Lien not otherwise included in subclauses (x) or (xi) above that is granted by Company or a Subsidiary under any equipment lease agreement in which Company or a Subsidiary is a lessee up to an aggregate face amount for all of such equipment lease agreements of $5,000,000 during any calendar year, (xiv) the Collateral Documents and (xv) any other liens or encumbrances to which Majority Banks agree in writing. "Permitted Margin Debt" shall mean Indebtedness of Company and its --------------------- Subsidiaries that is secured by Capital Stock in publicly traded companies engaged primarily in the oil and gas industry, CRT Units and Non-CT Royalty Trust Units that are owned by Company and its Subsidiaries up to an aggregate amount at any one time outstanding of (i) $25,000,000 plus (ii) that unused or available portion of the Indebtedness permitted by subclause (xi) of Section 9.01 hereof that is secured by Capital Stock in publicly traded companies engaged primarily in the oil and gas industry, CRT Units and Non-CT Royalty Trust Units that are owned by Company and its Subsidiaries. "Person" shall include an individual, a corporation, a joint venture, a ------ partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. "Plan" shall mean an employee benefit plan or other plan maintained by ---- Company for employees of Company and/or its Subsidiaries and covered by Title IV of ERISA, or subject to the minimum funding standards under Section 412 of the Internal Revenue Code of 1954, as amended. "Present Value of Borrowing Base Reserves": Section 5.01 (a)(i). ---------------------------------------- "Prime Rate" means the rate of interest publicly announced by Morgan ---------- Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Prior Loan Agreement" shall mean that certain Revolving Credit Agreement -------------------- dated June 15, 1995 by and among Company, Morgan Guaranty Trust Company of New York, and NationsBank of Texas, N. A., as Co-Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent, and the other lenders parties thereto, as amended by letter amendments dated March 1, 1996, April 8, 1996, April 24, 1996, June 19, 1996, October 15, 1996, November 1, 1996, December 4, 1996, December 10, 1996 and March 14, 1997. "Production Profile" shall mean the projected rates of production, ------------------ projected declines in production, the percentage of oil or gas production to the total of all production of oil or gas, and other elements, characteristics, or components of or respecting the production, recovery or projected production or recovery of oil or gas attributable to the Proved Reserves of the Mineral Properties, as set forth in the Reserve Reports covering the Mineral Properties which were utilized in determining the initial Borrowing Base hereunder. "Projected Interest Rate" shall mean, for purposes of determining the Cash ----------------------- Flow Projections as of the date of determining any such projections, a rate per annum equal to the -17- weighted average applicable rate of interest payable by Company on all outstanding Indebtedness (exclusive of the Subordinated Indebtedness) during the most recently ended period of 30 consecutive calendar days, or, if no such Indebtedness is outstanding, the rate of interest which would then be applicable for a Eurodollar Advance, in the amount of $5,000,000, with an Interest Period of one month. "Proved Developed Producing Reserves" shall have the meaning assigned to ----------------------------------- that term by the Society of Petroleum Engineers, as it may be amended from time to time, but generally shall mean the subcategory of "Proved Developed Reserves" (as defined by the Society of Petroleum Engineers) which are recoverable from the completion intervals currently open and producing to market. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery will be included as "Proved Developed Producing Reserves" only after the operation of an installed program has confirmed through production response through existing completions producing to market that increased recovery will be achieved. Proved Developed Producing Reserves shall not include any Proved Developed Non-Producing Reserves. "Proved Developed Non-Producing Reserves" shall have the meaning assigned --------------------------------------- to that term by the Society of Petroleum Engineers, as it may be amended from time to time, but generally shall mean the subcategory of "Proved Developed Reserves" (as defined by the Society of Petroleum Engineers) which will become "Proved Developed Producing Reserves" upon minor capital expenditures being made with respect to existing wells which will cause formerly non-producing completions or intervals to become open and producing to market. "Proved Reserves" means and includes Proved Developed Producing Reserves, --------------- Proved Developed Non-Producing Reserves and Proved Undeveloped Reserves. "Proved Undeveloped Reserves" shall have the meaning assigned to that term --------------------------- by the Society of Petroleum Engineers, as it may be amended from time to time, but generally shall mean those reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Proved Undeveloped Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved Undeveloped Reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for Proved Undeveloped Reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. "PV Borrowing Base Test": Section 5.01(a)(i). ---------------------- "Quarterly Period" shall mean each three-month period(s) commencing on the ---------------- first day of January, April, July and October, and ending on the last day of each March, June, September and December, respectively. -18- "RCRA" shall mean the Resource Conservation and Recovery Act of 1976, as ---- amended by the Used Oil Recycling Act of 1980, the Hazardous and Solid Waste Disposal Act Amendments of 1984 and the Hazardous and Solid Waste Amendments of 1984. "Reference Banks" shall mean Morgan Guaranty Trust Company of New York and --------------- NationsBank of Texas, N.A., and with respect to a Eurodollar Borrowing, Reference Banks shall refer to the principal London office, if any, of any Reference Bank or their respective Affiliates. "Regulation D" shall mean Regulation D of the Board of Governors of the ------------ Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" shall mean Regulation U promulgated by the Board of ------------ Governors of the Federal Reserve System, 12EC.F.R. Part 221, or any other regulation hereafter promulgated by said Board to replace the prior Regulation U and having substantially the same function. "Regulation X" shall mean Regulation X promulgated by the Board of ------------ Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any other regulation hereafter promulgated by said Board to replace the prior Regulation X and having substantially the same function. "Reportable Event" shall have the meaning assigned to that term in Title IV ---------------- of ERISA. "Request for Borrowing": Section 2.02(a). --------------------- "Reserve Base" shall mean the type, character, location, field and nature ------------ of ownership of the oil and gas leases, overriding royalty interests, mineral interests, royalty interests, net profits interests, production payments and other oil, gas and/or mineral interests or properties which comprise the Mineral Properties, and the working interests and net revenue interests of Company in and to the Mineral Properties, as set forth in the Reserve Reports for the Mineral Properties which were utilized in determining the initial Borrowing Base hereunder. "Reserve Report" means a report delivered by Company pursuant to Section -------------- 5.03, Section 5.04 or Section 8.01(c). "Revolving Credit Loans": Section 2.01(a). ---------------------- "Ringwood" shall mean Ringwood Gathering Company, a Delaware corporation, -------- and a Subsidiary of Company. "Rollover Notice": Section 2.02(c). --------------- "Scheduled Installment": Section 5.06(a). --------------------- -19- "Speculative Trading" shall mean the holding by Company or any Subsidiary ------------------- of a position in, or forward sale respecting, any derivative or commodity transaction, excluding any transaction respecting the physical sale, storage, transportation or marketing of oil, gas or other hydrocarbons produced from the Mineral Properties, the hedging of Company's position in oil, gas or other hydrocarbons produced from the Mineral Properties or any portion thereof pursuant to a Hedge Agreement, but only to the extent that such Hedge Agreement is permitted under Section 9.18 hereof, or any gas storage transaction entered into by any Gas Marketing Subsidiary in the ordinary course of its business. Speculative Trading shall also include any Interest Swap Agreement that is entered into for speculative purposes and not for the purpose of protecting against fluctuations in interest rates or the exchange of notional obligations, either generally or under specific circumstances. "Subordinated Indebtedness" shall mean the Indebtedness evidenced by the 9 ------------------------- 1/4% Senior Subordinated Notes, due April 1, 2007, in the aggregate principal amount of $125,000,000, which have been issued pursuant to the Indenture. "Subsidiary" or "Subsidiaries" shall mean CT Energy, CT Operating, ---------- ------------ Timberland, Ringwood, WTW Properties, Inc., a Texas corporation, Cross Timbers Trading Company, a Texas corporation, and any and all other corporations, partnerships, joint ventures, business trusts or other legal entities in which Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of a majority of the outstanding voting securities or equity interests therein. "Supplemental Borrowing Base Deficiency Certificate": Section 5.06(b). -------------------------------------------------- "Syndication Agent": The preamble, and as otherwise provided in Article ----------------- 11. "Taxes": Section 4.08. ----- "Temporary Cash Investment" shall mean any Investment in (i) direct ------------------------- obligations of the United States of America or any agency thereof, or obligations fully guaranteed by the United States of America or any agency thereof, provided that such obligations mature within 360 days of the date of acquisition thereof, (ii) commercial paper rated in the highest grade by two or more national credit rating agencies and maturing not more than 270 days from the date of creation thereof, and (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any United States bank having capital surplus and undivided profits aggregating at least $1,000,000,000. "Timberland" shall mean Timberland Gathering & Processing, Inc., a Texas ---------- corporation, and a Subsidiary of Company. "Total Outstandings" shall mean, at any date, the aggregate of the ------------------ principal amount of, and accrued interest which is overdue and unpaid in respect of, the Loan. -20- "Trustee" shall mean the Trustee under the Indenture, including any ------- successor trustee designated pursuant to the Indenture. Other Definitional Provisions. ----------------------------- (a) All terms defined in this Loan Agreement shall have the above- defined meanings when used in the Notes or any Loan Papers, certificate, report or other document made or delivered pursuant to this Loan Agreement, unless the context therein shall otherwise require. (b) Defined terms used herein in the singular shall import the plural and vice versa. (c) The words "hereof," "herein," "hereunder" and similar terms when used in this Loan Agreement shall refer to this Loan Agreement as a whole and not to any particular provision of this Loan Agreement. ARTICLE 2 --------- THE REVOLVING CREDIT LOANS -------------------------- 2.01. Revolving Loan Commitments. -------------------------- (a) Revolving Loan Commitments. Subject to the terms and conditions -------------------------- of this Loan Agreement, each Bank severally agrees to extend to Company, from the date hereof through the term of this Loan Agreement, a revolving line of credit which shall not exceed at any one time outstanding such Bank's Percentage of the lesser of: (i) the Borrowing Base in effect and as redetermined from time to time, or (ii) the Facility Amount. No Bank shall be obligated to make any Loan if, after giving effect thereto, the Total Outstandings exceed the lesser of (i) the Borrowing Base then in effect or (ii) the Facility Amount. The Commitment shall never exceed the Borrowing Base then in effect. Provided, however, if, upon the redetermination of the Borrowing Base, the Borrowing Base exceeds the Commitment then in effect, the Commitment may be increased to an amount (that shall not exceed the Borrowing Base as redetermined) which all Banks shall, in their sole discretion, approve in writing, following a request from Company for such increase, but the Commitment shall never exceed the Facility Amount. Banks shall have no obligation to increase the Commitment. The initial Commitment is $317,000,000, until redetermined according to Section 5.03, 5.04 or 5.05 hereof. The Loan may from time to time be (i) Floating Base Borrowings, (ii) Eurodollar Borrowings or (iii) CD Borrowings, as selected by Company and notified to Administrative Agent according to Section 2.02 hereof. An initial Advance in an amount equal to the unpaid principal balance and accrued interest due on the Indebtedness under the Prior Loan Agreement as of the Closing Date shall be made by Banks on the Closing Date to refinance the Indebtedness outstanding as of the Closing -21- Date under the Prior Loan Agreement. Within the limits of this Section 2.01, Company may borrow, prepay pursuant to Section 4.02 hereof and reborrow under this Section 2.01. Each Borrowing pursuant to this Section 2.01 shall be funded ratably by Banks in proportion to their respective Percentages. Each Advance made by a Bank hereunder is herein called an "Advance"; all Advances made by a Bank hereunder are herein collectively called a "Loan;" the aggregate unpaid principal balance of all Advances made by Banks hereunder are herein collectively called the "Loans;" and the combined Advances made by Banks on any given day are herein collectively called a "Borrowing." (b) Reduction of Commitment. Company shall have the right, upon three ----------------------- (3) Business Days' prior written notice to Administrative Agent, to terminate or to permanently reduce the unborrowed portion of the Commitment, in whole or in part (provided any partial reduction shall be in the minimum amount of $10,000,000 or any integral multiple of $1,000,000), effective on the first day of any Quarterly Period hereafter. Each partial reduction of the Commitment shall ratably reduce each Bank's Commitment. There shall be no termination or permanent reduction to any borrowed portion of the Commitment unless such termination or reduction is accompanied by a mandatory prepayment on the Loan in an amount that will cause the Total Outstandings to not exceed the Commitment as reduced. (c) Commitment Fee. In addition to the payments provided for in -------------- Article 4 hereof, Company shall pay to Administrative Agent for the account of each Bank, on the first day of each Quarterly Period, a revolving credit loan commitment fee at the following rates per annum on the average daily amount of such Bank's Commitment which was unused during the immediately preceding Quarterly Period. Borrowing Base Percentage Commitment Fee ------------------------- -------------- Less than or equal to 50% one-fourth of one percent (1/4%) Greater than 50% three-eighths of one percent (3/8%) If the Borrowing Base Percentage during any Quarterly Period should increase above 50% or decrease below 50% (or both), the Commitment Fee shall be prorated as to the number of days during the Quarterly Period that the Borrowing Base Percentage was above or below 50%, as the case may be. Company and Banks acknowledge and agree that the commitment fees payable hereunder are bona fide commitment fees and are intended as reasonable compensation to Banks for committing to make funds available to Company as described herein and for no other purpose. The commitment fees payable hereunder shall be calculated on the basis of the actual days elapsed in a year consisting of 360 days. (d) Use of Proceeds. The proceeds of the Loan shall be used (i) on --------------- the Closing Date to refinance the Indebtedness under the Prior Loan Agreement, (ii) for the payment of capital expenditures, drilling costs and other expenses incurred by Company in the further development of the Mineral Properties, (iii) to purchase additional Mineral Properties and (iv) for working capital and general corporate purposes of Company and its Subsidiaries, but only to the -22- extent that the use of proceeds for such purposes would be permitted under the terms of this Loan Agreement. 2.02. Manner of Borrowing. ------------------- (a) Request for Borrowing. Each request by Company to Administrative --------------------- Agent for a Borrowing under Section 2.01 hereof (a "Request for Borrowing") shall specify the aggregate amount of such requested Borrowing, the requested date of such Borrowing, and, when the request for Borrowing specifies a Eurodollar Borrowing or a CD Borrowing, the Interest Period which shall be applicable thereto. Company shall furnish to Administrative Agent the Request for Borrowing at least three (3) Eurodollar Business Days prior to the requested Eurodollar Borrowing date (which must be a Eurodollar Business Day) and at least two (2) Business Days prior to the requested borrowing date (which must be a Business Day) for a CD Borrowing. A Floating Base Borrowing may be made the same date on which a Request for Borrowing is received by Administrative Agent. Any such Request for Borrowing shall: (i) in the case of a Floating Base Borrowing, be in the form attached hereto as Exhibit "B", (ii) in the case of a CD Borrowing, be in the form attached hereto as Exhibit "C" and (iii) in the case of a Eurodollar Borrowing, be in the form attached hereto as Exhibit "D". Each Borrowing shall be in an aggregate principal amount of $5,000,000 or any integral multiple of $1,000,000. Any Request for Borrowing received by Administrative Agent after 12:00 noon (New York City time) on any Business Day shall be deemed to have been received on the next succeeding Business Day. Prior to making a Request for Borrowing, Company may (without specifying whether the anticipated Borrowing shall be a Floating Base Borrowing, CD Borrowing or Eurodollar Borrowing) request that Administrative Agent provide Company with the most recent CD Quoted Rate and InterBank Offered Rate available to Reference Banks. Administrative Agent shall provide such quoted rates to Company on the date of such request. Each Request for Borrowing shall be irrevocable and binding on Company and, in respect of the Borrowing specified in such Request for Borrowing, Company shall indemnify each Bank against any cost, loss or expense incurred by such Bank as a result of any failure to fulfill, on or before the date specified for such Borrowing, the conditions to such Borrowing set forth herein, including without limitation, any cost, loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Bank to fund the Advance to be made by such Bank as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. After receiving a Request for Borrowing in the manner provided herein, Administrative Agent shall promptly notify each Bank by telephone (confirmed immediately by telex, telecopy or cable), telecopy, telex or cable of the amount of the Borrowing and such Bank's pro rata share of such Borrowing, the date on which the Borrowing is to be made, the interest option selected and, if applicable, the Interest Period selected. -23- (b) Funding. Each Bank shall, before 1:00 P.M. (New York City time) ------- on the date of such Borrowing specified in the notice received from Administrative Agent pursuant to Exhibit 2.02(a), deposit such Bank's ratable portion of such Borrowing in immediately available funds to an account maintained by Administrative Agent as designated by Administrative Agent. Upon fulfillment of all applicable conditions set forth herein and after receipt by the Administrative Agent of such funds, Administrative Agent shall pay or deliver such proceeds to or upon the order of Company at the principal office of Administrative Agent in immediately available funds. The failure of any Bank to make any Advance required to be made by it hereunder shall not relieve any other Bank of its obligation to make its Advance hereunder. If any Bank shall fail to provide its ratable portion of such funds and if all conditions to such Borrowing shall have apparently been satisfied, Administrative Agent will make available such funds as shall have been received by it from the other Banks, in accordance with this Section 2.02(b). Neither Administrative Agent nor any Bank shall be responsible for the performance by any other Bank of its obligations hereunder. In the event of any failure by a Bank to make an Advance required hereunder, the other Banks may (but shall not be required to) purchase (on a pro rata basis, according to their respective Percentages) such Bank's Note. Upon the failure of a Bank to make an Advance required to be made by it hereunder, Administrative Agent may, in its sole discretion, attempt to obtain one or more banks, acceptable to Banks, to replace such Bank, but neither Administrative Agent nor any other Bank shall have any liability or obligation whatsoever as a result of the failure to obtain a replacement for such Bank. Unless Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to Administrative Agent such Bank's ratable portion of such Borrowing, Administrative Agent may assume that such Bank has made such portion available to Administrative Agent on the date of such Borrowing in accordance with Section 2.02(b) and Administrative Agent may, in reliance upon such assumption, make available to or on behalf of Company on such date a corresponding amount. If and to the extent such Bank shall not have so made such ratable portion available to Administrative Agent, such Bank and Company severally agree to repay to Administrative Agent forthwith on demand such corresponding amount together with interest at the Federal Funds Rate, for each day from the date such amount is made available to or on behalf of Company until the date such amount is repaid to Administrative Agent, at the rate per annum equal to the rate applicable to the Borrowing in question. If such Bank shall repay to Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Advance as part of such Borrowing for purposes of this Loan Agreement. (c) Selection of Interest Option. Upon making a Request for Borrowing ---------------------------- under Section 2.02(a) hereof, Company shall advise Administrative Agent as to whether the Borrowing shall be (i) a Eurodollar Borrowing, in which case Company shall specify the applicable Interest Period therefor, (ii) a CD Borrowing, in which case Company shall specify the applicable Interest Period therefor, or (iii) a Floating Base Borrowing. At least two (2) Business Days or Eurodollar Business Days, as the case may be, prior to the termination of each Interest Period with respect to a Eurodollar Borrowing or a CD Borrowing (whether such termination occurs before or after the Maturity Date) Company shall give Administrative Agent written notice (the "Rollover Notice") of the interest option which shall be applicable to such Borrowing upon the -24- expiration of such Interest Period. If Company shall specify that such Borrowing shall be a Eurodollar Borrowing or a CD Borrowing, such Rollover Notice shall also specify the length of the succeeding Interest Period selected by Company with respect to such Advance. 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 prior to the expiration of the then-relevant Interest Period, then Company shall be deemed to have elected to have such Borrowing be a Floating Base Borrowing. With respect to any Floating Base Borrowing, Company shall have the right, on any Business Day or Eurodollar Business Day as the case may be (a "Conversion Date") to convert such Floating Base Borrowing to a Eurodollar Borrowing or to a CD Borrowing, by giving Administrative Agent a Rollover Notice of such selection at least two (2) Business Days or Eurodollar Business Days, as the case may be, prior to such Conversion Date. Notwithstanding anything to the contrary contained herein, Company shall have no right to request a Eurodollar Borrowing or CD Borrowing if the interest rate applicable thereto under Section 2.03 hereof would exceed the Maximum Rate in effect on the first day of the Interest Period applicable to such Eurodollar Borrowing or CD Borrowing. 2.03. Interest Rate. ------------- (a) Floating Base Advance. The unpaid principal of each Floating Base --------------------- Advance shall bear interest from the date of advance until paid at a rate per annum which shall from day to day be equal to the lesser of (a) the Maximum Rate or (b) the sum of the Floating Base Rate in effect from day to day plus the Applicable Margin. (b) Eurodollar Advance. The unpaid principal of each Eurodollar ------------------ Advance (inclusive of any rollover of or conversion to a Eurodollar Borrowing) shall bear interest from the date of advance until paid at a rate per annum which shall from day to day be equal to the lesser of (i) the Maximum Rate or (ii) the sum of the Adjusted InterBank Rate for the Interest Period in effect plus the Applicable Margin. (c) CD Advance. The unpaid principal balance of each CD Advance ---------- (inclusive of any rollover of or conversion to a CD Borrowing) shall bear interest from the date of advance until paid at a rate per annum which shall from day to day be equal to the lesser of (a) the Maximum Rate or (b) the sum of (i) the FDIC Percentage in effect on such date plus (ii) the Adjusted CD Rate for Interest Period in effect plus (iii) the Applicable Margin. 2.04. Borrowing Base Increase Fee. Company shall pay to Administrative --------------------------- Agent, for the account of all Banks, an additional fee upon each subsequent increase to the Borrowing Base that is agreed to by Banks according to Section 2.01(a) and Article 5 hereof in an amount that is agreed to between Company and Banks as a condition precedent to the increase to the Borrowing Base by Banks. 2.05 Maximum Number of Eurodollar Borrowings. All Eurodollar Borrowings, --------------------------------------- including rollovers of Eurodollar Borrowings and conversions to Eurodollar Borrowings, shall be -25- made in such manner that, after giving effect thereto, there are no more than twelve (12) Interest Periods applicable to outstanding Eurodollar Borrowings in effect at any time; provided, however, that more than twelve (12) such Interest -------- ------- Periods applicable to outstanding Eurodollar Borrowings may be permitted to be in effect with the prior approval of Administrative Agent. ARTICLE 3 --------- GUARANTY -------- 3.01. Guaranty. The Loan shall be unconditionally guaranteed by CT -------- Operating and each of the Gas Marketing Subsidiaries pursuant to a form of Guaranty satisfactory to Majority Banks. CT Operating and each Gas Marketing Subsidiary will be required to make customary representations and warranties required by Majority Banks of guarantors. ARTICLE 4 --------- NOTES AND NOTE PAYMENTS ----------------------- 4.01. Notes. The Advances made under Section 2.01(a) hereof by a Bank ----- shall be evidenced by the Revolving Promissory Notes executed by Company and delivered to each Bank pursuant to the terms of this Agreement (each a "Note" and collectively, the "Notes") which Notes shall (i) be dated the date hereof, (ii) be in the amount of such Bank's Percentage of the Facility Amount, (iii) be payable to the order of such Bank at the office of Administrative Agent, (iv) bear interest in accordance with Section 2.03 hereof, and (v) be in the form of Exhibit "A" attached hereto with blanks appropriately completed in conformity herewith. Each Note shall mature on the Maturity Date, at which time all Obligations under such Note shall become immediately due and payable. Notwithstanding the principal amount of any Bank's Note as stated on the face thereof, (a) such Bank's Commitment shall never exceed its Percentage of the Commitment then in effect, and (b) the amount of principal actually owing on such Note at any given time shall be the aggregate of all Advances theretofore made to Company hereunder, less all payments of principal theretofore actually received hereunder, by such Bank. Each Bank is authorized, but is not required, to endorse on the schedule attached to its Note appropriate notations evidencing the date and amount of each Advance as well as the amount of each payment made by Company hereunder. 4.02. Prepayments. ----------- (a) Optional Prepayments. Company may, without premium or penalty, -------------------- upon one (1) Business Days' prior written notice to Administrative Agent, prepay the principal of the Notes then outstanding, in whole or in part, at any time or from time to time; provided, however, that (i) each prepayment of less than the full outstanding principal balance of any Note shall be in an amount equal to $1,000,000 or an integral multiple thereof, (ii) if Company shall prepay the principal of any Eurodollar Borrowing or CD Borrowing on any date other than the last day of -26- the Interest Period applicable thereto, Company shall also pay to Administrative Agent, for the account of Banks, the amounts specified in Section 12.05 (with respect to a Eurodollar Borrowing or a CD Borrowing), and (iii) Company shall at all times maintain a sufficient portion of the Loans as a Floating Base Borrowing to allow Company to make regularly scheduled payments of principal without paying a CD Borrowing or Eurodollar Borrowing prior to the end of the applicable Interest Period. Upon receipt of such notice of intention to prepay, Administrative Agent shall promptly notify each Bank of the receipt of such notice and of the date and amount of the proposed prepayment. (b) Mandatory Prepayments. Company shall make mandatory prepayments --------------------- of the Notes, as appropriate, as required under Sections 8.13 and Section 9.07. (c) General Prepayment Provisions. Any prepayment of a Note hereunder ----------------------------- shall be (i) made together with interest accrued (through the date of such prepayment) on the principal amount prepaid, and (ii) applied first to accrued interest and then to principal. 4.03. Payment of Interest on the Notes. -------------------------------- (a) Notes. Interest on the unpaid principal amount of each Floating ----- Base Advance under the Notes shall be payable quarterly as it accrues on the last Business Day of each Quarterly Period, commencing June 30, 1997, and at the Maturity Date. Interest on the unpaid principal amount of each Eurodollar Advance and CD Advance under the Notes shall be payable on the last day of each Interest Period applicable to such Advance or, if such Interest Period is longer than three months for any Eurodollar Advance, at intervals of three months after the first day thereof, or if such Interest Period is longer than 90 days for any CD Advance, at intervals of 90 days after the first day thereof. (b) Recapture Rate. If, on any interest payment date, Administrative -------------- Agent does not receive (for the account of any Bank) interest on such Bank's Note computed (as if no Maximum Rate limitations were applicable) at the applicable contract rate described herein, because the applicable contract rate exceeds or has exceeded the Maximum Rate, then Company shall, upon the written demand of Administrative Agent or such Bank, pay to such Bank, in addition to interest otherwise required hereunder, on each interest payment date thereafter, the Excess Interest Amount (hereinafter defined) calculated as of such later interest payment date; provided, however, that in no event shall Company be required to pay, for any appropriate computation period, interest at a rate exceeding the Maximum Rate effective during such period. The term "Excess Interest Amount" shall mean, on any date, with respect to the Note of any Bank, the amount by which (a) the amount of all interest which would have accrued prior to such date on the principal of such Note (had the applicable contract rate(s) described herein at all times been in effect, without limitation by the Maximum Rate) exceeds (b) the aggregate amount of interest actually paid to such ------- Bank on such Note on or prior to such date. 4.04. Calculation of Interest Rates. Interest on the unpaid principal ----------------------------- of each CD Borrowing and Eurodollar Borrowing shall be calculated on the basis of the actual days elapsed in a year consisting of 360 days. Interest on the unpaid principal of each Floating Base -27- Borrowing shall be calculated on the basis of the actual days elapsed in a year consisting of 365 or 366 days, as appropriate. 4.05. Manner and Application of Payments. All payments of principal ---------------------------------- of, and interest on, any Note to or for the account of any Bank shall be made by Company to Administrative Agent before 2:00 p.m. (New York City time), in Federal or other immediately available funds at Administrative Agent's principal banking office in New York City. Should the principal of, or any installment of the principal or interest on, any Note, or any commitment fee, become due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day. Each payment received by Administrative Agent hereunder for the account of a Bank shall be promptly distributed by Administrative Agent to such Bank. All payments made on any Note shall be credited, to the extent to the amount thereof, in the following manner: (i) first to fees, costs and expenses which Company has agreed to pay under the Loan Papers for which Company has received an invoice no later than five (5) days prior to such payment, (ii) second, against the amount of interest accrued and unpaid on such Note as of the date of such payment; (iii) third, against all principal (if any) due and owing on such Note as of the date of such payment; (iv) fourth, as a prepayment of outstanding Floating Base Advances under such Note; (v) fifth, as a prepayment of outstanding Eurodollar Advances and CD Advances under such Note; and (vi) sixth, as a prepayment of any remaining Obligation. Subject to the foregoing, payments and prepayments of principal of the Notes shall be applied to such outstanding Floating Base Borrowings, Eurodollar Borrowings and CD Borrowings under such Notes as Company shall select; provided, however, that Company shall select Floating Base Borrowings, Eurodollar Borrowings and CD Borrowings to be repaid in a manner designated to minimize the Consequential Loss, if any, resulting from such payments; and provided further that, if Company shall fail to select the Floating Base Borrowings, Eurodollar Borrowings and CD Borrowings to which such payments are to be applied, or if an Event of Default has occurred and is continuing at the time of such payment, then Administrative Agent shall be entitled to apply the payment to such Floating Base Borrowings, Eurodollar Borrowings and CD Borrowings in the manner it shall deem appropriate. 4.06. Pro Rata Treatment. Each payment received by Administrative ------------------ Agent hereunder for account of Banks or any of them on the Notes shall be distributed to each Bank entitled to share in such payment, pro rata in --- ---- proportion to the then-unpaid principal balance of the Note of each Bank. Unless Administrative Agent shall have received notice from Company prior to the date on which any payment is due to Banks hereunder that Company will not make such payment in full, Administrative Agent may assume that Company has made such payment in full to Administrative Agent on such date and Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent Company shall not have so made such payment in full to Administrative Agent, each Bank shall repay to Administrative Agent forthwith on demand such amount distributed to such Bank together with interest at the Federal Funds Rate, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to Administrative Agent, at the rate applicable to such portion of the Loan on its due date. -28- 4.07. Lending Office. Each Bank may (a) designate its principal office -------------- or a foreign branch, subsidiary or affiliate of such Bank as its lending office (and the office to whose accounts payments are to be credited) for any Eurodollar Advance, (b) designate its principal office or a domestic branch, subsidiary or affiliate as its lending office (and the office to whose accounts payments are to be credited) for any CD Advance or Floating Base Advance and (c) change its lending offices from time to time by notice to Administrative Agent and Company. In such event, such Bank shall continue to hold the Note evidencing its loans for the benefit and account of such foreign branch, subsidiary or affiliate. Each Bank shall be entitled to fund all or any portion of its Loan in any manner that it deems appropriate, but for the purposes of this Agreement such Bank shall, regardless of such Bank's actual means of funding, be deemed to have funded its Loan in accordance with the interest option from time to time selected by Company for such Borrowing. 4.08. Taxes. ----- (a) Any and all payments by Company hereunder or under the Notes shall be made, in accordance with Section 4.05, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (hereinafter referred to as "Taxes"), excluding, in the case of each Bank and Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or Administrative Agent (as the case may be) is organized or is or should be qualified to do business or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise taxes imposed on it by the jurisdiction of such Bank's lending office or any political subdivision thereof. If Company shall be required by law to deduct any taxes (i.e., such taxes, liens, imposts, ---- deductions, charges, withholdings and liabilities for which Company is responsible under the preceding sentence) from or in respect of any sum payable hereunder or under any Note to any Bank or Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.08) such Bank or Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Company shall make such deductions and (iii) Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, Company agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Loan Papers or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the other Loan Papers (hereinafter referred to as "Other Taxes"). (c) Company will indemnify each Bank and Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 4.08) paid by such Bank or Administrative Agent (as the case may be) or any liability (including penalties and interest) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were -29- correctly or legally asserted. This indemnification shall be made within 30 days from the date such Bank or Administrative Agent (as the case may be) makes written demand therefor, which demand shall contain an invoice itemizing the Taxes, Other Taxes or related liability which is subject to Company's indemnification according to this Section 4.08. (d) Within 30 days after the date of any payment of Taxes, Company will furnish to Administrative Agent, at its address referred to in Section 13.05, the original or a certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement of Company hereunder, the agreements and obligations of Company contained in this Section 4.08 shall survive the payment in full of principal and interest hereunder and under the other Loan Papers for the applicable period of limitations respecting any Taxes, Other Taxes or related liability of Company under this Section 4.08. (f) Each Bank agrees to use good faith efforts to carry out its obligations under this Loan Agreement in such a way as to reduce the amount of Taxes attributable to the Loan, including the use of a different lending office, as long as in the good faith opinion of such Bank such actions would not adversely affect it. 4.09. Sharing of Payments, etc. If any Bank shall obtain any payment ------------------------- (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it in excess of its ratable share of payments on account of the Advances obtained by all Banks, such Bank shall forthwith purchase from the other Banks such participations in the Advances made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them, provided, however, that if -------- ------- all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such Bank's required repayment, to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount recovered. Company agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 4.09 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of Company in the amount of such participation. The foregoing provisions shall also apply to any payments received by any Bank from a Gas Marketing Subsidiary respecting a payment under the Guaranty of such Gas Marketing Subsidiary. -30- ARTICLE 5 --------- BORROWING BASE -------------- 5.01. Borrowing Base Tests. -------------------- (a) Borrowing Base Tests. The Borrowing Base shall be determined, -------------------- redetermined and adjusted from time to time pursuant to this Article 5. Upon each determination and redetermination of the Borrowing Base pursuant to this Loan Agreement, the Borrowing Base shall be the lesser of (i) the PV Borrowing Base Test set forth in subsection 5.01(a)(i) below, (ii) the Adjusted PV Borrowing Base Test set forth in subsection 5.01(a)(ii) below or (iii) the Cash Flow Borrowing Base Test set forth in subsection 5.01(a)(iii) below. (i) The PV Borrowing Base. The PV Borrowing Base shall be based upon --------------------- economic variables which evaluate the discounted present value of future net income accruing to the Borrowing Base Assets as established by the Reserve Reports delivered from time to time hereunder (herein called the "Present Value of Borrowing Base Reserves") and the Gas Subsidiaries' Loan Value as determined from time to time. The PV Borrowing Base Test shall equal the sum of (a) fifty percent (50%) of the Present Value of Borrowing Base Reserves that are attributable to the Proved Reserves allocable to the Borrowing Base Assets; provided, however, that at least eighty-five percent (85%) of such Proved Reserves shall consist of Proved Developed Producing Reserves, and (b) the loan value assigned to the operations of the Gas Marketing Subsidiaries as determined according to Section 5.07 herein (such loan value is herein called the "Gas Subsidiaries' Loan Value"). The term "Borrowing Base Assets" shall mean only such Mineral Properties (i) to which Company has good and indefeasible title and (ii) which are not subject to any liens, encumbrances or charges, except for Permitted Liens for or against which Indebtedness is not due and payable. (ii) The Adjusted PV Borrowing Base Test. The Adjusted PV Borrowing ----------------------------------- Base Test shall equal the remainder of (i) the quotient of (a) the Present Value of Borrowing Base Reserves that are attributable to the Proved Reserves allocable to the Borrowing Base Assets (provided that at least eighty-five percent (85%) of such Proved Reserves shall consist of Proved Developed Producing Reserves) plus the Gas Subsidiaries' Loan Value divided by (b) 1.35, ---- ---------- less (ii) the unpaid principal balance of the Subordinated Indebtedness then - ---- outstanding. (iii) The Cash Flow Borrowing Base Test. The Cash Flow Borrowing Base --------------------------------- Test shall establish a Borrowing Base amount that, based on Company's Cash Flow, will (i) cause the Borrowing Base to be fully amortized over a period of years selected by Company and approved by Majority Banks (or selected by Majority Banks in their sole discretion if Majority Banks do not agree with Company's proposed amortization period), with such amortization to be accomplished through assumed quarterly principal payments on the amortizing Borrowing Base at the end of each Quarterly Period of such amortization period and (ii) cause (a) Company to maintain a Cash Flow for each of the current year and next succeeding year of the assumed -31- amortization period (or partial current annual period in the case of a special determination of the Borrowing Base under Section 5.04, with the current year commencing on January 1 of the year in which the certificate described in Section 5.06(a) is delivered) that is 1.25 times greater than the cumulative payments of principal which are necessary to make the required amortization of the Borrowing Base during each of such years, and (b) Company to maintain a --- Cash Flow for each annual period of the assumed amortization period thereafter that is 1.00 times greater than the cumulative payments of principal which are necessary to make the required amortization of the Borrowing Base during each of such years. (The amortization of the Borrowing Base that is required to establish the Cash Flow Borrowing Base Test is herein called the "Assumed Amortization Schedule.") Although the Assumed Amortization Schedule may establish a Borrowing Base that may not be fully amortized until after the Maturity Date, nothing contained herein shall be construed to extend the Maturity Date. The Borrowing Base Tests and all components thereof shall be based upon the information contained in the most recent Reserve Report and Gas Report delivered by Company to Banks pursuant to Sections 5.03 and 5.04, together with any other information reasonably requested by either Agent or Majority Banks, and shall be determined in the manner and according to the procedures set forth in this Article 5; provided further, that the components used to establish the Borrowing Base Tests shall be subject to adjustment as determined by Majority Banks if Majority Banks determine that there has been a material change in the Reserve Base or Production Profile of the Proved Reserves attributable to the Mineral Properties (such adjustment to the components used to establish the Borrowing Base Tests to be effective upon written notice thereof from Agents to Company). Any Borrowing Base which becomes effective as a result of any redetermination of the Borrowing Base according to this Article 5 shall be subject to the following restrictions: (a) such Borrowing Base shall not exceed the Borrowing Base requested by Borrower pursuant to Section 5.03 or 5.04 (as applicable), (b) such Borrowing Base shall not exceed the Commitment then in effect, (c) to the extent such Borrowing Base represents an increase from the Borrowing Base in effect prior to such redetermination, shall be approved by all Banks, and (d) to the extent such Borrowing Base represents a decrease or reaffirmation of the prior Borrowing Base, shall be approved by Majority Banks. 5.02. Initial Borrowing Base. The initial Borrowing Base shall be ---------------------- $317,000,000, until redetermined according to Section 5.03, 5.04, or 5.05. 5.03. Subsequent Determination of Borrowing Base. The Borrowing Base ------------------------------------------ shall be determined annually as of each Determination Date of each year during the Loan commencing June 30, 1998. Company shall deliver to Banks on or before April 15 of each year, commencing April 15, 1998: -32- (a) a report (the "Reserve Report") prepared as of December 31 of the immediately preceding year by Miller and Lents or such other firm or firms of independent petroleum engineers acceptable to Agents, in accordance with customary standards and procedures of the petroleum industry, which report shall evaluate the Proved Reserves attributable to the Mineral Properties as Company desires to be considered for Borrowing Base purposes (such evaluation shall include, without limitation, a description of Proved Reserves, rates of production, gross revenues, operating expenses, windfall profit taxes, ad valorem taxes, capital costs, net revenues and present value of future net revenues attributable to such reserves and production therefrom, and a statement of the assumptions upon which such determinations were made), and each Reserve Report shall utilize in its evaluation of the Proved Reserves attributable to the Mineral Properties the economic variables agreed to by Company and Agents and approved by Majority Banks (or designated by Majority Banks if Company and Majority Banks are unable to agree to such variables) pursuant to Section 5.07 hereof; (b) a report (the "Gas Report"), prepared by Company as of December 31 of the immediately preceding year and certified by the chief financial officer of Company as being true and correct, setting forth in reasonable detail the results of the operations of the Gas Marketing Subsidiaries for the preceding year, including income and expenses attributable to each of the Gas Marketing Subsidiaries during such period, and a projection of cash flow setting forth for each of the Gas Marketing Subsidiaries the projected (a) net earnings (before income taxes) of such Gas Marketing Subsidiary for the current fiscal year and each succeeding fiscal year during the remaining term of the Loan, as determined in accordance with Generally Accepted Accounting Principles plus (b) any non- cash changes, such as depreciation, depletion and amortization, which were subtracted from gross earnings in determining projected net earnings for purposes of clause (a) above, and each such Gas Report shall utilize in its economic projections the economic variables, assumptions, computations and other parameters agreed to by Company and Agents and approved by Majority Banks (or designated by Majority Banks if Company and Majority Banks are unable to agree to such variables, assumptions, computations and other parameters) for the purpose of establishing the Gas Subsidiaries' Loan Value pursuant to Section 5.07 hereof; (c) a certificate signed by the chief financial officer of Company, which sets forth Company's proposed Assumed Amortization Schedule and projects (i) Company's Cash Flow for each annual period until the Borrowing Base has been fully amortized according to the Assumed Amortization Schedule, with each such annual period commencing January 1 of each applicable year and ending on December 31 of such year, and with Cash Flow being based upon the most recent Reserve Report and Gas Report submitted to Banks pursuant to Section 5.03 and the financial information delivered to Banks according to Section 9.01 hereof, (ii) the cumulative projected payments of interest on the Loan during each such annual period, with such projected interest payments to be determined on the basis of the Projected Interest Rate during such annual periods and (iii) the projected cumulative payments of principal which are necessary to make the amortization of the Borrowing Base according to the Assumed Amortization Schedule during the current and each succeeding annual periods during the term of the proposed Assumed Amortization Schedule, with each such annual period commencing January 1 of each applicable -33- year and ending on December 31 of such year, such certificate to include all computations and derivations relating to the Assumed Amortization Schedule and the projections specified in subclauses (i) through (iii) above in reasonable detail (the projections set forth in subclauses (i) through (iii) above are herein called the "Cash Flow Projections"); (d) if requested by either Agent, (a) title opinions or other title information, satisfactory to such Agent to evidence that Company holds indefeasible title to those additional Mineral Properties to be included in the Borrowing Base, and/or (b) any Hedge Agreements then in force and effect, and/or (c) such specific agreements and contracts which evidence the right of the Gas Marketing Subsidiaries to receive any projected revenues or cash flow set forth in the Gas Report; and (e) a certificate (the "Borrowing Base Certificate"), signed by the chief financial officer of Company which sets forth Company's determination of the Borrowing Base Tests and resulting Borrowing Base and components thereof as set forth in Section 5.01 hereof, such certificate to include all computations and derivations relating to Company's proposed Borrowing Base Tests and resulting Borrowing Base, and components thereof in reasonable detail, all of which shall be based upon the Reserve Report delivered pursuant to subclause (a) above, the Gas Report delivered pursuant to subclause (b) above, and the Assumed Amortization Schedule and Cash Flow Projections delivered pursuant to clause (c) above. Within forty-five (45) days after their receipt of such information, Agents shall give Company and Banks written notice of whether Majority Banks approve of the proposed Borrowing Base as established by the Borrowing Base Tests set forth in Company's Borrowing Base Certificate, or, alternatively, whether Majority Banks disapprove of the proposed Borrowing Base as established by the Borrowing Base Tests set forth in Company's Borrowing Base Certificate, including, without limitation, Majority Banks disapproval of the Assumed Amortization Schedule and the Cash Flow Projections set forth in such certificate. If, for any reason, Majority Banks disapprove of the Borrowing Base proposed by Company according to its determination of the Borrowing Base Tests, then Company and Agents shall consult with one another to determine the Borrowing Base Tests and the resulting Borrowing Base which will be approved by Majority Banks. Majority Banks shall determine, in their sole discretion, the Borrowing Base Tests and the resulting Borrowing Base if the Reserve Report, Gas Report, Assumed Amortization Schedule, Cash Flow Projections and Borrowing Base Certificate required to be delivered to Banks pursuant to this Section 5.03 are not delivered to Banks on or before April 15 of the applicable year or if Majority Banks and Company are not able to agree upon the Borrowing Base should Majority Banks disapprove of the Borrowing Base Tests and resulting Borrowing Base proposed by Company. The Borrowing Base (and the resulting Commitment of Banks) established pursuant to this Section 5.03 shall be effective as of the ensuing Determination Date and shall remain in effect until it is subsequently redetermined pursuant to this Section 5.03 or Section 5.04 or is adjusted pursuant to Section 5.05; provided, however, if the -------- ------- Borrowing Base as redetermined represents a decrease in the Borrowing Base then in effect, the Bank's Commitment shall decrease to the amount of the redetermined Borrowing Base effective as of the date that Agents provide Company with written notice of the redetermined Borrowing Base. -34- 5.04. Special Determination of Borrowing Base. In addition to the --------------------------------------- determinations of the Borrowing Base required pursuant to Section 5.03 hereof, special determinations thereof may be made for any reason not more than once during any twelve month period during the Loan at the option of (i) Company, (ii) either Agent or (iii) Majority Banks. In order to request a special determination of the Borrowing Base, the Person requesting such determination shall provide Agents and Company with a written request of such determination. Prior to any special determination of the Borrowing Base, Company shall submit to Banks: (a) a current Reserve Report prepared by Miller and Lents or such other firm of independent petroleum engineers acceptable to Majority Banks, prepared in accordance with customary standards and procedures of the petroleum industry, which report shall (A) evaluate the Mineral Properties subject to such redetermination (in the same manner as provided in Section 5.03) and (B) be dated within sixty (60) days of such requested redetermination; (b) a current Gas Report prepared by Company and certified by the chief financial officer of Company, which report shall be dated within sixty (60) days of the requested redetermination; (c) an Assumed Amortization Schedule and Cash Flow Projections certified by the chief financial officer of Company, based upon the Reserve Report and Gas Report delivered under subclauses (a) and (b) above; (d) if requested by either Agent, (a) title opinions or other title information, acceptable to such Agent to evidence that Company holds indefeasible title to those Mineral Properties which are to be considered within the Borrowing Base, and/or (b) any Hedge Agreements then in force and effect, and/or (c) such specific agreements and contracts which evidence the right of the Gas Marketing Subsidiaries to receive any projected revenues or cash flow set forth in the Gas Report; and (e) a Borrowing Base Certificate, signed by the chief financial officer of Company, which sets forth Company's determination of the Borrowing Base Tests and the resulting Borrowing Base and components thereof as set forth in Section 5.01 hereof, such certificate to include all computations and derivations relating to Company's proposed Borrowing Base Tests and resulting Borrowing Base and components thereof in reasonable detail, all of which shall be based upon the Reserve Report delivered pursuant to subclause (a) above, the Gas Report delivered pursuant to subclause (b) above, and the Assumed Amortization Schedule and Cash Flow Projections delivered pursuant to subclause (c) above. Within forty-five (45) days after their receipt of such information, Agents shall give Company and Banks written notice of whether Majority Banks approve of the proposed Borrowing Base Tests and the resulting Borrowing Base set forth in Company's Borrowing Base Certificate, or, alternatively, whether Majority Banks disapprove of the proposed Borrowing Base Tests and the resulting Borrowing Base set forth in Company's Borrowing Base Certificate including, without limitation, Majority Banks disapproval of Company's Assumed Amortization -35- Schedule or Cash Flow Projections. If, for any reason, Majority Banks disapprove of the Borrowing Base Tests and the resulting Borrowing Base proposed by Company, then Company and Agents shall consult with one another to determine the Borrowing Base which will be approved by Majority Banks. If a Borrowing Base Deficiency shall exist upon any redetermination of the Borrowing Base under this Section 5.04 and such Borrowing Base Deficiency is not cured by the next succeeding Borrowing Base determined pursuant to Section 5.03 hereof, then there shall be a mandatory redetermination of the Borrowing Base as of the anniversary date of the effective date of such Borrowing Base Deficiency. Such mandatory redetermination shall be in addition to any special redetermination of the Borrowing Base which may be made pursuant to this Section 5.04. (Also, as set forth in Section 6.21, Section 6.22 and Section 9.19, a redetermination of the Borrowing Base may be made according to such Sections, which redeterminations shall be in addition to any other redetermination which may be made pursuant to this Section 5.04.) Majority Banks shall determine, in their sole discretion, the Borrowing Base Tests and resulting Borrowing Base if the Reserve Report, Gas Report, Assumed Amortization Schedule and Cash Flow Projections and certificate required to be delivered to Banks pursuant to this Section 5.04 are not delivered to Banks within 60 days after request for a special determination or Company and Majority Banks are unable to agree to the Borrowing Base Tests and resulting Borrowing Base should Majority Banks disapprove of the Borrowing Base Tests and resulting Borrowing Base proposed by Company. The effective date of the Borrowing Base determined under this Section 5.04 shall be the first Business Day of the calendar month succeeding the month that Majority Banks approve the Borrowing Base as redetermined under this Section 5.04. 5.05. Interim Sales of Mineral Properties. After a Borrowing Base has ----------------------------------- been determined, upon the sale by Company of any Mineral Property (other than the sale of hydrocarbons after severance in the ordinary course of business), the Borrowing Base shall be reduced, effective on the date of consummation of such sale, by an amount which Company certifies to Banks is the Borrowing Base value last assigned to such Mineral Property according to the most recent Reserve Report and Borrowing Base Certificate delivered to Banks; provided, however, that if Majority Banks, for any reason, disapprove of the proposed Borrowing Base value certified by Company, then Majority Banks shall determine the Borrowing Base value last assigned to such Mineral Property according to the most recent Reserve Report and Borrowing Base Certificate delivered to Banks; provided, further, that no such reduction to the Borrowing Base shall be required with respect to aggregate net sales proceeds of up to $5,000,000 during any calendar year during the term of the Loan, and provided further, that all such sales shall be subject to the provisions of Section 9.07. Company and Banks agree that upon consummation of the Approved Property Sale by Company, the Borrowing Base then in effect shall be reduced by $5,000,000. Company agrees to provide Agents prompt written notice of the consummation of the Approved Property Sale. 5.06. Borrowing Base Deficiency. ------------------------- (a) Borrowing Base Deficiency. If after determination of the ------------------------- Borrowing Base under Section 5.03 hereof, or after a special determination of the Borrowing Base under Section 5.04 hereof, the Borrowing Base is less than the Total Outstandings as of the effective date of -36- such Borrowing Base (the amount by which the Borrowing Base is less than the Total Outstandings is herein called a "Borrowing Base Deficiency"), then Majority Banks may cause Company to commence paying to Administrative Agent, for the account of all Banks, a quarterly principal installment (each a "Scheduled Installment") on the Notes and Loan to be paid on the last Business Day of each successive Quarterly Period (commencing on the last Business Day of the Quarterly Period during which Company provides to Banks the Borrowing Base Deficiency Certificate or Agents provide Company with written notice of the Borrowing Base Deficiency, whichever is the first to occur), each such quarterly Scheduled Installment to be that percentage of Net Revenue for the Quarterly Period (the "Reference Period") preceding the Quarterly Period in which such installment is due that Company certifies to Banks will cause the projected Borrowing Base (such projection being set forth in the Borrowing Base Deficiency Certificate which Company provide to Banks, as described below) to exceed the projected Total Outstandings (such projection being set forth in the Borrowing Base Deficiency Certificate which Company provide to Banks, as described below) as of the first anniversary date of the effective date of the Borrowing Base Deficiency. That percentage of Net Revenue which shall be applied to principal payments hereunder shall be referred to as the "Base Dedicated Percentage." Company's certificate (herein called a "Borrowing Base Deficiency Certificate") setting forth such Base Dedicated Percentage of Net Revenue shall be delivered to Banks within ten (10) days following (i) Company's receipt from Agents of written notice of the existence of such Borrowing Base Deficiency or (ii) Company's delivery to Banks of a Borrowing Base Certificate that reflects the existence of a Cash Flow Deficiency upon redetermination of the Borrowing Base set forth in such certificate, whichever is the first to occur. The Borrowing Base Deficiency Certificate shall include all computations and derivations relating to the proposed Base Dedicated Percentage of Net Revenue in reasonable detail, and such certificate shall further state (i) the Borrowing Base then in effect, (ii) the Total Outstandings, (iii) the Borrowing Base Deficiency, and (iv) the projected Borrowing Base and projected Total Outstandings as of the first anniversary date of the Borrowing Base Deficiency. Regardless of the foregoing provisions of this Section 5.06(a), Majority Banks shall jointly determine at their discretion the Base Dedicated Percentage if Majority Banks, based on all information reasonably available to them, disagree with Company's Borrowing Base Deficiency Certificate as to the Base Dedicated Percentage of Net Revenue to be in effect or if Company fails to provide the Borrowing Base Deficiency Certificate. The effective date of any Borrowing Base Deficiency shall be the effective date of the Borrowing Base to which causes the Borrowing Base Deficiency to exist. If a quarterly Scheduled Installment shall become payable on the basis of a Base Dedicated Percentage of Net Revenue pursuant to this Section 5.06(a) hereof, then, together with the payment of such Scheduled Installment, Company shall deliver to Agents a certificate, in the form of Exhibit "E" attached hereto, setting forth the revenues, expenses and computation of Net Revenue for the Reference Period to which such Scheduled Installment relates and calculating the amount of the Scheduled Installment due in accordance with this Section 5.06(a). Company's calculation of Net Revenue and other calculations on the certificate shall be subject to review by Banks, and if Majority Banks determine that any portion of such certificate is materially incorrect, the calculation of Net Revenue and applicable Scheduled Installment shall be subject to adjustment by Majority Banks. In the event such an adjustment results in the underpayment by Company of the amount of Scheduled Installment due, then Company shall pay to -37- Administrative Agent, for the account of Banks, the amount of such underpayment within five (5) Business Days following Company's receipt of notice from Administrative Agent of such underpayment. Further, upon such adjustment all reasonable third party or out-of-pocket costs incurred by Banks in reviewing the certificate and adjusting the Net Revenue and Scheduled Installment shall be borne by Company. (b) Supplemental Borrowing Base Deficiency Determination. Within ---------------------------------------------------- three (3) Business Days prior to the Business Day that is 180 days following the effective date of the Borrowing Base Deficiency, Company shall submit to Banks a certificate (herein called "Supplemental Borrowing Base Deficiency Certificate"), signed by the chief financial officer of Company, which sets forth the projected Borrowing Base Deficiency as of (i) 180 days following the effective date of the Borrowing Base Deficiency and (ii) the anniversary date of the effective date of the Borrowing Base Deficiency, such Borrowing Base Deficiency Certificate to include all compilations and derivations relating to such projections so made by Company. If the Supplemental Borrowing Base Deficiency Certificate (or Majority Banks' projections if Majority Banks should disagree with the Supplemental Borrowing Base Deficiency Certificate or if Company fails to provide such certificate) indicates that the Borrowing Base Deficiency will not be reduced by sixty percent (60%) or more within 180 days following the effective date of the Borrowing Base Deficiency, then the Base Dedicated Percentage shall be automatically adjusted to one hundred percent (100%) of Net Revenue (less (i) accrued interest due on the Notes during the applicable Quarterly Period and (ii) Company's actual overhead and general and administrative expenses (to the extent not already deducted in the determination of Net Revenue) for the applicable Quarterly Period, which overhead and general and administrative expenses shall not be materially greater than the overhead and administrative expenses of Company as reflected in the most recent financial statements of Company delivered to Banks hereunder) for so long as the Borrowing Base Deficiency shall exist. (c) Events of Default. Upon the occurrence of a Borrowing Base ----------------- Deficiency, an Event of Default shall occur if: (i) the Borrowing Base Deficiency Certificate provided by Company to Banks (or the determination made by Majority Banks if Majority Banks disagree with Company's Borrowing Base Deficiency Certificate or if the Company fails to provide such certificate) indicates that quarterly Scheduled Installments of one hundred percent (100%) of Net Revenue is not sufficient to cause the projected Borrowing Base to exceed the projected Total Outstandings as of the first anniversary date of the effective date of the Borrowing Base Deficiency unless ------ no later than three (3) Business Days prior to the next ensuing date that a scheduled installment of interest is due on the Subordinated Indebtedness following the effective date of the Borrowing Base Deficiency Company makes a principal payment on the Notes in an amount that Agents agree will cause the projected Borrowing Base to exceed the Total Outstandings as of the date that such principal payment is made. The notice from Agents to Company of the existence of a Borrowing Base Deficiency shall state (in addition to the other matters set forth above) the amount of the principal payment required to be made by Company to prevent the occurrence of such Event of Default should the provisions of this subclause (i) be applicable; or -38- (ii) the Borrowing Base Deficiency is not reduced by sixty percent (60%) or more within 180 days following the effective date of the Borrowing Base Deficiency unless no later than 180 days following the effective date of the ------ Borrowing Base Deficiency Company makes a principal payment on the Notes in an amount that Agents agree will cause the Borrowing Base Deficiency to be reduced by sixty percent (60%) as of the date that such principal payment is made; or (iii) the Supplemental Borrowing Base Deficiency Certificate provided by Company to Banks (or the determination made Majority Banks if Majority Banks disagree with Company's Supplemental Borrowing Base Deficiency Certificate or if Company fails to provide such certificate) indicates that quarterly Scheduled Installments of one hundred percent (100%) of Net Revenue is not sufficient to cause the projected Borrowing Base to exceed the projected Total Outstandings as of the first anniversary date of the effective date of the Borrowing Base Deficiency unless no later than three (3) Business Days prior to the next ------ ensuing date that a scheduled installment of interest is due on the Subordinated Indebtedness following 180 days after the effective date of the Borrowing Base Deficiency Company makes a principal payment on the Notes in an amount that Agents agree will cause the projected Borrowing Base to exceed the projected Total Outstandings as of the date that such principal payment is made. In the event the provisions of this subclause (iii) are applicable, Agents shall provide notice to Company of the amount of principal payment required to be made by Company to prevent the occurrence of an Event of Default under this subclause (iii); or (iv) the Borrowing Base does not exceed the Total Outstandings as of the anniversary date of the effective date of the Borrowing Base Deficiency. 5.07. Reserve Report and Gas Report Matters. Each Reserve Report and ------------------------------------- Gas Report required to be delivered by Company to Banks pursuant to Sections 5.03 and 5.04 shall utilize in its calculation of the Proved Reserves attributable to the Mineral Properties the economic variables (including, without limitation, the prevailing price for oil, gas and other hydrocarbons produced from the Mineral Properties and the projected adjustments of such prices) and economic variables, assumptions, computations and other parameters respecting the projection of the Gas Subsidiaries' Loan Value and the Cash Flow attributable to the operations of the Gas Marketing Subsidiaries agreed to by Company and Agents and approved by Majority Banks, or if Company and Agent's cannot agree to or Majority Banks do not approve of such economic variables and Gas Report parameters by the dates specified below, then such economic variables and Gas Report parameters shall be designated by Majority Banks, based upon Majority Banks' determination of the economic variables and parameters then being utilized by Majority Banks to evaluate Proved Reserves attributable to oil and gas properties and gas gathering, processing, and marketing operations for lending transactions similar to the Loan. As to the Reserve Report and Gas Report required under Section 5.03, Company shall provide Agents its proposed economic variables for the Reserve Report and Gas Report parameters on or before February 10 of the year in which such Reserve Report and Gas Report are to be delivered If Agents agree with such proposed economic variables and parameters, Agents shall provide such proposed economic variables and parameters to Banks. If Agents do not agree with such proposed economic -39- variables and parameters, Agents shall consult with Company in an effort to agree to the proposed economic variables and parameters, and upon such agreement, Agents shall provide such proposed economic variables and parameters to Banks (provided, however, if Agents and Company cannot agree to such proposed economic variables and parameters, such proposed economic variables and parameters shall be determined by Majority Banks as set forth herein). If Majority Banks do not provide written notice to Agents disapproving such proposed economic variables and parameters by March 1, such economic variables and parameters shall be utilized in the Reserve Report and Gas Report. If Majority Banks provide written notice to Agents before March 1 disapproving such economic variables and parameters, Company and Majority Banks shall attempt to agree to such economic variables and parameters by March 1, but if Company and Majority Banks cannot agree on such economic variables and parameters, such economic variables and parameters shall be determined by Majority Banks as provided above. As to the Reserve Report and Gas Report required under Section 5.04, Company and Majority Banks shall agree to such economic variables and Gas Report parameters within ten (10) Business Days following the delivery to Company of the notice of the special determination of the Borrowing Base under Section 5.04. In any event, however, if the ultimate price received by Company for the sale of any oil, gas or other hydrocarbons produced from the Mineral Properties is established or determined by or subject to a Hedge Agreement, then the price for such oil, gas or other hydrocarbons for the purpose of computing Cash Flow shall be that price established or determined by the production of oil, gas or other hydrocarbons that is subject to such Hedge Agreement. ARTICLE 6 --------- REPRESENTATIONS AND WARRANTIES ------------------------------ To induce Banks to make the Loan hereunder, Company represents and warrants to Banks that: 6.01. Organization and Good Standing. Company, CT Operating and each ------------------------------ Gas Marketing Subsidiary is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has the corporate power and authority required to own its properties and assets, and to transact the business in which it is engaged and that which it proposes to conduct. Company, CT Operating and each Gas Marketing Subsidiary is qualified or licensed to do business in those states wherein it owns or leases property or in which the conduct of its business requires it so to qualify. 6.02. Authorization and Power. Company has the corporate power and ----------------------- requisite authority to execute, deliver and perform this Loan Agreement, the Notes and the other Loan Papers to be executed by Company; Company is duly authorized to, and has taken all corporate action necessary to authorize Company to, execute, deliver and perform this Loan Agreement, the Notes and such other Loan Papers and will continue to be duly authorized to perform this Loan Agreement, the Notes and such other Loan Papers. CT Operating and each Gas Marketing -40- Subsidiary has the corporate power and requisite authority to execute, deliver and perform the Guaranty and the other Loan Papers to be executed by CT Operating and each Gas Marketing Subsidiary; CT Operating and each Gas Marketing Subsidiary is duly authorized to, and has taken all corporate action necessary to authorize CT Operating and each Gas Marketing Subsidiary to, execute, deliver and perform the Guaranty and such other Loan Papers and will continue to be duly authorized to perform the Guaranty and such other Loan Papers. 6.03. No Conflicts or Consents. Neither the execution and delivery of ------------------------ this Loan Agreement, the Notes or the other Loan Papers, nor the consummation of any of the transactions herein or therein contemplated, nor compliance with the terms and provisions hereof or with the terms and provisions thereof, will contravene or materially conflict with any provision of law, statute or regulation to which Company, CT Operating or any Gas Marketing Subsidiary is subject or any judgment, license, order or permit applicable to Company, CT Operating or any Gas Marketing Subsidiary, or any indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which Company, CT Operating or any Gas Marketing Subsidiary is a party (including the Indenture) or by which Company, CT Operating or any Gas Marketing Subsidiary may be bound, or to which Company, CT Operating or any Gas Marketing Subsidiary may be subject, or violate any provision of the charter or bylaws of Company, CT Operating or any Gas Marketing Subsidiary. No consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Company, CT Operating or any Gas Marketing Subsidiary of the Loan Papers or to consummate the transactions contemplated hereby or thereby. 6.04. Enforceable Obligations. This Loan Agreement, the Notes and the ----------------------- other Loan Papers are the legal and binding obligations of Company, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. The Guaranty and the other Loan Papers executed by CT Operating and each Gas Marketing Subsidiary are the legal and binding obligations of CT Operating and each Gas Marketing Subsidiary, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 6.05. No Liens. Except for Permitted Liens, all of the properties and -------- assets of Company and the Subsidiaries are free and clear of all mortgages, liens, encumbrances and other adverse claims of any nature. 6.06. Financial Condition. Company has delivered to Banks copies of ------------------- the balance sheet of Company as of December 31, 1996, and the related statements of income and changes in cash flow for the period ended such date, reviewed by Arthur Andersen, L.L.P., independent certified public accountants, and copies of the balance sheets of the Subsidiaries and the related statements of income and changes in cash flow for the period ending December 31, 1996; such financial statements are true and correct, fairly present the financial condition of Company and the Subsidiaries as of such date and have been prepared in accordance with Generally Accepted Accounting Principles applied on a basis consistent with that of prior periods; as of the date hereof, there are no obligations, liabilities or indebtedness (including contingent and indirect liabilities and obligations or unusual forward or long-term commitments) of Company and any Subsidiary which are (separately or in the aggregate) material and are not reflected in such -41- financial statements; no changes having a Material Adverse Effect have occurred in the financial condition or business of Company or any Subsidiary since December 31, 1996. 6.07. Full Disclosure. There is no material fact that Company has not --------------- disclosed to Banks which could have a Material Adverse Effect on the properties, business, prospects or condition (financial or otherwise) of Company or any Subsidiary. Neither the financial statements referred in Section 6.06 hereof, nor any certificate or statement delivered herewith or heretofore by Company to Administrative Agent or any Bank in connection with negotiations of this Loan Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein from being misleading. 6.08. No Default. No event has occurred and is continuing which ---------- constitutes an Event of Default or which, with the lapse of time or giving of notice or both, would constitute an Event of Default. 6.09. Material Agreements. Neither Company nor any Subsidiary is in ------------------- default in any material respect under the Indenture (including any note or security issued thereunder) or any loan agreement, indenture, mortgage, security agreement or other material agreement or obligation to which it is a party or by which any of its properties is bound. 6.10. No Litigation. There are no actions, suits or legal, equitable, ------------- arbitration or administrative proceedings pending, or to the knowledge of Company threatened, against Company or any Subsidiary that would, if adversely determined, have a Material Adverse Effect. 6.11. Burdensome Contracts. Neither Company nor any Subsidiary is a -------------------- party to, or bound by, any contract which is a burdensome contract having a Material Adverse Effect on the business, operations or financial condition of Company or any Subsidiary. 6.12. Estimated Oil and Gas Reserves. Company has heretofore delivered ------------------------------ to Banks copies of all reports requested by Banks (prepared by independent consulting engineers), which have been obtained by Company and concern the estimated Proved Reserves and future net revenues attributable to the Mineral Properties. The statements of fact contained in said reports with respect to the character and ownership of the Mineral Properties (including, without limitation, the respective revenue interest and working interest of Company in the Mineral Properties as stated therein) and the other factual data furnished by Company as a basis for the estimates set forth therein are true and correct in all material respects and do not omit any material fact necessary to make said statements not misleading. 6.13. Use of Proceeds; Margin Stock. The proceeds of the Loan will be ----------------------------- used by Company solely for the purposes specified in the Section 2.01(d) hereof. None of such proceeds will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U or Regulation G of the Board of Governors of the Federal Reserve System (12EC.F.R. PartE221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U or -42- Regulation G, if, as a result of purchasing or carrying any "margin stock", the proceeds of the Loan would be used, directly or indirectly, for a purpose, whether immediate, incidental or ultimate, which violates or which would be inconsistent with Regulation U or Regulation G or would cause the Loan to be a credit regulated or governed by Regulation U or Regulation G. Company is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither Company, any Subsidiary nor any Person acting on behalf of Company has taken or will take any action which might cause the Notes or any of the other Loan Papers, including this Agreement, to violate Regulations U or Regulation G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Neither Company nor any Subsidiary owns "margin stock" except for that described in the financial statements referred to in Section 6.06 hereof. 6.14. Taxes. All tax returns required to be filed by Company or any ----- Subsidiary in any jurisdiction have been filed, except for such tax returns for which the failure to timely file will not result in a Material Adverse Effect, and all taxes (including mortgage recording taxes), assessments, fees and other governmental charges upon Company or any Subsidiary or upon any of its or their properties, income or franchises have been paid prior to the time that such taxes could give rise to a lien thereon, except for such taxes, for which the failure to timely pay will not result in a Material Adverse Effect. There is no proposed tax assessment against Company or any Subsidiary and there is no basis for such assessment. 6.15. Principal Office, Etc. The principal office, chief executive --------------------- office and principal place of business of Company is at 810 Houston Street, Fort Worth, Texas 76102. Company maintains its principal records and books at such address. 6.16. ERISA. (a) No Reportable Event has occurred and is continuing ----- with respect to any Plan; (b) PBGC has not instituted proceedings to terminate any Plan; (c) neither Company, any member of the Controlled Group, nor any duly- appointed administrator of a Plan (i) has incurred any liability to PBGC with respect to any Plan other than for premiums not yet due or payable or (ii) has instituted or intends to institute proceedings to terminate any Plan under Section 4041 or 4041A of ERISA or withdraw from any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA); and (d) each Plan of Company has been maintained and funded in all material respects in accordance with its terms and with all provisions of ERISA applicable thereto. 6.17. Compliance with Law. Company and the Subsidiaries are in ------------------- compliance with all laws, rules, regulations, orders and decrees which are applicable to Company or any Subsidiary, or its or their properties for which the failure to comply would have a Material Adverse Effect. -43- 6.18. Government Regulation. Neither Company nor any Subsidiary is --------------------- subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as any of the preceding acts have been amended), or any other law (other than Regulation X) which regulates the incurring by Company or any Subsidiary of indebtedness, including but not limited to laws relating to common contract carriers or the sale of electricity, gas, steam, water, or other public utility services. 6.19. Insider. Company is not, and no Person having "control" (as that ------- term is defined in 12 U.S.C. (S)375(b)(5) or in regulations promulgated pursuant thereto) of Company is, an "executive officer", "director", or "person who directly or indirectly or in concert with one or more persons owns, controls, or has the power to vote more than 10% of any class of voting securities" (as those terms are defined in 12 U.S.C. (S)375(b) or in regulations promulgated pursuant thereto) of any Bank, of a bank holding company of which any Bank is a subsidiary, or of any subsidiary of a bank holding company of which any Bank is a subsidiary, or, to the best of Company's knowledge, of any bank at which Bank maintains a correspondent account, or of any bank which maintains a correspondent account with any Bank. 6.20. No Subsidiaries. Except for Subsidiaries described on --------------- Exhibit "F" hereto, Company has not formed or acquired any Subsidiary. 6.21. Environmental Matters. Company and any properties or assets --------------------- owned by Company or any Subsidiary or predecessors of Company or any Subsidiary are not in violation of, in any material respect, any Environmental Laws, nor is there existing, pending or, to the best of Company's knowledge, threatened any investigation or inquiry (other than those the outcome of which would not involve substantial fees, penalties, or liability to Company, any Subsidiary, or any predecessors thereto) by any Governmental Authority pursuant to any Environmental Laws, nor is there existing or pending any remedial obligations under any Environmental Laws (other than remedial obligations that may be customary with respect to the operations or business of Company, any Subsidiary or any predecessor thereto, or that do not involve substantial fines, penalties or liability on the part of Company, any Subsidiary or any predecessor thereto), and this representation will continue to be true and correct following disclosure to the applicable Governmental Authorities of all relevant facts, conditions and circumstances, if any, pertaining to all assets of Company, any Subsidiary and predecessors thereto. In the ordinary course of its business, Company conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of Company and the Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, Company has reasonably concluded -44- that Environmental Laws are unlikely to have a Material Adverse Effect on Company and the Subsidiaries considered as a whole. Company's breach of any representation or warranty set forth in this Section 6.21 shall not automatically cause an Event of Default under Section 10.01(b) hereof. Instead, upon becoming aware that Company has breached any representation or warranty set forth in this Section 6.21, Agents or Majority Banks may cause to be made a special determination of the Borrowing Base according to Section 5.04 hereof, in which case that portion of the Mineral Properties as to which the representation and warranties of this Section 6.21 have been breached shall be excluded from the Mineral Properties evaluated for the special determination of the Borrowing Base; provided, however, an Event of Default shall occur if, upon redetermination of the Borrowing Base, the Borrowing Base as so redetermined has been reduced by more than 25% from the Borrowing Base in effect immediately prior to such redetermination. 6.22. Title to Properties. Subject only to the Permitted Liens: (a) ------------------- Company has good and indefeasible title to the Mineral Properties and has marketable title to all of its other assets and properties; (b) the Gas Marketing Subsidiaries have good and indefeasible title to all real property owned by such Subsidiaries and has marketable title to all of their other assets and properties, (c) all material oil, gas and mineral leases which constitute a portion of the Mineral Properties are in full force and effect, and (d) Company has not defaulted on any of its obligations thereunder so as to materially impair the value of such leases in the aggregate. Company's breach of any representation or warranty set forth in this Section 6.22 shall not automatically cause an Event of Default under Section 10.01(b) hereof. Instead, upon becoming aware that Company has breached any representation or warranty set forth in this Section 6.22, Majority Banks may cause to be made a special determination of the Borrowing Base according to Section 5.04 hereof, in which case that portion of the Mineral Properties as to which the representation and warranties of this Section 6.22 have been breached shall be excluded from the Mineral Properties evaluated for the special determination of the Borrowing Base; provided, however, an Event of Default shall occur if, upon redetermination of the Borrowing Base, the Borrowing Base as so redetermined has been reduced by more than 25% from the Borrowing Base in effect immediately prior to such redetermination. 6.23. Gas Marketing Subsidiaries' Obligations. With respect to the --------------------------------------- contractual obligations of the Gas Marketing Subsidiaries, in all material respects: (i) all are in full force and effect and are the valid and legally binding obligations of the parties thereto and are enforceable in accordance with their respective terms; (ii) no Gas Marketing Subsidiary is in breach or default with respect to any of its material obligations; (iii) all material payments due thereunder have been made; (iv) no other party to any document, agreement or contract evidencing such obligations (or any successor in interest thereto) is in breach or default with respect to any of their material obligations thereunder; and (v) neither any Gas Marketing Subsidiary nor any other party to any document agreement or contract evidencing such obligations has given or threatened to give notice of any action to terminate, cancel, rescind or procure a juridical reformation of any document agreement or contract evidencing such obligations or any provision thereof. 6.24. Representations and Warranties. Each Request for Borrowing shall ------------------------------ constitute, without the necessity of specifically containing a written statement, a representation and -45- warranty by Company that no Event of Default exists and that all representations and warranties contained in this Article 8 or in any other Loan Paper are true and correct at and as of the date the Borrowing is to be made. 6.25. Survival of Representations, Etc. All representations and -------------------------------- warranties by Company herein shall survive delivery of the Notes and the making of the Loan, and any investigation at any time made by or on behalf of Banks shall not diminish Banks' right to rely thereon. ARTICLE 7 --------- CONDITIONS PRECEDENT -------------------- 7.01. Commitment. The obligation of each Bank to make its Advances ---------- under its Commitment is subject to the condition precedent that, on or before the Closing Date, Administrative Agent shall have received for each Bank the following, each dated as of the date of such Advance, in form and substance satisfactory to Administrative Agent and such Bank: (a) Notes. A duly executed Note of each Bank, in the form of ----- Exhibit "A" attached hereto with appropriate insertions. (b) Guaranties. The unconditional Guaranties of the Loan executed by ---------- CT Operating and each of the Gas Marketing Subsidiaries. (c) Opinion of Company's Counsel. A favorable opinion of Messrs. ---------------------------- Kelly, Hart & Hallman, P.C., counsel for Company, CT Operating and the Gas Marketing Subsidiaries, as to the matters covered in Exhibit "G" hereto. (d) Officers' Certificate. A certificate signed by a duly authorized --------------------- officer of Company stating that (to the best knowledge and belief of such officer, after reasonable and due investigation and review of matters pertinent to the subject matter of such certificate): (i) all of the representations and warranties contained in Article 6 hereof, and the other Loan Papers are true and correct as of the Closing Date; and (ii) no event has occurred and is continuing which constitutes an Event of Default or which, with the lapse of time or the giving of notice or both, would constitute an Event of Default. (e) Resolutions. Resolutions of Company, CT Operating and the Gas ----------- Marketing Subsidiaries approving Company's execution, delivery and performance of this Loan Agreement, the Notes, and the other Loan Papers and the transactions contemplated herein and therein and CT Operating's and the Gas Marketing Subsidiaries' execution, delivery and performance of their Guaranties, duly adopted by Company's, CT Operating's and the Gas Marketing Subsidiaries' respective board of directors and accompanied by a certificate of the Company's, CT Operating's and the Gas Marketing Subsidiaries' respective Secretary stating that such resolutions are true and correct, have not been altered or repealed and are in full force and effect. -46- (f) Incumbency Certificate. A signed certificate of the Secretary of ---------------------- each of Company, CT Operating and the Gas Marketing Subsidiaries which shall certify the names of the officers of Company authorized to sign each of the Loan Papers and the other documents or certificates to be delivered pursuant to the Loan Papers by Company and the officers of CT Operating and the Gas Marketing Subsidiaries authorized to sign the Guaranties, together with the true signatures of each such officers. Banks may conclusively rely on such certificate until they shall receive a further certificate of the Secretary of either Company, CT Operating or Gas Marketing Subsidiaries canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate. (g) Corporate Certificates. Certificates of incorporation and good ---------------------- standing (or other similar instruments) for Company, CT Operating and the Gas Marketing Subsidiaries and issued by the Secretary of State of the state of incorporation of Company, CT Operating and the Gas Marketing Subsidiaries and certificates of qualification and good standing (or other similar instruments) for Company issued by the Secretary of State of the States of Texas, New Mexico, Kansas, Oklahoma and Wyoming, and certificates of qualification and good standing (or other similar instruments) for CT Operating and the Gas Marketing Subsidiaries issued by the Secretary of State of Oklahoma, each dated within ten (10) days of the Closing Date. (h) Charter and Bylaws. A copy of the Articles of Incorporation of ------------------ each of Company, CT Operating and the Gas Marketing Subsidiaries and all amendments thereto, certified by the Secretary of State of the state of incorporation and dated within ten (10) days of the date of the Closing Date and a copy of the Bylaws of each of Company, CT Operating and the Gas Marketing Subsidiaries and all amendments thereto, certified by the Secretary of Company, CT Operating and the Gas Marketing Subsidiaries, respectively, as being true, correct and complete as of the date of such certification. (i) Environmental Certificate. A certificate signed by a duly ------------------------- authorized officer of Company, stating that Company has reviewed the effect of Environmental Laws on the Mineral Properties and the properties of the Gas Marketing Subsidiaries, and associated liabilities and costs, and on the basis of such review, Company is not, in any material respect, in violation of any Environmental Laws, and the Company reasonably believes that Environmental Laws then in effect are unlikely to have a Material Adverse Effect on Company or its Subsidiaries considered as a whole. (j) Financial Statements. Current financial statements and -------------------- information of Company and its Subsidiaries in form and substance satisfactory to Banks, accompanied by a certificate executed by the chief financial officer of Company, certifying that the attached financial statements are true and correct in all material respects. (k) Subsidiaries. A schedule of all Subsidiaries of Company. ------------ (l) Insurance. Certificates of insurance or other evidence --------- satisfactory to Banks that Company maintains the insurance covering required by Section 8.13 hereof. -47- (m) Additional Information. Such other information and documents as ---------------------- may reasonably be required by Administrative Agent, either Agent, Banks or their counsel. 7.02. All Advances. The obligation of each Bank to make any Advance ------------ under this Loan Agreement (including the initial Advance) shall be subject to the following conditions precedent: (a) No Defaults or Borrowing Base Deficiency. As of the date of the ---------------------------------------- making of such Advance or conversion, (i) there exists no Event of Default or event which with notice or lapse of time or both would constitute an Event of Default and/or (ii) there exists no Borrowing Base Deficiency. (b) Compliance with Loan Agreement. Company shall have performed and ------------------------------ complied with all agreements and conditions contained herein which are required to be performed or complied with by Company before or at the date of such Advance or conversion. (c) No Material Adverse Change. As of the date of making such Advance -------------------------- or conversion, no material adverse change has occurred in the business or financial condition of Company or any of the Subsidiaries. (d) Borrowing Base Availability. The making of such Advance shall not --------------------------- cause the Total Outstandings to exceed the Borrowing Base then in effect. (e) Request for Borrowing. In the case of any Borrowing, --------------------- Administrative Agent shall have received from Company a Request for Borrowing in the form of either Exhibit "B", "C" or "D" attached hereto, dated as of the date of such Borrowing and signed by an authorized officer of Company, all of the statements of which shall be true and correct, certifying that, as of the date thereof, (i) all of the representations and warranties of Company contained in this Loan Agreement and each of the Loan Papers executed by Company are true and correct, except that, if the Borrowing represents a rollover or conversion of a prior Borrowing but does not constitute an Advance for new money, Company shall not be required to warrant or represent that no Material Adverse Effect has occurred in the financial condition or business of Company or a Subsidiary as provided in Section 6.06, (ii) no event has occurred and is continuing, or would result from the Borrowing, which constitutes an Event of Default or which, with the lapse of time or giving of notice or both, would constitute an Event of Default, and (iii) such other facts as any Bank may reasonably request. (f) Representations and Warranties. The representations and ------------------------------ warranties contained in Article 6 hereof shall be true in all respects on the date of making of such Advance or conversion, with the same force and effect as though made on and as of that date. (g) Bankruptcy Proceedings. No proceeding or case under the United ---------------------- States Bankruptcy Code shall have been commenced by or against Company or any of its Affiliates. -48- ARTICLE 8 --------- AFFIRMATIVE COVENANTS --------------------- So long as Banks have any commitment to make Advances hereunder, and until payment in full of the Notes and the performance of the Obligation, Company agrees that (unless Majority Banks shall otherwise consent in writing): 8.01. Financial Statements, Reports and Documents. Company shall ------------------------------------------- deliver to Banks each of the following: (a) Quarterly Statements. As soon as available, and in any event -------------------- within sixty (60) days after the end of each Quarterly Period (except the last) copies of the consolidated and consolidating balance sheet of Company and the Subsidiaries (exclusive of WTW Properties, Inc., CT Operating and Cross Timbers Trading Company) as of the end of such Quarterly Period, and statements of income and retained earnings and changes in cash flow of Company and the Subsidiaries (exclusive of WTW Properties, Inc., CT Operating and Cross Timbers Trading Company) for that Quarterly Period and for the portion of the Fiscal Year ending with such period, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail, and certified by the chief financial officer of Company as being true and correct and as having been prepared in accordance with Generally Accepted Accounting Principles, subject to year-end audit and adjustments; (b) Annual Statements. As soon as available and in any event within ----------------- 105 days after the close of each fiscal year of Company, copies of the consolidated and consolidating balance sheet of Company and the Subsidiaries (exclusive of WTW Properties, Inc., CT Operating and Cross Timbers Trading Company) as of the close of such fiscal year and statements of income and retained earnings and changes in cash flow of Company and Subsidiaries (exclusive of WTW Properties, Inc., CT Operating and Cross Timbers Trading Company) for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and accompanied by an opinion thereon (which shall not be qualified) of a firm of independent public accountants of recognized national standing selected by Company and satisfactory to Majority Banks, to the effect that such financial statements have been prepared in accordance with Generally Accepted Accounting Principles consistently maintained and applied (except for changes in which such accountants concur) and that the examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) Reserve Reports. Each Reserve Report required to be delivered by --------------- Company to Banks pursuant to Sections 5.03 and 5.04, and within the time period prescribed in Section 5.07 for the delivery of each such Reserve Report, prepared by the petroleum engineering firm of Miller and Lents or such other firm of independent petroleum engineers -49- approved by Majority Banks, evaluating the Mineral Properties and prepared in accordance with the customary standards and procedures of the petroleum industry; (d) Gas Reports. Each Gas Report required to be delivered by Company ----------- to Banks pursuant to Sections 5.03 and 5.04, and within the time period prescribed in Section 5.07 for the delivery of each such Gas Report. (e) Audit Reports. Promptly upon receipt thereof, one copy of each ------------- written report submitted to Company by independent accountants in any annual, quarterly or special audit made, it being understood and agreed that all audit reports which are furnished to Banks pursuant to this Article shall be treated as confidential, but nothing herein contained shall limit or impair Banks right to disclose such reports to any appropriate Governmental Authority or to use such information to the extent pertinent to an evaluation of the Obligation or to enforce compliance with the terms and conditions of this Loan Agreement, or to take any lawful action which Banks deem necessary to protect their interests under this Loan Agreement; (f) SEC and Other Reports. Promptly upon their becoming available, --------------------- one copy of each press release, financial statement, report, notice or proxy statement sent by Company to its shareholders or partners generally and of each regular or periodic report, registration statement or prospectus filed by Company with any securities exchange or the Securities and Exchange Commission or any successor agency, and of any order issued by any Governmental Authority in any proceeding to which Company is a party; (g) Schedule of Subsidiaries. Within ninety (90) days after the end ------------------------ of each fiscal year, a schedule of all Subsidiaries of Company. (h) Quarterly Hedging Reports. Within sixty (60) days after the end ------------------------- of each Quarterly Period, a statement prepared by Company and certified as being true and correct by the chief financial officer of Company, setting forth in reasonable detail all Hedge Agreements to which any production of oil, gas or other hydrocarbons from the Mineral Properties is then subject, together with a statement of Company's position with respect to each such Hedge Agreement, provided, however, if the price of any of the oil, gas or other hydrocarbons produced from the Mineral Properties is subject to a Hedge Agreement, then Company shall promptly notify Banks if such Hedge Agreement is terminated, modified, amended or altered prior to the end of its contractual term, or if there is an amendment, adjustment or modification of the price of any of the oil, gas or other hydrocarbons produced from the Mineral Properties that is subject to or established by a Hedge Agreement. (i) Dividend Certificate. Upon delivery of the financial statements -------------------- to be delivered by Company pursuant to Sections 8.01(a) and (b), a certificate executed by the chief financial officer or chief executive officer of Company setting forth Company's net cash flow from operations (as that term is used in Section 9.03 of this Agreement) for each of the preceding four-quarter periods and the amount of Dividends paid by Company and the amount expended by Company to repurchase any of its shares of stock during such four-quarter periods. -50- (j) Trustee/Holder Notices. Promptly upon the receipt thereof, a copy ---------------------- of each written notice, request or statement given or furnished by the Trustee or any holder of the Subordinated Indebtedness which alleges or asserts that an event of default has occurred under the terms of the Indenture or with the lapse of time or giving of notice, or both, an event of default would exist under the terms of the Indenture or which evidences or indicates that Trustee or any holder of the Subordinated Indebtedness intends to accelerate the maturity of the Subordinated Indebtedness or exercise any remedies to enforce payment of or collection of the Subordinated Indebtedness. (k) Compliance Certificate. Upon delivery of the financial statements ---------------------- to be delivered by Company pursuant to Sections 8.01(a) and (b), a certificate executed by the chief financial officer or chief executive officer of Company, stating that a review of the activities of Company during such fiscal quarter has been made under his supervision and that Company has observed, performed and fulfilled each and every obligation and covenant contained herein and is not in default under any of the same or, if any such default shall have occurred, specifying the nature and status thereof, and such certificate shall include all computations required to show, in sufficient detail, the components of Company's Consolidated Current Assets and Consolidated Current Liabilities for the purpose of establishing Company's compliance with the current ratio as set forth in Section 9.09 hereof; and (l) Other Information. All information concerning the Indenture, the ----------------- Subordinated Indebtedness and such other information concerning the business, properties or financial condition of Company as Administrative Agent or any Bank shall reasonably request. 8.02. Payment of Taxes and Other Indebtedness. Company will, and will --------------------------------------- cause each of the Subsidiaries to, pay and discharge (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, before delinquent, (ii) all lawful claims (including claims for labor, materials and supplies), which, if unpaid, might become a Lien upon any of its property and (iii) all of its other Indebtedness, except as prohibited hereunder; provided, however, that Company and each of the Subsidiaries shall not be required to pay any such tax, assessment, charge, levy or claims for labor, materials and supplies if and so long as the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and appropriate accruals and reserves therefor have been established in accordance with Generally Accepted Accounting Principles. 8.03. Maintenance of Existence and Rights; Conduct of Business. -------------------------------------------------------- Company will, and will cause each of its Subsidiaries to, preserve and maintain its corporate existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business, and conduct its business in an orderly and efficient manner consistent with good business practices and in accordance with all valid regulations and orders of any Governmental Authority. 8.04. Notice of Default. Company will furnish to Banks, immediately ----------------- upon becoming aware of the existence of any condition or event which constitutes an Event of Default or which, with the lapse of time or giving of notice, or both, would become an Event of Default, a written -51- notice specifying the nature and period of existence thereof and the action which Company is taking or proposes to take with respect thereto. 8.05. Other Notices. Company will, and will cause each of the ------------- Subsidiaries to, promptly notify Banks of (a) any material adverse change in its financial condition or its business which is unique to Company specifically, but not the oil and gas industry generally (unless such change, though not unique to Company or any Subsidiary, has a Material Adverse Effect on Company), (b) any default under the Indenture or any other material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of the Subordinated Indebtedness or any other Indebtedness owing by Company or any Subsidiary in an amount in excess of $100,000, (c) any material adverse claim against or affecting Company or any Subsidiary or any of its or their properties in an amount in excess of $250,000, and (d) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any Governmental Authority affecting Company or any Subsidiary which, if determined in a manner contrary or adverse to any of such Persons, would have a Material Adverse Effect on any of such Persons. 8.06. Compliance with Loan Papers. Company will promptly comply with --------------------------- any and all covenants and provisions of this Loan Agreement, the Notes and all other of the Loan Papers. Each Gas Marketing Subsidiary will promptly comply with any and all covenants and provisions of the Guaranty and all other Loan Papers executed by such Gas Marketing Subsidiary. 8.07. Compliance with Material Agreements. Company will, and will ----------------------------------- cause each Subsidiary to, comply in all material respects with all material agreements, indentures, mortgages or documents binding on it or affecting its properties or business (inclusive of the Indenture and any note or security issued thereunder). 8.08. Operations and Properties. Company will, and will cause each ------------------------- Subsidiary to, act prudently and in accordance with customary industry standards in managing or operating its assets, properties, business and investments; Company will and will cause each Subsidiary to, keep in good working order and condition, ordinary wear and tear excepted, all of its assets and properties which are necessary to the conduct of its business; provided Company shall never be deemed obligated to rework, recomplete, redrill or otherwise maintain any well or production facility when, in Company's judgment, it would be imprudent or uneconomic to do so. 8.09. Books and Records; Access. Company will, upon request by any ------------------------- Agent, give any representative of each Bank access during all business hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Company and relating to its affairs, and to inspect any of the properties of Company or any Subsidiary. Company will, and will cause each Subsidiary to, maintain complete and accurate books and records of its transactions in accordance with good accounting practices. 8.10. Compliance with Law. Company will, and will cause each ------------------- Subsidiary to, comply with all applicable laws, rules, regulations, and all orders of any Governmental Authority -52- applicable to it or any of its property, business operations or transactions, a breach of which could have a Material Adverse Effect on Company or any Subsidiary. 8.11. Leases. Company will, to the extent failure to do any of the ------ matters set forth below would have a Material Adverse Effect: pay and discharge promptly, or cause to be paid and discharged promptly, all rentals, delay rentals, royalties, overriding royalties, payments out of production and other indebtedness or obligations accruing under, and perform or cause to be performed each and every act, matter or thing required by each and all of, the oil and gas leases and all other agreements and contracts constituting or affecting the Mineral Properties, and do all other things necessary to keep unimpaired its rights thereunder and prevent any forfeiture thereof or default thereunder, and operate or cause to be operated such properties in a diligent, careful and efficient manner and in compliance with all applicable proration and conservation laws and all applicable rules and regulations of every Governmental Authority, whether state, federal, municipal or other jurisdiction, from time to time constituted to regulate the development and operations of oil and gas properties and the production and sale of oil, gas and other hydrocarbons therefrom. 8.12. Development and Maintenance. Company will maintain (or cause to --------------------------- be maintained) the oil and gas leases, wells, units and acreage to which the Mineral Properties pertain in a prudent manner consistent with good oilfield practices. 8.13. Insurance. Company will, and will cause each Subsidiary to, --------- maintain workmen's compensation insurance (but only to the extent any of such Persons has any employees), liability insurance and insurance on its properties, assets and business, now owned or hereafter acquired, against such casualties, risks and contingencies, and in such types and amounts, as are consistent with customary practices and standards of companies engaged in similar business. In case of any fire, accident or other casualty causing loss or damage to any properties of Company or any Subsidiary, the proceeds of any such insurance policies that are not utilized by Company to repair or replace damaged or destroyed properties or assets which in the aggregate exceed $1,000,000 in any calendar year shall be paid to Administrative Agent, for the account of Banks, and applied as a mandatory prepayment on the Loan, as the case may be, and, if such loss or damage relates to any Mineral Property, the Borrowing Base shall be reduced by an amount that Company certifies to Banks is the Borrowing Base value last assigned to such property according to the most recent Reserve Report, Gas Report and Borrowing Base Certificate delivered to Banks; provided, however, that Majority Banks shall determine such assigned value if Majority Banks disapprove of the proposed value assigned to such properties by Company. 8.14. Authorization and Approvals. Company will, and will cause each --------------------------- Subsidiary to, promptly obtain, from time to time at its own expense, all such governmental licenses, authorizations, consents, permits and approvals as may be required to enable it to comply with its obligations hereunder and under the other Loan Papers. 8.15. Experienced Management. Company will, and will cause each ---------------------- Subsidiary to, at all times hire and retain management and supervisory personnel adequate for the proper management, supervision and conduct of its properties, business and operation. -53- 8.16. ERISA Compliance. Company shall (a) at all times, make prompt ---------------- payment of all contributions required under all Plans and required to meet the minimum funding standard set forth in ERISA with respect to its Plans; (b) notify Administrative Agent immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any of its Plans, which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement, if requested by Administrative Agent, as to the reason therefor and the action, if any, proposed to be taken with respect thereto; and (c) furnish to Administrative Agent, upon its request, such additional information concerning any of its Plans as may be reasonably requested. 8.17. Further Assurances. Company will, and will cause each Subsidiary ------------------ to, make, execute or endorse, and acknowledge and deliver or file or cause the same to be done, all such vouchers, invoices, notices, certifications, additional agreements, undertakings, or other assurances, and take any and all such other action, as Majority Banks may, from time to time, deem reasonably necessary or proper in connection with the Loan Agreement or any of the other Loan Papers, or the obligations of Company hereunder or thereunder. 8.18. Environmental. Company will provide to Agents copies of all ------------- notices received from or required to be made to (when sent) any Governmental Authority (other than notices routinely received or submitted in the ordinary course of business) relating to the release or threatened release of Hazardous Substances by Company or any Subsidiary in connection with any of the assets or properties of Company or the Subsidiaries that is reportable under CERCLA or any other Environmental Law now or hereafter in effect (other than those reportable releases that do not and will not involve substantial fines, penalties on part of Company, any Subsidiary or any predecessors thereto). COMPANY AGREES TO INDEMNIFY AND HOLD BANKS HARMLESS, FROM AND AGAINST ANY AND ALL FINES, PENALTIES, CLEANUP COSTS AND ASSESSMENTS LEVIED BY ANY GOVERNMENTAL AUTHORITY, TOGETHER WITH ALL CLAIMS, LIABILITIES, CAUSES OF ACTION, DAMAGES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS BUT EXCLUDING CLAIMS, LIABILITIES, ETC. ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY BANK), NOW EXISTING OR HEREAFTER ARISING, ASSERTED AGAINST OR INCURRED BY BANKS ARISING OUT OF OR IN CONNECTION WITH THE PRESENCE, STORAGE, DISCHARGE, USE, DISPOSAL, TRANSPORTATION OR REMEDIATION OF ANY HAZARDOUS SUBSTANCES (AS DEFINED IN CERCLA) ON OR ABOUT ANY OF THE ASSETS OR PROPERTIES OF COMPANY AND THE SUBSIDIARIES IN VIOLATION OF ANY ENVIRONMENTAL LAWS AFFECTING ANY OF THE ASSETS OR PROPERTIES OF COMPANY OR THE SUBSIDIARIES. THIS INDEMNITY SHALL SURVIVE THE PAYMENT IN FULL OF THE OBLIGATION. Prior to acquiring any property or asset (including the purchase of any assets permitted under Section 9.13 hereof), Company shall review the effect of Environmental Laws on the property or asset to be acquired, and based upon such review, Company shall not acquire such property or asset if Company would become liable -54- for any then existing breach or violation, in any material respect, of any Environmental Laws affecting such property or asset. 8.19. Pledge of Properties. In addition to the other rights and -------------------- remedies of Banks provided herein, upon the occurrence of a Borrowing Base Deficiency, Majority Banks may require (i) Company to grant to Banks as security for the performance by Company of the Notes and the Obligation of Company hereunder, a valid, enforceable, perfected, first priority and the only Lien in the Mineral Properties (subject to Permitted Liens), and in all mineral production therefrom or attributable thereto and in all related accounts, wells, pipes, personal property and fixtures, to the extent of Company's right, title and interest in such Mineral Properties and (ii) the Gas Marketing Subsidiaries to grant to Banks as security for the performance by Company of the Notes and Obligation hereunder, a valid, enforceable, perfected, first priority and only Lien (subject to Permitted Liens) in the properties, assets, contracts, contract rights, accounts and accounts receivables of the Gas Marketing Subsidiaries. Such Liens described in the foregoing sentence shall be granted pursuant to, and more fully described in, deeds of trust, mortgages, security agreements, assignments of production, financing statements and other documents (herein called the "Collateral Documents") which are in form and substance satisfactory to Banks and which will be executed by Company and the Gas Marketing Subsidiaries and delivered to Agents within 30 days following Agents' written notice requesting Company's and the Gas Marketing Subsidiaries' execution and delivery of such Collateral Documents. 8.20. Gas Marketing Subsidiaries Guaranties. If Company should ------------------------------------- subsequently form any additional Gas Marketing Subsidiaries, Company shall cause each such Gas Marketing Subsidiary to unconditionally guarantee the Loan pursuant to a form of guaranty agreement substantially in the form of the guaranty agreement of the Loan executed by CT Operating and the Gas Marketing Subsidiaries at the Closing Date, such guaranty agreement to be delivered to Agents within 30 days following Agents' written notice requesting such guaranty agreement. 8.21. Guaranty of Cross Timbers Trading Company. If Cross Timbers ----------------------------------------- Trading Company should subsequently acquire, own or hold material assets, Company shall cause Cross Timbers Trading Company to unconditionally guarantee the Loan pursuant to a form of guaranty agreement substantially in the form of the guaranty agreement of the Loan executed by CT Operating and the Gas Marketing Subsidiaries at the Closing Date, such guaranty agreement to be delivered to Agents within 30 days following Agents' written notice requesting such guaranty agreement. ARTICLE 9 --------- NEGATIVE COVENANTS ------------------ So long as Banks have any commitment to make Advances hereunder, and until payment in full of the Notes and the performance of the Obligation, Company agrees that (unless Majority Banks shall otherwise consent in writing): -55- 9.01. Limitation on Indebtedness. Company will not, and will not -------------------------- permit any Subsidiary to, incur, create, contract, assume, have outstanding, guarantee or otherwise be or become, directly or indirectly, liable in respect of, any Indebtedness, except (i) Indebtedness arising out of this Loan Agreement, (ii) the Subordinated Indebtedness; provided that (a) the principal amount of the Subordinated Indebtedness shall not exceed $125,000,000, (b) the interest rate payable on the Subordinated Indebtedness shall not exceed nine and one-fourth percent (9 1/4%) per annum, and (c) the maturity date of the Subordinated Indebtedness shall not be sooner than April 1, 2007, (iii) Indebtedness, excluding Permitted Margin Debt, secured by the Permitted Liens, (iv) Permitted Margin Debt, (v) current liabilities for taxes and assessments incurred in the ordinary course of business and other liabilities incurred in the ordinary course of business which are currently being contested in good faith and adequate reserves therefor are being maintained according to Generally Accepted Accounting Principles, (vi) current amounts payable or accrued of other claims (other than for borrowed funds or purchase money obligations) incurred in the ordinary course of business provided that all such liabilities, accounts and -------- claims shall be promptly paid and discharged when due or in conformity with customary trade terms, unless such liabilities are currently being contested in good faith and adequate reserves therefor are being maintained according to Generally Accepted Accounting Principles, (vii) Indebtedness of Company and the Subsidiaries not otherwise included in the preceding subclauses of this Section 9.01 that is reflected in the audited consolidated financial statement of Company and the Subsidiaries as of December 31, 1996, (viii) Indebtedness evidenced by or created under the Lease Agreements, (ix) Indebtedness under any Hedge Agreements that are permitted according to Section 9.18 hereof, (x) Indebtedness evidenced by any Interest Swap Agreement, provided such agreement is entered into for business purposes respecting any then existing Indebtedness of Company, and (xi) such other Indebtedness of Company and the Subsidiaries (in the aggregate) not exceeding $5,000,000 at any one time outstanding, exclusive of any Indebtedness between Company and the Subsidiaries. 9.02. Negative Pledge. Company will not, and will not permit any --------------- Subsidiary to, create or suffer to exist any mortgage, pledge, security interest, conditional sale or other title retention agreement, charge, encumbrance or other Lien (whether such interest is based on common law, statute, other law or contract) upon any of its property or assets, now owned or hereafter acquired, except for Permitted Liens. 9.03. Dividends and Distributions. Company shall be permitted to pay --------------------------- Dividends and repurchase its shares of stock, provided, however, that the -------- ------- aggregate amount of the Dividends so paid by Company and the amount expended by Company to repurchase its shares of stock during any four consecutive calendar quarterly periods shall not exceed twenty-five (25%) of Company's net cash flow from operations during such four quarterly periods and Company shall be permitted to repurchase the shares of its stock that is permitted by the lenders under the Prior Loan Agreement pursuant to that certain consent letter dated April 14, 1997; provided, further, however, that without the prior consent of ------------------ ------- Majority Banks Company shall pay no Dividends nor shall Company repurchase any of its shares of stock if (i) an Event of Default exists hereunder, (ii) payment of such permitted Dividends or stock repurchases would cause an Event of Default hereunder, or (iii) a Borrowing Base Deficiency exists hereunder. For the -- purposes of this Section 9.03, the term "net cash flow from operations" shall mean Company's net income for the -56- four quarterly periods under review as established by the financial reports delivered by Company to Banks according to Sections 8.01(a) and 8.01(b) hereof for such quarterly periods, plus depreciation, depletion and other non-cash charges reflected in such financial information. 9.04. Limitation on Investments. Company will not, and will not permit ------------------------- any Subsidiary to, make or have outstanding any Investments in any Person, except for (i) Investments in Capital Stock of publicly traded companies engaged primarily in the oil and gas industry, provided that the aggregate cost of all Investments which are outstanding pursuant to this subclause (i) at any time shall not exceed $30,000,000; (ii) Investments in Non-CT Royalty Trust Units, provided that the aggregate cost of all Investments which are outstanding pursuant to this subclause (ii) at any time shall not exceed $15,000,000; (iii) Investments in CRT Units; (iv) Company's stock ownership in the Subsidiaries, (v) Temporary Cash Investments, and (vi) such other "cash equivalent" investments as Majority Banks may from time to time approve; provided, further, that Company will not, and will not permit any Subsidiary to, make any Investments if (i) an Event of Default exists hereunder or, with the lapse of time and the giving of notice or both, an Event of Default would exist hereunder, (ii) the making of such Investment would cause an Event of Default hereunder, or (iii) a Borrowing Base Deficiency exists hereunder. 9.05. Alteration of Material Agreements. Company will not, and will --------------------------------- not permit any of the Subsidiaries to, consent to or permit any alterations, amendments, modifications, releases, waivers or terminations of any material agreement to which it is a party which would result in a Material Adverse Effect on Company or any Subsidiary, except that Company may consent to or permit amendments or modifications to the Indenture provided that such amendments or modifications do not (i) increase the principal amount of the Subordinated Indebtedness above $125,000,000 or increase the rate of interest paid thereon above nine and one-fourth percent (9 1/4%) per annum, (ii) provide for the final maturity date of the Subordinated Indebtedness to occur prior to April 1, 2007, (iii) affect the definition of the term "Credit Agreement," "Credit Agreement Obligations," "Designated Senior Indebtedness," "Designated Guarantor Senior Indebtedness," Guarantor Senior Indebtedness," "Indebtedness", "Senior Indebtedness" or "Subsidiary Guarantee" (as set forth in the Indenture), (iv) affect any of the subordination, Payment Blockage Notice or Payment Blockage Period provisions set forth in the Indenture, or (v) effect any other amendments or modifications that are adverse to Banks. 9.06. Certain Transactions. Company will not, and will not permit any -------------------- of the Subsidiaries to, enter into any transaction with, or pay any management fees to, any Affiliate; provided, however, that Company and the Subsidiaries may enter into transactions with Affiliates upon terms not less favorable to Company or the Subsidiaries than would be obtainable at the time in comparable transactions of Company or the Subsidiaries in arms-length dealings with Persons other than Affiliates. 9.07. Limitation on Sale of Properties. Company will not, and will not -------------------------------- permit any of the Subsidiaries to, (a) sell, assign, convey, exchange, lease or otherwise dispose of any of its properties, rights, or assets, whether now owned or hereafter acquired, except for sales of severed hydrocarbons or used, obsolete or worn-out equipment which are made in the ordinary course of its business and for a fair consideration; provided, however, that Company or any -------- ------- Subsidiary -57- may, for fair consideration, sell, assign, convey, exchange, lease or otherwise dispose of (i) properties, rights, assets or business which are not included for purpose of determining the Borrowing Base, and (ii) provided no Event of Default exists hereunder, Mineral Properties which are included for the purpose of determining the Borrowing Base if the net aggregate proceeds (cash or otherwise) received by Company and its Subsidiaries from all such sale or sales of such Mineral Properties do not exceed $35,000,000 during any calendar year or (b) sell, assign or discount, except for fair consideration, any accounts receivable. As to such permitted sales of Mineral Properties, (i) the initial $5,000,000 in net sales proceeds per any calendar year shall be retained by Company without any obligation for payment to Banks of any portion of such proceeds as a mandatory principal payment on the Loan, and there shall be no reduction to the Borrowing Base under Section 5.05 hereof on account of such sales, and (ii) for all permitted sales in excess of $5,000,000 per any calendar year, the Borrowing Base shall be reduced by excluding the Mineral Properties that are subject to such sales according to Section 5.05 and Company shall pay to Banks as a mandatory principal payment on the Loan such portion of the net proceeds derived from such sales as is necessary to cause the then Total Outstandings to not exceed the Borrowing Base then in effect after redetermination under Section 5.05 on account of such sales. Notwithstanding the foregoing, Company and Banks agree that if the Approved Property Sale is consummated, the Borrowing Base then in effect shall be reduced by $5,000,000 effective as of the date of such sale; further, the proceeds received by Company upon consummation of the Approved Property Sale shall not be included in the initial $5,000,000 in net sales proceeds for the 1997 calendar year that Company otherwise is permitted to retain according to this Section 9.07 without any obligation for payment to Banks or causing a reduction in the Borrowing Base. 9.08. Name, Fiscal Year and Accounting Method. Company will not, and --------------------------------------- will not permit any of the Subsidiaries to, change its name, fiscal year or method of accounting. 9.09. Current Ratio. Company will not permit the ratio of its ------------- Consolidated Current Assets to its Consolidated Current Liabilities, as of any date, to be less than 1.00 to 1.00. 9.10. Liquidation, Mergers, Consolidations and Dispositions of -------------------------------------------------------- Substantial Assets. Company will not, and will not permit any of the - ------------------ Subsidiaries to, dissolve or liquidate, or become a party to any merger or consolidation if Company is not the surviving corporate entity, or sell, transfer, lease or otherwise dispose of all or any substantial part of its property or assets or business, provided, however, that the foregoing shall not operate to prevent the merger or consolidation of any Subsidiary into Company or a sale, transfer or lease of assets by any Subsidiary to Company or the dissolution of a Subsidiary if the assets of such Subsidiary are transferred to Company or another wholly-owned Subsidiary. 9.11. Lines of Business. Company will not, directly or indirectly, ----------------- engage in any business other than the acquisition, exploration, development, operation, management or resale of oil and gas properties and the processing, marketing and transportation of production therefrom and the ownership, leasing and management of real estate as conducted by WTW Properties, Inc. -58- 9.12. No Amendments. Company will not, and will not permit any ------------- Subsidiary to, amend its agreement of limited partnership, or its articles of incorporation, as the case may be, if such amendment would result in a Material Adverse Effect on Company or any Subsidiary. 9.13. Purchase of Substantial Assets. Company will not, and will not ------------------------------ permit any Subsidiary to, purchase, lease or otherwise acquire all or substantially all of the assets of any other Person, if, as a result of such transaction, Company or any Subsidiary would incur, assume or otherwise become liable for any Indebtedness which is not otherwise permitted under Section 9.01 hereof, or any of such Persons would knowingly become responsible or liable for any presently existing breach or violation, in any material respect, of any Environmental Laws applicable to the assets so purchased, leased or acquired, and provided further, Company will not, and will not permit any Subsidiary to, purchase, lease or acquire any of such assets if (i) an Event of Default exists hereunder or, with the lapse of time or the giving of notice or both, an Event of Default would exist hereunder, (ii) such purchase, lease or acquisition would cause an Event of Default hereunder, or (iii) a Borrowing Base Deficiency exists hereunder. 9.14. Guaranties. Company will not, and will not permit any Subsidiary ---------- to, become or be liable in respect of any Guaranty, except for (i) the Guaranty of Company of certain existing outstanding letters of credit of CT Operating issued by NationsBank of Texas, N.A. or any extensions, renewals or replacements thereof, (ii) the Guaranty of the Subsidiaries of the Obligation of Company under this Loan Agreement; (iii) the Guaranty by Company of the trade payables of the Subsidiaries which are incurred in the ordinary course of such Subsidiaries' business, provided however, that such Guaranty shall not exceed $15,000,000 in the aggregate at any one time outstanding, (iv) the Guaranty by Company of the obligations of Timberland respecting its compressor station and interconnect facility, (v) the Guaranty by Company of the Lease Agreements, (vi) the Guaranty by Company of other equipment leases of its Subsidiaries not otherwise included in subclauses (ii), (iii) or (iv) above, up to an aggregate face amount for all of such equipment leases of $5,000,000 during any calendar year, and (vii) the Guaranty by the Subsidiaries of the Subordinated Indebtedness that is defined as the "Subsidiary Guarantee" in the Indenture. 9.15. Leases; Sale and Leaseback. Company will not, and will not -------------------------- permit any Subsidiary to, enter into any arrangement with any Person (including, without limitation, any insurance company, bank or trustee) pursuant to which it will lease, as lessee, any property which it owned as of the date hereof and which it sold, transferred or otherwise disposed of to such other Person. 9.16. Restriction on Loans. Without the prior written consent of -------------------- Majority Banks, which consent shall not be unreasonably withheld, Company shall not make any loans or advances to any Person, including any Subsidiary or Affiliate of Company, which are not in the ordinary course of Company's business. 9.17. Speculative Trading. Company shall not, and will not permit any ------------------- Subsidiary to, enter into or become bound by any transaction respecting Speculative Trading or make any payment on account of any Speculative Trading. -59- 9.18. Hedging Agreements. Company shall not enter into or become bound ------------------ by any Hedge Agreement that covers (i) more than 100% of Company's projected production from the Proved Developed Producing Reserves attributable to the Mineral Properties during the 18-month period ensuing after the date such Hedge Agreement is entered into or (ii) more than 75% of Company's projected production from the Proved Developed Producing Reserves attributable to the Mineral Properties for any period after the 18-month period following the date such Hedge Agreement is entered into. 9.19. Prepayment or Redemption of Subordinated Indebtedness. Without ----------------------------------------------------- the prior written consent of Majority Banks, Company shall not, and will not permit any Subsidiary to, prepay (in whole or in part) any principal due on the Subordinated Indebtedness or redeem (in whole or in part) the Subordinated Indebtedness or exercise Company's rights of defeasance as set forth in Article XI of the Indenture. If Company requests the consent of Majority Banks to do any of the foregoing, then Majority Banks shall have the right to request a redetermination of the Borrowing Base according to Section 5.04 hereof, which redetermination of the Borrowing Base shall be in addition to any other redetermination of the Borrowing Base which may be made pursuant to Section 5.04 of this Agreement. In the case of such redetermination of the Borrowing Base, Majority Banks in their discretion may require a Reserve Report prepared by a firm of petroleum engineers selected by Company and approved by Majority Banks or prepared by a petroleum engineer employed by Company. Notwithstanding the foregoing, provided that no Event of Default exists or will occur on the account of such redemption, and no Borrowing Base Deficiency exists, without the prior consent of Majority Banks, Company may use proceeds derived from the public offering of any of its common stock, other equity securities of Company or trust equity securities of Company to redeem up to 33-1/3% of the Subordinated Indebtedness as prescribed in the Indenture. 9.20. Payments Respecting Permitted Margin Debt. If Company is fully ----------------------------------------- indebted under all of its Permitted Margin Debt, and if, pursuant to any required margin calls or collateral maintenance provisions in any agreements creating or evidencing any Permitted Margin Debt that is secured by Capital Stock of publicly traded companies engaged primarily in the oil and gas industry, Company is required to make a mandatory principal payment on such Permitted Margin Debt, Company shall not use proceeds from the Loan to make such principal payment on such Permitted Margin Debt without the prior written consent of Majority Banks. 9.21. Strict Compliance. If any action or failure to act by Company ----------------- violates any covenant or obligation of Company contained herein, then such violation shall not be excused by the fact that such action or failure to act would otherwise be required or permitted by any covenant (or exception to any covenant) other than the covenant violated. -60- ARTICLE 10 ---------- EVENTS OF DEFAULT ----------------- 10.01. Events of Default. An "Event of Default" shall exist if any one ----------------- or more of the following events (herein collectively called "Events of Default") shall occur and be continuing: (a) Company shall fail to pay when due any principal of any Note and such failure to pay principal shall continue for a period of one (1) day or Company shall fail to pay when due any interest on any Note or any fee, expense or other payment required hereunder and such failure to pay such interest, fee, expense or other payment (excluding principal on any Note) shall continue for a period of five (5) days; (b) any representation or warranty made under this Loan Agreement (except Section 6.21 or 6.22), or any of the other Loan Papers, or in any certificate or statement furnished or made to Banks pursuant hereto or in connection herewith or with the Loans hereunder, shall prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made; (c) default shall occur in the performance of any of the covenants or agreements of Company or any Subsidiary contained herein, or in any of the other Loan Papers and such default shall continue unremedied for a period of thirty (30) days or, if such default relates to the covenant set forth in Section 9.09 hereof, for a period of ten (10) days following Company's actual knowledge of the existence of such default or Company's receipt of a financial statement which evidences that such default exists, whichever is the first to occur; (d) default shall occur in the payment of any Indebtedness of Company or any Subsidiary in excess of $2,000,000 in the aggregate or default shall occur in respect of any material obligation under any note, loan agreement or credit agreement relating to any such Indebtedness and such default shall continue for more than the period of grace, if any, specified therein; or any such Indebtedness shall become due before its stated maturity by acceleration of the maturity thereof or shall become due by its terms and shall not be promptly paid or extended; or any event or occurrence shall exist which may cause such Indebtedness to become due prior to its stated maturity date even if such maturity date is not accelerated by the holder of such Indebtedness; (e) any of the Loan Papers shall cease to be legal, valid, binding agreements enforceable against Company in accordance with the respective terms thereof or shall in any way be terminated or become or be declared ineffective or inoperative or shall in any way whatsoever cease to give or provide the respective liens, security interest, rights, titles, interest, remedies, powers or privileges, if any, intended to be created thereby; (f) Company or any Subsidiary shall (i) apply for or consent to the appointment of a receiver, trustee, custodian, intervenor or liquidator of itself or of all or a substantial part of any of such Person's assets, (ii) file a voluntary petition in bankruptcy or admit -61- in writing that any of such Persons is unable to pay its debts as they become due, (iii) make a general assignment for the benefit of creditors, (iv) file a petition or answer seeking reorganization of an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against any of such Persons in any bankruptcy, reorganization or insolvency proceeding, or (vi) take corporate or partnership action for the purpose of effecting any of the foregoing; (g) an involuntary petition or complaint shall be filed against Company or any Subsidiary seeking bankruptcy or reorganization of Company or such Subsidiary or the appointment of a receiver, custodian, trustee, intervenor or liquidator of Company or such Subsidiary, or all or substantially all of any of such Person's assets, and such petition or complaint shall not have been dismissed within 60 days of the filing thereof; or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition or complaint seeking reorganization of Company or any Subsidiary or appointing a receiver, custodian, trustee, intervenor or liquidator of Company or any Subsidiary, or of all or substantially all of any of such Person's assets, and such order, judgment or decree shall continue unstayed and in effect for a period of thirty (30) days; (h) any final judgment(s) for the payment of money in excess of the sum of $2,000,000 in the aggregate shall be rendered against Company or any Subsidiary and such judgment or judgments shall not be satisfied or discharged at least ten (10) days prior to the date on which any of its assets could be lawfully sold to satisfy such judgment; (i) both the following events shall occur: (i) either (x) proceedings shall have been instituted to terminate, or a notice of termination shall have been filed with respect to, any Plans (other than a Multi-Employer Pension Plan as that term is defined in Section 3(37) of ERISA) by Company, any Subsidiary, any member of the Controlled Group, PBGC or any representative of any thereof, or any such Plan shall be terminated, in each case under Section 4041 or 4042 of ERISA, or (y) a Reportable Event, the occurrence of which would cause the imposition of a lien under Section 4062 of ERISA, shall have occurred with respect to any Plan (other than a Multi-Employer Pension Plan as that term is defined in Section 3(37) of ERISA) and be continuing for a period of sixty (60) days; and (ii) the sum of the estimated liability to PBGC under Section 4062 of ERISA and the currently payable obligations of Company or any Subsidiary to fund liabilities (in excess of amounts required to be paid to satisfy the minimum funding standard of Section 412 of the Code) under the Plan or Plans subject to such event shall exceed ten percent (10%) of Consolidated Tangible Net Worth at such time; (j) any or all of the following events shall occur with respect to any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA) to which Company or any Subsidiary contributes or contributed on behalf of its employees: (i) Company or any Subsidiary incurs a withdrawal liability under Section 4201 of ERISA; or (ii) any such plan is "in reorganization" as that term is defined in Section 4241 of ERISA; or (iii) any such Plan is terminated under Section 4041A of ERISA, and Majority Banks determine in good faith that the aggregate liability likely to be incurred by Company or any Subsidiary, as a result of all or any of -62- the events specified in Subsections (i), (ii) and (iii) above occurring, shall have a Material Adverse Effect; (k) a Borrowing Base Deficiency has occurred and any Event of Default specified in Section 5.06(c) hereof shall occur; (l) an event of default shall exist under the terms of the Indenture; (m) either the Trustee or any holder of the Subordinated Indebtedness shall do any of the following: (i) accelerate the maturity of the Subordinated Indebtedness, (ii) pursue or exercise any remedies provided for in the Indenture, (iii) sue for or collect any amount due on the Subordinated Indebtedness or (iv) file a petition or complaint against Company seeking bankruptcy or reorganization of Company or the appointment of a receiver, custodian, trustee, intervenor or liquidator of Company; (n) without the prior consent of all Banks, Company or any Subsidiary shall prepay (in whole or in part) the Subordinated Indebtedness or redeem (in whole or in part) the Subordinated Indebtedness or Company shall exercise its rights of defeasance as set forth in Article XII of the Indenture, unless such purchase, prepayment, redemption or exercise of rights of redemption is otherwise permitted according to Section 9.19 hereof; (o) Company and/or the Gas Marketing Subsidiaries shall fail to execute and deliver to Agents the Collateral Documents within 30 days following Agents' written notice to Company and/or the Gas Marketing Subsidiaries requesting Company to execute and deliver the Collateral Documents; (p) a Change of Control shall occur; or (q) any Event of Default specified in Section 6.21 or 6.22 hereof shall occur. 10.02. Remedies Upon Event of Default. If an event of Default shall ------------------------------ have occurred and be continuing, then Administrative Agent shall, at the request of Majority Banks, and may, with the consent of Majority Banks, exercise any one or more of the following rights and remedies, and any other remedies provided in any of the Loan Papers, as Majority Banks in their sole discretion, may deem necessary or appropriate: (i) terminate Banks' Commitment to lend hereunder, whereupon the same shall immediately terminate, (ii) declare the principal of, and all interest then accrued on, the Notes and any other liabilities hereunder to be forthwith due and payable, whereupon the same shall forthwith become due and payable without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind all of which Company hereby expressly waives, anything contained herein or in the Notes to the contrary notwithstanding, (iii) reduce any claim to judgment, and/or (iv) without notice of default or demand, pursue and enforce any of Banks' rights and remedies under the Loan Papers, or otherwise provided under or pursuant to any applicable law or agreement; provided, however, that if any Event of Default specified in Sections 10.01(f) and (g) shall occur, the principal of, and all interest on, the Notes and other liabilities hereunder shall thereupon become due and payable concurrently therewith, and Banks' obligations to lend shall immediately terminate hereunder, without any further action by Administrative Agent or any Bank and without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind, all of which Company hereby expressly waives. 10.03. Performance by Banks. Should Company fail to perform any -------------------- covenant, duty or agreement contained herein or in any of the Loan Papers, Administrative Agent, either Agent or Banks may, at their option, perform or attempt to perform such covenant, duty or agreement on behalf of Company. In such event, Company shall, at the request of Administrative Agent or Banks, promptly pay any amount expended by Administrative Agent or Banks in such performance or attempted performance to Administrative Agent at its principal office in New York, New York, together with interest thereon at the highest lawful rate from the date of such expenditure until paid. Notwithstanding the foregoing, it is expressly understood that neither Banks nor Administrative Agent assume any liability or responsibility for the performance of any duties of Company hereunder or under any of the Loan Papers or other control over the management and affairs of Company. ARTICLE 11 ---------- AGENCY PROVISIONS ----------------- 11.01. Appointment and Authorization. Each Bank hereby irrevocably ----------------------------- appoints and authorizes Administrative Agent and Syndication Agent, as its Agent, to take such action on its behalf and to exercise such powers under the Loan Papers as are delegated to such Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Loan Agreement, Agents shall not have any duties or responsibilities except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Loan Agreement or any other Loan Papers or otherwise exist against Agents. With respect to its Commitment, the Advances made by it and the Notes issued to it, each Agent shall have the same rights and powers under this Loan Agreement as any other Bank and may exercise the same as though it were not an Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include each Agent in its capacity as a Bank. Each Agent and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Company, and any Person which may do business with Company, all as if such Agent were not an Agent hereunder and without any duty to account therefor to Banks. 11.02. Consultation with Counsel. Banks agree that each Agent may ------------------------- consult with legal counsel selected by it and shall not be liable for any action taken or suffered in good faith by them in accordance with the advice of such counsel. -64- 11.03. Documents. Neither Agent shall be under a duty to examine or --------- pass upon the validity, effectiveness, enforceability, genuineness or value of any of the Loan Papers or any other instrument or document furnished pursuant thereto or in connection therewith, and each Agent shall be entitled to assume that the same are valid, effective, enforceable and genuine and what they purport to be. 11.04. Resignation. Subject to the appointment and acceptance of a ----------- successor Agent as provided below, any Agent may resign at any time by giving written notice thereof to Banks and Company. Upon any such resignation, Majority Banks (or the majority in number of Banks with respect to any removal for cause) shall have the right to appoint a successor Agent, subject to Company's consent, not to be unreasonably withheld, if the successor Agent is not a Bank. If no successor Agent shall have been so appointed by Majority Banks (or the majority in number of Banks with respect to any removal for cause) and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of Banks, appoint a successor Agent, subject to Company's consent, not to be unreasonably withheld, if such successor Agent is not a Bank. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 11 shall continue in effect for its benefit in respect to any actions taken or omitted to be taken by it while it was acting as Agent. 11.05. Responsibility. It is expressly understood and agreed that the -------------- obligations of each Agent under the Loan Papers are only those expressly set forth in the Loan Papers and that each Agent shall be entitled to assume that no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default has occurred and is continuing, unless such Agent has actual knowledge of such fact or has received notice from a Bank that such Bank considers that an Event of Default or such event has occurred and is continuing and specifying the nature thereof. Neither Agent nor any of its directors, officers or employees shall be liable for any action taken or omitted to be taken by it under or in connection with the Loan Papers, except for its own gross negligence or willful misconduct. Neither Agent shall incur any liability under or in respect of any of the Loan Papers by acting upon any notice, consent, certificate, warranty or other paper or instrument reasonably believed by it to be genuine or authentic or to be signed by the proper party or parties, or with respect to anything which it may do or refrain from doing in the reasonable exercise of its judgment, or which may seem to it to be reasonably necessary or desirable under the circumstances. The relationship between each Agent and each Bank is only that of agent and principal and has no fiduciary aspects, and each Agent's duties hereunder are acknowledged to be only ministerial and not involving the exercise of discretion on its part. Nothing in this Loan Agreement or elsewhere contained shall be construed to impose on any Agent any duties or responsibilities other than those for which express provision is herein made. In performing its duties and functions hereunder, neither any Agent assumes and shall not be deemed to have assumed, and hereby expressly disclaims, any obligation or responsibility toward or any -65- relationship of agency or trust with or for, Company. As to any matters not expressly provided for by this Loan Agreement, neither Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Majority Banks and such instructions shall be binding upon all Banks and all holders of Notes; provided, however, that -------- ------- neither Agent shall be required to take any action which is contrary to this Loan Agreement or applicable law. 11.06. Notices of Event of Default. In the event that any Agent shall --------------------------- have acquired actual knowledge of any Event of Default or of an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default, such Agent shall promptly give notice thereof to the other Banks. 11.07. Independent Investigation. Each Bank severally represents and ------------------------- warrants to each Agent that it has made its own independent investigation and assessment of the financial condition and affairs of Company in connection with the making and continuation of its participation in the Loans hereunder and has not relied exclusively on any information provided to such Bank by such Agent in connection herewith, and each Bank represents, warrants and undertakes to each Agent that it shall continue to make its own independent appraisal of the creditworthiness of Company while the Loans are outstanding or its commitment hereunder is in force. 11.08. INDEMNIFICATION. BANKS AGREE TO INDEMNIFY EACH AGENT (TO THE --------------- EXTENT NOT REIMBURSED BY COMPANY), RATABLY ACCORDING TO THE PROPORTION THAT THE RESPECTIVE PRINCIPAL AMOUNTS OF THE NOTE HELD BY EACH OF THEM BEARS TO THE SUM OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (OTHER THAN THOSE ARISING SOLELY BY REASON OF AGENT BEING A BANK) WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST SUCH AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THE LOAN PAPERS OR ANY ACTION TAKEN OR OMITTED BY SUCH AGENT UNDER THE LOAN PAPERS, PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM ANY AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 11.09. Forwarding of Information to Banks. Unless otherwise specified ---------------------------------- in this Loan Agreement, each Agent agrees to deliver or cause to be delivered to each Bank, within two (2) Business Days, copies of all notices, reports, certificates and other information received from Company or any of its Subsidiaries in connection with this Loan Agreement or any other Loan Papers if such notices, reports, certificates or other such information was not otherwise delivered to such Bank by Company or any other Agent. -66- 11.10. Benefit of Article 11. The agreements contained in this Article --------------------- 11 are solely for the benefit of Agents and Banks, and are not for the benefit of, or to be relied upon by, Company, or any third party. ARTICLE 12 ---------- SPECIAL PROVISIONS FOR EURODOLLAR AND CD LOANS; YIELD PROTECTION ---------------------------------------------------------------- 12.01. Inadequacy of Pricing. If --------------------- (A) with respect to an Interest Period for any Eurodollar Borrowing: (i) Administrative Agent determines that, by reason of circumstances affecting the interbank eurodollar market generally, deposits in Dollars (in the applicable amounts) are not being offered to the Reference Banks in the interbank eurodollar market for such Interest Period, or (ii) Majority Banks advise Administrative Agent that the InterBank Offered Rate as determined by Administrative Agent will not adequately and fairly reflect the cost to such Banks of maintaining or funding the Eurodollar Borrowing for such Interest Period; or (B) with respect to an Interest Period for any CD Borrowing: (i) no timely quotations of the applicable rate are offered to Reference Banks by certificate of deposit dealers for their certificates of deposit as contemplated herein, or (ii) Majority Banks advise Administrative Agent that the CD Quoted Rate as determined by Administrative Agent will not adequately and fairly reflect the cost to such Banks of maintaining or funding the CD Borrowing, (such Eurodollar Advances or CD Advances that become subject to the foregoing provisions of this Section 12.01 are herein called the "Affected Borrowings"), then Administrative Agent shall forthwith give notice thereof to Company and Banks, whereupon until Administrative Agent notifies Company that the circumstances giving rise to such suspension no longer exist, (a) the obligation of Banks to make the Affected Borrowings shall be suspended and (b) Company shall either (i) repay in full the then-outstanding principal amount of the Affected Borrowings, together with accrued interest thereon on the last day of the then-current Interest Period applicable to such Affected Borrowings, or (ii) convert such Affected Borrowings to Floating Base Borrowings or any other Borrowing that is not an Affected Borrowing in accordance with Section 2.02(c) of this Loan Agreement on the last day of the then-current Interest Period applicable to each such Affected Borrowing. 12.02. Illegality. If, after the date of this Loan Agreement, the ---------- adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or -67- administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank 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 to make, maintain or fund its Eurodollar Advances or CD Advances, and such Bank shall so notify Administrative Agent, Administrative Agent shall forthwith give notice thereof to Banks and Company. Before giving any notice pursuant to this Section 12.02 that affects Eurodollar Advances, such Bank shall designate a different Eurodollar lending office if such designation will avoid the need for giving such notice and will not be otherwise disadvantageous to any non-trivial extent to such Bank (as determined in good faith by such Bank) (the Eurodollars Advances or CD Advances that become subject to the provisions of this Section 12.02 are herein called "Affected Borrowings"). Upon receipt of such notice, Company shall either (i) repay in full the then outstanding principal amount of the Affected Borrowings of such Bank, together with accrued interest thereon, or (ii) convert such Affected Borrowings to or any other Borrowing that is not an Affected Borrowing, on either (a) the last day of the then current Interest Period applicable to such Affected Borrowings if such Bank may lawfully continue to maintain and fund such Affected Borrowings to such day or (b) immediately if such Bank may not lawfully continue to fund and maintain such Affected Borrowings to such day. 12.03. Increased Costs for Loans. If any Governmental Authority, ------------------------- central bank or other comparable authority, shall at any time impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System but excluding any reserve requirement included in the Eurodollar or CD Reserve Requirement of such Bank), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank, or shall impose on any Bank (or its Eurodollar lending office) or the interbank eurodollar market any other condition affecting its Eurodollar Advances, CD Advances, the Note or its obligation to make Eurodollar Advances; and the result of any of the foregoing is to increase the cost to such Bank of making or maintaining its Eurodollar Advances, CD Advances, or to reduce the amount of any sum received or receivable by such Bank under this Agreement, or under the Note, by an amount deemed by such Bank to be material (the Eurodollars Advances or CD Advances that become subject to the provisions of this Section 12.03 are herein called "Affected Borrowings"), then, within five (5) days after demand by such Bank (with a copy to Administrative Agent) Company shall pay to Administrative Agent, for the account of such Bank, such additional amount or amounts as will compensate such Bank for such increased cost or reduction. Each Bank will promptly notify Company 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. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. If any Bank demands compensation under this Section, then Company may at any time, upon at least five (5) Business Days' prior notice to such Bank through Administrative Agent, either (i) repay in full the then outstanding Affected Borrowings of such Bank, together with accrued interest thereon to the date of prepayment or (ii) convert such Affected Borrowings to or any other Borrowing that is not an Affected Borrowing in accordance with the provisions of -68- this Loan Agreement; provided, however, that Company shall be liable for any Consequential Loss arising pursuant to such actions. 12.04. Effect on Other Loans. If notice has been given pursuant to --------------------- Section 5.02 or Section 5.03 requiring the Affected Borrowings of any Bank to be repaid or converted, then unless and until such Bank notifies Company that the circumstances giving rise to such repayment no longer apply, all Advances or any other Borrowing that are not Affected Borrowings shall be Advances. If such Bank notifies Company that the circumstances giving rise to such repayment no longer apply, Company may thereafter select Advances to be Borrowings that were formerly Affected Borrowings in accordance with Section 2.02(c) of this Loan Agreement. 12.05. Payments Not At End of Interest Period. If Company makes any -------------------------------------- payment of principal with respect to any Eurodollar Borrowing or CD Borrowing on any day other than the last day of an Interest Period applicable to such Eurodollar Borrowing or CD Borrowing, then Company shall reimburse each Bank on demand the Consequential Loss incurred by it as a result of the timing of such payment. A certificate of each Bank setting forth the basis for the determination of the amount of Consequential Loss shall be delivered to Company through Administrative Agent and shall, in the absence of manifest error, be conclusive and binding. Any conversion of (i) a Eurodollar Borrowing to a CD Borrowing or Floating Base Borrowing or (ii) a conversion of a CD Borrowing to a Eurodollars Borrowing or a Floating Base Borrowing on any day other than the last day of the Interest Period for such Eurodollar Borrowing shall be deemed a payment for purposes of this Section. 12.06. Capital Adequacy. If, after the date hereof, any Bank shall ---------------- determine that either (i) the adoption of any applicable law, rule, regulation or guideline regarding capital adequacy and applicable to commercial banks or financial institutions generally 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 (ii) compliance by such Bank (or any lending office of such Bank) with any request or directive applicable to commercial banks or financial institutions generally regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has or would have the effect of reducing the rate of return on such Bank's capital or the capital of such Bank's holding company as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount reasonably deemed by such Bank to be material, then from time to time, within fifteen (15) days after demand by such Bank (with a copy to Administrative Agent), Company shall pay to such Bank such additional amount or amounts as will adequately compensate such Bank for such reduction. Each Bank will promptly notify Company and Administrative Agent of any event of which it has actual knowledge, occurring after the date thereof, which will entitle such Bank to compensation pursuant to this Section 12.06. A certificate of such Bank claiming compensation under this Section 12.06 and setting forth the additional amount of amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. -69- ARTICLE 13 ---------- MISCELLANEOUS ------------- 13.01. Modification. All modifications, consents, amendments or waivers ------------ of any provision of any Loan Paper, or consent to any departure by Company therefrom, shall be effective only if the same shall be in writing and concurred in by Majority Banks and then shall be effective only in the specific instance and for the purpose for which given; provided, however, that no change in the provisions of this Loan Agreement which has the effect of (i) increasing the Borrowing Base then in effect or increasing the Commitment then in effect or any Bank's Percentage of the Commitment then in effect, (ii) reducing or increasing the amount of principal or interest or rate of interest otherwise due on any Note or any fee payable by Company hereunder, (iii) postponing, extending, forbearing, or waiving the date on which any payment of principal, interest or fee is due hereunder or extending the Maturity Date, (iv) modifying the amount of any Scheduled Installment that may become due hereunder, (v) modifying the definition of "Majority Banks," or Section 13.01 hereof, (vi) modifying the number or percentage of Banks required to effect any modification, consent, amendment or waiver of any provision of any Loan Paper, (vii) releasing any guarantor of the Loan or any portion thereof or (viii) releasing any security interest in any material or significant collateral that may secure the Loan (in the event Section 8.19 should become applicable) shall be effective absent the concurrence of all Banks. Should any Bank withhold consent to any change in an interest rate, increase in the amount of the Loan Commitment, extension of the time for payment of any Note, or extension of the Maturity Date approved by Majority Banks, the remaining consenting Banks shall have the option of purchasing from the non-consenting Bank its Note, such purchase to be made ratably by such remaining Banks in proportion to such Banks' respective Percentages. 13.02. Accounting Terms and Reports. All accounting terms not ---------------------------- specifically defined in this Loan Agreement shall be construed in accordance with Generally Accepted Accounting Principles consistently applied on the basis used by Company in prior years. All financial reports furnished by Company to Banks pursuant to this Loan Agreement shall be prepared in such form and such detail as shall be satisfactory to Banks, shall be prepared on the same basis as those prepared by Company in prior years and shall be the same financial reports as those furnished to Company's officers and directors. All financial projections furnished by Company to Banks pursuant to this Loan Agreement shall be prepared in such form and such detail as shall be satisfactory to Banks and shall be prepared on the same basis as the financial reports furnished by Company to Banks. 13.03. Waiver. No failure to exercise, and no delay in exercising, on ------ the part of any Bank, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other further exercise thereof or the exercise of any other right. The rights of Banks hereunder and under the Loan Papers shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Loan Agreement, the Notes or any Loan papers, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No -70- notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 13.04. Payment of Expenses; Documentary Taxes; Indemnification. ------------------------------------------------------- (a) Company agrees to pay (i) all out-of-pocket costs and expenses of Administrative Agent, either Agent and each Bank (including without limitation the reasonable fees, expenses and disbursements of legal counsel retained by Agents as legal counsel for Banks, but no other legal counsel for any Bank retained separately by such Bank) in connection with the negotiation, preparation, execution and delivery of this Loan Agreement and the other Loan Papers, (ii) all out-of-pocket costs and expenses incurred by Administrative Agent, either Agent and each Bank (including without limitation the reasonable fees, expenses and disbursements of legal counsel retained by Agents as legal counsel for Banks, but no other legal counsel for any Bank retained separately by such Bank), in connection with the administration of this Loan Agreement, the Notes, the other Loan Papers and any and all amendments, modifications and supplements thereof or thereto and the preservation and enforcement of Banks' rights under this Loan Agreement, the Notes and/or the other Loan Papers and (iii) if an Event of Default occurs, all out-of-pocket costs and expenses incurred by Administrative Agent, either Agent and each Bank (including without limitation the reasonable fees, expenses and disbursements of legal counsel for Administrative Agent, each Agent and each Bank) in connection with such Event of Default and any collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. Company shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Loan Agreement or the Notes. (b) COMPANY AGREES TO INDEMNIFY EACH BANK AND HOLD 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, WHICH MAY BE INCURRED BY ANY BANK (OR BY ADMINISTRATIVE AGENT OR EITHER AGENT IN CONNECTION WITH THEIR ACTIONS AS ADMINISTRATIVE AGENT OR EITHER AGENT HEREUNDER) IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING (WHETHER OR NOT SUCH BANK SHALL BE DESIGNATED A PARTY THERETO) RELATING TO OR ARISING OUT OF THIS LOAN AGREEMENT OR ANY ACTUAL OR PROPOSED USE OF PROCEEDS OF LOANS HEREUNDER; PROVIDED THAT NO BANK SHALL HAVE -------- THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED, -------- FURTHER, THAT COMPANY'S INDEMNIFICATION OF ADMINISTRATIVE AGENT, EACH AGENT AND - ------- EACH BANK SHALL INCLUDE ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS AND EXPENSES ARISING OUT OF OR CONNECTED WITH ANY CLAIM ASSERTED BY OR CAUSE OF ACTION BROUGHT BY ANY SHAREHOLDER OF COMPANY OR ANY OTHER PERSON WHICH ALLEGES OR ASSERTS THAT THE TRANSACTIONS -71- CONTEMPLATED BY OR CONSUMMATED UNDER OR PURSUANT TO THE INDENTURE OR REGISTRATION STATEMENT OR THE ISSUANCE OF THE SUBORDINATED INDEBTEDNESS VIOLATE OR CONTRAVENE ANY STATE OR FEDERAL SECURITIES LAW, RULE OR REGULATION. 13.05. Notices. Except for telephonic notices permitted herein, any ------- notices or other communications required or permitted to be given by this Loan Agreement or any other documents and instruments referred to herein must be (i) given in writing and personally delivered or mailed by prepaid certified or registered mail, or (ii) made by telecopy or facsimile delivered or transmitted, to the party to whom such notice or communication is directed and if between any Bank or Administrative Agent or any Agent and Company, confirmed by a hard copy sent by overnight delivery service for delivery the following day, to the address of such party as follows: (a) Company: (b) Any Agent or any Bank: Cross Timbers Oil Company At its address shown below its name 810 Houston Street, Suite 2000 on the signature pages hereof. Fort Worth, Texas 76102 (Attention: John O'Rear) Telecopy No. (817) 870-1671 Any notice to be personally delivered may be delivered to the principal offices (determined as of the date of such delivery) of the party to whom such notice is directed. Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day it is personally delivered as aforesaid or, if mailed, on the third day after it is mailed as aforesaid; or, if transmitted by telecopy, on the day that such notice is transmitted as aforesaid; provided, however, that any telephonic or other notice received by Administrative Agent or any Agent or any Bank after 12:00 noon New York time on any day from Company pursuant to Section 2.02 (with respect to a Request for Borrowing) shall be deemed for the purposes of such Section to have been given by Company on the next succeeding Business Day. Any party may change its address for purposes of this Loan Agreement by giving notice of such change to the other parties pursuant to this Section 13.05. 13.06. GOVERNING LAW. THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING ------------- EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS LOAN AGREEMENT AND ALL OF THE OTHER LOAN PAPERS, UNLESS OTHERWISE SPECIFIED THEREIN OR UNLESS THE LAWS GOVERNING NATIONAL BANKS SHALL HAVE APPLICATION. NOTHING IN THIS SECTION 13.06 OR ANY OTHER PROVISION OF THIS LOAN AGREEMENT OR ANY NOTE IS INTENDED TO SUBJECT TO A -72- LIMITATION IMPOSED BY TEXAS LAW THE MAXIMUM NON-USURIOUS RATE OF INTEREST OTHERWISE PERMITTED TO BE CHARGED BY ANY BANK UNDER THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA AND THE LAWS OF THE STATE IN WHICH SUCH BANK IS LOCATED. 13.07. Choice of Forum; Consent to Service of Process and Jurisdiction; ---------------------------------------------------------------- Waiver of Rights to Jury Trial. Any suit, action or proceeding against Company - ------------------------------ with respect to this Loan Agreement, the Notes or any judgment entered by any court in respect thereof, may be brought in the courts of the State of Texas, County of Tarrant, or in the United States courts located in the State of Texas as Majority Banks in their sole discretion may elect and Company hereby submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding. Company hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in the State of Texas may be brought upon any president, vice president or chief financial officer of Company as Process Agent, and Company hereby irrevocably appoints the Process Agent, as its true and lawful attorney-in-fact in the name, place and stead of Company to accept such service of any and all such writs, process and summonses, and agrees that the failure of Process Agent to give any notice of such service of process to it shall not impair or affect the validity of such service or of any judgment based thereon. Company hereby further irrevocably consents to the service of process in any suit, action or proceeding in said court by the mailing thereof by Administrative Agent by registered or certified mail, postage prepaid, to its address set forth in Section 13.05 hereof. Company hereby irrevocably waives any objections which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Loan Agreement or any Note brought in the courts located in the State of Texas, County of Tarrant, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. COMPANY AND EACH BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS LOAN AGREEMENT OR ANY OTHER LOAN PAPERS OR THE ACTS OR OMISSIONS OF THE BANKS IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS LOAN AGREEMENT OR ANY OTHER LOAN PAPERS OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR BANKS ENTERING INTO THIS AGREEMENT. 13.08. Invalid Provisions. If any provision of any Loan Paper is held ------------------ to be illegal, invalid or unenforceable under present or future laws during the term of this Loan Agreement, such provision shall be fully severable; such Loan Paper shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of such Loan Paper; and the remaining provisions of such Loan Paper shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from such Loan Paper. Furthermore, in lieu of each such illegal, invalid or unenforceable provision shall be added as part of such Loan Paper a provision mutually agreeable to Company, Administrative Agent and Majority Banks as similar in terms to such illegal, invalid or unenforceable provision -73- as may be possible and be legal, valid and enforceable. In the event Company, Administrative Agent, and Majority Banks are unable to agree upon a provision to be added to the Loan Paper within a period of ten (10) Business Days after a provision of the Loan Paper is held to be illegal, invalid or unenforceable, then a provision acceptable to Administrative Agent and Majority Banks as similar in terms to the illegal, invalid or unenforceable provision as is possible and be legal, valid and enforceable shall be added automatically to such Loan Paper. In either case, the effective date of the added provision shall be the date upon which the prior provision was held to be illegal, invalid or unenforceable. 13.09. Maximum Interest Rate. Regardless of any provision contained in --------------------- any of the Loan Papers, Banks shall never be entitled to receive, collect or apply as interest on the Notes any amount in excess of the Maximum Rate, and, in the event that any Bank ever receives, collects or applies as interest any such excess, the amount which would be excessive interest shall be deemed to be a partial prepayment of principal and treated hereunder as such; and, if the principal amount of the Obligations is paid in full, any remaining excess shall forthwith be paid to Company. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, Company and Banks shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (ii) exclude voluntary prepayments and the effects thereof; and (iii) amortize, prorate, allocate and spread, in equal parts, the total amount of interest throughout the entire contemplated term of the Notes so that the interest rate is uniform throughout the entire term; provided that, if the Notes are 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 Rate, Banks shall refund to Company the amount of such excess or credit the amount of such excess against the principal amount of the Notes 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 Rate. 13.10. Offset. Company hereby grants to Administrative Agent and each ------ Bank the right of offset, to secure repayment of the Notes, upon any and all moneys, securities or other property of Company and the proceeds therefrom, now or hereafter held or received by or in transit to Administrative Agent or Banks, or any of them, or any of their agents, from or for the account of Company, whether for safe keeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of Company, and any and all claims of Company against Administrative Agent or Banks (or any of them) at any time existing. 13.11. Article 14.10(b). Company, Administrative Agent and Banks hereby ---------------- agree that, except for Article 14.10(b) thereof, the provisions of Chapter 15 of Title 79 of the Revised Civil Statutes of Texas, 1925, as amended (regulating certain revolving credit loans and revolving tri-party accounts) shall not apply to the Loan Papers. 13.12. Entirety. The Loan Papers embody the entire agreement between -------- the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof. -74- 13.13. Headings. Section headings are for convenience of reference only -------- and shall in no way affect the interpretation of this Loan Agreement. 13.14. Survival. All representations and warranties made by Company -------- herein shall survive delivery of the Notes and the making of the Loans. 13.15. Successors and Assigns. ---------------------- (a) The provisions of this Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Company may not assign or otherwise transfer any of its rights under this Loan Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to Company, Administrative Agent and Agents, such Bank shall remain responsible for the performance of its obligations hereunder, and Company, Administrative Agent and Agents shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. The rights and entitlements of any Bank under Article 12 shall be determined for purposes of this Loan Agreement on the basis of what such Bank would be entitled to receive under this Loan Agreement had it not granted any participating interest to any Participant, whether or not such Bank has in fact done so, and any election, determination or approval to be made by Majority Banks pursuant to Section 12.06 shall be made solely and exclusively by Banks who are signatories hereto which constitute Majority Banks, with no recognition being given to any Participant of any such Bank. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of Company hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Loan Agreement; provided that such participation -------- agreement may provide that such Bank will not agree to any modification, amendment or waiver of any provision of this Loan Agreement which has the effect of (i) adjusting the Participant's or any Bank's Commitment, (ii) reducing or increasing the amount of principal or accrued interest otherwise due on any Note or any fee payable by Company hereunder, (iii) postponing, extending, forbearing or waiving the date on which any payment of principal, interest or fee is due hereunder or extending the Maturity Date, (iv) modifying the amount of any Scheduled Installment that may become due hereunder, or (v) modifying the definition of Majority Banks hereof without the consent of the Participant and may contain any other provisions, or such participation may take place on such other terms, as such Bank deems appropriate. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Loan Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all or a portion of its rights and obligations under this Loan Agreement and the Loan Papers, and such Assignee shall assume such rights and obligations, -75- pursuant to an instrument executed by such Assignee and such transferor Bank, with (and subject to) notice to, and the consent of, Company (which consent shall not be unreasonably withheld), Administrative Agent and Agents; provided -------- that if an Assignee is an affiliate of such transferor Bank, such notice shall be given but no such consent shall be required; and provided, further, that no -------- ------- assignment representing less than $5,000,000 in Commitments shall be permitted. Upon execution and delivery of such an instrument any payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Loan Agreement and shall have all the rights and obligations of a Bank with Commitment(s) as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, Administrative Agent and Company shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to Company and Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes on such form of certificate which is satisfactory to Administrative Agent. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee or other transferee of any Bank's rights shall be entitled to receive any greater payment under Article 12 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with Company's prior written consent or by reason of the provisions of Article 12 requiring such Bank to designate a different lending office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. 13.16 Foreign Banks, Participants, and Assignees. Each Bank, ------------------------------------------ Participant (by accepting a participation interest under this Loan Agreement), and Assignee (by executing an assignment and assumption agreement in a form acceptable to Agents) that is not organized under the laws of the United States of America or one of its states (a) represents to Administrative Agent and Company that (i) no Taxes assessed by any Governmental Authority in the United States are required to be withheld by Administrative Agent or Company with respect to any payments to be made to it in -76- respect of the Obligations and (ii) it has furnished to Administrative Agent and Company two duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1006, 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 Company 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 Company and Administrative Agent (without duplication) may deduct and withhold from interest payments under the Loan Papers any United States federal income tax at the minimum rate under the Internal Revenue Code of 1986, as amended, without reimbursement pursuant to Section 4.08. 13.17. No Third Party Beneficiary. The parties do not intend the -------------------------- benefits of this Loan Agreement to inure to any third party, nor shall this Loan Agreement be construed to make or render Administrative Agent, either Agent or Banks liable to any materialmen, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Company, or for debts or claims accruing to any such persons against Company. Notwithstanding anything contained herein or in the Notes, or in any other Loan Paper, or any conduct or course of conduct by any or all of the parties hereto, before or after signing this Loan Agreement or any of the other Loan Papers, neither this Loan Agreement nor any other Loan Paper shall be construed as creating any right, claim or cause of action against Administrative Agent, either Agent or Banks, or any of their officers, directors, agents or employees, in favor of any materialmen, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Company, nor to any other person or entity other than Company. 13.18 Acknowledgements. Company hereby acknowledges that: ---------------- (a) it has been advised by counsel in the negotiation, execution and delivery of this Loan Agreement and the other Loan Papers; (b) neither the Administrative Agent, either Agent nor any Bank has any fiduciary relationship with or duty to Company arising out of or in connection with this Loan Agreement or any of the other Loan Papers, and the relationship between Administrative Agent, either Agent and Banks, on one hand, and Company, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Papers or otherwise exists by virtue of the transactions contemplated hereby among Banks or among Company and Banks. 13.19. Multiple Counterparts. This Loan Agreement may be executed in --------------------- any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Loan Agreement by signing any such counterpart. 13.20. Notice and Acknowledgment of No Oral Agreements. In ----------------------------------------------- consideration of the making of the Loan, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Company and Banks, Company and Banks (i) agree that Company and Banks' execution of this Loan Agreement constitutes acknowledgment that each Bank and Company have read and understand this Loan Agreement; and (ii) acknowledge receipt of the following Notice: -77- NOTICE: THIS LOAN AGREEMENT AND ALL OTHER LOAN PAPERS RELATING TO THIS ------ LOAN CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENT THE FINAL AGREEMENT BETWEEN COMPANY AND BANKS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF COMPANY AND BANKS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN COMPANY AND BANKS RELATING TO THIS LOAN. IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement as of the day and year first above written. [SIGNATURE PAGES TO FOLLOW] -78- COMPANY: ------- CROSS TIMBERS OIL COMPANY, a Delaware corporation By: /s/ JOHN O'REAR -------------------------------------------- John O'Rear, Vice President and Treasurer -79- ADMINISTRATIVE AGENT - --------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ JOHN G. KOWALCZUK ------------------------------------ John G. Kowalczuk, Vice President Address for Notice: - ------------------ Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10015 Telecopy No. (212) 648-5023 -80- SYNDICATION AGENT: - ----------------- NATIONSBANK OF TEXAS, N.A. By: /s/ J. SCOTT FOWLER ---------------------------------------- J. Scott Fowler, Vice President Address for Notice: - ------------------ NationsBank of Texas, N.A. 901 Main Street, The Plaza, 64th Floor P. O. Box 830104 Dallas, Texas 75283-0104 Attention: Energy Finance Division Telecopy No: (214) 508-1285 -81- BANKS: ----- MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ JOHN G. KOWALCZUK ------------------------------------- John G. Kowalczuk, Vice President Address for Notice: ------------------ Domestic Lending Office ----------------------- Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10015 Telex number: 420230 Telecopy Number: (212) 648-5023 Eurodollar Lending Office ------------------------- Morgan Guaranty Trust Company of New York, Channel Islands Branch c/o MORGAN CHRISTIANA CORP. Euro-Loan Servicing Unit 902 Market Street Wilmington, Delaware 19801 Telex number: 835369 -82- NATIONSBANK OF TEXAS, N.A. By: /s/ J. SCOTT FOWLER ----------------------------------- J. Scott Fowler, Vice President Address for Notice: ------------------ NationsBank of Texas, N.A. 901 Main Street, The Plaza, 64th Floor P. O. Box 830104 Dallas, Texas 75283-0104 Attention: Energy Finance Division Telecopy Number: (214) 508-1285 -83- TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ TIMOTHY E. PERRY -------------------------------------------- Timothy E. Perry, Senior Vice President Address for Notice: ------------------ Texas Commerce Bank National Association 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Telecopy Number: (214) 922-2389 -84- BANKBOSTON, N.A. By: /s/ TIMOTHY J. NORTON --------------------------------------- Name: Timothy J. Norton ------------------------------------- Title: Vice President ------------------------------------ Address for Notice: ------------------ BankBoston, N.A. 100 Federal Street, M/S 01-08-02 Boston, Massachusetts 02110 Telecopy Number: (617) 434-3652 -85- WELLS FARGO BANK (TEXAS), N.A. By: /s/ CHARLES D. KIRKHAM ---------------------------------------- Charles D. Kirkham, Vice President Address for Notice: ------------------ Wells Fargo Bank (Texas), N.A. 1445 Ross Avenue, Suite 400 Dallas, Texas 75202-2812 Telecopy Number: (214) 777-4044 -86- CIBC INC. By: /s/ ALEKSANDRA K. DYMANUS --------------------------------------- Name: Aleksandra K. Dymanus ------------------------------------- Title: ------------------------------------ Address for Notice: ------------------ CIBC Inc. Two Paces West 2727 Paces Ferry Road Suite 1200 Atlanta, Georgia 30339 Telecopy Number: (404) 319-4950 -87- OVERTON BANK AND TRUST, N.A. By: /s/ W.H. ADAMS ----------------------------------------------- W.H. (Bill) Adams, III, Senior Vice President Address for Notice: ------------------ Overton Bank and Trust, N.A. Continental Plaza, Suite 100 777 Main Street Fort Worth, Texas 76102-5304 Telecopy Number: (817) 336-5615 -88- ABN-AMRO BANK N.V., HOUSTON AGENCY By: ABN-AMRO NORTH AMERICA, INC. By: /s/ H. GENE SHIELS --------------------------------------- Name: H. Gene Shiels ------------------------------------- Title: Vice President ------------------------------------ By: /s/ CHARLES W. RANDALL --------------------------------------- Name: Charles W. Randall ------------------------------------- Title: Senior Vice President ------------------------------------ Address for Notice: ------------------ ABN-AMRO Bank N.V., Houston Agency Three Riverway, Suite 1700 Houston, Texas 77056 Telecopy Number: (713) 629-7533 -89- BANK OF MONTREAL By: /s/ BOBBY ROBERTS --------------------------------------- Bobby Roberts, Director Address for Notice: ------------------ Bank of Montreal 700 Louisiana, Suite 4400 Houston, Texas 77002 Telecopy Number: (713) 223-4007 -90- THE BANK OF NEW YORK By: /s/ RAYMOND J. PALMER --------------------------------------- Name: Raymond J. Palmer ------------------------------------- Title: Vice President ------------------------------------ Address for Notice: ------------------ Bank of New York One Wall Street, 19th Floor New York, NY 10286 Telecopy Number: (212) 635-7923 -91- BANQUE PARIBAS By: /s/ MIKE FIUZAT --------------------------------------- Mike Fiuzat, Assistant Vice President By: /s/ BARTON D. SCHOUEST --------------------------------------- Name: Barton D. Schouest ------------------------------------- Title: Group Vice President ------------------------------------ Address for Notice: ------------------ Banque Paribas 1200 Smith, Suite 3100 Houston, Texas 77002 Attention: Mike Fiuzat Telecopy Number: (713) 659-6915 -92- CREDIT LYONNAIS NEW YORK BRANCH By: /s/ PASCAL POUPELLE ------------------------------------------- Pascal Poupelle, Executive Vice President Address for Notice: ------------------ Credit Lyonnais Houston Representative Office 1000 Louisiana, Suite 5360 Houston, Texas 77002 Attention: John M. Falbo, Vice President and Group Head Telecopy Number: (713) 751-0307 -93- EXHIBITS TO REVOLVING CREDIT LOAN AGREEMENT "A" - Form of Revolving Promissory Note "B" - Request for Floating Base Borrowing "C" - Request For CD Borrowing "D" - Request for Eurodollar Borrowing "E" - Scheduled Installment Certificate "F" - List of Subsidiaries "G" - Opinion of Counsel for Company (Kelly, Hart & Hallman, P.C.) SCHEDULES TO REVOLVING CREDIT LOAN AGREEMENT "I" - List of Banks and each Bank's Percentage and share of the initial Commitment -94- EXHIBIT "A" REVOLVING PROMISSORY NOTE $__________________ New York, New York May 28, 1997 1. FOR VALUE RECEIVED, CROSS TIMBERS OIL COMPANY, a Delaware corporation ("Maker"), hereby unconditionally promise to pay to the order of ______________________________ ("Payee") at the principal office of Morgan Guaranty Trust Company of New York, the sum of _______________________________ AND NO/100 DOLLARS ($_____________) (or, if less, so much thereof as may be advanced by Payee to Maker pursuant to Section 2.01 of the Loan Agreement), in lawful money of the United States of America. Capitalized terms not defined herein shall have the meaning assigned to such terms in the Loan Agreement referred to below. 2. The unpaid principal amount of, and accrued unpaid interest on, this Note shall be payable in accordance with the Loan Agreement, but not later than June 30, 2002. 3. The unpaid principal amount of all Advances hereunder shall bear interest from the date of advance until maturity at a rate per annum which is provided in the Loan Agreement and which is selected by Maker pursuant to the Loan Agreement. The interest rate specified in this section shall be subject to adjustment under the circumstances described in the Loan Agreement. Interest shall be computed in the manner provided in the Loan Agreement. 4. Regardless of any provision contained in this Note, the Loan Agreement or any other document executed or delivered in connection therewith, Payee shall never be deemed to have contracted for or be entitled to receive, collect or apply as interest on this Note, any amount in excess of the Maximum Rate, and, in the event that Payee ever receives, collects or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note, and, if the principal balance of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable under any specific contingency exceeds the highest Maximum Rate, Maker and Payee shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note so that the interest rate is uniform throughout such term. 5. This Note has been executed and delivered pursuant to, and is subject to, that certain Revolving Credit Agreement dated May 28, 1997, among Maker, Banks (as defined therein), Morgan Guaranty Trust Company of New York and NationsBank of Texas, N.A., as Arrangers, Morgan Guaranty Trust Company of New York, as Administrative Agent and NationsBank of Texas, N.A, as Syndication Agent (the "Loan Agreement"), and this Note is one of the "Notes" referred to in the Loan Agreement, and the holder of this Note shall be entitled to the benefits provided in the Loan Agreement. Reference is hereby made to the Loan Agreement for a statement of (i) the prepayment rights and obligations of Maker and (ii) the events upon which the maturity of this Note may be accelerated. 6. Should the principal of, or any installment of interest on, this Note become due and payable on a day other than a Business Day, then the maturity thereof shall be extended to the next succeeding Business Day. If this Note, or any installment or payment due hereunder is not paid when due, whether at maturity or by acceleration, or if it is collected through any legal proceeding at law or in equity, or in bankruptcy, receivership, probate or other court proceedings, Maker agrees to pay all costs of collection, including, but not limited to, attorneys' fees and court costs incurred by the holder hereof. All past-due principal of, and, to the extent permitted by applicable law, interest on, this Note shall bear interest until paid at the lesser of (a) the Floating Base Rate from time to time in effect, plus three percent (3%), or (b) the Maximum Rate. 7. Maker and all sureties, endorsers, guarantors and other parties ever liable for payment of any sums payable pursuant to the terms of this Note, jointly and severally waive demand, presentment for payment, protest, notice of protest, notice of acceleration, notice of intent to accelerate, diligence in collection, the bringing of any suit against any party and any notice of or defense on account of any extensions, renewals, partial payment or changes in any manner of or in this Note or in any of its terms, provisions and covenants, or any releases or substitutions of any security, or any delay, indulgence or other act of any trustee or any holder hereof, whether before or after maturity. 8. All Advances made by Payee or Administrative Agent on behalf of Payee, the respective Interest Periods thereof, and all repayments of the principal thereof shall be recorded by Payee or Administrative Agent on behalf of Payee and, prior to any transfer hereof, endorsed by Payee or Administrative Agent on behalf of Payee on the schedule attached hereto, or on a continuation of such schedule attached to and a part hereof, provided that the failure of Payee to -------- make any such recordation of endorsement shall not affect the Obligations of Maker hereunder or under the Loan Agreement. MAKER: ----- CROSS TIMBERS OIL COMPANY, a Delaware corporation By: ----------------------------------------------- John O'Rear, Vice President and Treasurer -2- SCHEDULE OF ADVANCES AND PAYMENTS OF PRINCIPAL
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-3- EXHIBIT "B" REQUEST FOR FLOATING BASE BORROWING ----------------------------------- 1. This Request for Floating Base Borrowing is executed and delivered by Cross Timbers Oil Company, a Delaware corporation ("Borrower"), to Morgan Guaranty Trust Company of New York, as "Administrative Agent", pursuant to Section 2.02 of that certain Revolving Credit Agreement dated as of May 28, 1997, among Borrower, Banks, Agents therein named and the Administrative Agent (the "Agreement"). Any terms used herein and not defined herein shall have the meaning assigned to them in the Agreement. 2. Borrower hereby requests that Banks make a Floating Base Borrowing to Borrower pursuant to the Agreement as follows: (a) Amount of Floating Base Borrowing: $ _______________. (b) Date of Floating Base Borrowing: _________________, 199__. (c) Nature of Floating Base Borrowing (check one box only): Advance (new money). Rollover of prior Floating Base Borrowing. Conversion from prior Borrowing. (d) Borrowing Base Percentage after giving effect to the requested Borrowing hereunder: _______%. 3. Borrower hereby represents, warrants, and certifies to Banks that as of the date of the Floating Base Borrowing requested herein: (a) There exists no Event of Default or event which with notice or lapse of time or both could constitute an Event of Default. (b) Borrower has performed and complied with all agreement and conditions contained in the Agreement which are required to be performed or complied with by Borrower. (c) The representations and warranties contained in the Section 6 of the Agreement are true in all respects, with the same force and effect as though made on and as of the date of this Floating Base Borrowing, except that, if this Borrowing is a rollover or conversion of a prior Borrowing but does not constitute an Advance for new money, Borrower does not warrant or represent that no Material Adverse Effect has occurred in the financial condition or business of Borrower or a Subsidiary, as provided in Section 6.06 of the Agreement. 4. This Request for Floating Base Borrowing is executed on _______________, 19__, by an authorized officer of Cross Timbers Oil Company. The undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. CROSS TIMBERS OIL COMPANY, a Delaware corporation By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- -2- EXHIBIT "C" REQUEST FOR CD BORROWING ------------------------ 1. This Request for CD Borrowing is executed and delivered by Cross Timbers Oil Company, a Delaware corporation ("Borrower"), to Morgan Guaranty Trust Company of New York, as "Administrative Agent", pursuant to Section 2.02 of that certain Revolving Credit Agreement dated as of May 28, 1997, among Borrower, the Banks and Agents therein named and the Administrative Agent (the "Agreement"). Any terms used herein and not defined herein shall have the meaning assigned to them in the Agreement. 2. Borrower hereby requests that Banks make a CD Borrowing to Borrower pursuant to the Agreement as follows: (a) Amount of CD Borrowing: $ _______________. (b) Date of CD Borrowing: _________________, 199__. (c) CD Interest Period: _________________________-day. (d) Nature of CD Borrowing (check one box only): [ ] Advance (new money). [ ] Rollover of prior CD Borrowing. [ ] Conversion from prior Borrowing. (e) Borrowing Base Percentage after giving effect to the requested Borrowing hereunder: _______%. 3. Borrower hereby represents, warrants, and certifies to Banks that as of the date of the CD Borrowing requested herein: (a) There exists no Event of Default or event which with notice or lapse of time or both could constitute an Event of Default. (b) Borrower has performed and complied with all agreement and conditions contained in the Agreement which are required to be performed or complied with by Borrower. (c) The representations and warranties contained in the Section 6 of the Agreement are true in all respects, with the same force and effect as though made on and as of the date of this CD Borrowing, except that, if this Borrowing is a rollover or conversion of a prior Borrowing but does not constitute an Advance for new money, Borrower does not warrant or represent that no Material Adverse Effect has occurred in the financial condition or business of Borrower or a Subsidiary, as provided in Section 6.06 of the Agreement. 4. This Request for CD Borrowing is executed on _______________, 19__, by an authorized officer of Cross Timbers Oil Company. The undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. CROSS TIMBERS OIL COMPANY, a Delaware corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- -2- EXHIBIT "D" REQUEST FOR EURODOLLAR BORROWING -------------------------------- 1. This Request for Eurodollar Borrowing is executed and delivered by Cross Timbers Oil Company, a Delaware corporation ("Borrower"), to Morgan Guaranty Trust Company of New York, as "Administrative Agent", pursuant to Section 2.02 of that certain Revolving Credit Agreement dated as of May 28, 1997, among Borrower, Banks and Agents therein named and the Administrative Agent (the "Agreement"). Any terms used herein and not defined herein shall have the meaning assigned to them in the Agreement. 2. Borrower hereby requests that Banks make a Eurodollar Borrowing to Borrower pursuant to the Agreement as follows: (a) Amount of Eurodollar Borrowing: $ _______________. (b) Date of Eurodollar Borrowing: _________________, 199__. (c) Eurodollar Interest Period: _______________________-day. (d) Nature of Eurodollar Borrowing (check one box only): [ ] Advance (new money). [ ] Rollover of prior Eurodollar Borrowing. [ ] Conversion from prior Borrowing. (e) Borrowing Base Percentage after giving effect to the requested Borrowing hereunder: _______%. 3. Borrower hereby represents, warrants, and certifies to Banks that as of the date of the Eurodollar Borrowing requested herein: (a) There exists no Event of Default or event which with notice or lapse of time or both could constitute an Event of Default. (b) Borrower has performed and complied with all agreement and conditions contained in the Agreement which are required to be performed or complied with by Borrower. (c) The representations and warranties contained in the Section 6 of the Agreement are true in all respects, with the same force and effect as though made on and as of the date of this Eurodollar Borrowing, except that, if this Borrowing is a rollover or conversion of a prior Borrowing but does not constitute an Advance for new money, Borrower does not warrant or represent that no Material Adverse Effect has occurred in the financial condition or business of Borrower or a Subsidiary, as provided in Section 6.06 of the Agreement. 4. This Request for Eurodollar Borrowing is executed on _______________, 19__, by an authorized officer of Cross Timbers Oil Company. The undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. CROSS TIMBERS OIL COMPANY, a Delaware corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- -2- EX-10.2 4 MGT GROUP EMPLOYEE SEVERANCE PROTECTION PLAN EXHIBIT 10.2 CROSS TIMBERS OIL COMPANY MANAGEMENT GROUP EMPLOYEE SEVERANCE PROTECTION PLAN --------------------------------------------------- WHEREAS, the Board of Directors of Cross Timbers Oil Company, a Delaware corporation ("the Company") recognizes that the current business environment makes it difficult to attract and retain highly qualified employees unless a certain degree of security can be offered to such individuals against organizational and personnel changes which frequently follow a Change in Control (as defined below) of a corporation; and WHEREAS, even rumors of acquisitions or mergers may cause employees to consider major career changes in an effort to ensure financial security for themselves and their families; and WHEREAS, the Company desires to ensure fair treatment of its employees, and employees of certain subsidiaries of the Company which adopt this Plan as Participating Employers in the event of a Change in Control and to allow them to make critical career decisions without undue time pressure and financial uncertainty, thereby increasing their willingness to remain with their Employer notwithstanding the outcome of a possible Change in Control transaction; and WHEREAS, the Company recognizes that its employees and employees of Participating Employers will be involved in evaluating or negotiating any offers, proposals or other transactions which could result in a Change in Control of the Company and believes that it is in the best interest of the Company and its stockholders for such employees to be in a position, free from personal financial and employment considerations, to assess objectively and pursue aggressively the interests of the Company and its stockholders in making these evaluations and carrying on such negotiations; and WHEREAS, the Board of Directors of the Company believes it is essential to provide such employees with compensation arrangements upon a Change in Control of the Company which provide such employees with individual financial security and which are competitive with those of other corporations, and in order to accomplish these objectives, the Board has caused the Company to adopt this Plan. NOW, THEREFORE, in order to fulfill the above purposes, the following plan has been developed and is hereby adopted. ARTICLE I ESTABLISHMENT OF PLAN As of the Effective Date, the Company hereby establishes a severance compensation plan known as the Cross Timbers Oil Company Management Group Employee Severance Protection Plan, as set forth in this document. 1 ARTICLE II DEFINITIONS As used herein, the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise. 2.1 Base Salary. The amount a Participant is entitled to receive as ----------- wages or salary on an annualized basis, calculated immediately prior to a Change in Control. 2.2 Board. The Board of Directors of the Company. ----- 2.3 Bonus Amount. An amount equal to the greater of a Participant's two ------------ ------- most recent bonuses awarded on or prior to the date of the Participant's termination of employment under the Key Management Incentive Bonus Plan adopted by the Company (or any other bonus plan or program then in effect), multiplied ---------- by two. - -- 2.4 Cause. An Employer shall have "Cause" to terminate a Participant if ----- the Participant (i) willfully and continually fails to substantially perform his duties with the Employer (other than a failure resulting from the Participant's incapacity due to physical or mental illness) which failure continues for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Participant specifying the manner in which the Participant has failed to substantially perform, or (ii) willfully engages in conduct which is demonstrably and materially injurious to the Employer, monetarily or otherwise; provided, however, that no termination of ----------------- the Participant's employment shall be for Cause until (x) there shall have been delivered to the Participant a copy of a written notice specifying in detail the particulars of the Participant's conduct which violates either (i) or (ii) above, (y) the Participant shall have been provided an opportunity to be heard by the Board (with the assistance of the Participant's counsel if the Participant so desires), and (z) a resolution is adopted in good faith by two- thirds (2/3) of the Board confirming said violation. No act, nor failure to act, on the Participant's part, shall be considered "willful" unless he has acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Employer. Notwithstanding anything contained in this Plan to the contrary, no failure to perform by the Participant after Notice of Termination is given by or to the Participant shall constitute Cause. 2.5 Change in Control. A "Change in Control" shall mean any one of the ----------------- following: (a) "Continuing Directors" no longer constitute a majority of the Board; the term "Continuing Director" means any individual who is a member of the Board on the date hereof or was nominated for election as a director by, or whose nomination as a director was approved by, the Board with the affirmative vote of a majority of the Continuing Directors; (b) any person or group of persons (as defined in Rule 13d-5 under the Securities Exchange Act of 1934, as amended ("Rule 13d-5")) together with his or its affiliates, 2 becomes the beneficial owner, directly or indirectly, of 25% or more of the voting power of the Company's then outstanding securities entitled generally to vote for the election of the Company's directors; (c) the merger or consolidation of the Company with any other entity if the Company is not the surviving entity and any person or group of persons (as defined in Rule 13d-5), together with his or its affiliates, is the beneficial owner, directly or indirectly, of 25% or more of the surviving entity's then outstanding securities entitled generally to vote for the election of the surviving entity's directors; or (d) the sale of all or substantially all of the assets of the Company or the liquidation or dissolution of the Company. Notwithstanding the foregoing provisions of this Section 2.5, if a ----------- Participant's employment with the Employer is terminated by the Employer other than for "Cause" prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with a Change in Control, then for all purposes hereof, such termination shall be deemed to have occurred immediately following a Change in Control. Notwithstanding anything herein to the contrary, under no circumstances will a change in the constitution of the board of directors of any Subsidiary, a change in the beneficial ownership of any Subsidiary, the merger or consolidation of a Subsidiary with any other entity, the sale of all or substantially all of the assets of any Subsidiary or the liquidation or dissolution of any Subsidiary constitute a "Change in Control" under this Plan. 2.6 Company. Cross Timbers Oil Company, a Delaware corporation. ------- 2.7 Effective Date. The date the Plan is approved by the Board of -------------- Directors of the Company, or such other date as the Board shall designate in its resolution approving the Plan. 2.8 Employer. The Company and any Subsidiary of the Company which adopts -------- this Plan as a Participating Employer. With respect to a Participant who is not an employee of the Company, any reference under this Plan to such Participant's "Employer" shall refer only to the employer of the Participant, and in no event shall be construed to refer to the Company as well. 2.9 Good Reason. "Good Reason" shall mean the occurrence of any of the ----------- following events or conditions: (a) a change in the Participant's status, title, position or responsibilities (including reporting responsibilities) which, in the Participant's reasonable judgment, represents a substantial reduction of the status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Participant of any duties or responsibilities which, in the 3 Participant's reasonable judgment, are inconsistent with such status, title, position or responsibilities; or any removal of the Participant from, or failure to reappoint or reelect him to, any of such positions, except in connection with the termination of his employment for Cause, Permanent Disability, or as a result of his death, or by the Participant other than for Good Reason; (b) a reduction in the Participant's annual base salary as in effect on the date of a Change in Control or as the same may be increased from time to time thereafter; (c) the Employer's requiring the Participant (without the consent of the Participant) to be based at any place outside a twenty-five (25) mile radius of his place of employment immediately prior to a Change in Control, except for reasonably required travel on the Employer's business which is not materially greater than such travel requirements prior to the Change in Control, or, in the event the Participant consents to any relocation beyond such 25-mile radius, the failure by the Employer to pay (or reimburse the Participant) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Participant against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Participant and reasonably satisfactory to the Employer) realized on the sale of the Participant's principal residence in connection with any such change of residence; (d) the failure by the Employer to provide the Participant with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to the Change in Control (or as in effect following the Change in Control, if greater), including, but not limited to, the Company's 1991 Stock Incentive Plan, the 1994 Stock Incentive Plan, the 1997 Stock Incentive Plan, Key Management Incentive Bonus Plan, the Cross Timbers Oil Company Employees' 401(k) Plan, and any other stock option plan, pension plan, life insurance plan, health and accident plan or disability plan; (e) any material breach by the Employer of any provision of this Plan; (f) any purported termination of the Participant's employment for Cause by the Employer which does not otherwise comply with the terms of this Plan; (g) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Article VII; ----------- (h) Any termination of employment by the Company's Chief Executive Officer or President for any reason (other than death or Permanent Disability) during the thirty (30)-day period beginning on the 91st day after the date on which a Change in Control occurs; 4 (i) Any termination of employment by the Company's Executive Vice Presidents or Senior Vice Presidents for any reason (other than death or Permanent Disability) during the thirty (30)-day period beginning on the 181st after the date on which a Change in Control occurs; or (j) Any termination of employment by the Participant other than the Company's Chief Executive Officer, President, Executive Vice Presidents, or Senior Vice Presidents for any reason (other than death or Permanent Disability) during the thirty (30)-day period beginning on the first anniversary of the date on which a Change in Control occurs. 2.10 Management Group Employee. Each employee of the Employer who has ------------------------- been designated by his Employer as a "Management Group Employee." 2.11 Notice of Termination. A notice which indicates the specific --------------------- provisions in this Plan relied upon as the basis for any termination of employment which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated; no purported termination of employment shall be effective without such Notice of Termination. 2.12 Participant. A Participant who meets the eligibility requirements of ----------- Article III. - ----------- 2.13 Participating Employer. A Subsidiary of the Company which adopts ---------------------- this Plan in accordance with Section 8.4 below. ----------- 2.15 Permanent Disability. If, as a result of the Participant's -------------------- incapacity due to physical or mental illness, the Participant shall have been absent from his duties with the Employer on a full time basis for one hundred eighty (180) consecutive business days, and within thirty (30) days after written Notice of Termination is given, the Participant shall not have returned to the full time performance of his duties, the Employer may terminate the Participant's employment for "Permanent Disability". 2.16 Severance Benefit. The benefit payable in accordance with Article IV ----------------- ---------- of the Plan. 2.17 Subsidiary. Any subsidiary of the Company, and any wholly or ---------- partially owned partnership, joint venture, limited liability company, corporation and other form of investment by the Company. A pronoun or adjective in the masculine gender includes the feminine gender, and the singular includes the plural, unless the context clearly indicates otherwise. 5 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Participation. Each Management Group Employee shall automatically ------------- become a Participant in the Plan as of the Effective Date, or the date he satisfies the definition of a Management Group Employee, whichever occurs later. 3.2 Duration of Participation. A Participant shall cease to be a ------------------------- Participant in the Plan upon the first to occur of: (i) the date he ceases to be a Management Group Employee of the Employer at any time prior to a Change in Control, (ii) the date his employment is terminated following a Change in Control under circumstances where he is not entitled to a Severance Benefit under the terms of this Plan, or (iii) the date on which he has received all of the benefits to which he is entitled under this Plan. ARTICLE IV SEVERANCE BENEFITS 4.1 Right to Severance Benefit. -------------------------- (a) A Participant shall be entitled to receive from the Employer a Severance Benefit in the amount provided in Section 4.2 if (i) a Change in ----------- Control has occurred and (ii) within two years thereafter, the Participant's employment with the Employer terminates for any reason other than (A) termination by the Employer for Cause, (B) termination by reason of Permanent Disability, (C) termination by the Participant for other than Good Reason, or (D) termination by reason of the Participant's death. (b) Notwithstanding any other provision of the Plan, the sale, divestiture or other disposition of a Subsidiary, shall not be deemed to be a termination of employment of employees employed by such Subsidiary, and such employees shall not be entitled to benefits from the Company or any Participating Employer under this Plan as a result of such sale, divestiture, or other disposition, or as a result of any subsequent termination of employment. 4.2 Amount of Severance Benefit. If a Participant's employment is --------------------------- terminated in circumstances entitling him to a Severance Benefit as provided in Section 4.1, such Participant shall be entitled to the following benefits: - ----------- (a) The Employer shall pay to the Participant, as severance pay and in lieu of any further salary for periods subsequent to the Termination Date (as specified in Section 5.2), in a single payment within ten (10) ----------- days after his Termination Date (without any discount for accelerated payment), an amount in cash equal to: (i) for the Company's Chief Executive Officer and President, three (3) times the sum of (A) the Participant's Base Salary and (B) the Bonus Amount; 6 (ii) for the Company's Executive Vice Presidents and Senior Vice Presidents, two and one-half (2 1/2) times the sum of (A) the Participant's Base Salary and (B) the Bonus Amount; (iii) for all other officers of Employers, two (2) times the sum of (A) the Participant's Base Salary and (B) the Bonus Amount; and (iv) for all other Management Group Employees, one and one-half (1.5) times the sum of (A) the Participant's Base Salary and (B) the Bonus Amount. (b) For a period of eighteen (18) months subsequent to the Participant's termination of employment, the Employer shall at its expense continue on behalf of the Participant and his dependents and beneficiaries, all medical, dental, vision, and health benefits and insurance coverage which were being provided to the Participant at the time of termination of employment. The benefits provided in this Section 4.2(b) shall be no less -------------- favorable to the Participant, in terms of amounts and deductibles and costs to him, than the coverage provided the Participant under the plans providing such benefits at the time Notice of Termination is given. The Employer's obligation hereunder to provide a benefit shall terminate if the Participant obtains comparable coverage under a subsequent employer's benefit plan. For purposes of the preceding sentence, benefits will not be comparable during any waiting period for eligibility for such benefits or during any period during which there is a preexisting condition limitation on such benefits. The Employer also shall pay a lump sum equal to the amount of any additional income tax payable by the Participant and attributable to the benefits provided under this subparagraph (b) at the time such tax is imposed upon the Participant. In the event that the Participant's participation in any such coverage is barred under the general terms and provisions of the plans and programs under which such coverage is provided, or any such coverage is discontinued or the benefits thereunder are materially reduced, the Employer shall provide or arrange to provide the Participant with benefits substantially similar to those which the Participant was entitled to receive under such coverage immediately prior to the Termination Notice. At the end of the period of coverage set forth above, the Participant shall have the option to have assigned to him at no cost to the Participant and with no apportionment of prepaid premiums, any assignable insurance owned by the Employer and relating specifically to the Participant, and the Participant shall be entitled to all health and similar benefits that are or would have been made available to the Participant under law. (c) The Employer shall transfer to the Participant all right, title or other ownership interest it may have in any automobile then being provided by the Employer for use by the Participant. (d) The Employer shall transfer to the Participant any right, title or ownership in any club memberships provided by the Employer for use by the Participant. 7 (e) The Employer shall transfer to the Participant any right, title or ownership in any life insurance owned by the Employer on the Participant's life. (f) Notwithstanding any provision to the contrary in any stock option agreement, restricted stock agreement, or other agreement relating to equity-type compensation that may be outstanding between the Participant and the Employer, all units, stock options, incentive stock options, performance shares, and stock appreciation rights (under the 1991 Stock Incentive Plan, the 1994 Stock Incentive Plan, the 1997 Stock Incentive Plan, or any other plan or arrangement) then held by the Participant shall immediately become 100% vested and exercisable, and the Participant shall become 100% vested in all shares of restricted stock held by or for the benefit of the Participant; provided, however, that to the extent the Employer is unable to provide for such acceleration of vesting, the Employer shall provide in lieu thereof a lump-sum cash payment equal to the difference between the total value of such outstanding units, stock options, incentive stock options, performance shares, stock appreciation rights and shares of restricted stock (the "stock rights") as of the date of the Participant's termination of employment and the total value of the stock rights in which the Participant is vested as of the date of his termination of employment. The value of such accelerated vesting in the Participant's stock rights shall be determined by the Board in good faith based on a valuation performed by an independent consultant selected by the Board. (g) Notwithstanding any provision to the contrary in any stock option agreement that may be outstanding between the Participant and the Employer, the Participant's right to exercise any previously unexercised options under any such stock option agreement shall not terminate until the latest date on which the option granted under such agreement would expire under the terms of such agreement but for the Participant's termination of employment; provided, however, that to the extent the Employer is unable to provide for the extension of the expiration date of such options, the Employer shall provide in lieu thereof a lump-sum cash payment equal to the value of such extension the Employer is unable to provide. Such values of such accelerated vesting and exercisability shall be determined by the Board in good faith based on a valuation performed by an independent consultant selected by the Board. (h) A Participant who is entitled to severance benefits under an employment agreement with the Employer may elect, in writing within ten (10) days after his Termination Date, to receive the severance benefits provided under this Section 4.2 in lieu of, but not in addition to, such ----------- other severance benefits as may be provided by such other agreement. In the event that no election is made, the Participant shall forego his right to receive the severance benefits provided under this Section 4.2. ----------- 4.3 Mitigation or Set-off of Amounts Payable Hereunder. The Participant -------------------------------------------------- shall not be required to mitigate the amount of any payment provided for in this Article IV by seeking other employment or otherwise, nor shall the amount of any - ---------- payment provided for in this Article IV be reduced by any compensation earned by ---------- the Participant as the result of employment by another employer after the Termination Date, or otherwise. The Employer's obligations hereunder also shall 8 not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employer may have against the Participant. 4.4 Company Guarantee of Severance Benefit. In the event a Participant -------------------------------------- becomes entitled to receive from the Employer a Severance Benefit under Section ------- 4.1 above and such Employer fails to pay such Severance Benefit, the Company - --- shall assume the obligation of such Employer to pay such Severance Benefit. In consideration of the Company's assumption of the obligation to pay such Severance Benefit provided under this Plan, the Company (as the source of payment of benefits under the Plan) shall be subrogated to any recovery (irrespective of whether there is recovery from the third party of the full amount of all claims against the third party) or right to recovery of either a Participant or his legal representative against the Employer or any person or entity. The Participant or his legal representative shall cooperate in doing what is reasonably necessary to assist the Company in exercising such rights, including but not limited to notifying the Company of the institution of any claim against a third party and notifying the third party and the third party's insurer, if any, of the Company's subrogation rights. Neither the Participant nor his legal representative shall do anything after a loss to prejudice such rights. In its sole discretion, the Company reserves the right to prosecute an action in the name of the Participant or his legal representative against any third parties potentially liable to the Participant. The Company shall have the absolute discretion to settle subrogation claims on any basis it deems warranted and appropriate under the circumstances. If a Participant or his legal representative initiates a lawsuit against any third parties potentially liable to the Participant, the Company shall not be responsible for any attorney's fees or court costs that may be incurred in such liability claim. The Company shall be entitled, to the extent of any payments made to or on behalf of a Participant or a dependent of the Participant, to be paid first from the proceeds of any settlement or judgment that may result from the exercise of any rights of recovery asserted by or on behalf of a Participant or his legal representative against any person or entity legally responsible for the injury for which such payment was made. The Company shall be reimbursed by the Participant or his legal representative an amount of money equal to all sums paid by the Employer under the Plan to or on behalf of the Participant and all expenses, costs and attorney's fees incurred by the Company in connection with the prosecution and collection of the Company's subrogation interest. The right is also hereby given the Company to receive directly from the Employer or any third party(ies), attorney(s) or insurance company(ies) an amount equal to the amount paid to or on behalf of the Participant. ARTICLE V TERMINATION OF EMPLOYMENT 5.1 Written Notice Required. Any purported termination of employment, ----------------------- either by the Employer or by the Participant, shall be communicated by written Notice of Termination to the other. 9 5.2 Termination Date. In the case of the Participant's death, the ---------------- Participant's Termination Date shall be his date of death. In all other cases, the Participant's Termination Date shall be the date specified in the Notice of Termination subject to the following: (a) If the Participant's employment is terminated by the Employer for Cause or due to Permanent Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to the Participant, provided that in the case of Permanent Disability the Participant shall not have returned to the full- time performance of his duties during such period of at least thirty (30) days; and (b) If the Participant terminates his employment for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Employer. ARTICLE VI ADDITIONAL PAYMENTS BY THE COMPANY 6.1 Gross-Up Payment. In the event it shall be determined that any ---------------- payment or distribution of any type by the Employer to or for the benefit of the Participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise (the "Total Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Participant shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Participant of all taxes (including additional excise taxes under said Section 4999 and any interest, and penalties imposed with respect to any taxes) imposed upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. The Company shall pay the Gross-Up Payment to the Participant within twenty (20) business days after the Termination Date. 6.2 Determination By Accountant. All determinations required to be made --------------------------- under this Article VI, including whether a Gross-Up Payment is required and the ---------- amount of such Gross-Up Payment, shall be made by the independent accounting firm retained by the Company on the date of Change in Control (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Participant within fifteen (15) business days of the Termination Date, if applicable, or such earlier time as is requested by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Participant with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that a Gross-Up Payment which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies 10 pursuant to Section 6.3 and the Participant thereafter is required to make a ----------- payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant. 6.3 Notification Required. The Participant shall notify the Company in --------------------- writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Participant knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Participant shall not pay such claim prior to the expiration of the thirty- (30) day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim, the Participant shall: (a) give the Company any information reasonably requested by the Company relating to such claim, (b) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (c) cooperate with the Company in good faith in order to effectively contest such claim, (d) permit the Company to participate in any proceedings relating to such claim, provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Participant harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6.3, the ----------- Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Participant to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and the Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Participant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Participant, on an interest-free basis and shall indemnify and hold the Participant harmless, on an after- tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to 11 such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Participant with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 6.4 Repayment. If, after the receipt by the Participant of an amount --------- advanced by the Company pursuant to Section 6.3, the Participant becomes ----------- entitled to receive any refund with respect to such claim, the Participant shall (subject to the Company's complying with the requirements of Section 6.3) ----------- promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Participant of an amount advanced by the Company pursuant to Section 6.3, a determination is made that the Participant shall not be entitled - ----------- to any refund with respect to such claim and the Company does not notify the Participant in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. ARTICLE VII SUCCESSORS TO COMPANY 7.1 Successors. This Plan shall bind any successor (whether direct or ---------- indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place. In the case of any transaction in which a successor would not, by the foregoing provision or by operation of law, be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach hereof and shall entitle the Participant to compensation from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Termination Date. As used herein, "the Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 7.1 or which otherwise becomes bound by all the terms and provisions - ----------- hereof by operation of law. 12 ARTICLE VIII DURATION, AMENDMENT, PLAN TERMINATION AND ADOPTION BY SUBSIDIARIES 8.1 Duration. This Plan shall continue in effect until terminated in -------- accordance with Section 8.2. If a Change in Control occurs, this Plan shall ----------- continue in full force and effect, and shall not terminate or expire, until after all Participants who have become entitled to a Severance Benefit hereunder shall have received all of such benefits in full. 8.2 Amendment and Termination. The Plan may be terminated or amended in ------------------------- any respect by resolution adopted by two-thirds of the Board; provided, however, that no such amendment or termination of the Plan may be made if such amendment or termination would adversely affect any right of a Participant who became a Participant prior to the later of (a) the date of adoption of any such amendment or termination, or (b) the effective date of any such amendment or termination; and, provided further, that the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever following a Change in Control. 8.3 Form of Amendment. The form of any amendment or termination of the ----------------- Plan shall be a written instrument signed by a duly authorized officer or officers of the Company, certifying that the amendment or termination has been approved by the Board. 8.4 Adoption by Subsidiaries. Any Subsidiary of the Company may, with ------------------------ the approval of the Board of Directors of the Company, adopt and become an Employer under this Plan by executing and delivering to the Company an appropriate instrument agreeing to be bound as an Employer by all of the terms of the Plan with respect to its eligible employees. The adoptive instrument may contain such changes and amendments in the terms and provisions of the Plan as adopted by such Subsidiary as may be desired by such Subsidiary and acceptable to the Company. The adoptive instrument shall specify the effective date of such adoption of the Plan and shall become as to such adopting Subsidiary a part of this Plan. ARTICLE IX MISCELLANEOUS 9.1 Participant's Legal Expenses. The Company agrees to pay, upon ---------------------------- written demand therefor by the Participant, all legal fees and expenses which the Participant may reasonably incur as a result of any dispute or contest (regardless of the outcome thereof) by or with the Company or others regarding the validity or enforceability of, or liability under, any provision hereof (including as a result of any contest about the amount of any payment pursuant to Article IV), plus in each case interest at the "applicable Federal rate" (as ---------- defined in Section 1274(d) of the Code). In any such action brought by a Participant for damages or to enforce any provisions hereof, he shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder, in his sole discretion. 13 9.2 Employment Status. This Plan does not constitute a contract of ----------------- employment or impose on the Employer any obligation to retain a Participant as an employee, to change the status of a Participant's employment as a Management Group Employee, or to change any employment policies of the Employer. 9.3 Validity and Severability. The invalidity or unenforceability of any ------------------------- provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.4 The Participant's Heirs, etc. This Agreement shall inure to the ---------------------------- benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms hereof to his designee or, if there be no such designee, to his estate. 9.5 Governing Law. The validity, interpretation, construction and ------------- performance of the Plan shall in all respects be governed by the laws of the State of Texas. 9.6 Choice of Forum. A Participant shall be entitled to enforce the --------------- provisions of this Plan in any state or federal court located in the State of Texas, in addition to any other appropriate forum. 9.7 Notice. For the purposes hereof, notices and all other ------ communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at its principal place of business and to the Participant at his address as shown on the records of the Employer, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. IN WITNESS WHEREOF, Cross Timbers Oil Company has caused these presents to be executed by its duly authorized officer on the 10th day of June 1997. CROSS TIMBERS OIL COMPANY By: /s/ Robert C. Mayers ------------------------------- Name: Robert C. Myers Title: Vice President - Human Resources 14 EX-11 5 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
Three Months Six Months Ended June 30, Ended June 30, ---------------- --------------------- (in thousands, except per share amounts) 1997 1996 1997 1996 ------- ------ -------- ------ PRIMARY EARNINGS: Net income......................................... $ 4,180 $ 1,807 $15,275 $ 6,478 Preferred stock dividends.......................... (445) - (890) - ------- ------- ------- ------- Earnings available to common stock................. $ 3,735 $ 1,807 $14,385 $ 6,478 ======= ======= ======= ======= Weighted average common shares outstanding......... 26,332 27,447 26,629 27,524 Common stock equivalents - stock options........... 155 170 169 128 ------- ------- ------- ------- Weighted average common shares and common stock equivalents outstanding.............. 26,487 27,617 26,798 27,652 ======= ======= ======= ======= Primary earnings: Per common share.................................. $ 0.14 $ 0.07 $ 0.54 $ 0.24 ======= ======= ======= ======= Per common share and equivalent (a)............... $ 0.14 $ 0.07 $ 0.54 $ 0.23 ======= ======= ======= ======= FULLY DILUTED EARNINGS: Earnings available to common stock................. $ 3,735 $ 1,807 $14,385 $ 6,478 Convertible preferred stock dividends.............. 445 - 890 - Convertible note interest and other costs, after income tax.................................. - 599 46 1,207 ------- ------- ------- ------- Earnings, as adjusted.............................. $ 4,180 $ 2,406 $15,321 $ 7,685 ======= ======= ======= ======= Weighted average common shares and common stock equivalents outstanding.............. 26,487 27,617 26,798 27,652 Additional common shares upon conversion of: Preferred stock.................................. 1,640 - 1,640 - Subordinated notes............................... - 4,186 153 4,221 ------- ------- ------- ------- Weighted average common shares and common stock equivalents outstanding, as adjusted........ 28,127 31,803 28,591 31,873 ======= ======= ======= ======= Fully diluted earnings per common share and equivalent (b)................................ $ 0.15 $ 0.08 $ 0.54 $ 0.24 ======= ======= ======= =======
(a) Because their impact is less than 3% dilutive, common stock equivalents are not included in the calculation of primary earnings per share as disclosed on the statement of operations for the three months ended June 30, 1997 and 1996. (b) Fully diluted earnings per share is either antidilutive or less than 3% lower than primary earnings per share and therefore is not applicable. EX-15.1 6 AWARENESS LETTER OF ARTHUR ANDERSEN LLP EXHIBIT 15.1 Cross Timbers Oil Company: We are aware that Cross Timbers Oil Company has incorporated by reference in its Registration Statements No. 33-64274, No. 33-65238 and No. 33-81766 on Form S-8 its Form 10-Q for the quarter ended June 30, 1997, which includes our report dated July 24, 1997, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. ARTHUR ANDERSEN LLP Fort Worth, Texas August 14, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS DEC-31-1997 DEC-31-1997 APR-01-1997 JAN-01-1997 JUN-30-1997 JUN-30-1997 6,995 0 0 0 28,805 0 0 0 0 0 39,025 0 726,578 0 218,174 0 562,649 0 40,789 0 341,500 0 0 0 28,468 0 308 0 131,882 0 562,649 0 45,969 99,463 45,969 99,463 0 0 32,932 64,128 0 0 0 0 6,515 11,790 6,522 23,545 2,342 8,270 4,180 15,275 0 0 0 0 0 0 3,735 14,385 0.14 0.54 0.14 0.54
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