Document:

nicorinc1005-364daycredit.htm

Nicor Inc.

Form 10-Q

Exhibit 10.05

 

EXECUTION VERSION

 

 

364-DAY

 

CREDIT AGREEMENT

 

DATED AS OF

 

APRIL 19, 2011

 

AMONG

 

NORTHERN ILLINOIS GAS COMPANY,

 

as Borrower,

 

THE FINANCIAL INSTITUTIONS PARTY HERETO,

 

as Lenders,

 

JPMORGAN CHASE BANK, N.A.,

 

as Administrative Agent,

 

THE ROYAL BANK OF SCOTLAND PLC

 

and

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

 

as Syndication Agents

 

and

 

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.

U.S. BANK NATIONAL ASSOCIATION

and

 

BANK OF AMERICA, N.A.

 

as Documentation Agents

 

 

J.P. MORGAN SECURITIES INC.

RBS SECURITIES INC.

and

WELLS FARGO SECURITIES, LLC,

as Joint Lead-Arrangers and Bookrunners

 

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TABLE OF CONTENTS

 

(This Table of Contents is not part of the Agreement)

 

	  	  	
PAGE

	
SECTION 1.

	
DEFINITIONS; INTERPRETATION

	
1

	  	  	  
	
Section 1.1

	
Definitions

	
1

	
Section 1.2

	
Interpretation

	
15

	  	  	  
	
SECTION 2.

	
THE CREDITS

	
16

	  	  	  
	
Section 2.1

	
The Revolving Loan Commitment

	
16

	
Section 2.2

	
Applicable Interest Rates

	
16

	
Section 2.3

	
Minimum Borrowing Amounts

	
18

	
Section 2.4

	
Manner of Borrowing Loans and Designating Interest Rates Applicable to Loans

	
18

	
Section 2.5

	
Interest Periods

	
21

	
Section 2.6

	
Maturity of Loans

	
21

	
Section 2.7

	
Prepayments

	
22

	
Section 2.8

	
Default Rate

	
22

	
Section 2.9

	
Evidence of Debt

	
23

	
Section 2.10

	
Funding Indemnity

	
24

	
Section 2.11

	
Commitments

	
24

	
Section 2.12

	
Increase in the Aggregate Commitments.

	
25

	
Section 2.13

	
Defaulting Lenders

	
26

	  	  	  
	
SECTION 3.

	
FEES AND EXTENSIONS

	
27

	  	  	  
	
Section 3.1

	
Fees

	
27

	
Section 3.2

	
Extensions

	
28

	  	  	  
	
SECTION 4.

	
PLACE AND APPLICATION OF PAYMENTS

	
29

	  	  	  
	
SECTION 5.

	
REPRESENTATIONS AND WARRANTIES

	
30

	  	  	  
	
Section 5.1

	
Corporate Organization and Authority

	
30

	
Section 5.2

	
Subsidiaries

	
30

	
Section 5.3

	
Corporate Authority and Validity of Obligations

	
30

	
Section 5.4

	
Financial Statements

	
31

	
Section 5.5

	
No Litigation; No Labor Controversies

	
31

	
Section 5.6

	
Taxes

	
31

	
Section 5.7

	
Approvals

	
31

	
Section 5.8

	
ERISA

	
32

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Section 5.9

	
Government Regulation

	
32

	
Section 5.10

	
Margin Stock; Use of Proceeds

	
32

	
Section 5.11

	
Environmental Warranties

	
32

	
Section 5.12

	
Ownership of Property; Liens

	
33

	
Section 5.13

	
Compliance with Agreements

	
33

	
Section 5.14

	
Full Disclosure

	
34

	
Section 5.15

	
Solvency

	
34

	  	  	  
	
SECTION 6.

	
CONDITIONS PRECEDENT

	
34

	  	  	  
	
Section 6.1

	
Initial Borrowing

	
34

	
Section 6.2

	
All Borrowings

	
36

	  	  	  
	
SECTION 7.

	
COVENANTS

	
36

	  	  	  
	
Section 7.1

	
Corporate Existence; Material Subsidiaries

	
36

	
Section 7.2

	
Maintenance

	
36

	
Section 7.3

	
Taxes

	
36

	
Section 7.4

	
ERISA

	
37

	
Section 7.5

	
Insurance

	
37

	
Section 7.6

	
Financial Reports and Other Information

	
37

	
Section 7.7

	
Lender Inspection Rights

	
39

	
Section 7.8

	
Conduct of Business

	
40

	
Section 7.9

	
Liens

	
40

	
Section 7.10

	
Use of Proceeds; Regulation U

	
42

	
Section 7.11

	
Mergers, Consolidations and Sales of Assets

	
42

	
Section 7.12

	
Environmental Matters

	
43

	
Section 7.13

	
Investments, Acquisitions, Loans, Advances and Guaranties

	
43

	
Section 7.14

	
Restrictions on Indebtedness

	
44

	
Section 7.15

	
Leverage Ratio

	
45

	
Section 7.16

	
Intentionally Omitted

	
45

	
Section 7.17

	
Dividends and Other Shareholder Distributions

	
45

	
Section 7.18

	
No Negative Pledges

	
46

	
Section 7.19

	
Transactions with Affiliates

	
46

	
Section 7.20

	
Compliance with Laws

	
47

	
Section 7.21

	
Derivative Obligation

	
47

	
Section 7.22

	
Sales and Leasebacks

	
47

	
Section 7.23

	
OFAC; BSA

	
47

	  	  	  
	
SECTION 8.

	
EVENTS OF DEFAULT AND REMEDIES

	
47

	  	  	  
	
Section 8.1

	
Events of Default

	
47

	
Section 8.2

	
Non-Bankruptcy Defaults

	
49

	
Section 8.3

	
Bankruptcy Defaults

	
50

	  	  	  
	
SECTION 9.

	
CHANGE IN CIRCUMSTANCES; TAXES

	
50

	  	  	  
	
Section 9.1

	
Change of Law

	
50

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Section 9.2

	
Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR

	
50

	
Section 9.3

	
Increased Costs

	
51

	
Section 9.4

	
Taxes

	
52

	
Section 9.5

	
Mitigation Obligations; Replacement of Lenders

	
55

	
Section 9.6

	
Discretion of Lender as to Manner of Funding

	
56

	  	  	  
	
SECTION 10.

	
THE AGENT

	
56

	  	  	  
	
Section 10.1

	
Appointment and Authority

	
56

	
Section 10.2

	
Rights as a Lender

	
56

	
Section 10.3

	
Exculpatory Provisions

	
57

	
Section 10.4

	
Reliance by Administrative Agent

	
58

	
Section 10.5

	
Delegation of Duties

	
58

	
Section 10.6

	
Resignation of Administrative Agent

	
58

	
Section 10.7

	
Non-Reliance on Administrative Agent and Other Lenders

	
59

	
Section 10.8

	
No Other Duties, etc

	
59

	  	  	  
	
SECTION 11.

	
MISCELLANEOUS

	
59

	  	  	  
	
Section 11.1

	
No Waiver of Rights

	
59

	
Section 11.2

	
Non-Business Day

	
60

	
Section 11.3

	
Survival of Representations

	
60

	
Section 11.4

	
Survival of Indemnities

	
60

	
Section 11.5

	
Set-Off; Sharing of Payments

	
60

	
Section 11.6

	
Notices

	
61

	
Section 11.7

	
Counterparts; Integration; Effectiveness; Electronic Execution

	
63

	
Section 11.8

	
Successors and Assigns

	
63

	
Section 11.9

	
Amendments

	
67

	
Section 11.10

	
Headings

	
67

	
Section 11.11

	
Expenses; Indemnity; Waiver

	
67

	
Section 11.12

	
Entire Agreement

	
69

	
Section 11.13

	
Governing Law; Jurisdiction; Etc

	
69

	
Section 11.14

	
WAIVER OF JURY TRIAL

	
70

	
Section 11.15

	
Treatment of Certain Information; Confidentiality

	
70

	
Section 11.16

	
Patriot Act

	
71

 

EXHIBITS

 

A           -           Form of Note

 

B           -           Form of Compliance Certificate

 

C           -           Assignment and Assumption

 

D           -           Notice of Borrowing

 

SCHEDULES

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SCHEDULE 1

	
Pricing Grid

	
SCHEDULE 2

	
Commitments

	
SCHEDULE 4

	
Administrative Agent Notice and Payment Info

	
SCHEDULE 5.2

	
Schedule of Existing Subsidiaries

	
SCHEDULE 6.1

	
Material Indebtedness

	
SCHEDULE 7.17

	
Restrictions on Distributions and Existing Negative Pledges

 

 

 

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364-DAY CREDIT AGREEMENT

 

364-DAY CREDIT AGREEMENT, dated as of April 19, 2011 among Northern Illinois Gas Company, an Illinois corporation (the “Borrower”), the financial institutions from time to time party hereto (each a “Lender,” and collectively the “Lenders”), and JPMorgan Chase Bank, N.A. in its capacity as agent for the Lenders hereunder (in such capacity, the “Administrative Agent”).

 

WITNESSETH THAT:

 

WHEREAS, the Borrower desires to obtain the several commitments of the Lenders to make available a 364-Day revolving credit facility for loans as described herein; and

 

WHEREAS, the Lenders are willing to extend such commitments subject to all of the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth.

 

NOW, THEREFORE, in consideration of the recitals set forth above and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

	

SECTION 1.  DEFINITIONS; INTERPRETATION.

 

Section 1.1 Definitions.  The following terms when used herein have the following meanings:

 

“Adjusted LIBOR” is defined in Section 2.2(b) hereof.

 

“Administrative Agent” is defined in the first paragraph of this Agreement and includes any successor Administrative Agent pursuant to Section 10.6 hereof.

 

“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.

 

“Affiliate” means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person.  As used in this definition, “control” (including, with their correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies of a Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

 

“Agreement” means this Credit Agreement, including all Exhibits and Schedules hereto, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

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“Applicable Margin” means, at any time (i) with respect to Base Rate Loans, the Base Rate Margin, and (ii) with respect to Eurodollar Loans, the Eurodollar Margin.

 

“Applicable Telerate Page” is defined in Section 2.2(b) hereof.

 

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

 

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.8(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit C or any other form approved by the Administrative Agent.

 

“Authorized Representative” means, which respect to the Borrower, those persons whose specimen signature is included in the incumbency certificate provided by the Borrower pursuant to Section 6.1(c) hereof, or any further or different officer of the Borrower so named by any Authorized Representative of the Borrower in a written notice to the Administrative Agent.

 

“Base Rate” is defined in Section 2.2(a) hereof.

 

“Base Rate Loan” means a Loan bearing interest prior to maturity at a rate specified in Section 2.2(a) hereof.

 

“Base Rate Margin” means the percentage set forth in Schedule 1 hereto under “Applicable Margin (Base Rate)” beside the then applicable Level.

 

 “Borrower” is defined in the first paragraph of this Agreement.

 

“Borrowing” means the total of Loans of a single type advanced, continued for an additional Interest Period, or converted from a different type into such type by the Lenders on a single date and in the case of Eurodollar Loans for a single Interest Period.  Borrowings of Loans are made by and maintained ratably for each of the Lenders according to their Percentages.  A Borrowing is “advanced” on the day Lenders advance funds comprising such Borrowing to the Borrower, is “continued” on the date a new Interest Period for the same type of Loans commences for such Borrowing and is “converted” when such Borrowing is changed from one type of Loan to the other, all as requested by the Borrower pursuant to Section 2.4(a).

 

“Business Day” means any day other than a Saturday or Sunday on which Lenders are not authorized or required to close in New York, New York or Chicago, Illinois and, if the applicable Business Day relates to the borrowing or payment of a Eurodollar Loan, on which banks are dealing in U.S. Dollars in the interbank market in London, England.

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“Capital” means, as of any date of determination thereof, without duplication, the sum of (A) Consolidated Net Worth plus (B) Consolidated Indebtedness.

 

“Capital Lease” means at any date any lease of Property which, in accordance with GAAP, would be required to be capitalized on the balance sheet of the lessee.

 

“Capitalized Lease Obligations” means, for any Person, the amount of such Person’s liabilities under Capital Leases determined at any date in accordance with GAAP.

 

 “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time.

 

“CERCLIS” means the Comprehensive Environmental Response Compensation Liability Information System List, as amended from time to time.

 

“Change in Law” means the occurrence, after the Closing Date, of any of the following:  (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, or application thereof by any Governmental Authority or (c) the making or issuance of any guideline or directive (whether or not having the force of law) by any Governmental Authority; provided, that (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.

 

“Change of Control Event” means one or more of the following events:

 

(a) less than a majority of the members of the Board of Directors of the Borrower shall be persons who either (i) were serving as directors on the Closing Date or (ii) were nominated as directors and approved by the vote of the majority of the directors who are directors referred to in clause (i) above or this clause (ii); or

 

(b) the stockholders of the Borrower shall approve any plan or proposal for the liquidation or dissolution of  the Borrower; or

 

(c) a Person or group of Persons acting in concert (other than the direct or indirect beneficial owners of the Voting Stock of Nicor as of the Closing Date) shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become the direct or indirect beneficial owner (within the meaning of Rule 13d-3 

 

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under the Securities Exchange Act of 1934, as amended from time to time) of Voting Stock of Nicor representing more than thirty-five percent (35%) of the combined voting power of the outstanding Voting Stock or other ownership interests for the election of directors or shall have the right to elect a majority of the Board of Directors of Nicor;

 

provided that (i) the transactions contemplated by the Merger Agreement, and (ii) any change to the membership of the Board of Directors of the Borrower or Nicor arising from the consummation of the transactions contemplated by the Merger Agreement, in each case, shall not constitute a Change of Control Event.

 

“Closing Date” means April 19, 2011.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commitment” and “Commitments” are defined in Section 2.1 hereof.

 

“Commitment Fee Rate” means the percentage set forth in Schedule 1 hereto beside the then applicable Level.

 

“Commitment Letter” means that certain letter dated as of March 23, 2011, among the Borrower, J.P. Morgan Securities Inc., the Administrative Agent, RBS Securities Inc.,  Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, and The Royal Bank of Scotland plc.

 

  “Competitor” means (i) any Person that is engaged in natural gas distribution or the containerized shipping business and (ii) any Affiliate of such Person, provided, however, that “Competitor” shall not include (i) any Lender party to this Agreement as of the Closing Date and any Affiliate of such Lender or any Approved Fund of such Lender or (ii) any Person solely because of its involvement in commodity trading.

 

“Compliance Certificate” means a certificate in the form of Exhibit B hereto.

 

“Consolidated Assets” means all assets which should be listed on the consolidated balance sheet of the Borrower and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP.

 

“Consolidated Indebtedness” means, for any Person, all Indebtedness of a Person determined on a consolidated basis in accordance with GAAP.

 

“Consolidated Net Worth” means for any Person, as of any time the same is to be determined, the total shareholders’ equity (including both common and preferred) reflected on the balance sheet of such Person after deducting treasury stock determined on a consolidated basis in accordance with GAAP.

 

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“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its Property is bound.

 

“Controlled Group” means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.

 

“Credit Documents” means this Agreement, the Notes, the Fee Letters and all other documents executed in connection herewith or therewith.

 

“Default” means any event or condition described in Section 8.1 the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default.

 

“Defaulting Lender” means any Lender, as reasonably determined by the Administrative Agent, that has (a) failed to fund any portion of its Loans within three (3) Business Days of the date required to be funded by it hereunder (b) notified the Borrower, the Administrative Agent, or any Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or generally under other agreements in which it commits to extend credit, (c) failed, within five (5) Business Days after receipt of a written request from the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans, provided, however, that any Lender shall cease to be a Defaulting Lender under this clause (c) upon receipt of such confirmation by the Administrative Agent, (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three (3) Business Days of the date when due, unless the subject of a good -faith dispute, or (e) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has consented to, approved of or acquiesced in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has consented to, approved of or acquiesced in any such proceeding or appointment; provided that (i) if a Lender would be a “Defaulting Lender” solely by reason of events relating to a parent company of such Lender or solely because a Governmental Authority has been appointed as receiver, conservator, trustee or custodian for such Lender, in each case as described in clause (e) above, the Administrative Agent may, in its discretion, determine that such Lender is not a “Defaulting Lender” if and for so long as the Administrative Agent is satisfied that such Lender will continue to perform its funding obligations hereunder, (ii) the Administrative Agent may, by notice to the Borrower and the Lenders, declare that a Defaulting Lender is no longer a “Defaulting Lender” if the Administrative Agent determines, in its reasonable discretion, that the circumstances that resulted in such Lender becoming a “Defaulting Lender” no longer apply and (iii) a Lender shall not be a 

 

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Defaulting Lender solely by virtue of the ownership or acquisition of Voting Stock or any other equity interest in such Lender or a parent company thereof by a Governmental Authority or an instrumentality thereof or the exercise of control over such Lender or Person controlling such Lender by a Governmental Authority or an instrumentality thereof.

 

“Derivative Arrangement” means any agreement (including any master agreement and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, future agreement, currency swap agreement, cross currency rate swap agreement, swaption, currency option, that relates to fluctuations in  raw material prices or utility or energy prices or other costs, or any other similar agreement, including any option to enter into any of the foregoing, or any combination of any of the foregoing.  “Derivative Arrangements” shall include all such agreements or arrangements made or entered into at any time, or in effect at any time, whether or not related to a Loan.

 

“Derivative Obligations” means, with respect to any Person, all liabilities of such Person under any Derivative Arrangement (including but not limited to obligations and liabilities arising in connection with or as a result of early or premature termination of a Derivative Arrangement, whether or not occurring as a result of a default thereunder), absolute or contingent, now or hereafter existing or incurred or due or to become due.

 

“Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

 

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations issued thereunder.

 

“Eurodollar Loan” means a Loan bearing interest prior to its maturity at the rate specified in Section 2.2(b) hereof.

 

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“Eurodollar Margin” means the percentage set forth in Schedule 1 hereto under “Applicable Margin (Eurodollar)” beside the then applicable Level.

 

“Eurodollar Reserve Percentage” is defined in Section 2.2(b) hereof.

 

“Event of Default” means any of the events or circumstances specified in Section 8.1 hereof.

 

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), or similar taxes (including alternative minimum taxes) imposed by a Governmental Authority in jurisdiction (or any political subdivision thereof) as a result of a connection between the Administrative Agent, Lender or other recipient and such jurisdiction (or any political  subdivision thereof), (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 9.5), any withholding tax that would be imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 9.4, except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 9.4.

 

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to:

 

(a)           the weighted average of the rates on overnight federal funds transactions with members of the United States Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the United States Federal Reserve Bank of New York; or

 

(b)           if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.

 

“Fee Letters” means, collectively, (i) that certain letter, dated as of March 23, 2011, among RBS Securities Inc., The Royal Bank of Scotland plc, the Borrower, (ii) that certain letter, dated as of March 23, 2011, among J.P. Morgan Securities Inc., the Administrative Agent, the Borrower and (iii) that certain letter, dated as of March 23, 

  

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2011, among Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, the Borrower.

 

“Fitch Rating” means the senior unsecured debt rating assigned by Fitch Ratings Ltd. and any successor thereto that is a nationally recognized rating agency to the Borrower (or if neither Fitch Ratings Ltd. nor any such successor shall be in the business of rating long-term indebtedness, a nationally recognized rating agency in the United States of America as mutually agreed between the Required Lenders and Borrower).  Any reference in this Agreement to any specific rating is a reference to such rating as currently defined by Fitch Ratings Ltd. (or such a successor) and shall be deemed to refer to the equivalent rating if such rating system changes.

 

 “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is incorporated or otherwise organized for tax purposes.  For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

 

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

 

“GAAP” means generally accepted accounting principles as in effect in the United States from time to time, applied by the Borrower and its Subsidiaries on a basis consistent with the preparation of Borrower’s financial statements furnished to the Lenders as described in Section 5.4 hereof and subject to Section 1.2 hereof.

 

“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

 

“Granting Bank” has the meaning specified in Section 11.8(g).

 

“Guarantee” means, in respect of any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligations of another Person, including, without limitation, by means of an agreement to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to maintain financial covenants, or to assure the payment of such Indebtedness by an agreement to make payments in respect of goods or services regardless of whether delivered, or otherwise; provided, that the term “Guarantee” shall not include endorsements for deposit or collection in the ordinary course of business; and such term when used as a verb shall have a correlative meaning.

  

        “Hazardous Material” means:

 

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(a)           any “hazardous substance”, as defined by CERCLA; or

 

(b)           any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other Environmental Law.

 

“ICC Permitted Investment” means any investment permitted by (i) subsection (a) of Section 340.50 of the rules of the Illinois Commerce Commission or (ii) from and after the Merger Effective Date, any waiver thereof by the Illinois Commerce Commission.

 

“ICC Regulated Transaction” means any transaction between the Borrower and Nicor or any Wholly-Owned Subsidiary of Nicor that does not violate the applicable orders, rules and regulations of the Illinois Commerce Commission.

 

“Immaterial Subsidiary” shall mean, any direct or indirect Subsidiary of the Borrower (i) whose total assets (as determined in accordance with GAAP) as of the date of determination do not represent at least ten percent (10%) of the total assets (as determined in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated basis or (ii) whose total revenues for the most recently completed twelve months (as determined in accordance with GAAP) do not represent at least ten percent (10%) of the total revenues (as determined in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated basis for such period.

 

“Impermissible Qualification” means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification (i) which is of a “going concern” or similar nature, (ii) which relates to the limited scope of examination of matters relevant to such financial statement, or (iii) which relates to the treatment or classification of any item in such financial statement and which would require an adjustment to such item the effect of which would be to cause the Borrower to be in violation of Section 7.15 hereof.

 

“Indebtedness” means, as to any Person, without duplication: (i) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or similar instruments; (ii) all obligations of such Person for the deferred purchase price of Property or services (other than in respect of trade accounts payable arising in the ordinary course of business which are not past-due); (iii) all Capitalized Lease Obligations of such Person; (iv) all indebtedness of the kind referred to in (i)-(iii) and (v)-(vii) secured by a Lien on such Person’s interest in Property, assets or revenues to the extent of the lesser of  the value of such Person’s interest in such Property that is subject to such Lien or the principal amount of such indebtedness but excluding any such indebtedness secured by a Lien on any Property or assets owned by others if (A) such Person holds only a leasehold interest or an easement, right-of-way, license or similar right of use or occupancy with respect to such Property or asset and (B) such Person has not assumed or become liable for the payment of such indebtedness; (v) all Guarantees issued by such Person of 

 

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Indebtedness of another Person; (vi) all obligations of such Person, contingent or otherwise, in respect of any letters of credit (whether commercial or standby) or bankers’ acceptances, and (vii) all obligations of such Person under synthetic (and similar type) lease arrangements; provided that for purposes of calculating such Person’s Indebtedness under such synthetic (or similar type) lease arrangements, such lease arrangement shall be treated as if it were a Capitalized Lease. 

 

“Indemnified Taxes” means Taxes other than Excluded Taxes.

 

“Indemnitee” is defined in Section 11.11(b) hereof.

 

“Information” is defined in Section 11.15 hereof.

 

“Interest Period” is defined in Section 2.5 hereof.

 

“Investments” is defined in Section 7.13.

 

“Joint Lead-Arrangers” means J.P. Morgan Securities Inc., RBS Securities Inc. and Wells Fargo Securities, LLC.

 

“Lender” and “Lenders” are defined in the first paragraph of this Agreement.

 

“Level” means, as applicable, Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status, Level VI Status and Level VII Status.

 

“Level I Status” means, subject to the provisions of Schedule 1, the Borrower’s S&P Rating is AA or higher, its Fitch Rating is AA or higher and its Moody’s Rating is Aa2 or higher.

 

“Level II Status” means Level I Status does not exist, but, subject to the provisions of Schedule 1, the Borrower’s S&P Rating  is AA- or higher, its Fitch Rating is AA- or higher and its Moody’s Rating is Aa3 or higher.

 

“Level III Status” means neither Level I Status nor Level II Status exists, but, subject to the provisions of Schedule 1, the Borrower’s S&P Rating  is A+ or higher, its Fitch Rating is A+ or higher and its Moody’s Rating is A1 or higher.

 

“Level IV Status” means none of Level I Status, Level II Status nor Level III Status exists, but, subject to the provisions of Schedule 1, the Borrower’s S&P Rating is A or higher, its Fitch Rating is A or higher and its Moody’s rating is A2 or higher.

 

 “Level V Status” means none of Level I Status, Level II Status, Level III Status nor Level IV Status exists, but, subject to the provisions of Schedule 1, the Borrower’s S&P Rating is A- or higher, its Fitch Rating is A- or higher and its Moody’s rating is A3 or higher.

 

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“Level VI Status” means none of Level I Status, Level II Status, Level III Status, Level IV Status nor Level V Status exists, but, subject to the provisions of Schedule 1, the Borrower’s S&P Rating is BBB+ or higher, its Fitch Rating is BBB+ or higher and its Moody’s rating is Baa1 or higher.

 

“Level VII Status” means none of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status nor Level VI Status exists.

 

“LIBOR” is defined in Section 2.2(b) hereof.

 

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, including, but not limited to, the security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale, security agreement or trust receipt, or a lease, consignment or bailment for security purposes.  For the purposes of this definition, a Person shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capital Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention of title shall constitute a “Lien.”

 

“Loan” and “Loans” are defined in Section 2.1 hereof and includes a Base Rate Loan or Eurodollar Loan, each of which is a “type” of Loan hereunder.

 

“Material Adverse Effect” means any effect, resulting from any event or circumstance whatsoever, which has a material adverse effect on the financial condition or results of operations of the Borrower, or on the ability of the Borrower to perform its payment obligations under this Agreement.

 

“Material Subsidiaries” means any Subsidiary of the Borrower which is not an Immaterial Subsidiary.

 

“Merger Agreement” means the Agreement and Plan of Merger dated as of December 6, 2010 among Nicor, AGL Resources Inc., Apollo Acquisition Corp., and Ottawa Acquisition LLC.

 

“Merger Effective Date” means the date on which the consummation of the Merger and the Subsequent Merger (each as defined in the Merger Agreement) shall have occurred in accordance with Article 1 of the Merger Agreement.

 

“Moody’s Rating” means the long term issuer rating assigned by Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency to the Borrower (or if neither Moody’s Investors Service, Inc. nor any such successor shall be in the business of rating long-term indebtedness, a nationally recognized rating agency in the United States of America as mutually agreed between the Required Lenders and Borrower).  Any reference in this Agreement to any specific rating 

 

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is a reference to such rating as currently defined by Moody’s Investors Service, Inc. (or such a successor) and shall be deemed to refer to the equivalent rating if such rating system changes.

 

“Nicor” means Nicor Inc., an Illinois corporation.

 

“Nicor Gas Indenture” means that certain Indenture, dated as of January 1, 1954, between Commonwealth Edison Company and Continental Illinois National Bank and Trust Company of Chicago, as supplemented from time to time, and as last supplemented by a Supplemental Indenture, dated as of January 25, 2011 to be effective February 1, 2011, between the Borrower and The Bank of New York Mellon Trust Company, N.A., as successor trustee under the Indenture dated as of January 1, 1954, as amended or supplemented from time to time.

 

“Note” is defined in Section 2.9(a) hereof.

 

“Notice of Borrowing” means a notice of borrowing in the form of Exhibit D hereto.

 

“Obligations” means all fees payable hereunder, all obligations of the Borrower to pay principal or interest on Loans, fees, expenses, indemnities, and all other payment obligations of the Borrower arising under or in relation to any Credit Document.

 

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or Property taxes, charges or similar levies arising from any payment made hereunder or under any other Credit Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Credit Document.

 

“Participant” is defined in Section 11.8(d) hereof.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Pension Plan” means a “pension plan”, as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA, and to which the Borrower or any member of the Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA.

 

“Percentage” means, for each Lender, the percentage of the Commitments represented by such Lender’s Commitment or, if the Commitments have been terminated, the percentage held by such Lender of the aggregate principal amount of all outstanding Obligations.

 

“Permitted Derivative Obligations” means all Derivative Obligations as to which the Derivative Arrangements giving rise to such Derivative Obligation are entered into in 

 

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the ordinary course of business to hedge interest rate risk, currency risk, commodity price risk or the production of Borrower or its Subsidiaries (and not for speculative purposes).

 

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government or any agency or political subdivision thereof.

 

“Property” means any property or asset, of any nature whatsoever, whether real, personal or mixed, tangible or intangible, and whether now owned or hereafter acquired.

 

“Related Parties” means, subject to the provisions of Section 11.8 with respect to any Person, such Person’s Affiliates and the directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

 

“Release” means “release”, as such term is defined in CERCLA.

 

“Required Lenders” means, as of the date of determination thereof, Lenders holding in the aggregate at least a majority in interest of the then aggregate unpaid principal amount of the Loans owing to Lenders, or, if no such principal amount is then outstanding, Lenders having at least a majority in interest of the Commitments.

 

“SEC” means the United States Securities and Exchange Commission.

 

“SEC Disclosure Documents” means all reports on forms 10K, 10Q, and 8K filed by Nicor or the Borrower with the SEC prior to the Closing Date.

 

“Security” has the same meaning as in Section 2(l) of the Securities Act of 1933, as amended.

 

“S&P Rating” means the senior unsecured debt rating assigned by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. and any successor thereto that is a nationally recognized rating agency to the Borrower (or, if neither such division nor any successor shall be in the business of rating long-term indebtedness, a nationally recognized rating agency in the United States as mutually agreed between the Required Lenders and Borrower).  Any reference in this Agreement to any specific rating is a reference to such rating as currently defined by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (or such a successor) and shall be deemed to refer to the equivalent rating if such rating system changes.

 

“Solvent” means that (a) the fair value of a Person’s assets is in excess of the total amount of such Person’s debts, as determined in accordance with the United States Bankruptcy Code, and (b) the present fair saleable value of a Person’s assets is in excess of the amount that will be required to pay such Person’s debts as they become absolute and matured.  As used in this definition, the term “debts” includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent, as determined in accordance with the United States Bankruptcy Code.

 

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“SPC” has the meaning specified in Section 11.8(g).

 

“Subsidiary” means, as to the Borrower, any corporation or other entity (i) which is or should be consolidated into the financial statements of the Borrower in accordance with GAAP or (ii) of which more than fifty percent (50%) of the outstanding stock or comparable equity interests having ordinary voting power for the election of the Board of Directors of such corporation or similar governing body in the case of a non-corporation (irrespective of whether or not, at the time, stock or other equity interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Borrower or by one or more of its Subsidiaries.

 

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

“Telerate Service” means the Moneyline Telerate, Inc.

 

“Termination Date” means April 17, 2012, as extended from time to time pursuant to Section 3.2.

 

“3-Year Facility Agreement” means the credit agreement entered into April 23, 2010, amended by Amendment No. 1 to 3 Year Credit Agreement, dated as of April 19, 2011, by and among, the Borrower, Nicor, the Required Lenders signatory thereto, and JPMorgan Chase Bank, N.A. as Administrative Agent, as amended or supplemented from time to time, among the Borrower, Nicor, the financial institutions party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association and RBS Securities Inc. as syndication agents, The Bank of Tokyo-Mitsubishi UFJ, Ltd., U.S. Bank National Association and Wells Fargo Bank, National Association, as documentation agents, and J.P. Morgan Securities Inc., Wells Fargo Securities, LLC and  RBS Securities Inc. as joint lead-arrangers and bookrunners.

 

 “Unfunded Vested Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable accrued benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA.

 

“U.S. Dollars” and “$” each means the lawful currency of the United States of America.

 

“Voting Stock” of any Person means capital stock of any class or classes or other equity interests (however designated) having ordinary voting power for the election of directors or similar governing body of such Person.

 

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“Welfare Plan” means a “welfare plan”, as such term is defined in section 3(1) of ERISA.

 

“Wholly-Owned Subsidiary” means a Subsidiary of Borrower of which all of the issued and outstanding shares of stock or other equity interests (other than directors’ qualifying shares as required by law) shall be owned, directly or indirectly, by the Borrower.

 

Section 1.2 Interpretation.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.  All references to times of day in this Agreement shall be references to New York, New York time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP in effect on the Closing Date, to the extent applicable, except where such principles are inconsistent with the specific provisions of this Agreement.

 

No change in the accounting principles used in the preparation of any financial statement adopted after the Closing Date by Nicor, the Borrower or any of their Subsidiaries shall be given effect for purposes of measuring compliance with any provision of the Affirmative Covenants, Negative Covenants or Financial Covenants unless the Borrower, the Agent and the Required Lenders agree to modify such provisions to reflect such change in GAAP and, unless such provisions are modified, all financial statements, compliance certificates and similar documents provided under this Agreement shall be provided together with a reconciliation between the calculations and amounts set forth therein before and after giving effect to such change in GAAP.  Notwithstanding any other provision contained in this Agreement, all terms of an accounting or financial nature used in this Agreement shall be construed, and all 

 

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computations of amounts and ratios referred to in the Affirmative Covenants, Negative Covenants and Financial Covenants shall be made, without giving effect to any election under Accounting Standards Codification 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any indebtedness or other liabilities of Nicor, the Borrower or any of their Subsidiaries at “fair value.”

 

The parties hereby agree that from and after the Merger Effective Date, all references to Nicor in the Credit Documents (except for each such reference in Section 5.4 of the Credit Agreement or otherwise as the context may require) shall refer to AGL Resources Inc.

 

	

SECTION 2.  THE CREDITS.

 

Section 2.1 The Revolving Loan Commitment.  Subject to the terms and conditions hereof (including Sections 6.1 and 6.2), each Lender, by its acceptance hereof, severally agrees to make a loan or loans (individually a “Loan” and collectively “Loans”) to the Borrower from time to time on a revolving basis in U.S. Dollars in an aggregate outstanding amount up to the amount of its commitment set forth on Schedule 2 hereto (such amount, as reduced pursuant to Section 2.11(a), increased pursuant to Section 2.11(b) or Section 2.12, or changed as a result of one or more assignments under Section 11.8, its “Commitment” and, cumulatively for all the Lenders, the “Commitments”) before the Termination Date; provided that the aggregate amount of Loans at any time outstanding shall not exceed the Commitments in effect at such time.  On the Termination Date the Commitments shall terminate.  Each Borrowing of Loans shall be made ratably from the Lenders in proportion to their respective Percentages.  As provided in Section 2.4(a) hereof, the Borrower may elect that each Borrowing of Loans be either Base Rate Loans or Eurodollar Loans.  Loans may be repaid and the principal amount thereof reborrowed before the Termination Date, subject to all the terms and conditions hereof.  Unless an earlier maturity is provided for hereunder, all Loans shall mature and be due and payable on the Termination Date.

 

Section 2.2 Applicable Interest Rates.

 

(a) Base Rate Loans.  Each Base Rate Loan made or maintained by a Lender shall bear interest during the period it is outstanding (computed (x) at all times the Base Rate is based on the rate described in clause (i) of the definition thereof, on the basis of a year of 365 or 366 days, as applicable, and actual days elapsed or (y) at all times the Base Rate is based on the rate described in clause (ii) or (iii) of the definition thereof, on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is advanced, continued or created by conversion from a Eurodollar Loan until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable Margin plus the Base Rate from time to time in effect, payable on the last Business Day of each calendar quarter and at maturity (whether by acceleration or otherwise).

 

“Base Rate” means for any day the greatest of:

 

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(i) the rate of interest announced by JPMorgan Chase Bank, N.A. from time to time as its prime rate, or equivalent, for U.S.  Dollar loans within the United States as in effect on such day, with any change in the Base Rate resulting from a change in said prime rate to be effective as of the date of the relevant change in said prime rate;

 

(ii) the sum of (x) the Federal Funds Rate, plus (y) 1⁄2 of 1% (0.50%); and

 

(iii) the Adjusted LIBOR for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%.  For the purposes of this clause (iii), the Administrative Agent shall assume that the reference Eurodollar Loan would be denominated in U.S. Dollars.

 

(b) Eurodollar Loans.  Each Eurodollar Loan made or maintained by a Lender shall bear interest during each Interest Period it is outstanding (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is advanced, continued, or created by conversion from a Base Rate Loan until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable Margin plus the Adjusted LIBOR applicable for such Interest Period, payable on the last day of the Interest Period and at maturity (whether by acceleration or otherwise), and, if the applicable Interest Period is longer than three months, on each day occurring every three months after the commencement of such Interest Period.

 

“Adjusted LIBOR” means, for any Borrowing of Eurodollar Loans or as used in the calculation of Base Rate, a rate per annum determined in accordance with the following formula:

 

	 	
Adjusted LIBOR

	
=

	
LIBOR

	 	  	  	
1 - Eurodollar Reserve Percentage

“LIBOR” means, for an Interest Period for a Borrowing of Eurodollar Loans, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetical average of the rates of interest per annum (rounded upwards, if necessary, to the nearest one-sixteenth of one percent) at which deposits in U.S.  Dollars, in immediately available funds are offered to the Administrative Agent at 11:00 a.m. (London, England time) two (2) Business Days before the beginning of such Interest Period by major banks in the interbank eurodollar market for delivery on the first day of and for a period equal to such Interest Period in an amount equal or comparable to the principal amount of the Eurodollar Loan scheduled to be made by each Lender as part of such Borrowing.

 

“LIBOR Index Rate” means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one-sixteenth of one percent) for deposits in 

 

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U.S. Dollars for delivery on the first day of and for a period equal to such Interest Period in an amount equal or comparable to the principal amount of the Eurodollar Loan scheduled to be made by each Lender as part of such Borrowing, which appears on the Applicable Telerate Page as of 11:00 a.m. (London, England time) on the day two (2) Business Days before the commencement of such Interest Period.

 

“Applicable Telerate Page” means the display page designated as “Page 3750” on the Telerate Service (or such other pages as may replace any such page on that service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association Interest Settlement Rates for deposits in U.S. Dollars).

 

“Eurodollar Reserve Percentage” means for any Borrowing of Eurodollar Loans from any Lender, the daily average for the applicable Interest Period of the actual effective rate, expressed as a decimal, at which reserves (including, without limitation, any supplemental, marginal and emergency reserves) are maintained by such Lender during such Interest Period pursuant to Regulation D of the Board of Governors of the Federal Reserve System (or any successor) on “eurocurrency liabilities”, as defined in such Board’s Regulation D (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extensions of credit or other assets that include loans by non-United States offices of any Lender to United States residents), subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto.  For purposes of this definition, the Eurodollar Loans shall be deemed to be “eurocurrency liabilities” as defined in Regulation D without benefit or credit for any prorations, exemptions or offsets under Regulation D.

 

(c) Rate Determinations.  The Administrative Agent shall determine each interest rate applicable to Obligations, and a determination thereof by the Administrative Agent shall be conclusive and binding except in the case of manifest error.

 

Section 2.3 Minimum Borrowing Amounts.

 

Each Borrowing of Base Rate Loans and Eurodollar Loans shall be in an amount not less than (i) if such Borrowing is comprised of a Borrowing of Base Rate Loans, $1,000,000 and integral multiples of $500,000 in excess thereof, and (ii) if such Borrowing is comprised of a Borrowing of Eurodollar Loans, $2,000,000 and integral multiples of $1,000,000 in excess thereof.

 

Section 2.4 Manner of Borrowing Loans and Designating Interest Rates Applicable to Loans.

 

(a) Notice to the Administrative Agent.  The Borrower shall give notice to the Administrative Agent by no later than 11:00 a.m. (Chicago time) (i) at least three (3) Business Days before the date on which the Borrower requests the Lenders to advance a Borrowing of Eurodollar Loans, or (ii) on the date on which the Borrower requests the 

 

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Lenders to advance a Borrowing of Base Rate Loans. The Loans included in each Borrowing shall bear interest initially at the type of rate specified in such notice of a new Borrowing.  Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Borrowing or, subject to Section 2.3, a portion thereof, as follows: (i) if such Borrowing is of Eurodollar Loans, on the last day of the Interest Period applicable thereto, the Borrower may continue part or all of such Borrowing as Eurodollar Loans for an Interest Period or Interest Periods specified by the Borrower or convert part or all of such Borrowing into Base Rate Loans, and (ii) if such Borrowing is of Base Rate Loans, on any Business Day, the Borrower may convert all or part of such Borrowing into Eurodollar Loans for an Interest Period or Interest Periods specified by the Borrower.  The Borrower shall give all such notices requesting, the advance, continuation, or conversion of a Borrowing to the Administrative Agent by telephone, facsimile or electronic means (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing). Notwithstanding the foregoing, the Borrower shall not be permitted to request a Eurodollar Loan, convert a Base Rate Loan to a Eurodollar Loan or continue a Eurodollar Loan for a new Interest Period if an Event of Default shall have occurred and be continuing and the Administrative Agent or the Required Lenders so elects. Notices of the continuation of a Borrowing of Eurodollar Loans for an additional Interest Period or of the conversion of part or all of a Borrowing of Base Rate Loans into Eurodollar Loans must be given by no later than 12:00 noon (Chicago time) at least three (3) Business Days before the date of the requested continuation or conversion. Notices of the conversion of part or all of a Borrowing of Eurodollar Loans into Base Rate Loans must be given by no later than 11:00 a.m. (Chicago time) on the date of the requested conversion. All such notices concerning the advance, continuation, or conversion of a Borrowing shall be irrevocable once given and shall specify the date of the requested advance, continuation or conversion of a Borrowing (which shall be a Business Day), the amount of the requested Borrowing to be advanced, continued, or converted, the type of Loans to comprise such new, continued or converted Borrowing and, if such Borrowing is to be comprised of Eurodollar Loans, the Interest Period applicable thereto.  All such notices shall be in the form of a Notice of Borrowing, unless otherwise consented to by the Administrative Agent; provided that the Borrower agrees that the Administrative Agent may rely on any telephonic, facsimile or electronic notice given by any person it in good faith believes is an Authorized Representative without the necessity of independent investigation, and in the event any such notice by telephone conflicts with any written confirmation, such telephonic notice shall govern if the Administrative Agent has acted in reliance thereon.  There may be no more than six different Interest Periods in effect at any one time.

 

(b) Notice to the Lenders.  The Administrative Agent shall give prompt telephonic, facsimile or electronic notice to each Lender of any notice from the Borrower received pursuant to Section 2.4(a) above.  The Administrative Agent shall give notice to the Borrower and each Lender by like means of the interest rate applicable to each Borrowing of Eurodollar Loans.

 

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(c) Borrower’s Failure to Notify.  If the Borrower fails to give notice pursuant to Section 2.4(a) above of the continuation or conversion of any outstanding principal amount of a Borrowing of Eurodollar Loans before the last day of its then current Interest Period within the period required by Section 2.4(a) and has not notified the Administrative Agent within the period required by Section 2.7(a) that it intends to prepay such Borrowing, such Borrowing shall automatically be converted into a Borrowing of Base Rate Loans, subject to Section 6.2 hereof.  The Administrative Agent shall promptly notify the Lenders of the Borrower’s failure to so give a notice under Section 2.4(a).

 

(d) Disbursement of Loans.  Not later than 12:00 noon (New York time) on the date of any requested advance of a new Borrowing of Eurodollar Loans, and not later than 2:00 p.m. (New York time) on the date of any requested advance of a new Borrowing of Base Rate Loans, subject to Section 6 hereof, each Lender shall make available its Loan comprising part of such Borrowing in funds immediately available at the principal office of the Administrative Agent in New York, New York.  The Administrative Agent shall make Loans available to Borrower at the Administrative Agent’s principal office in New York, New York or such other office as the Administrative Agent has previously agreed in writing to with Borrower, in each case in the type of funds received by the Administrative Agent from the Lenders.

 

(e) Funding by Lenders; Presumption by Administrative Agent.  Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.4(d) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to such Loans.  If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period.  If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.  Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

 

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(f) Payments by Borrower; Presumptions by Administrative Agent.  Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due.  In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

 

Section 2.5 Interest Periods.

 

As provided in Section 2.4(a) hereof, at the time of each request of a Borrowing of Eurodollar Loans, the Borrower shall select an Interest Period applicable to such Loans from among the available options.  The term “Interest Period” means the period commencing on the date a Borrowing of Eurodollar Loans is advanced, continued, or created by conversion and ending 1, 2, 3, or 6 months thereafter; provided, however, that:

 

(a) the Borrower may not select an Interest Period that extends beyond the Termination Date;

 

(b) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day; provided that, if such extension would cause the last day of an Interest Period to occur in the following calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and

 

(c) for purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; provided, however, that if there is no numerically corresponding day in the month in which such an Interest Period is to end or if such an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end.

 

Section 2.6 Maturity of Loans.  Unless an earlier maturity is provided for hereunder (whether by acceleration or otherwise), all Obligations (including principal and interest on all outstanding Loans) shall mature and become due and payable on the Termination Date.  The Borrower hereby promises to pay as and when due each 

 

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Obligation owing by it.  The Borrower hereby waives demand, presentment, protest or notice of any kind with respect to each such Obligation.

 

Section 2.7 Prepayments.  (a)  Borrower may prepay without premium or penalty and in whole or in part (but, if in part, then (i) in an amount not less than $5,000,000 and integral multiples of $1,000,000 in excess thereof, and (ii) in an amount such that the minimum amount required for a Borrowing pursuant to Section 2.3 hereof remains outstanding) any Borrowing of Eurodollar Loans upon three (3) Business Days’ prior irrevocable notice to the Administrative Agent or, in the case of a Borrowing of Base Rate Loans, irrevocable notice delivered to the Administrative Agent no later than 12:00 noon (Chicago time) on the date of prepayment, such prepayment to be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date fixed for prepayment.  In the case of Eurodollar Loans, any amounts owing under Section 2.10 hereof as a result of such prepayment shall be paid contemporaneously with such prepayment.  The Administrative Agent will promptly advise each Lender of any such prepayment notice it receives from the Borrower.  Any amount paid or prepaid before the Termination Date may, subject to the terms and conditions of this Agreement, be borrowed, repaid and borrowed again.

 

(b) If  the aggregate amount of outstanding Loans shall at any time for any reason exceed the Commitments then in effect, the Borrower shall, immediately and without notice or demand, pay the amount of such excess to the Administrative Agent for the ratable benefit of the Lenders as a prepayment of the Loans and such prepayments shall not be subject to the provisions of Section 2.7(a).  Immediately upon determining the need to make any such prepayment Borrower shall notify the Administrative Agent of such required prepayment.  Each such prepayment shall be accompanied by a payment of all accrued and unpaid interest on the Loans prepaid and shall be subject to Section 2.10.

 

Section 2.8 Default Rate.  If any Obligation is not paid when due (whether by acceleration or otherwise), or upon the occurrence of any Event of Default and notice from the Administrative Agent or the Required Lenders to the Borrower referencing such Event of Default and stating that the additional interest (“Default Interest”) specified in this Section 2.8 shall commence accruing, all Obligations shall, to the extent permitted by applicable law, bear interest (computed on the basis of a year of 360 days and actual days elapsed or, if based on the rate described in clause (i) of the definition of Base Rate, on the basis of a year of 365 or 366 days, as applicable, and the actual number of days elapsed) from the date such payment on such Obligations was due or such notice was delivered, until paid in full or such Event of Default is waived in accordance with the provisions of this Agreement, payable on demand, at a rate per annum equal to:

 

(a) for any Obligation other than a Eurodollar Loan (including principal and interest relating to Base Rate Loans and interest on Eurodollar Loans), the sum of two percent (2%) plus the Applicable Margin applicable to Base Rate Loans plus the Base Rate from time to time in effect; and

 

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(b) for the principal of any Eurodollar Loan, the sum of two percent (2%) plus the rate of interest in effect thereon at the time of such default until the end of the Interest Period applicable thereto and, thereafter, at a rate per annum equal to the sum of two percent (2%) plus the Applicable Margin applicable to Base Rate Loans plus the Base Rate from time to time in effect;

 

       provided, however, that following acceleration of the Loans pursuant to Section 8.3, Default Interest shall accrue and be payable hereunder whether or not previously required by the Administrative Agent.

 

Section 2.9 Evidence of Debt.  (a)  Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder in respect of Loans.  The Borrower agrees that upon notice by any Lender to the Borrower (with a copy of such notice to the Administrative Agent) to the effect that a Note is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the Loans owing to, or to be made by, such Lender under the Credit Documents, the Borrower shall promptly execute and deliver to such Lender a promissory note in the form of Exhibit A hereto (each such promissory note is hereinafter referred to as a “Note” and collectively such promissory notes are referred to as the “Notes”).

 

(b) The Register maintained by the Administrative Agent pursuant to Section 11.8(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the type of Loan comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assignment and Assumption delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender’s share thereof.

 

(c) Entries made in good faith by the Administrative Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Administrative Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement.

 

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Section 2.10 Funding Indemnity.  If any Lender shall incur any loss, cost or expense (including, without limitation, any loss, cost or expense (excluding loss of margin) incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender to fund or maintain any Eurodollar Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Lender) as a result of:

 

(a) any payment (whether by acceleration, pursuant to Section 9.5 or otherwise), prepayment or conversion of a Eurodollar Loan on a date other than the last day of its Interest Period,

 

(b) any failure (because of a failure to meet the conditions of Section 6 or otherwise) by the Borrower to borrow or continue a Eurodollar Loan, or to convert a Base Rate Loan into a Eurodollar Loan, on the date specified in a notice given pursuant to Section 2.4(a) or established pursuant to Section 2.4(c) hereof,

 

(c) any failure by the Borrower to make any payment or prepayment of principal on any Eurodollar Loan when due (whether by acceleration or otherwise),

 

(d) any acceleration of the maturity of a Eurodollar Loan as a result of the occurrence of any Event of Default hereunder, or

 

(e) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 9.5(b),

 

then, upon the demand of such Lender, the Borrower shall pay to such Lender such amount as will reimburse such Lender for such loss, cost or expense.  If any Lender makes such a claim for compensation, it shall provide to the Borrower, with a copy to the Administrative Agent, a certificate executed by an officer of such Lender setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) and the amounts shown on such certificate if reasonably calculated shall be prima facie evidence of the amount of such loss, cost or expense.

 

Section 2.11 Commitments.  (a)  Borrower shall have the right at any time and from time to time, upon five (5) Business Days’ prior written notice to the Administrative Agent, to reduce or terminate the Commitments without premium or penalty, in whole or in part, any partial termination or reduction to be (i) in an amount not less than $5,000,000 and integral multiples of $1,000,000 in excess thereof, and (ii) allocated ratably among the Lenders in proportion to their respective Percentages; provided that the Commitments may not be reduced to an amount less than the amount of the Loans then outstanding.  The Administrative Agent shall give prompt notice to each Lender of any reduction or termination of Commitments.  Any reduction or termination of Commitments pursuant to this Section 2.11 may not be reinstated.

 

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(b) The Borrower and the Administrative Agent may from time to time add additional financial institutions as parties to this Agreement or, with the written consent of an existing Lender, increase the Commitment of such existing Lender (any such financial institution or existing Lender which is increasing its commitment being referred to as an “Added Lender”) pursuant to documentation satisfactory to the Borrower and the Administrative Agent and any such Added Lender shall for all purposes be considered a Lender for purposes of this Agreement and the other Credit Documents with a Commitment as set forth in such documentation.  Any such Added Lender shall on the date it is deemed a party to this Agreement purchase from the other Lenders its Percentage (or the increase in its Percentage, in the case of an Added Lender which is an existing Lender) of the Loans outstanding.  Notwithstanding anything contained in this Section 2.11(b) to the contrary, but subject to Section 2.12, the aggregate amount of Commitments may not at any time exceed $400,000,000 without the consent of the Required Lenders.

 

Section 2.12 Increase in the Aggregate Commitments.  (a)           The Borrower may, at any time prior to the Termination Date, by notice to the Administrative Agent and in accordance with Section 2.12(b), request that the aggregate amount of the Commitments be increased by an amount of $10,000,000 or an integral multiple thereof (each a “Commitment Increase”) to be effective as of a date that is at least 90 days prior to the scheduled Termination Date then in effect (the “Increase Date”) as specified in the related notice to the Administrative Agent; provided, however that (i) in no event shall the aggregate amount of the Commitments at any time exceed $600,000,000, (ii) on the date of any request by the Borrower for a Commitment Increase and on the related Increase Date the applicable conditions set forth in Sections 3.2(f) and 6.2 shall be satisfied and (iii) prior to the effectiveness of any such increase, the Borrower shall deliver a certified copy of their Board of Directors’ resolutions authorizing such increase.

 

(b)           The Administrative Agent shall promptly notify the Lenders of a request by the Borrower for a Commitment Increase, which notice shall include (i) the proposed amount of such requested Commitment Increase, (ii) the proposed Increase Date and (iii) the date by which Lenders wishing to participate in the Commitment Increase must commit to an increase in the amount of their respective Commitments (the “Commitment Date”).  Each Lender that is willing to participate in such requested Commitment Increase (each an “Increasing Lender”) shall, in its sole discretion, give written notice to the Administrative Agent on or prior to the Commitment Date of the amount by which it is willing to increase its Commitment. Failure of a Lender to provide any such notice shall be considered a rejection of an offer to increase its commitment. If the Lenders notify the Administrative Agent that they are willing to increase the amount of their respective Commitments by an aggregate amount that exceeds the amount of the requested Commitment Increase, the requested Commitment Increase shall be allocated among the Lenders willing to participate therein in such amounts as are agreed between the Borrower and the Administrative Agent.

 

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(c)           Promptly following each Commitment Date, the Administrative Agent shall notify the Borrower as to the amount, if any, by which the Lenders are willing to participate in the requested Commitment Increase.  If the aggregate amount by which the Lenders are willing to participate in any requested Commitment Increase on any such Commitment Date is less than the requested Commitment Increase, then the Borrower may extend offers to one or more Eligible Assignees to participate in any portion of the requested Commitment Increase that has not been committed to by the Lenders as of the applicable Commitment Date; provided, however, that the Commitment of each such Eligible Assignee shall be in an amount not less than $5,000,000.

 

(d)           On each Increase Date, each Eligible Assignee that accepts an offer to participate in a Commitment Increase requested in accordance with Section 2.12(a) (each such Eligible Assignee, an “Assuming Lender”) shall become a Lender party to this Agreement as of such Increase Date and the Commitment of each Increasing Lender for such requested Commitment Increase shall be increased by the amount of the Commitment Increase so requested (or by the amount allocated to such Lender pursuant to the last sentence of Section 2.12(b)) as of such Increase Date. On each Increase Date, the Administrative Agent shall notify the Lenders (including, without limitation, each Assuming Lender) and the Borrower, on or before 11:00 A.M. (Chicago time), by telecopier, of the occurrence of the Commitment Increase to be effected on such Increase Date and shall record in the Register the relevant information with respect to each Increasing Lender and each Assuming Lender on such date.  Each Increasing Lender and each Assuming Lender shall, before 2:00 P.M. (Chicago time) on the Increase Date, make available for the account of its applicable lending office to the account of the Administrative Agent, in same day funds, in the case of such Assuming Lender, an amount equal to such Assuming Lender’s ratable portion of the Borrowings then outstanding (calculated based on its Commitment as a percentage of the aggregate Commitments outstanding after giving effect to the relevant Commitment Increase) and, in the case of such Increasing Lender, an amount equal to the excess of (i) such Increasing Lender’s ratable portion of the Borrowings then outstanding (calculated based on its Commitment as a percentage of the aggregate Commitments outstanding after giving effect to the relevant Commitment Increase) over (ii) such Increasing Lender’s ratable portion of the Borrowings then outstanding (calculated based on its Commitment (without giving effect to the relevant Commitment Increase) as a percentage of the aggregate Commitments (without giving effect to the relevant Commitment Increase).  After the Administrative Agent’s receipt of such funds from each such Increasing Lender and each such Assuming Lender, the Administrative Agent will promptly thereafter cause to be distributed like funds to the other Lenders for the account of their respective applicable lending offices in an amount to each other Lender such that the aggregate amount of the outstanding Loans owing to each Lender after giving effect to such distribution equals such Lender’s ratable portion of the Borrowings then outstanding (calculated based on its Commitment as a percentage of the aggregate Commitments outstanding after giving effect to the relevant Commitment Increase).

 

Section 2.13 Defaulting Lenders.

 

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Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

 

(a)           fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 3.1(a);

 

(b)           the Commitment and Loans of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 11.9 other than those which require the consent of all Lenders or of each affected Lender);

 

(c)           to the extent the Administrative Agent receives any payments or other amounts for the account of a Defaulting Lender under this Agreement such Defaulting Lender shall be deemed to have requested that the Administrative Agent use such payment or other amount to fulfill such Defaulting Lender's previously unsatisfied obligations to fund a Loan or Loans, unless such payment or other amounts is subject to a good faith dispute;

 

(d)           no Lender shall be deemed to have consented to increase its Commitment pursuant to Section 2.12 unless that Lender shall have affirmatively given such consent in accordance with that Section, and no Lender shall be deemed to have agreed to an extension pursuant to Section 3.2 unless that Lender shall have affirmatively given its agreement in accordance with that Section; and

 

(e)           for the avoidance of doubt, the Borrower shall retain and reserve its other rights and remedies respecting each Defaulting Lender.

 

	

SECTION 3.  FEES AND EXTENSIONS.

 

Section 3.1 Fees.

 

(a) Commitment Fee and other Fees.  From and after the Closing Date, the Borrower shall pay to the Administrative Agent for the ratable account of the Lenders in accordance with their Percentages a commitment fee accruing at a rate per annum equal to the Commitment Fee Rate on the average daily amount of the difference between the total Commitments (whether used or unused) and the principal balance of all Loans then outstanding.  Such commitment fee is payable in arrears on the last Business Day of each calendar quarter and on the Termination Date, and if the Commitments are terminated in whole prior to the Termination Date, the fee for the period to but not including the date of such termination shall be paid in whole on the date of such termination. On the Closing Date, the Borrower shall pay to the Administrative Agent for the ratable account of the Lenders in accordance with their Percentages all other fees payable to the Lenders pursuant to the Fee Letters.

 

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(b) Administrative Agent Fees.  The Borrower shall pay to the Joint Lead-Arrangers and the Administrative Agent for their sole account the fees agreed to by the Borrower in the Fee Letters or as otherwise agreed among them in writing.

 

(c) Fee Calculations.  All fees payable under this Agreement shall be payable in U.S.  Dollars and shall be computed on the basis of a year of 360 days, for the actual number of days elapsed.  All determinations of the amount of fees owing hereunder (and the components thereof) shall be made by the Administrative Agent and shall be prima facie evidence of the amount of such fee.

 

Section 3.2 Extensions.

 

(a) Requests for Extension.  The Borrower may, by notice to the Administrative Agent (which shall promptly notify the Lenders) not earlier than 45 days and not later than 35 days prior to the Termination Date then in effect hereunder (the “Existing Termination Date”), request that each Lender extend such Lender’s Termination Date for an additional 364 days from the Existing Termination Date.

 

(b) Lender Elections to Extend.  Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not earlier than 30 days prior to the Existing Termination Date and not later than the date (the “Notice Date”) that is 20 days prior to the Existing Termination Date, advise the Administrative Agent whether or not such Lender agrees to such extension and each Lender that determines not to so extend its Commitment Termination Date (a “Non-Extending Lender”) shall notify the Administrative Agent of such fact promptly after such determination (but in any event no later than the Notice Date) and any Lender that does not so advise the Administrative Agent on or before the Notice Date shall be deemed to be a Non-Extending Lender.  The election of any Lender to agree to such extension shall not obligate any other Lender to so agree.

 

(c) Notification by Administrative Agent.  The Administrative Agent shall notify the Borrower of each Lender’s determination under this Section no later than the date 15 days prior to the Existing Termination Date (or, if such date is not a Business Day, on the next preceding Business Day).

 

(d) Additional Commitment Lenders.  The Borrower shall have the right on or before the Existing Termination Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”).  Each Additional Commitment Lender shall enter into an agreement in form and substance satisfactory to the Borrower and the Administrative Agent pursuant to which such Additional Commitment Lender shall, effective as of the Existing Termination Date, undertake a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date).

 

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(e) Minimum Extension Requirement.  If (and only if) the Required Lenders have agreed to extend their Termination Date, then, effective as of the Existing Termination Date, the Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date falling 364 Days after the Existing Termination Date (except that, if such date is not a Business Day, such Commitment Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.

 

(f) Conditions to Effectiveness of Extensions.  Notwithstanding the foregoing, the extension of the Termination Date pursuant to this Section shall not be effective with respect to any Lender unless:

 

(x)           no Default or Event of Default shall have occurred and be continuing on the date of such extension and after giving effect thereto;

 

(y)           the representations and warranties contained in this Agreement are true and correct on and as of the date of such extension and after giving effect thereto, as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and

 

(z)           on or before the Termination Date of each Non-Extending Lender, (1) the Borrower shall have paid in full the principal of and interest on all of the Loans made by such Non-Extending Lender to the Borrower hereunder and (2) the Borrower shall have paid in full all other Obligations owing to such Lender hereunder.

 

 

	

SECTION 4.  PLACE AND APPLICATION OF PAYMENTS.

 

All payments of principal of and interest on the Loan, and all other Obligations payable by the Borrower under the Credit Documents shall be made by Borrower in U.S. Dollars to the Administrative Agent by no later than 1:00 p.m. (Chicago time) on the due date thereof at the principal office of the Administrative Agent in New York, New York pursuant to the payment instructions set forth on Part A of Schedule 4 hereof (or such other location in the United States as the Administrative Agent may designate to Borrower) for the benefit of the Person or Persons entitled thereto. Any payments received after such time shall be deemed to have been received by the Administrative Agent on the next Business Day.  All such payments shall be made free and clear of, and without deduction for, any set-off, defense, counterclaim, levy, or any other deduction of any kind in immediately available funds at the place of payment. The Administrative Agent, will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Loans or applicable fees ratably to the Lenders and like funds 

 

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relating to the payment of any other amount payable to any Person to such Person, in each case to be applied in accordance with the terms of this Agreement.

 

	
SECTION 5.  REPRESENTATIONS AND WARRANTIES.

 

The Borrower hereby represents and warrants to each Lender as to itself and, where the following representations and warranties apply to its Subsidiaries or Material Subsidiaries, as to each Subsidiary or Material Subsidiary, as applicable, of the Borrower, as follows:

 

Section 5.1 Corporate Organization and Authority.  The Borrower is (i) duly organized and existing in good standing under the laws of the State of Illinois; (ii) has all necessary corporate power to carry on its present business; and (iii) is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing, qualification or good standing necessary and in which the failure to be so licensed, qualified or in good standing would have a Material Adverse Effect.

 

Section 5.2 Subsidiaries.  Schedule 5.2 (as updated from time to time pursuant to Section 7.1) hereto identifies each Material Subsidiary, such Material Subsidiary’s jurisdiction of incorporation or formation, the percentage of issued and outstanding shares of each class of such Material Subsidiary’s capital stock or other equity interests owned by the Borrower and/or the Borrower’s Subsidiaries and, if such percentage is not one hundred percent (100%) (excluding directors’ qualifying shares as required by law), a description of each class of its authorized capital stock and the number of shares or equity interests of each class issued and outstanding.  Each Material Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction of its organization, has all necessary organizational power to carry on its present business, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified would have a Material Adverse Effect.  All of the issued and outstanding shares of capital stock or other equity interests, as applicable, of each Material Subsidiary owned directly or indirectly by the Borrower are validly issued and outstanding and fully paid and nonassessable.  All such shares and other equity interests owned by the Borrower are owned beneficially, and of record, free of any Lien, except as permitted in Section 7.9.

 

Section 5.3 Corporate Authority and Validity of Obligations.  The Borrower has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Notes and to consummate the transactions herein contemplated, and the execution, delivery and performance, and the consummation of the transactions herein contemplated, by the Borrower of this Agreement and the Notes have been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by the Borrower and constitutes, and the Notes when executed and delivered for value will 

 

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constitute, its legal, valid and binding obligation, enforceable in accordance with their terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or moratorium or similar laws affecting the rights of creditors generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

Section 5.4 Financial Statements.  The consolidated balance sheet and consolidated statement of capitalization of Nicor as of December 31, 2010 and the notes thereto (the “12/31 Financials”) and the related consolidated statements of operations and cash flows of Nicor for the fiscal year ended on said date heretofore furnished to the Lenders, are complete and correct and fairly present the consolidated financial condition of Nicor as of said dates, and the results of its operations for the fiscal year ended on said date.  On said dates the Borrower did not have any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the 12/31 Financials as of said date or as previously disclosed in the SEC Disclosure Documents. As of the Closing Date, since December 31, 2010 there has been no event or series of events which has resulted in, or reasonably could be expected to result in, a Material Adverse Effect.

 

Section 5.5 No Litigation; No Labor Controversies.  (a)  Except as previously disclosed in the SEC Disclosure Documents, as of the Closing Date, there are no legal or arbitral proceedings or any proceedings by or before any Governmental Authority or agency, now pending or (to the knowledge of the Borrower) threatened against the Borrower as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could have a Material Adverse Effect during the term of this Agreement.

 

(b) There are no labor controversies pending or, to the best knowledge of Borrower, threatened against the Borrower or any Subsidiary of the Borrower which could (individually or in the aggregate) have a Material Adverse Effect.

 

Section 5.6 Taxes.  The Borrower has filed all United States Federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower except for any such taxes that are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.  The charges, accruals and reserves on the books of the Borrower in respect of taxes are in conformance with GAAP.

 

Section 5.7 Approvals.  No material authorization, consent, approval, license, exemption, filing or registration with any court or Governmental Authority, nor any approval or consent of the stockholders of the Borrower or any Subsidiary of the Borrower or any material approval, authorization or consent from any other Person, is necessary for the valid execution, delivery or performance by the Borrower or any Subsidiary of the Borrower of any Credit Document to which it is a party, except for such 

 

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authorizations, consents, approvals, licenses, exemptions, filings or registrations which have been made or obtained.

 

Section 5.8 ERISA.  During the twelve consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Borrowing, no steps have been taken to terminate or completely or partially withdraw from any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 303 (k) of ERISA.  No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty.  Except as previously disclosed in the SEC Disclosure Documents, the Borrower does not have any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA.

 

Section 5.9 Government Regulation.  Neither Borrower nor any Subsidiary of Borrower is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

Section 5.10 Margin Stock; Use of Proceeds.  The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any borrowings hereunder will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation U or X, or any official rulings on or interpretations of such regulations.  Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section 5.10 with such meanings.  The proceeds of the Loans will be used solely to provide back-up for commercial paper, the proceeds of which will be used or have been used to purchase natural gas, and for other general corporate purposes.

 

Section 5.11 Environmental Warranties.  Except as previously disclosed in the SEC Disclosure Documents, as of the Closing Date:

 

(a) all facilities and Property (including underlying groundwater) owned, operated or leased by the Borrower are in material compliance with all Environmental Laws, except for such instances of noncompliance as are unlikely, singly or in the aggregate, to have a Material Adverse Effect;

 

(b) there have been no past, and there are no pending or threatened:

 

(i) claims, complaints, notices or requests for information received by the Borrower with respect to any alleged violation of any Environmental Law or,

 

(ii) complaints, notices or inquiries to the Borrower regarding potential liability under any Environmental Law;

 

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except as are unlikely, singly or in the aggregate, to have a Material Adverse Effect;

 

(c) there have been no Releases of Hazardous Materials at, on or under any Property now or previously owned, operated or leased by the Borrower that, singly or in the aggregate, are reasonably likely to have a Material Adverse Effect;

 

(d) the Borrower has been issued and is in material compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary for its businesses, except where the failure to maintain or comply with any of the foregoing is not reasonably likely to have a Material Adverse Effect during the term of this Agreement;

 

(e) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any Property now or previously owned, operated or leased by the Borrower, singly or in aggregate, that are reasonably likely to have a Material Adverse Effect;

 

(f) the Borrower has not directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of Federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower for any remedial work, damage to natural resources or personal injury, including claims under CERCLA that, singly or in the aggregate, are reasonably likely to have a Material Adverse Effect during the term of this Agreement;

 

(g) there are no polychlorinated biphenyls or friable asbestos present at any Property now or previously owned, operated or leased by the Borrower that, singly or in the aggregate, are reasonably likely to have a Material Adverse Effect during the term of this Agreement; and

 

(h) no conditions exist at, on or under any Property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law, which would have a Material Adverse Effect during the term of this Agreement.

 

Section 5.12 Ownership of Property; Liens.  The Borrower and each Subsidiary of the Borrower owns good title to, or a valid leasehold interest in, or other enforceable interest in, its Property to the extent owned or leased by it (except where the failure to have such title, a valid leasehold interest or other enforceable interest is not reasonably likely to have a Material Adverse Effect) free and clear of all Liens, except as permitted in Section 7.9.

 

Section 5.13 Compliance with Agreements.  None of the execution and delivery of this Agreement and the Notes, the consummation of the transactions herein 

 

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contemplated and compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, (i) the charter or by-laws of the Borrower, or (ii) any applicable law or regulation, or any order, writ, injunction or decree of any court or Governmental Authority, or (iii) any Contractual Obligation to which the Borrower is a party or by which it is bound or to which it is subject, or constitute a default under any such Contractual Obligation, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Borrower pursuant to the terms of any such Contractual Obligation except in the case of this clause (iii) as would not have a Material Adverse Effect.

 

Section 5.14 Full Disclosure.  All factual information heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Administrative Agent or the Lenders for purposes of or in connection with this Agreement or any transaction contemplated hereby is, when taken as a whole, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Lenders, and such information, when taken as a whole, is not incomplete by omitting to state any material fact necessary to make such information not misleading. All other such factual information hereafter furnished by or on behalf of the Borrower will be, when taken as a whole, true and accurate in every material respect on the date as of which such information is dated or certified, and such information, when taken as a whole, shall not be incomplete by omitting to state any material fact necessary to make such information not misleading.

 

Section 5.15 Solvency.  The Borrower and each of its Material Subsidiaries, individually and on a consolidated basis, is Solvent.

 

	

SECTION 6.  CONDITIONS PRECEDENT.

 

The obligation of each Lender to effect a Borrowing shall be subject to the following conditions precedent:

 

Section 6.1 Initial Borrowing.  Before or concurrently with the initial Borrowing:

 

(a) The Administrative Agent shall have received the favorable written opinion of Latham & Watkins LLP, counsel to Borrower;

 

(b) The Administrative Agent shall have received copies of the Borrower’s (i) Articles of Incorporation, together with all amendments and (ii) bylaws (or comparable constituent documents) and any amendments thereto, certified in each instance by its Secretary or an Assistant Secretary;

 

(c) The Administrative Agent shall have received copies of resolutions of the Borrower’s Board of Directors authorizing the execution 

 

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and delivery of the Credit Documents and the consummation of the transactions contemplated thereby together with specimen signatures of the persons authorized to execute such documents on the Borrower’s behalf, all certified in each instance by its Secretary or Assistant Secretary;

 

(d) The Administrative Agent shall have received for each Lender that requests a Note, such Lender’s duly executed Note of the Borrower dated the date hereof and otherwise in compliance with the provisions of Section 2.9(a) hereof;

 

(e) The Administrative Agent shall have received a duly executed counterpart of this Agreement from each of the Lenders and the Borrower;

 

(f) The Administrative Agent shall have received a duly executed Compliance Certificate containing financial information as of December  31, 2010;

 

(g) Except as set forth on Schedule 6.1, neither the Borrower nor any of its Subsidiaries shall have, during the period from December 31, 2010 to the Closing Date, issued, incurred, assumed, created, become liable for, contingently or otherwise, any material Indebtedness other than the issuance of commercial paper consistent with past practices;

 

(h) The Borrower shall have paid to the Administrative Agent for the benefit of each Lender the applicable fees for providing its Commitment under this Agreement;

 

(i) The Borrower shall have delivered the SEC Disclosure Documents which Nicor or the Borrower shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefore) or any national securities exchange on or after January 1, 2011;

 

(j) The 364 Day Credit Agreement, dated as of April 23, 2010, among the Borrower, the Administrative Agent and the other financial institutions party thereto has terminated (upon maturity or otherwise) in accordance with its terms; and

 

(k) The Administrative Agent shall have received such other documents and information as it may reasonably request.

 

By executing this Agreement, the Administrative Agent and each of the Lenders agrees that each condition set forth in this Section 6.1 has been satisfied.

 

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Section 6.2 All Borrowings.  As of the time of each Borrowing hereunder (other than the continuation of a Eurodollar Loan or the conversion of a Base Rate Loan to a Eurodollar Loan or a Eurodollar Loan to a Base Rate Loan):

 

(a) The Administrative Agent shall have received the notice required by Section 2.4 hereof;

 

(b) Each of the representations and warranties set forth in Section 5 hereof shall be and remain true and correct in all material respects as of said time, except that if any such representation or warranty relates solely to an earlier date it need only remain true as of such date (including, but not limited to, the representations and warranties set forth in the last sentence of Section 5.4 and in Sections 5.5(a) and 5.11, which shall be true and correct in all material respects as of the Closing Date only); and

 

(c) No Default or Event of Default shall have occurred and be continuing or would occur as a result of such Borrowing.

 

(d) Each request for a Borrowing shall be deemed to be a representation and warranty by Borrower on the date of such Borrowing as to the facts specified in paragraphs (b) and (c) of this Section 6.2.

 

	

SECTION 7.  COVENANTS.

 

The Borrower covenants and agrees that, so long as any Note or Loan is outstanding hereunder, or any Commitment is available to or in use by the Borrower hereunder, except to the extent compliance in any case is waived in writing by the Required Lenders:

 

Section 7.1 Corporate Existence; Material Subsidiaries.  The Borrower shall, and shall cause each of its Material Subsidiaries to, preserve and maintain its corporate existence and all of its material rights, privileges and franchises if failure to maintain such existence, rights, privileges or franchises would materially and adversely affect the financial condition or operations of, or the business taken as a whole, of the Borrower; except in each case, for any transactions expressly permitted by Section 7.11.  Together with any financial statements delivered pursuant to Section 7.6 hereof, Borrower shall deliver an updated Schedule 5.2 to reflect any changes from the existing Schedule 5.2.

 

Section 7.2 Maintenance.  The Borrower will maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted, except where the failure to maintain such Property is not reasonably likely to have a Material Adverse Effect.

 

Section 7.3 Taxes.  The Borrower will pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits 

 

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or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.

 

Section 7.4 ERISA.  The Borrower will, and will cause each of its Subsidiaries to, promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed is reasonably likely to result in the imposition of a Lien against any of its Properties, except to the extent the imposition of such Lien would not result in a Material Adverse Effect.

 

Section 7.5 Insurance.  The Borrower will keep insured by financially sound and reputable insurers all Property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations.  Borrower will, upon the reasonable request of a Lender, furnish to such Lender a summary setting forth the nature and extent of the insurance maintained pursuant to this Section 7.5.

 

Section 7.6 Financial Reports and Other Information.  (a)  The Borrower will maintain a system of accounting in accordance with GAAP and will furnish to the Administrative Agent and the Lenders and their respective duly authorized representatives such information respecting the business and financial condition of the Borrower and its Subsidiaries as any Lender or the Administrative Agent may reasonably request.  The Borrower shall deliver (via email or otherwise) to the Administrative Agent in form and detail satisfactory to the Administrative Agent, each of the following (which the Administrative Agent shall forward to the Lenders):

 

(i) as soon as available and in any event within 95 days after the end of each fiscal year of Borrower, consolidated statements of income, common stockholders’ equity and cash flows of Borrower for such year and the related consolidated balance sheet and statement of capitalization at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said financial statements fairly present the consolidated financial position and results of operations and cash flows of Borrower and its consolidated Subsidiaries as at the end of, and for, such fiscal year, and otherwise be without any Impermissible Qualification; provided that if Borrower files its annual report on Form 10-K for the applicable annual period, and such annual report contains the financial statements and accountants certifications, opinions and statements described above, Borrower may satisfy the requirements of this Section 7.6(a)(i) by delivering a copy of such annual report to the Administrative Agent;

 

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(ii) as soon as available and in any event within 50 days after the end of each of the first three fiscal quarterly periods of each fiscal year of Borrower, consolidated statements of income of Borrower for such period and for the period from the beginning of the respective fiscal year to the end of such period, and consolidated cash flows for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheet as at the end of such period, all of the foregoing prepared by Borrower in reasonable detail in accordance with GAAP and certified by Borrower’s Chief Financial Officer, Vice President-Controller or Treasurer as fairly presenting the financial condition as at the dates thereof and the results of operations for the periods covered thereby (except for the absence of footnotes and year-end adjustments); provided that if Borrower files a Form 10-Q for the applicable quarterly period, and such quarterly report contains the financial statements and certifications described above, the Borrower may satisfy the requirements of this Section 7.6(a)(ii) by delivering a copy of such quarterly report to the Administrative Agent.

 

(b) Each financial statement furnished to the Administrative Agent pursuant to subsection (a) of this Section 7.6 shall be accompanied by a Compliance Certificate in the form of Exhibit B hereto signed by the Chief Financial Officer, Vice President – Controller or Treasurer of the Borrower.  Information required to be delivered pursuant to subsections (a), (d) and (e) of this Section 7.6 shall be deemed to have been delivered on the date on which the Borrower provides notice to the Administrative Agent (via email or otherwise) that such information has been posted on Nicor’s website on the Internet at www.nicor.com, at www.sec.gov/edgar/searchedgar/webusers.htm or at another website identified in such notice and accessible by the Lenders without charge, provided that (i) such notice may be included in a Compliance Certificate in the form of Exhibit B and (ii) the Borrower shall deliver paper copies of the information required to be delivered pursuant to subsections (a), (d) and (e) of this Section 7.6 to any Lender that requests such delivery.

 

(c) Borrower will promptly (and in any event within five Business Days after an officer of the Borrower has knowledge thereof) give notice to the Administrative Agent of (i) any Default or Event of Default of which the Borrower has knowledge, including in such notice a description of the same in reasonable detail, and indicating what action is being undertaken with respect to such Default or Event of Default; and (ii) any event or condition which in the opinion of the Borrower could reasonably be expected to have a Material Adverse Effect.

 

(d) Promptly upon their becoming available, and without duplication of the other materials required to be delivered pursuant to this Agreement, the Borrower will deliver (via email or otherwise) to the Administrative Agent, with copies for each Lender copies of all registration statements and regular periodic reports, if any, which the 

 

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Borrower (or, prior to the Merger Effective Date, Nicor) shall have filed with the SEC (or any governmental agency substituted therefore) or any national securities exchange.

 

(e) Promptly upon the mailing thereof to the shareholders of the Borrower (or, prior to the Merger Effective Date, Nicor) generally, and without duplication of the other materials required to be delivered pursuant to this Agreement, the Borrower  will deliver to the Administrative Agent copies of all financial statements, reports and proxy statements so mailed (which the Administrative Agent shall forward to the Lenders).

 

(f) Immediately upon becoming aware of the institution of any steps by the Borrower (or, prior to the Merger Effective Date, Nicor), or any other Person to terminate any Pension Plan or the complete or partial withdrawal from any Pension Plan by Nicor or any member of its Controlled Group which could result in a liability to Nicor or any of its Subsidiaries of a liability in excess of $20,000,000, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 303(k) of ERISA securing an amount in excess of $20,000,000, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower (or, prior to the Merger Effective Date, Nicor) furnish a bond or other security to the PBGC or such Pension Plan in excess of $20,000,000, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower (or, prior to the Merger Effective Date, Nicor) of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower (or, prior to the Merger Effective Date, Nicor) with respect to any post-retirement Welfare Plan benefit, the Borrower will deliver to the Administrative Agent notice thereof and copies of all documentation relating thereto which the Administrative Agent shall forward to the Lenders.

 

Section 7.7 Lender Inspection Rights.  For purposes of confirming compliance with the Credit Documents or after the occurrence and during the continuance of an Event of Default, upon reasonable notice from the Administrative Agent or the Required Lenders, Borrower will, permit the Lenders (and such Persons as any Lender may designate) during normal business hours to visit and inspect, under Borrower’s guidance, any of the Properties of Borrower or any of its Material Subsidiaries, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees and with their independent public accountants (and by this provision Borrower authorizes such accountants to discuss with the Lenders (and such Persons as any Lender may designate) the finances and affairs of Borrower and its Material Subsidiaries) all at such reasonable times and as often as may be reasonably requested; provided, however, that except upon the occurrence and during the continuation of any Default or Event of Default, not more than one such visit and inspection may be conducted in any twelve month period.  So long as no Event of Default shall have occurred and be continuing, the Borrower shall only be required to pay the costs and expenses of professionals retained by the Administrative Agent in connection with any such visit or inspection no more than once annually.  After the occurrence of an 

 

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Event of Default, the Borrower shall be obligated to pay all reasonable costs and expenses incurred by the Administrative Agent and the Lenders in connection with such visitations and inspections. The Borrower shall receive advance notice of any proposed discussion with such accountants and shall have the right to participate therein.

 

Section 7.8 Conduct of Business.  The Borrower will not engage in any material line of business materially unrelated to the lines of business in which the Borrower and its Subsidiaries are engaged on the Closing Date.

 

Section 7.9 Liens.  Borrower will not, nor will it permit any of its Material Subsidiaries to, create, incur, permit or suffer to exist any Lien on any of its Property, whether now owned or hereafter acquired by the Borrower or any Material Subsidiary of the Borrower; provided, however, that this Section 7.9 shall not apply to or operate to prevent:

 

(a) Liens arising by operation of law which are incurred in the ordinary course of business which do not in the aggregate materially detract from the value of the Property subject thereto or materially impair the use thereof in the operation of the business of Borrower or any of its Material Subsidiaries;

 

(b) Liens for taxes or assessments or other government charges or levies on the Borrower or any Material Subsidiary of the Borrower or their respective Properties which are not past due or which are being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower; provided that the aggregate amount of liabilities (including interest and penalties, if any) of the Borrower and its Material Subsidiaries secured by such Liens shall not exceed $20,000,000 at any one time outstanding;

 

(c) Liens arising out of judgments or awards against the Borrower or any Material Subsidiary of the Borrower, or in connection with surety or appeal bonds in connection with bonding such judgments or awards, the time for appeal from which or petition for rehearing of which shall not have expired or with respect to which the Borrower or such Material Subsidiary shall be prosecuting an appeal or proceeding for review, and with respect to which it shall have obtained a stay of execution pending such appeal or proceeding for review; provided that the aggregate amount of liabilities (including interest and penalties, if any) of Borrower and its Material Subsidiaries secured by such Liens shall not exceed $20,000,000 at any one time outstanding;

 

(d) Survey exceptions or encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real Properties which do not 

 

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materially impair their use in the operation of the business of the Borrower or any Material Subsidiary of the Borrower;

 

(e) Liens existing on the date hereof and Liens granted pursuant to the terms of the Nicor Gas Indenture and any extension, renewal or replacement thereof (or successive extensions, renewals or replacements) in whole or in part, provided, however, that the principal amount of Indebtedness of the Borrower or any of its Material Subsidiaries secured thereby shall not exceed the principal amount of Indebtedness of the Borrower or any of its Material Subsidiaries secured as of the Closing Date, and that such extension, renewal or replacement shall be limited to the Property of the Borrower or any of its Material Subsidiaries which was subject to the Lien so extended, renewed or replaced;

 

(f) Liens securing Indebtedness and other obligations; provided that such Liens permitted by this paragraph (f) shall only be permitted to the extent the aggregate amount of Indebtedness and other obligations secured by all such Liens does not exceed ten percent (10%) of the difference between (A) Consolidated Assets as reflected on the most recent balance sheet delivered pursuant to Section 7.6, minus (B) the amount of Indebtedness then outstanding under the Nicor Gas Indenture;

 

(g) Liens in favor of carriers, warehousemen, mechanics, materialmen and landlords granted in the ordinary course of business for amounts not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

 

(h) Liens incurred or deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other forms of governmental insurance or benefits;

 

(i) Liens with respect to any surplus assets leased by the Borrower or any of its Material Subsidiaries;

 

(j) Liens on any Properties or assets owned by a Person other than the Borrower or any Material Subsidiary of the Borrower if the Borrower or a Material Subsidiary of the Borrower holds only leasehold interests or easements, rights-of-way, licenses or similar rights of use or occupancy with respect to such Properties or assets;

 

(k) Liens on accounts receivables securing Indebtedness not to exceed $200,000,000 at any time, on terms and conditions that are reasonable and customary for similar transactions; and

 

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(l) Liens incurred in connection with sale and leaseback transactions permitted under Section 7.22, to the extent that such liens apply only to the property or assets subject to such permitted sale and leaseback transactions;

 

provided, that, except as may be created under the Nicor Gas Indenture, the foregoing paragraphs shall not be deemed under any circumstance to permit a Lien to exist on, and Borrower agrees it will not permit to exist a Lien on, (i) any capital stock or other equity interests of the Borrower, or (ii) the Borrower’s natural gas inventory or any receivables arising from the sale of such inventory.

 

Any Lien which when incurred or permitted to exist complies with the requirements of paragraphs (a) through (l) above may continue to exist, and shall be permitted hereunder, notwithstanding that such Lien if incurred thereafter would not comply with such requirement.

 

Section 7.10 Use of Proceeds; Regulation U.  The proceeds of each Borrowing will be used by the Borrower solely to provide back-up for commercial paper and for general corporate purposes.  The Borrower will not use any part of the proceeds of any of the Borrowings directly or indirectly to purchase or carry any margin stock (as defined in Section 5.10 hereof) or to extend credit to others for the purpose of purchasing or carrying any such margin stock.

 

Section 7.11 Mergers, Consolidations and Sales of Assets.  The Borrower will not, nor will it permit any of its Material Subsidiaries to, (i) consolidate with or be a party to merger with any other Person or (ii) sell, lease or otherwise dispose of all or a “substantial part” of the assets of the Borrower and its Subsidiaries; provided, however, that (w) the foregoing shall not prohibit any sale, lease, transfer or disposition if (A) such transaction does not result in a downgrade of the Borrower’s S&P Rating below BBB, Fitch Rating below BBB or Moody’s Rating below Baa2, (B) the cash consideration (or other consideration acceptable to the Required Lenders) for such transaction shall be in an amount not less than 75% of the fair market value of the applicable assets, and (C) such transaction, when combined with all other such transactions, would not have a Material Adverse Effect, taken as a whole, (x) any Subsidiary of the Borrower may merge or consolidate with or into or sell, lease or otherwise convey all or a substantial part of its assets to the Borrower or any Subsidiary of which the Borrower holds (directly or indirectly) at least the same percentage equity ownership; provided that in any such merger or consolidation involving the Borrower, the Borrower shall be the surviving or continuing corporation, and (y) the Borrower and its Subsidiaries may sell inventory in the ordinary course of business.

 

As used in this Section 7.11, a sale, lease, transfer or disposition of assets during any fiscal year shall be deemed to be of a “substantial part” of the consolidated assets of the Borrower and its Subsidiaries if the net book value of such assets, when added to the net book value of all other assets sold, leased, transferred or disposed of by the Borrower and its Subsidiaries during such fiscal year (other than obsolete or surplus Property and 

 

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inventory in the ordinary course of business) exceeds ten percent (10%) of the total assets of the Borrower and its Subsidiaries, determined on a consolidated basis as of the last day of the immediately preceding fiscal year.

 

Section 7.12 Environmental Matters.  The Borrower will:

 

(a) use and operate all of its facilities and Properties in compliance with all Environmental Laws except for such noncompliance which, singly or in the aggregate, will not have a Material Adverse Effect, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance therewith, except where the failure to keep such permits, approvals, certificates, licenses or other authorizations, or any noncompliance with the provisions thereof, will not have a Material Adverse Effect, and handle all Hazardous Materials in compliance with all applicable Environmental Laws, except for any noncompliance that will not have a Material Adverse Effect; and

 

(b) promptly notify the Administrative Agent and provide copies upon receipt of all written inquiries from any Governmental Authority, claims, complaints or notices relating to the condition of its facilities and Properties or compliance with Environmental Laws which will have a Material Adverse Effect.

 

Section 7.13 Investments, Acquisitions, Loans, Advances and Guaranties.  The Borrower will not, nor will it permit any Material Subsidiary of the Borrower to, directly or indirectly, make, retain or have outstanding any investments (whether through purchase of stock or obligations or otherwise) in, or loans or advances to, any other Person, or acquire all or any substantial part of the assets or business of any other Person or division thereof, or be or become liable as endorser, guarantor, surety or otherwise (such as liability as a general partner) for any debt, obligation or undertaking of any other Person, or otherwise agree to provide funds for payment of the obligations of another, or supply funds thereto or invest therein or otherwise assure a creditor of another against loss, or apply for or become liable to the issuer of a letter of credit which supports an obligation of another, or subordinate any claim or demand it may have to the claim or demand of any other Person (cumulatively, all of the foregoing “Investments”); provided, however, that the foregoing provisions shall not apply to nor operate to prevent:

 

(a) ICC Permitted Investments;

 

(b) ownership of stock, obligations or securities received in settlement of debts owing to the Borrower or any Subsidiary;

 

(c) endorsements of negotiable instruments for collection in the ordinary course of business;

 

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(d) loans and advances to employees in the ordinary course of business for travel, relocation, and similar purposes;

 

(e) Investments (i) in or with respect to Nicor or any Subsidiary of the Borrower, including intercompany loans, or (ii) existing on the Closing Date;

 

(f) Investments constituting (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price of goods or services, in each case in the ordinary course of business;

 

(g) Investments in Persons engaged in substantially the same lines of business as the lines of business that the Borrower is permitted to be engaged in under Section 7.8 so long as, unless consented to by the Required Lenders, (i) no downgrade in the S&P Rating below BBB, Fitch Rating below BBB or Moody’s Rating below Baa2 would occur as a result of the consummation of such Investment, (ii) if such Investment is for the purpose of acquiring another Person, the Board of Directors (or similar governing body) of such Person being acquired has approved being so acquired, and (iii) no Default or Event of Default has occurred and is continuing at the time of, or would occur as a result of, such Investment;

 

(h) Guarantees by the Borrower or any of its Subsidiaries of any Indebtedness (so long as such Indebtedness is permitted pursuant to Section 7.14) or other obligations of the Borrower or any of its Subsidiaries; and

 

(i) other Investments in addition to those set forth above not to exceed an aggregate amount of $50,000,000 outstanding at any one time.

 

Any Investment which when made complies with the requirements of paragraphs (a) through (h) above may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements.

 

In determining the amount of investments, acquisitions, loans, advances and guarantees permitted under this Section 7.13, investments and acquisitions shall always be taken at the original cost thereof (regardless of any subsequent appreciation or depreciation therein), loans and advances shall be taken at the principal amount thereof then remaining unpaid, and guarantees shall be taken at the amount of obligations guaranteed thereby.

 

Section 7.14 Restrictions on Indebtedness.  The Borrower will not, nor will it permit any of its Material Subsidiaries to, issue, incur, assume, create, become liable for, contingently or otherwise, or have outstanding any Indebtedness, provided that the foregoing provisions shall not restrict nor operate to prevent the following Indebtedness:

 

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(a) the Obligations; and

 

(b) any other Indebtedness so long as after giving effect to the incurrence thereof the Borrower shall be in compliance with the Leverage Ratio set forth in Section 7.15.

 

Section 7.15 Leverage Ratio.  The Borrower will cause Nicor not to permit the ratio of Nicor’s Consolidated Indebtedness to Nicor’s Capital to exceed 0.70 to 1.00 at the end of any fiscal quarter of Nicor; provided that from and following the Merger Effective Date, this ratio will be calculated at the level of the Borrower in the same manner as this ratio was calculated at Nicor’s level prior to the Merger Effective Date.

 

For the purposes of the calculation of the ratio of Nicor’s Consolidated Indebtedness to Nicor’s Capital, (1) any non-cash effects resulting from adoption of the proposed “Statement of Financial Accounting Standards dated March 31, 2006: Employers’ Accounting for Defined Pension and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” shall be excluded; (2) any hybrid equity securities, meaning any securities issued by Nicor and/or its subsidiaries or a financing vehicle of Nicor and/or its subsidiaries that (i) are classified as possessing a minimum of “intermediate equity content” by S&P, Basket C equity credit by Moody’s, and 50% equity credit by Fitch and (ii) require no repayments or prepayments and no mandatory redemptions or repurchases, in each case, prior to at least 91 days after the later of the termination of the Commitments and the repayment in full of the Loans and all other amounts due under this Agreement, shall be excluded from Nicor’s Consolidated Indebtedness and (3) any mandatorily convertible securities, meaning any mandatorily convertible equity-linked securities issued by Nicor and/or its subsidiaries, so long as the terms of such securities require no repayments or prepayments and no mandatory redemptions or repurchases, in each case prior to at least 91 days after the later of the termination of the Commitments and the repayment in full of the Loans and all other amounts due under the this Agreement, shall be excluded from Nicor’s Consolidated Indebtedness; provided that from and following the Merger Effective Date, this ratio will be calculated at the level of the Borrower in the same manner as this ratio was calculated at Nicor’s level prior to the Merger Effective Date.

 

Section 7.16 Intentionally Omitted.

 

Section 7.17 Dividends and Other Shareholder Distributions.  (a)  The Borrower shall not (i) declare or pay any dividends or make a distribution of any kind (including by redemption or purchase) on or relating to its outstanding capital stock, or (ii) repay (directly, through sinking fund payments or otherwise) any Indebtedness or other obligations owing to an Affiliate unless in either circumstance no Default or Event of Default exists prior to or would result after giving effect to such action; provided that nothing in this Section shall prohibit the Borrower from paying a dividend which was declared as otherwise permitted hereby.

 

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(b) Except as set forth on Schedule 7.17, the Borrower will not permit any of its Material Subsidiaries, directly or indirectly, to create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Material Subsidiary to: (1) pay dividends or make any other distribution on any of such Material Subsidiary’s capital stock owned by the Borrower or any Material Subsidiary of the Borrower, (2) pay any Indebtedness owed to the Borrower or any other Material Subsidiary, (3) make loans or advances to the Borrower or any other Material Subsidiary, or (4) transfer any of its Property or assets to the Borrower or any other Material Subsidiary, except for such encumbrances or restrictions existing under or by reason of:

 

(a) customary non-assignment provisions of any contract and customary provisions restricting assignment or subletting in any lease governing a leasehold interest of any Material Subsidiary; and

 

(b) customary restrictions contained in any consensual Liens that are permitted pursuant to Section 7.9.

 

Section 7.18 No Negative Pledges.  Except (i) as set forth on Schedule 7.17, (ii) for restrictions by reason of customary provisions restricting assignment, subletting or other transfers contained in leases, licenses and other similar agreements entered into in the ordinary course of business to the extent that such restrictions apply only to the property or assets subject to such leases, licenses or similar agreements and (iii) for any prohibition or limitation that consists of reasonable and customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under this agreement pending the consummation of such sale and only to the extent that such restrictions apply only to the property or assets subject to such agreement, and (iv) for any prohibition or limitation in the Merger Agreement or that consists of reasonable and customary restrictions and conditions contained in any agreement permitted under this Agreement, the Borrower will not, and will not permit any of its Material Subsidiaries to enter into or suffer to exist any agreement (except the Credit Documents) prohibiting the creation or assumption of any security interest upon its properties or assets, whether now owned or hereafter acquired by the Borrower or Material Subsidiary, as applicable; provided, however, in the case of a consensual Lien on assets or property that is permitted pursuant to Section 7.9, the Lien holder may, solely with respect of the assets or property to which such Lien attaches, contract for and receive a negative pledge with respect thereto and the proceeds thereof.

 

Section 7.19 Transactions with Affiliates.  The Borrower will not, nor will it permit any of its Subsidiaries to, enter into or be a party to any material transaction or arrangement with any Affiliate of such Person, including without limitation, for purchase from, sale to or exchange of Property with, for merger or consolidation with or into, or the rendering of any service by or for, any Affiliate, except (i) pursuant to the reasonable requirements of the Borrower’s or such Subsidiary’s business and upon terms no less favorable to the Borrower or such Subsidiary than could be obtained in a similar transaction involving a third-party, (ii) any ICC Regulated Transaction, (iii) to the extent 

 

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such material transaction or arrangement would not result in a Material Adverse Effect, or (iv) as otherwise permitted in this Agreement.

 

Section 7.20 Compliance with Laws.  The Borrower will comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority if failure to comply with such requirements would result in a Material Adverse Effect.

 

Section 7.21 Derivative Obligation.  The Borrower will not, nor will it permit any of its Subsidiaries, to enter into any Derivative Obligations other than Permitted Derivative Obligations.

 

Section 7.22 Sales and Leasebacks.  The Borrower will not, nor will it permit any of its  Subsidiaries to, enter into any arrangement with any bank, insurance company or other lender or investor providing for the leasing by the Borrower or any Subsidiary of Borrower of any Property theretofore owned by it and which has been or is to be sold or transferred by such owner to such lender or investor if the total amount of rent and other obligations of the Borrower and its Subsidiaries under such lease, when combined with all rent and other obligations of Borrower and its Subsidiaries under all such leases, would exceed $50,000,000.

 

Section 7.23 OFAC; BSA.  The Borrower will ensure, and cause each of its Subsidiaries to ensure, that each person who owns a controlling interest in or otherwise controls a Borrower (a) is not nor shall it be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and (b) complies with all applicable Bank Secrecy Act (“BSA”) and anti-money laundering laws and regulations.

 

	

SECTION 8.  EVENTS OF DEFAULT AND REMEDIES.

 

Section 8.1 Events of Default.  Any one or more of the following shall constitute an Event of Default:

 

(a) (i) default in the payment when due of any fees, interest or of any other Obligation not covered by clause (ii) below and such payment default continues for three (3) Business Days or (ii) default in the payment when due of the principal amount of any Loan;

 

(b) default by the Borrower in the observance or performance of any covenant set forth in Section 7.1 (other than the last sentence thereof), Section 7.6(c), Sections 7.10, 7.11, Sections 7.13 through 7.15, Section 7.17, and Section 7.21 hereof;

 

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(c) default by the Borrower in the observance or performance of any provision hereof or of any other Credit Document not mentioned in (a) or (b) above, which is not remedied within thirty (30) days after notice thereof shall have been given to the Borrower by the Administrative Agent;

 

(d) (i) failure to pay when due Indebtedness in an aggregate principal amount of $20,000,000 or more of the Borrower or any Material Subsidiary, or (ii) default shall occur under one or more indentures, agreements or other instruments under which any Indebtedness of the Borrower or any of its Material Subsidiaries in an aggregate principal amount of $20,000,000 or more is outstanding and such default shall continue for a period of time sufficient to permit the holder or beneficiary of such Indebtedness or a trustee therefor to cause the acceleration of the maturity of any such Indebtedness or any mandatory unscheduled prepayment, purchase or funding thereof;

 

(e) any representation or warranty made herein or in any other Credit  Document by the Borrower, or in any certificate furnished pursuant to any Credit Document by the Borrower proves untrue in any material respect as of the date of the issuance or making, or deemed making or issuance, thereof;

 

(f) the Borrower or any Material Subsidiary shall (i) fail to pay its debts generally as they become due or admit in writing its inability to pay its debts generally as they become due, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its Property, (iv) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it or any analogous action is taken under any other applicable law relating to bankruptcy or insolvency, (v) take any corporate action (such as the passage by its board of directors of a resolution) in furtherance of any matter described in parts (i)-(iv) above, or (vi) fail to contest in good faith any appointment or proceeding described in Section 8.1(g) hereof;

 

(g) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any Material Subsidiary, or any substantial part of the Property of the Borrower or a Material Subsidiary, or a proceeding described in Section 8.1(f)(iv) shall be 

 

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instituted against the Borrower or any Material Subsidiary, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) days;

 

(h) the Borrower or any Material Subsidiary shall fail within thirty (30) days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $20,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith in a manner that stays execution thereon;

 

(i) (i) the Borrower (or, prior to the Merger Effective Date, Nicor), or any other member of the Controlled Group shall fail to pay to the PBGC or any Pension Plan any amount or amounts aggregating in excess of $20,000,000 when due, which if remain unpaid could reasonably result in a Lien against Borrower, (ii) a notice of intent to terminate a Pension Plan or Pension Plans at a single time having aggregate Unfunded Vested Liabilities in excess of $20,000,000 (collectively, a “Material Plan”) shall be filed by the sponsor of such Pension Plan and it could reasonably be expected that the Borrower shall have liability for any Unfunded Vested Liabilities in excess of $20,000,000 or  (iii) the PBGC shall institute proceedings to terminate or cause a trustee to be appointed to administer any Material Plan and it reasonably could be expected to result in liability to the Borrower in excess of $20,000,000;

 

(j) the Borrower or any Subsidiary of the Borrower or any Person acting on behalf of the Borrower or such Subsidiary or any governmental authority challenges the validity of this Agreement, the Fee Letters or the Notes or the Borrower’s or one of its Subsidiary’s obligations thereunder;

 

(k) a Change of Control Event shall have occurred; or

 

(l) the Borrower shall for any reason cease to be wholly liable for the full amount of the Obligations owing by it.

 

Section 8.2 Non-Bankruptcy Defaults.  When any Event of Default other than those described in subsections (f) or (g) of Section 8.1 hereof has occurred and is continuing, the Administrative Agent shall, if so directed by the Required Lenders, by written notice to Borrower: (a) terminate the remaining Commitments and all other obligations of the Lenders hereunder on the date stated in such notice (which may be the date thereof); and (b) declare the principal of and the accrued interest on all outstanding Loans to be forthwith due and payable and thereupon all outstanding Loans, including both principal and interest thereon, and all other Obligations, shall be and become immediately due and payable together with all other amounts payable under the Credit Documents without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower.  The Administrative Agent, after giving notice to Borrower pursuant to Section 8.1(c) or this Section 8.2, shall also promptly send a 

 

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copy of such notice to the other Lenders, but the failure to do so shall not impair or annul the effect of such notice.

 

Section 8.3 Bankruptcy Defaults.  When any Event of Default described in subsections (f) or (g) of Section 8.1 hereof has occurred and is continuing, then all outstanding Loans, including both interest and principal thereon, and all other Obligations shall immediately become due and payable together with all other amounts payable under the Credit Documents without presentment, demand, protest or notice of any kind, the obligation of the Lenders to extend further credit pursuant to any of the terms hereof shall immediately terminate.

 

	

SECTION 9.  CHANGE IN CIRCUMSTANCES; TAXES.

 

Section 9.1 Change of Law.  Notwithstanding any other provisions of this Agreement or any Note, if at any time after the date hereof any change in applicable law or regulation or in the interpretation thereof makes it unlawful for any Lender to make or continue to maintain Eurodollar Loans or to perform its obligations as contemplated hereby, such Lender shall promptly give notice thereof to the Borrower and such Lender’s obligations to make or maintain Eurodollar Loans under this Agreement shall terminate until it is no longer unlawful for such Lender to make or maintain Eurodollar Loans.  The Borrower shall convert the outstanding principal amount of any such affected Eurodollar Loans of such Lender into a Base Rate Loan and on the date of such conversion pay to such Lender all interest accrued thereon at a rate per annum equal to the interest rate applicable to such Eurodollar Loan.  Thereafter, subject to all of the terms and conditions of this Agreement, the Borrower may then elect to borrow the principal amount of any Eurodollar Loans from such Lender by means of Base Rate Loans from such Lender, which Base Rate Loans shall not be made ratably by the Lenders but only from such affected Lender.

 

Section 9.2 Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR.

 

If on or prior to the first day of any Interest Period for any Borrowing of Eurodollar Loans:

 

(a) the Administrative Agent determines that deposits in U.S.  Dollars (in the applicable amounts) are not being offered to major banks in the eurodollar interbank market for such Interest Period, or that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable LIBOR, or

 

(b) Lenders having more than 33% percent of the aggregate amount of the Commitments reasonably determine and so advise the Administrative Agent that LIBOR as reasonably determined by the Administrative Agent will not adequately and fairly reflect the cost to such 

 

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Lenders or Lender of funding their or its Eurodollar Loans or Loan for such Interest Period,

 

then the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Lenders or of the relevant Lender to make Eurodollar Loans shall be suspended.

 

Section 9.3 Increased Costs.

 

(a) Increased Costs Generally.  If any Change in Law shall:

 

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any reserve requirement reflected in Adjusted LIBOR);

 

(ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 9.4 and any changes relating to any Excluded Tax payable by such Lender); or

 

(iii) impose on any Lender any other condition, cost or expense affecting this Agreement or Eurodollar Loans made by such Lender hereunder;

 

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount), then upon request of such Lender the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

 

(b) Capital Requirements.  If any Lender determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

 

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(c) Certificates for Reimbursement.  A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company as specified in paragraph (a) or (b) of this Section and delivered to the Borrower shall be prima facie evidence of such costs absent manifest error.  The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

 

(d) Delay in Requests.  Failure or delay on the part of any Lender to demand compensation pursuant to this Section 9.3 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

 

Section 9.4 Taxes.

 

(a) Payments Free of Taxes.  Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Credit Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

 

(b) Payment of Other Taxes by the Borrower.  Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority related to its obligations under this Agreement in accordance with applicable law.

 

(c) Indemnification by the Borrower.  The Borrower severally shall indemnify the Administrative Agent and each Lender within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) arising in connection with payments made by the Borrower hereunder or under any other Credit Document paid by the Administrative Agent or such Lender and any penalties, interest and reasonable expenses arising therefrom or with respect thereto except to the extent that such penalties, interest and expenses are attributable to the gross negligence or willful misconduct of the Administrative Agent or such Lender.  A 

 

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certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

 

(d) Evidence of Payments.  Upon the request of the Administrative Agent and as soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

 

(e) Status of Lenders.  Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under any Credit Document under the law of the jurisdiction in which the Borrower is incorporated or otherwise organized or any treaty to which such jurisdiction is a party (in each case such jurisdiction will include the United States if the Borrower is incorporated or organized in any state thereof or the District of Columbia), shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding.

 

Each Lender and Administrative Agent that is a United States person as defined in Section 7701(a)(30) of the Code (each a “U.S. Lender”) shall provide prior to or on the Closing Date (or on or prior to the date it becomes a party to this Agreement) to Borrower and, if applicable, the Administrative Agent, a properly completed and executed IRS Form W-9 (certifying that such U.S. Lender is entitled to an exemption from United States backup withholding tax) or any successor form.  Solely for purposes of this Section 9.4(e), a U.S. Lender shall not include a Lender or Administrative Agent that may be treated as an exempt recipient based on the indicators described in Treasury Regulation Section 1.6049-4(c)(1)(ii).  In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

 

Without limiting the generality of the foregoing, in the event that the Borrower is incorporated or otherwise organized in the United States of America or any state thereof or the District of Columbia, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so) the following documents, as applicable:

 

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(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,

 

(ii) duly completed copies of Internal Revenue Service Form W-8ECI,

 

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

 

(iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

 

(f) Treatment of Certain Refunds.  If the Administrative Agent or a Lender determines, in its reasonable discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 9.4(f), it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority.  This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

 

(g) Tax Benefit.  If and to the extent that any Lender is able, in its sole opinion, to apply or otherwise take advantage of any offsetting tax credit or other similar tax benefit arising out of or in conjunction with any deduction or withholding which gives rise to an obligation on the Borrower to pay any Indemnified Taxes or Other Taxes pursuant to this Section 9.4, then such Lender shall, to the extent that in its sole opinion it can do so without prejudice to the retention of the amount of such credit or benefit and 

 

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without any other adverse tax consequences for such Lender, reimburse to the Borrower at such time as such tax credit or benefit shall have actually been received by such Lender such amount as such Lender shall, in its sole opinion, have determined to be attributable to the relevant deduction or withholding and as will leave such Lender in no better or worse position than it would have been in if the payment of such Indemnified Taxes or Other Taxes had not been required.  Nothing in this Section 9.4 shall oblige any Lender to disclose to the Borrower or any other person any information regarding its tax affairs or tax computations.

 

Section 9.5 Mitigation Obligations; Replacement of Lenders.

 

(a) Designation of a Different Lending Office.  If any Lender requests compensation under Section 9.3, or requires the Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 9.4, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 9.3 or 9.4, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be materially disadvantageous to such Lender.

 

(b) Replacement of Lenders.  If (i) any Lender requests compensation under Section 9.3, (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 9.4, or (iii) any Lender becomes a Defaulting Lender, then the Borrower may, at its expense and effort or, in the case of an assignment from a Defaulting Lender, at the expense of such Defaulting Lender, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.8), all of its interests, rights and obligations under this Agreement and the related Credit Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:

 

(i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 11.8,

 

(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Credit Documents (including any amounts under Section 2.10) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts),

 

(iii) in the case of any such assignment resulting from a claim for compensation under Section 9.3 or payments required to be 

 

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made pursuant to Section 9.4, such assignment will result in a reduction in such compensation or payments thereafter, and

 

(iv) such assignment does not conflict with applicable law.

 

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

 

In the event that a replaced Lender does not execute an Assignment and Assumption pursuant to Section 11.8 within five (5) Business Days after receipt by such replaced Lender of notice of replacement pursuant to this Section 9.5(b) and presentation to such replaced Lender of an Assignment and Assumption evidencing an assignment pursuant to this Section 9.5(b), the Borrower shall be entitled (but not obligated) to execute such an Assignment and Assumption on behalf of such replaced Lender, and any such Assignment and Assumption so executed by the Borrower, the assignee and the Agent shall be effective for purposes of this Section 9.5(b) and Section 11.8.

 

Section 9.6 Discretion of Lender as to Manner of Funding.  Notwithstanding any other provision of this Agreement, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit; it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each Eurodollar Loan through the purchase of deposits in the eurodollar interbank market having a maturity corresponding to such Loan’s Interest Period and bearing an interest rate equal to LIBOR for such Interest Period.

 

	

SECTION 10.  THE AGENT.

 

Section 10.1 Appointment and Authority.  Each of the Lenders hereby irrevocably appoints JPMorgan Chase Bank, N.A. as its agent hereunder and under the other Credit Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.  The provisions of this Section 10 are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall have no rights as a third party beneficiary of any of such provisions.

 

Section 10.2 Rights as a Lender.  The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other 

 

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Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

 

Section 10.3 Exculpatory Provisions.  The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Credit Documents. Without limiting the generality of the foregoing, the Administrative Agent:

 

(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing,

 

(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Credit Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the relevant Lenders as shall be expressly provided for under the circumstances as provided in this Agreement); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Credit Document or applicable law.  In all cases in which this Agreement and the other Credit Documents do not require the Administrative Agent to take certain actions, the Administrative Agent shall be fully justified in using its reasonable discretion in failing to take or in taking any action hereunder and thereunder, and

 

(c) shall not, except as expressly set forth herein and in the other Credit Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the person serving as the Administrative Agent or any of its Affiliates in any capacity.

 

The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for under the circumstances as provided in this Agreement) or in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until notice thereof is given in writing to the Administrative Agent by the Borrower or a Lender.

 

The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, 

 

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agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Credit Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in this Agreement, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

 

Section 10.4 Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

 

Section 10.5 Delegation of Duties.  The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Credit Document by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties.  The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

 

Section 10.6 Resignation of Administrative Agent.  The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower (and so long as no Event of Default shall have occurred and be continuing, with the consent of the Borrower), to appoint a successor, which shall be a bank with an office in Chicago, Illinois or New York, New York, or an Affiliate of any such bank with an office in Chicago, Illinois, or New York, New York.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that 

 

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no such successor is willing to accept such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents and (2) all payments, communications and determinations to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this paragraph.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder and under the other Credit Documents (if not already discharged therefrom as provided above in this paragraph).  The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed among the Borrower and such successor.  After the retiring Administrative Agent’s resignation hereunder and under the other Credit Documents, the provisions of this Section 10.6 and Section 11.11 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

 

Section 10.7 Non-Reliance on Administrative Agent and Other Lenders.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Credit Document or any related agreement or any document furnished hereunder or thereunder.

 

Section 10.8 No Other Duties, etc.  Anything herein to the contrary notwithstanding, no Syndication Agent, Documentation Agent, Bookrunner nor Joint Lead-Arranger listed on the cover page hereof shall have any powers, duties or responsibilities in such capacity under this Agreement or any of the other Credit Documents.

 

	

SECTION 11.  MISCELLANEOUS.

 

Section 11.1 No Waiver of Rights.  No delay or failure on the part of the Administrative Agent or any Lender or on the part of the holder or holders of any Note in the exercise of any power or right under any Credit Document shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise thereof preclude any other or further exercise of any other power or right.  The rights and remedies hereunder of the Administrative Agent, the Lenders and the holder or holders of 

 

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any Notes are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have.

 

Section 11.2 Non-Business Day.  Except as otherwise expressly provided in this Agreement, if any payment of principal or interest on any Loan or of any other Obligation shall fall due on a day which is not a Business Day, interest or fees (as applicable) at the rate, if any, such Loan or other Obligation bears for the period prior to maturity shall continue to accrue on such Obligation from the stated due date thereof to and including the next succeeding Business Day, on which the same shall be payable.

 

Section 11.3 Survival of Representations.  All representations and warranties made herein or in certificates given pursuant hereto shall survive the execution and delivery of this Agreement and the other Credit Documents, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder.

 

Section 11.4 Survival of Indemnities.  All indemnities and all other provisions relating to reimbursement of the Lenders of amounts sufficient to protect the yield of the Lenders with respect to the Loans, including, but not limited to, Section 2.10, Section 9.3, Section 9.4 and Section 11.11 hereof, shall survive the termination of this Agreement and the other Credit Documents and the payment of the Loans and all other Obligations.

 

Section 11.5 Set-Off; Sharing of Payments.  (a)  Without limitation of any other rights of the Lenders, if an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Credit Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Credit Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender or their respective Affiliates may have.  Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

 

(b) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other such 

 

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obligations greater than its Percentage thereof as provided herein, then the Lender receiving such greater proportion shall notify the Administrative Agent of such fact and purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that all such payments shall be shared by the Lenders ratably in accordance with their Percentages and other amounts owing them; provided that:

 

(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and

 

(ii) the provisions of this paragraph shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this paragraph shall apply).

 

The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

 

Section 11.6 Notices.

 

(a) Notices Generally.  Except in the case of notices and other communications expressly permitted to be given by telephone or email (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number as follows:

 

(i) if to the Borrower, to:

 

Northern Illinois Gas Company

1844 Ferry Road; Naperville, IL  60563

Attention:  Treasurer

Fax:  630-983-9328

Telephone No.:  630-388-3195

	
 

	
(ii) if to the Administrative Agent, to the address set forth on Part B of Schedule 4 hereto

 

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With copies of all such notices to:

 

JPMorgan Chase Bank, N.A.

10 S. Dearborn Street, IL1-0090

Chicago, IL 60603

Attention: Helen D. Davis

Telephone: 312-732-1759

Facsimile: 312-732-1762

	
 

	
(iii) if to a Lender, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.

 

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received.  Notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).  Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).

 

(b) Electronic Communications.  Notices and other communications to the Administrative Agent and Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2.4(b) if such Lender has notified the Administrative Agent that it is incapable of receiving notices under Section 2.4(b) by electronic communication.  The Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

 

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

 

(c) Change of Address, Etc.  Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

 

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Section 11.7 Counterparts; Integration; Effectiveness; Electronic Execution.

 

(a) Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 6.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.

 

(b) Electronic Execution of Assignments.  The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based record keeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

 

Section 11.8 Successors and Assigns.

 

(a) Successors and Assigns Generally.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder (except as permitted under Section 7.11 hereof), without the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

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(b) Assignments by Lenders.  Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that

 

(i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loan of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000 (and the remaining aggregate amount of the Commitment of such assigning Lender shall not be less than $5,000,000 after giving effect to such assignment), unless each of the Administrative Agent and, so long as no Default or Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);

 

(ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned; and

 

(iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

 

Notwithstanding anything to the contrary in this Section 11.8(b), a Lender may not assign its Commitment and/or the Loans owing to it to any Competitor except during the occurrence and continuation of an Event of Default.

 

Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s 

 

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rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 9.3 and 9.4 with respect to facts and circumstances occurring prior to the effective date of such assignment.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.

 

(c) Register.  The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in Chicago, Illinois a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Borrower and any Lender at any reasonable time upon reasonable prior notice.

 

(d) Participations.  Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Notwithstanding anything to the contrary in this Section 11.8(d), a Lender may not sell participations in its Commitment and/or the Loans owing to it to any Competitor except during the occurrence and continuation of an Event of Default.

 

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument shall provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver of the type described in Section 11.9(i) that affects such Participant.  Subject to paragraph (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 9.3 and 9.4 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section.  Each Lender granting a participation under this Section 11.8(d) shall keep a register, meeting the requirements of Treasury Regulation Section 5f.103-1(c), of each 

 

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participant, specifying such participant’s entitlement to payments of principal and interest with respect to such participation.

 

(e) Limitations upon Participant Rights.  A Participant shall not be entitled to receive any greater payment under Sections 9.3 and 9.4 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 9.4 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 9.4 as though it were a Lender.

 

(f) Certain Pledges.  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

 

(g) Certain Funding Arrangements.  Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Bank”) may grant to a special purpose funding vehicle which is an Affiliate of such Bank (a “SPC”) and identified as such in writing by the Granting Bank to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Bank would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to the terms hereof.  The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Bank to the same extent, and as if, such Loan were made by such Granting Bank.  Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Bank).  In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof.  In addition, notwithstanding anything to the contrary contained in this Section 11.8(g), any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Bank or to any financial institutions (consented to by the Borrower and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public 

 

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information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of the SPC.

 

Section 11.9 Amendments.  Any provision of the Credit Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower, (b) the Required Lenders, and (c) if the rights or duties of the Administrative Agent are affected thereby, the Administrative Agent; provided that:

 

(i) no amendment or waiver pursuant to this Section 11.9 shall (A) increase, decrease or extend any Commitment of any Lender without the consent of such Lender, (B) require payments of principal or interest on the Loan received by the Administrative Agent to be made to the Lenders in a manner other than pro-rata in accordance with each Lender’s then outstanding Loans without the consent of each Lender or (C) reduce the amount of or postpone any fixed date for payment of any principal of or interest on any Loan or of any fee or other Obligation payable hereunder without the consent of each Lender; provided that the Required Lenders may waive any default interest accruing pursuant to Section 2.8 hereof; and

 

(ii) no amendment or waiver pursuant to this Section 11.9 shall, unless signed by each Lender, change this Section 11.9, or the definition of Required Lenders, or affect the number of Lenders required to take any action under the Credit Documents.

 

Section 11.10 Headings.  Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement.

 

Section 11.11 Expenses; Indemnity; Waiver.

 

(a) Costs and Expenses.  The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent in accordance with the Fee Letters and the Commitment Letter, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Credit Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the reasonable fees, charges and disbursements of one firm counsel for the Administrative Agent and the Lenders collectively plus one additional counsel for the Lenders collectively in the event of any conflict of interest and one separate local counsel for each jurisdiction deemed necessary by the Administrative Agent, in connection with the enforcement or protection of its rights in connection with this Agreement and the other Credit Documents, including its rights under this Section 11.11(a), or in connection 

 

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with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

 

(b) Indemnification by the Borrower.  The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof) and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and expenses, including the fees, charges and disbursements of any counsel for any Indemnitee incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Credit Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the transactions contemplated hereby or thereby (including any relating to a misrepresentation by the Borrower under any Credit Document), (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or Release of Hazardous Materials on or from any Property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available (1) to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or its Related Party or (2) to the extent arising from any dispute solely among Indemnitees other than (a) any losses, claims, damages, liabilities or expenses involving the Administrative Agent in such capacity and (b) any losses, claims, damages, liabilities, or expenses involving any act or omission by the Borrower or any of its Affiliates as determined by a court of competent jurisdiction.

 

(c) Reimbursement by Lenders.  To the extent that the Borrower fails for any reason to pay within the time set forth in paragraph (e) below any amount required under paragraph (a) or (b) of this Section 11.11 to be paid to the Administrative Agent (or any sub-agent thereof) or any Related Party of the Administrative Agent, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, upon demand such Lender’s Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or against any Related Party of the Administrative Agent acting for the Administrative Agent (or any such sub-agent) in connection with such capacity.

 

(d) Waiver of Consequential Damages, Etc.  To the fullest extent permitted by applicable law, Borrower shall not assert, and hereby waives, any claim against any 

 

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Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Credit Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof, except to the extent that any such claim shall be based upon the gross negligence or willful misconduct of any such Indemnitee.  No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby.

 

(e) Payments.  All amounts due under this Section 11.11 shall be payable not later than 5 days after demand therefor; provided that with respect to the Borrower, such amount shall automatically become due to the extent an Event of Default has arisen under Section 8.1(f) or 8.1(g).

 

Section 11.12 Entire Agreement.  The Credit Documents constitute the entire understanding of the parties thereto with respect to the subject matter thereof and any prior or contemporaneous agreements, whether written or oral, with respect thereto are superseded thereby.

 

Section 11.13 Governing Law; Jurisdiction; Etc.

 

(a) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

(b) Submission to Jurisdiction.  The Borrower irrevocably and unconditionally submits itself and its Property to the nonexclusive jurisdiction of the courts of the State of New York sitting in the Borough of Manhattan and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Credit Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement or in any other Credit Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Credit Document against the Borrower or its Properties in the courts of any jurisdiction.

 

(c) Waiver of Venue.  The Borrower irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating 

 

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to this Agreement or any other Credit Document in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

(d) Service of Process.  Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 11.6.  Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.

 

Section 11.14 WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 11.15 Treatment of Certain Information; Confidentiality.  Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to it, its Affiliates and their respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), in which case the Administrative Agent or such Lenders, as applicable, shall use reasonable efforts, to the extent legally permitted to do so, to notify the Borrower prior to such disclosure, in any way, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Credit Document or any action or proceeding relating to this Agreement or any other Credit Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 11.15, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the prior written consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than 

 

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as a result of a breach of this Section 11.15 or (y) becomes available to the Administrative Agent or any Lender on a non-confidential basis from a source other than the Borrower.

 

For purposes of this Section, “Information” means all information received from the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a non-confidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section 11.15 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

Notwithstanding anything herein to the contrary, “Information” shall not include, and the Administrative Agent and each Lender may disclose to any and all persons any information with respect to the U.S. federal income tax treatment and U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Administrative Agent or such Lender relating to such tax treatment and tax structure.

 

Section 11.16 Patriot Act.  As required by federal law or the Administrative Agent or a Lender’s policies and practices, the Administrative Agent or a Lender may need to collect certain customer identification information and documentation in connection with opening or maintaining accounts or establishing or continuing to provide services.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above.

Northern Illinois Gas Company,

an Illinois corporation

By: /s/ DOUGLAS M. RUSCHAU

       Name:  Douglas M. Ruschau

       Title:  Vice President and Treasurer

 

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JPMORGAN CHASE BANK, N. A.,

in its individual capacity as a Lender and as 

Administrative Agent

 

By:  /s/ HELEN D. DAVIS

Name:  Helen D. Davis

Title:  Authorized Officer

 

 

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THE ROYAL BANK OF SCOTLAND 

PLC

By:  /s/ ANDREW N. TAYLOR

Name:  Andrew N. Taylor

Title:  Vice President

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WELLS FARGO BANK, NATIONAL 

ASSOCIATION

By:  /s/ SHAWN YOUNG

Name:  Shawn Young

Title:  Director

 

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Bank of America N.A.

By:  /s/ CARLOS MORALES

Name:  Carlos Morales

Title:  Senior Vice President

 

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THE BANK OF TOKYO-MITSUBISHI 

UFJ, LTD.

By:  /s/ ALAN REITER

Name:  Alan Reiter

Title:  Vice President

 

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THE NORTHERN TRUST COMPANY

By:  /s/ JOHN LASCODY

Name:  John Lascody

Title:  Second Vice President

 

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U.S. BANK NATIONAL ASSOCIATION

By:  /s/ ERIC J. COSGROVE

Name:  Eric J. Cosgrove

Title:  Vice President

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SUNTRUST BANK

By:  /s/ ANDREW JOHNSON

Name:  Andrew Johnson

Title:  Director

 

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BANK HAPOALIM B.M.

By:  /s/ JAMES P. SURLESS                  

Name:  James P. Surless                       

Title:  Vice President

 

By:  /s/ FREDERIC S. BECKER

Name:  Frederic S. Becker

Title:  Senior Vice President

 

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CHANG HWA COMMERCIAL BANK, 

LTD., NEW YORK BRANCH

By:  /s/ ERIC Y.S. TSAI

Name:  Eric Y.S. Tsai

Title:  VP & General Manager

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FIRST COMMERCIAL BANK, NEW YORK 

BRANCH

By:  /s/ JASON LEE

Name:  Jason Lee

Title:  General Manager

 

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BANK OF COMMUNICATIONS CO., 

LTD., NEW YORK BRANCH

By:  /s/ SHELLEY HE

Name:  Shelley He

Title:  Deputy General Manager

 

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FIFTH THIRD BANK

By:  /s/ KIM PUSZCZEWICZ

Name:  Kim Puszczewicz

Title:  Vice President

 

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MEGA INTERNATIONAL 

COMMERCIAL BANK NEW YORK 

BRANCH

By:  /s/ LUKE HWANG

Name:  Luke Hwang

Title:  VP & DGM

 

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SEAWAY BANK AND TRUST 

COMPANY

By:  /s/ ARLENE WILLIAMS

Name:  Arlene Williams

Title:  Executive Vice President

 

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EXHIBIT A

 

PROMISSORY NOTE

 

April 19, 2011

 

FOR VALUE RECEIVED, the undersigned, Northern Illinois Gas Company, an Illinois corporation (“Borrower”), promises to pay to the order of [_________________] (the “Lender”), at the principal office of JPMorgan Chase Bank, N.A., in New York, New York, in accordance with Section 4 of the Credit Agreement, the aggregate unpaid principal amount of each Loan made by the Lender to Borrower pursuant to the Credit Agreement (as hereinafter defined) on the date repayment of such Loan is due, together with interest on the principal amount of each Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement.

 

This Note is one of the Notes referred to in the Credit Agreement dated as of April 19, 2011, among Northern Illinois Gas Company, JPMorgan Chase Bank, N.A., as Administrative Agent and the other financial institutions party thereto (the “Credit Agreement”), and this Note and the holder hereof are entitled to all the benefits provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof.  All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement.  This Note shall be governed by and construed in accordance with the laws of the State of New York.

 

The Lender shall record on its books or records or on a schedule attached to this Note, which is a part hereof, each Loan made by it pursuant to the Credit Agreement, together with all payments of principal and interest and the principal balances from time to time outstanding hereon, whether the Loan is a Base Rate Loan or a Eurodollar Loan, and the interest rate and Interest Period applicable thereto; provided that prior to the transfer of this Note all such amounts shall be recorded on a schedule attached to this Note.  The record thereof, whether shown on such books or records or on a schedule to this Note, shall be prima facie evidence of the same; provided, however, that the failure of the Lender to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of Borrower to repay all Loans made to it pursuant to the Credit Agreement together with accrued interest thereon.

 

Prepayments may be made hereon and this Note may be declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in the Credit Agreement.

 

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The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder.

 

NORTHERN ILLINOIS GAS COMPANY, 

an Illinois corporation

By:  __________________________________                                                                

Name:  ________________________________                                                                

Title:  _________________________________                                                                

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EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

This Compliance Certificate is furnished to JPMorgan Chase Bank, N.A., as Administrative Agent pursuant to the 364-Day Credit Agreement dated as of April 19, 2011, among Northern Illinois Gas Company, an Illinois corporation (the “Borrower”), JPMorgan Chase Bank, N.A., as Administrative Agent and the financial institutions party thereto (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”).  Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement.

 

THE UNDERSIGNED HEREBY CERTIFIES THAT:

 

1.           I am the duly elected or appointed ___________________of the Borrower;

 

2.           I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower (or, prior to the Merger Effective Date, Nicor) and its Subsidiaries during the accounting period covered by the financial statements (which financial statements have been posted on Nicor’s website on the Internet at www.nicor.com);

 

3.           The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or an Event of Default during or at the end of the accounting period covered by the Borrower’s financial statements for the year/quarter end (which financial statements have been posted on Nicor’s website on the Internet at www.nicor.com) or as of the date of this Certificate, except as set forth below; and

 

4.           Schedule 1 attached hereto sets forth financial data and computations evidencing compliance with certain covenants of the Credit Agreement, all of which data and computations are true, complete and correct.  All computations are made in accordance with the terms of the Credit Agreement.

 

Described below are the exceptions, if any, to paragraph 3 listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:

 

__________________________________________________________________________________________________________________________________________________

__________________________________________________________________________________________________________________________________________________

__________________________________________________________________________________________________________________________________________________

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The foregoing certifications, together with the computations set forth in Schedule 1 hereto are made and delivered this ___________day of __________, 200_.

 

 

 

 

 

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SCHEDULE 1 TO COMPLIANCE CERTIFICATE

 

Compliance Calculations for Credit Agreement

 

CALCULATION AS OF ________  __,200_

 

	
A.           Leverage Ratio (Section 7.15)

	  	  
	
1.           Consolidated Net Worth

	
$ _______________    

	  
	
2.           Consolidated Indebtedness

	
$ _______________   

	  
	
3.           Capital (Line A1 plus Line A2)

	
$ _______________   

	  
	
4.           Leverage Ratio

	
 ________:1.00

	
(ratio of Line A2 to Line A3 not to exceed 0.70:1.00)

	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  

 

 

 

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EXHIBIT C

 

ASSIGNMENT AND ASSUMPTION

 

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee.  Annex 1 attached hereto is hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

 

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Assignment and Assumption and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including without limitation any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as, the “Assigned Interest”).  Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

 

	
1.

	
Assignor: ____________________________________

	 

 

	
2.

	
Assignee: ____________________________________

	 

 

	
  

	
    [and is an Affiliate/Approved Fund of [identify Lender]1]

 

	
3.

	
Borrower: Northern Illinois Gas Company

 

	
4.

	
Administrative Agent: JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement

 

 

	
1

	Select as applicable.  

    

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5.

	
Credit Agreement: The Credit Agreement dated as of April [____], 2011 among Northern Illinois Gas Company, the Lenders parties thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

 

	
6.

	
Assigned Interest:

 

	
Amount of Commitment/Loans of Assignor prior to [Effective] [Trade] Date

	
Amount of Commitment/Loans of Assignee prior to [Effective] [Trade] Date

	
Amount of Commitment/Loans Assigned

	
Amount of Commitment/Loans of Assignor after [Effective] [Trade] Date

	
Amount of Commitment/Loans of Assignee after [Effective] [Trade] Date

	
$

	
$

	
$

	
$

	
$

 

	
[7.

	
Trade Date: ________________________

	
]2

 

Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

 

The terms set forth in this Assignment and Assumption are hereby agreed to:

 

ASSIGNOR

[NAME OF ASSIGNOR]

By: ________________________________                                                               

Title:

ASSIGNEE

[NAME OF ASSIGNEE]

By: ________________________________                                                               

Title:

 

	
2

	To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.  

 

 

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[Consented to and]3 Accepted:

 

JPMORGAN CHASE BANK, N.A., as

Administrative Agent

 

By: ________________________________                                                              

Title:

 

[Consented to:]4

 

NORTHERN ILLINOIS GAS COMPANY

 

By: ________________________________                                                                

Title:

 

    

	
3

	
To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.

  

	
4

	
To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

 

 

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ANNEX 1 to Assignment and Assumption

 

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

 

1.           Representations and Warranties.

 

1.1           Assignor.  The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Credit Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Credit Document.

 

1.2           Assignee.  The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.6 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed by it as a Lender.

 

     2.           Payments.  From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to, on or after the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in

 

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payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves.

 

3.           General Provisions.  This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

 

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EXHIBIT D

FORM OF NOTICE OF

BORROWING

 

JPMorgan Chase Bank, N.A., as Administrative Agent

10 S. Dearborn, Floor 7

Mail Code IL1-0010

Chicago, IL 60603

 

 

 

[Date]

 

Attention:  LaTanya Driver

 

Email:  latanya.d.driver@jpmchase.com AND jpm.agency.servicing.4@jpmchase.com

 

Phone:  312-385-7073

 

Fax:  888-292-9533

 

 

Ladies and Gentlemen:

 

The undersigned, Northern Illinois Gas Company, refers to the Credit Agreement, dated as of April 19, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the Borrower, the Lenders parties thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.4(a) of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.4(a) of the Credit Agreement:

 

(i)           The Business Day of the Proposed Borrowing is _______________, 200_.

 

(ii)           The Proposed Borrowing is [new advance of Loans] [continuation of existing Loans] [conversion of existing Loans].

 

(iii)           The type of Loan comprising the Proposed Borrowing is [Base Rate Loans] [Eurodollar Loans].

 

(iv)           The aggregate amount of the Proposed Borrowing is $_______________.

  

 

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[(v)           The initial Interest Period for each Eurodollar Loans made as part of the Proposed Borrowing is _____ month[s].]

 

The undersigned hereby certifies that the conditions precedent to such Proposed Borrowing contained in Section 6 have been satisfied.

 

Very truly yours,

NORTHERN ILLINOIS GAS COMPANY

By: ________________________________                                                                 

Title:

 

 

 

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SCHEDULE 1

 

PRICING GRID

 

	
(in bps)

Debt Rating

(S&P/Moody’s/Fitch)

	Commitment Fee	
Applicable Margin 

(Libor)

	
Applicable Margin 

(Base Rate)

	
AA/Aa2/AA

	
5.0

	
87.5

	
0.0

	
AA-/Aa3/AA-

	
7.5

	
100.0

	
0.0

	
A+/A1/A+

	
10.0

	
112.5

	
12.5

	
A/A2/A

	
12.5

	
125.0

	
25.0

	
A-/A3/A-

	
15.0

	
137.5

	
37.5

	
BBB+/Baa1/BBB+

	
20.0

	
150.0

	
50.0

	
= or <BBB/Baa2/BBB

	
25.0

	
175.0

	
75.0

 

	
*

	
If only two of (i) the long-term credit rating assigned by Fitch Ratings, (ii) the senior unsecured debt rating assigned by Standard and Poors’ and (iii) the Long Term Issuer Rating assigned by Moody’s (each, a “Debt Rating”) are assigned to the Borrower, and the Debt Ratings differ by one level, the applicable rating will be the higher of the Debt Ratings.  If there are only two Debt Ratings, and the Borrower is split-rated and the ratings differential is two levels or more, the Debt Rating one level below the highest level will apply.  If there are two Debt Ratings on the same level and the third Debt Rating differs, then the third Debt Rating will be disregarded and the level with two Debt Ratings will apply. If all three Debt Ratings differ, then the Debt Rating one level below the highest Debt Rating will apply. If at any time the Borrower does not have any Debt Rating, the “Equal to or lower than BBB/Baa2/BBB” level will apply; provided, however, that in such event the Borrower may propose an alternative rating agency or mechanism in replacement thereof, subject to the written consent of the Required Lenders.

 

 

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SCHEDULE 2

 

COMMITMENTS

 

	
Lender

	
Total Allocation

	
JPMorgan Chase Bank, N.A.

	
$54,000,000

	
The Royal Bank of Scotland plc

	
$54,000,000

	
Wells Fargo Bank, National Association

	
$54,000,000

	
Bank of America, N.A.

	
$40,000,000

	
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

	
$40,000,000

	
The Northern Trust Company

	
$40,000,000

	
U.S. Bank National Association

	
$40,000,000

	
SunTrust Bank

	
$29,800,000

	
Bank of Hapoalim B.M.

	
$11,000,000

	
Chang Hwa Commercial Bank, Ltd., New York Branch

	
$9,000,000

	
First Commercial Bank New York Branch

	
$9,000,000

	Bank of Communications Co., Ltd., New York Branch	 $6,000,000
	Fifth Third Bank	 $6,000,000
	
Mega International Commercial Bank New York Branch

	
$4,000,000

	
Seaway Bank and Trust Company

	
$3,200,000

	
Total

	
$400,000,000

 

 

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SCHEDULE 4

 

ADMINISTRATIVE AGENT’S NOTICE AND PAYMENT INFORMATION

 

Part A

 

	Bank Name:      	JP Morgan Chase Bank, N.A. 
	ABA/Routing No.:  	021000021 
	Account Name: 	Loan Processing DP 
	Account No.:    	9008113381C3134 
	Reference:     	NORTHERN ILL GAS CO. 

 

Part B – Notices

 

JPMorgan Chase Bank, N.A.

10 S. Dearborn, Floor 7

Mail Code IL1-0010

Chicago, IL 60603

Attention:  LaTanya Driver

Email:  latanya.d.driver@jpmchase.com AND jpm.agency.servicing.4@jpmchase.com

Phone:  312-385-7073

Fax:  888-292-9533

 

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SCHEDULE 5.2

 

MATERIAL SUBSIDIARIES

 

	  	  	  	
Description of Subsidiary’s Authorized Capital 

	
Subsidiary Name

	
State of Origin

	
Ownership

	
Stock, if not wholly owned

	
None.

	  	  	  
	  	  	  	  

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SCHEDULE 6.1

MATERIAL INDEBTEDNESS

 

Indebtedness issued pursuant to that certain Supplemental Indenture dated as of January 25, 2011 to be effective February 1, 2011 (the proceeds of which were used to repay the Borrower’s 6.625% First Mortgage Bonds which matured February 1, 2011).

 

 

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SCHEDULE 7.17

 

RESTRICTIONS ON DISTRIBUTIONS AND EXISTING NEGATIVE PLEDGES

 

Refer to (i) Nicor Gas Indenture as defined in Section 1 and (ii) the 3-Year Facility Agreement as defined in Section 1.

 

 

 

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March 22, 2011

Mr. James Zadvorny

Encana Oil & Gas (USA) Inc.

370 Seventeenth Street, Suite 1700

Denver, Colorado  80202

Re:           First Amendment to C&E Agreement

Dear Jim:

Northwest Natural Gas Company (“NWN”) and Encana Oil & Gas (USA) Inc. (“Encana”) have entered into that certain Carry and Earning Agreement dated and effective as of May 1, 2011 (“C&E Agreement”).  NWN and Encana anticipated executing Letters of Attornment relating to the Gathering Agreement and the Processing Agreement, as defined in the C&E Agreement.  In consideration of the execution of the Letters of Attornment, NWN and Encana have agreed to certain additional matters set forth in this Letter Agreement.  The terms of this Letter Agreement shall amend and be incorporated into the C&E Agreement.  All capitalized terms not defined in this Letter Agreement shall have the meanings set forth in the C&E Agreement and the Letters of Attornment, as applicable.

1. New Connections.  [***], Encana agrees that for so long as the C&E Agreement is in effect, all New Connections affecting Carry Wells shall be constructed at Encana’s sole cost and expense, as provided in Section 5.1 of the C&E Agreement.

 

2. Successor Shipper MDQ.  The written notice required by [***] of the [***] shall set Successor Shipper’s MDQ in the Successor Shipper Gas Gathering Agreement at 33,000 Mcf per Day unless NWN and Encana agree otherwise prior to executing the notice.

 

3. Successor Shipper Plant Capacity.  The written notice required by [***] of the [***] shall set Successor Shipper Plant Capacity in the Successor Shipper Gas Processing Agreement at 33,000 Mcf per Gas Day unless NWN and Encana agree otherwise prior to executing the notice.

 

4. [***]

 

5. [***]

 

6. Section 10.5 of the C&E Agreement.  Section 10.5 of the C&E Agreement shall be replaced in its entirety with the following:

 

10.5           Amendment of Gathering and Processing Agreement.  Prior to any election under Article VI.G. of the Operating Agreement by NWN to take its gas in kind, Encana may amend the

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

Gathering Agreement or Processing Agreement subject to the following:

 

(i) Encana may enter into any such amendment without the consent of NWN so long as such amendment does not affect NWN’s rights, costs or fees under the Gathering Agreement, Processing Agreement, or NWN’s rights, costs or fees under a future Successor Shipper Gas Gathering Agreement or Successor Shipper Gas Processing Agreement;

 

(ii) If Encana desires that NWN’s rights be subject to the amendment, Encana shall provide thirty (30) days advance written notice to NWN in order to provide NWN an opportunity to discuss with Encana the amendments in advance of and during negotiations.  The Parties acknowledge that [***], and because Encana has interests in multiple producing properties other than the Leases, amendments to the Gathering Agreement and Processing Agreement that may be of benefit to Encana will not provide equivalent benefit to NWN.  If the Parties agree on amendments to this Agreement that will place NWN in an equivalent economic position under this Agreement as before such amendment or amendments to the Gathering Agreement and Processing Agreement, then NWN shall agree to be bound by the proposed amendment to the Gathering Agreement or Processing Agreement.

 

Sincerely,

/s/

Barbara Cronise

 

  

  

  

Accepted and Agreed:

 

Encana Oil & Gas (USA) Inc.                                                                           Northwest Natural Gas Company

 

 

By: /s/                                                                                                    By: /s/                                             

 

*John Schopp                                                                                 Gregg S. Kantor

	
  Vice President

	
Chief Executive Officer

	
  

	
North Rockies Business Unit

	
  

	
*By Kurt S. Froistad

	
  

	
Attorney in Fact

	
  

	
Delegate

	
  

	 

  

  

  

 

 

 

Carry and Earning Agreement

 

by and between

 

 

Encana Oil & Gas (USA) Inc.

 

a Delaware corporation

 

 

and

 

 

Northwest Natural Gas Company

 

an Oregon corporation

 

 

 

 

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

TABLE OF CONTENTS

 

 

SECTION 1.                         EXHIBITS    1

 

SECTION 2.                         DEFINITIONS    2

 

SECTION 3.                         CARRY WELLS     10

 

SECTION 4.                         TITLE AND OTHER INFORMATION     17

 

SECTION 5.                         OPERATIONS     18

 

SECTION 6.                         REPRESENTATIONS, WARRANTIES AND AGREEMENTS     19

 

SECTION 7.                         CONDITION SUBSEQUENT:  OPUC APPROVAL     24

 

SECTION 8.                         ADDITIONAL COVENANTS     24

 

SECTION 9.                         FORCE MAJEURE     24

 

SECTION 10.                          GAS GATHERING AND PROCESSING SERVICES, MARKETING     25

 

SECTION 11.                          INDEMNITIES     27

 

SECTION 12.                          TERM     27

 

SECTION 13.                          ASSIGNABILITY     27

 

SECTION 14.       TERMINATION OF OBLIGATIONS TO FUND AND DRILL CARRY WELLS     28

 

SECTION 15.                          TAXES     29

 

SECTION 16.                          NOTICES     30

 

SECTION 17.                          RELATIONSHIP OF THE PARTIES     31

 

SECTION 18.                          ENTIRE AGREEMENT     31

 

Carry and Earning Agreement

  

  

  

Section 19.                      Governing Law; Venue for Disputes     31

 

SECTION 20.                          AMENDMENTS; WAIVER     31

 

SECTION 21.                          PUBLIC ANNOUNCEMENTS     31

 

SECTION 22.                          SEVERABILITY     32

 

SECTION 23.                          MUTUALITY     32

 

SECTION 24.                          DISPUTE RESOLUTION     32

 

SECTION 25.                          WAIVER OF SPECIFIED DAMAGES     33

 

SECTION 26.                          FURTHER ASSURANCES     33

 

SECTION 27.                          RULES OF CONSTRUCTION     33

 

SECTION 28.                          COUNTERPART EXECUTION     34

 

 

Carry and Earning Agreement

  

  

  

CARRY AND EARNING AGREEMENT

 

THIS CARRY AND EARNING AGREEMENT (this “Agreement”) dated and effective as of May 1, 2011 (the “Effective Date”) is by and between ENCANA OIL & GAS (USA) INC., a Delaware corporation (“Encana”) with an address of 370 17th Street, Suite 1700, Denver, Colorado 80202, and NORTHWEST NATURAL GAS COMPANY, an Oregon corporation (“NWN”) with an address of 220 NW Second Avenue, Portland, Oregon 97209-3991.  Encana and NWN shall be referred to in this Agreement, individually, as a “Party” and, collectively, as the “Parties.”

RECITALS

A.           Encana owns oil and gas Leasehold Interests in the “Updip Area” and the “Downdip Area,” as both are fully described in Exhibit A of this Agreement (collectively, the “Property”), within the Jonah Field in Sublette County, Wyoming, pursuant to the Leases identified in Exhibit A-1 of this Agreement.  The Property shall include any additional oil and gas Leasehold Interests which Encana acquires in the Downdip Area after the Effective Date, and Exhibit A-1 is subject to amendment in the event of any such acquisition.

B.           NWN desires to participate in the further development of the oil and gas Leasehold Interests in the Property by paying a portion of the costs incurred by Encana associated with the drilling of [***] Net Carry Wells on the Property in exchange for certain portions of Encana’s right, title and interest in the Leases, Carry Wells, and Existing Wells in the Updip Area, as well as in and to the wellbores of Carry Wells and the production from such wellbores in the Downdip Area.

C.           The Parties desire to enter into this Agreement to govern their rights and obligations with respect to exploration and development of the Property.

AGREEMENT

IN CONSIDERATION OF ONE HUNDRED DOLLARS ($100) and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:

 

Section 1. Exhibits

 

The following Exhibits are attached to this Agreement and shall be considered part of this Agreement:

 

(i) Exhibit A – Property (with the Updip Area and Downdip Area described and also depicted on a map)

 

(ii) Exhibit A-1 – Lease Schedule

 

Page 1 of 35

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

(iii) Exhibit B-1 – Form of Wellbore Assignment

 

(iv) Exhibit B-2 – Form of Assignment and Stipulation of Interest

 

(v) Exhibit C – Form of Operating Agreement

 

(vi) Exhibit D – Disclosure Statement

 

(vii) Exhibit E – Wire Transfer Instructions for NWN Share

 

(viii) Exhibit F – Letters of Attornment

 

(ix) Exhibit G – Composite Producer Price Index Table

 

(x) Exhibit H – Drilling Schedule

 

Section 2. Definitions

 

The following terms shall have the following meanings:

 

2.1 “Acquisition” is defined in Section 3.10 below.

 

2.2 “AFE” shall mean an authorization for expenditure.

 

2.3 “Affiliates” shall mean, with respect to any Person, any other Person that either directly or indirectly controls or manages, is controlled or managed by or is under common control or management with such first Person.  For purposes of the definition of “Affiliates,” “control” means the right or power to direct the policies of another through management authority, equity ownership, delegated authority, voting rights or otherwise.

 

2.4 “Agreement” has the meaning set forth in the first paragraph of this Agreement.

 

2.5 “Arbitrators” is defined in Section 24 below.

 

2.6 “Assets” means (i) all of Encana’s right, title, and interest in and to the Leasehold Interests; (ii) all of Encana’s immovable personal property located on the Leasehold Interests used in connection with or attributable in any manner to the exploration or development of the Leasehold Interests for Gas or the operation of the Leasehold Interests or the treating, storing or transporting of Gas produced from the Leasehold Interests, excluding gathering lines; (iii) all of Encana’s rights with respect to any and all contracts, agreements, instruments, governmental orders and contractual rights insofar as they cover the Leasehold Interests; and (iv) all of Encana’s rights with respect to any and all easements, rights-of-way, rights, permits, licenses and servitudes insofar as they are used or held in connection with the exploration, development or operation of the Leasehold Interests or the transportation of Gas produced therefrom.  The term “Assets” shall not include any ownership interest in (a) gathering, dehydration, compression or treatment facilities beyond the wellhead installations; (b) any existing or future water disposal

 

Page 2 of 35

  

  

  

 wells or water management facility(ies) located on the Property; or (c) Encana’s title to the severed surface lands in the S/2 and S/2N/2 of Section 32 except as may arise from a Lease, but shall include the right to use such facilities and lands described in (b), (c) and (d) insofar as they are necessary for the production, gathering and processing of Gas produced from the Leasehold Interests.

 

2.7 “Assigned Section” is defined in Section 3.5 below.

 

2.8 “Assignment and Stipulation of Interest” shall mean the Assignment and Stipulation of Interest attached to this Agreement as Exhibit B-2.

 

2.9 “Basic Contracts” shall mean those agreements that are contractually binding arrangements to which the Assets are or may be subject and which will be binding on the Assets or NWN after the Effective Date (including, without limitation, farmout and farmin agreements, option agreements, forced pooling orders, assignments of production payments, unit agreements, joint operating agreements, gas balancing agreements, pooling agreements, communitization agreements, surface use agreements, letter agreements, indenture, bank loans, and credit agreements) and which may result in a potential positive or negative economic impact upon NWN in excess of $25,000 in any calendar year.  Pursuant and subject to Section 6.2(viii), Basic Contracts are listed in Section 6.2(viii) of the Disclosure Statement.

 

2.10 “BLM” shall mean the Bureau of Land Management of the United States Department of the Interior.

 

2.11 “Boundary Well” is defined in Section 3.11 below.

 

2.12 INTENTIONALLY OMITTED

 

2.13 “Carry Well” shall mean a well drilled pursuant to Section 3 of this Agreement and “Carry Wells” shall mean all wells drilled pursuant to Section 3 of this Agreement.  The term “Carry Well” and “Carry Wells” shall include, but not be limited to, any Post-Carry Well drilled pursuant to Section 3 of this Agreement.

 

2.14 “Casualty Defect” means, with respect to all or any material portion of the Assets taken as a whole, any destruction by fire, blowout, leak, explosion or other casualty (above or below ground), or any taking, or pending or threatened taking, in condemnation or under the right of eminent domain, of all or any material portion of the Assets taken as a whole.

 

2.15 “CDP” shall mean a central delivery point, referring to the facilities owned by Encana which will receive and dehydrate Gas from the Carry Wells and Existing Wells, remove Condensate, and deliver such Gas to the custody transfer meters owned by [***].

 

2.16 “Composite PPI” shall mean the weighted average of the Producer Price Indices shown on Exhibit G attached to this Agreement, weighted in the proportions shown on Exhibit G attached to this Agreement.

 

Page 3 of 35

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

2.17 “Condensate” shall mean those liquid hydrocarbons that are separated from the Gas at a CDP.

 

2.18 “Costs of Completing” shall mean all costs of completing a well, including but not limited to, the costs of fracture stimulation and the drilling out of frac plugs with respect to such well.

 

2.19 “Costs of Drilling” shall mean the following costs related to a well: costs of constructing and upgrading access roads, obtaining and preparing the location, obtaining permits and title opinions, obtaining drilling contractor services and consultants necessary for the drilling of such well, obtaining mud chemicals, pipe and supplies and all other costs and expenses associated with or incurred in moving in, rigging up, drilling, logging and testing so that a decision can be made to either attempt to set pipe and complete such well or to plug and abandon it as a dry hole.

 

2.20 “Costs of Equipping” shall mean the costs of the acquisition and installation of the initial equipment for a well and the costs to tie the well into a CDP, which may include but is not limited to the wellhead and wellsite equipment (including but not limited to, flow lines, wellsite or CDP separation facilities, wellsite or CDP tanks and storage facilities, measurement equipment, meter connection facilities, power lines and electrical facilities, and expansions and improvements of such equipment) other than equipment required for gathering, regardless of when such cost is incurred and which costs are capitalized for federal income tax purposes.

 

2.21 “Disclosure Statement” shall mean Exhibit D attached to this Agreement.

 

2.22 “Downdip Area” has the meaning set forth in the first Recital above.

 

2.23 “Downdip Carry Well” shall mean a Carry Well drilled within the Downdip Area.

 

2.24 “Drilling Schedule” shall mean the drilling schedule set forth in Exhibit H to this Agreement.  All wells shown on the Drilling Schedule are intended to designate Net Carry Wells.

 

2.25 “Effective Date” has the meaning set forth in the first paragraph of this Agreement.

 

2.26 “Election Well” has the meaning set forth in Section 3.10 of this Agreement.

 

2.27 “Encana” has the meaning set forth in the first paragraph of this Agreement.

 

2.28 “Environmental Laws” shall mean all federal, state, county, or local laws, rules, regulations, ordinances and common law torts relating to (i) protection of the environment from pollution, (ii) the release, emission or control of any pollutant, (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation, (iv) exposure to hazardous, toxic, dangerous or other substances alleged to be harmful, (v) protection of wildlife, including threatened and endangered species, and (vi) protection and preservation of historic sites and

 

Page 4 of 35

  

  

  

objects.  The term “Environmental Laws” shall include, but not be limited to, the following statutes and the regulations promulgated thereunder:  the Clean Air Act, 42 U.S.C. § 7401, et seq., the Clean Water Act, 33 U.S.C. § 1251, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C. § 11011, et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq., the Water Pollution Control Act, 33 U.S.C. § 1251, et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f, et seq., the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § 9601, et seq., the Oil Pollution Act of 1990, 33 U.S.C. § 2701, et seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. § 11001, et seq., the Endangered Species Act of 1973, 16 U.S.C. § 1531, et seq., the Migratory Bird Treaty Act, 16 U.S.C. § 703, et seq., and any other federal, state, county, or local laws, rules, regulations, ordinances, licenses, permits, judgments, writs, decrees, injunctions or orders relating to the protection of human health or the environment.

 

2.29 “Existing Wells” shall mean those oil and gas wells which have been drilled, completed and placed on production in the Updip Area prior to the Effective Date, and all production, operating rights, personal property, and leasehold equipment, including but not limited to casing, wellhead equipment, fixtures and pipelines  owned by Encana and associated with such wells.

 

2.30 “Force Majeure Event” shall mean an act of God, act of terrorism, strike, lockout, or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, restraint or inaction, the interruption or suspension of the receipt or delivery of natural gas due to the inability or failure of any party not a party to this Agreement to receive or deliver such gas, unavailability of equipment, or inability to gain access, ingress or egress to conduct operations (including without limitation delays in or inability to obtain permits, approvals or clearances (including without limitation permits or approvals related to the use of any specific fracture stimulation technology or methodology) from any Governmental Authority).

 

2.31 “Gas” shall mean any mixture of gaseous hydrocarbons or of hydrocarbons and other gasses, in a gaseous state, consisting primarily of methane.

 

2.32 “Gathering Agreement” shall mean that [***].

 

2.33 “Governmental Authority” and “Governmental Authorities” shall mean the United States and the state, county, city and political subdivisions in which the Property is located and which exercise jurisdiction over the Property, and any agency, department, board or instrumentality thereof which exercises jurisdiction over the Property.

 

2.34 “Hazardous Substances” shall mean any hazardous, toxic, or radioactive pollutant, material or waste defined in or listed under any Environmental Laws, including, without limitation, those elements or compounds which are contained in the list of hazardous substances adopted by the United States Environmental Protection Agency and the list of toxic pollutants

 

Page 5 of 35

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

designated by the United States Congress or said agency and petroleum products, including without limitation, gasoline, fuel oil, diesel, heating oil, motor oil and waste oil.

 

2.35 [***].

 

2.36 “Lance Pool” shall mean the interval correlative to that shown on the Schlumberger Phasor Induction-SFL with Linear Correlation Log run on December 4, 1994 in the Stud Horse Butte No. 13-27 well located in the southwest quarter of the southwest quarter (SW1/4SW1/4) of Section 27, Township 29 North, Range 108 West, 6th P.M. which is from a depth of 7,975 feet (equivalent to a subsea -695 feet) to a bottom depth of 12,400 feet (-5,120 feet, subsea), as defined by the Wyoming Oil & Gas Conservation Commission in Cause No. 1, Order No. 1, Docket No. 84-2003 dated April 25, 2003.

 

2.37 “Leases” and/or “Leasehold Interest” shall mean, collectively, any oil and gas lease interest and/or other mineral interest (including fee interests), surface drillsite tract or contractual right to earn such an interest within, upon or under those lands described on Exhibit A-1, including without limitation the leases described on Exhibit A-1 and all amendments, renewals, extensions, ratifications or replacements thereof, which is obtained or is earned by purchase, assignment, leasehold seismic option, extension, renewal, farmin, acreage contribution or by any other means by either Party to this Agreement, including without limitation all agreements granting, reserving or otherwise conferring rights to explore for, drill for, produce, take, use, market, share in the production of or the proceeds from the sale of oil and/or gas; and rights to acquire any of the foregoing rights.

 

2.38 “Letters of Attornment” shall mean those letters in Exhibit F attached to this Agreement to be executed on or before the Effective Date by Encana, NWN and [***] and acknowledging Encana’s assignment of a portion of its Leasehold Interest to NWN.

 

2.39 “Marketable Title” shall mean, as to each Leasehold Interest, such right, title and interest that (i) is deducible of record from the official records of Sublette County, Wyoming, and the official records of the BLM or the Wyoming Office of Lands and Investments, and is free from reasonable doubt to the end that a prudent person engaged in the business of the ownership, development, and operation of producing oil and gas properties with knowledge of all of the facts and their legal bearing would be willing to accept the same, (ii) entitles Encana to receive not less than the interest set forth in Exhibit A-1 as “Encana’s Net Revenue Interest” with respect to all of the oil, gas, and hydrocarbon minerals produced, saved, and marketed from the formations located on the Property for the productive life of the Property, (iii) obligates Encana to pay operating costs and expenses in an amount not greater than “Encana’s Working Interest” set forth in Exhibit A-1 with respect to such Leasehold Interest, and (iv) except for Permitted Encumbrances, is free and clear of all liens and encumbrances.

 

 

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2.40 “Marketing Agreement” shall mean that Marketing Agreement attached to the Operating Agreement as Exhibit H.

 

2.41 “Material Adverse Effect” shall mean (i) any material diminution in the value of the Leasehold Interests, (ii) any material and adverse effect on the use or operation of the Property, or (iii) any material and adverse effect on the ability of Encana to perform its obligations under this Agreement, the Wellbore Assignments, the Assignments and Stipulations of Interest, and the Operating Agreement.

 

2.42 “Material Change in Financial Condition” shall mean that a Party’s credit rating becomes downgraded to a rating of Ba1 or lower as defined by Moody’s Investors Service, and/or a rating of BB+ or lower as defined by Standard & Poor’s Financial Services.

 

2.43 “Net Carry Well” shall mean (i) for a Carry Well drilled in which Encana and NWN collectively own One Hundred Percent (100%) of the working interest, one (1) Net Carry Well, (ii) for a Carry Well drilled in which Encana and NWN collectively own less than One Hundred Percent (100%) of the working interest, the fraction of one (1) Net Carry Well derived from the formulae set forth in Section 3.4 or 3.5, as applicable.  For purposes of the term “Net Carry Well” only, the term “Carry Well” shall not include Post-Carry Wells.

 

2.44 “Net Revenue Interest” shall mean a percentage share of the Gas produced and saved from or attributable to a particular Lease or well, after deducting all royalties, overriding royalties, non-participating royalties, net profits interests, production payments, and other burdens on or payments out of production.

 

2.45 “NGLs” shall mean those liquid hydrocarbons obtained by processing Gas after Gas leaves a CDP.

 

2.46 “NWN” has the meaning set forth in the first paragraph of this Agreement.

 

2.47 “NWN Gas” shall mean all Gas produced from or attributable to NWN’s interest in the Downdip Carry Wells and in the Assigned Sections, but excluding Condensate.

 

2.48 “NWN Share” is [***].

 

2.49 “Operating Agreement” shall mean the operating agreement attached to this Agreement as Exhibit C, executed as of the Effective Date of this Agreement.

 

2.50 “OPUC” shall mean the Oregon Public Utilities Commission.

 

2.51 “Party” and “Parties” have the meanings set forth in the first paragraph of this Agreement.

 

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2.52 “Permitted Encumbrances” shall mean:

 

(i) lessors’ royalties, overriding royalties, reversionary interests and similar burdens that (a) are of record on the Effective Date, (b) do not at any time reduce Encana’s Net Revenue Interest in any Lease (or wells located on any Lease) below the percentage identified in Exhibit A-1 as “Encana’s Net Revenue Interest” for that Lease (or wells located on that Lease), (c) do not at any time increase Encana’s Working Interest in any Lease (or wells located on any Lease) without a corresponding increase in Encana’s Net Revenue Interest for that Lease (or wells located on that Lease), and (d) do not cumulatively operate to materially reduce Encana’s Net Revenue Interest with respect to Gas produced from any Lease (or wells located on any lease) below the percentage identified in Exhibit A-1 as “Encana’s Net Revenue Interest” for that Lease (or wells located on that Lease);

 

(ii) liens, charges, encumbrances, contracts, agreements, instruments, obligations, and other matters that (a) are specifically described in Section 2.52(ii) of the Disclosure Statement as Basic Contracts, (b) do not at any time reduce Encana’s Net Revenue Interest in any Lease (or wells located on any Lease) below the percentage identified in Exhibit A-1 as “Encana’s Net Revenue Interest” for that Lease (or wells located on that Lease), (c) do not at any time increase Encana’s Working Interest in any Lease (or wells located on any Lease) without a corresponding increase in Encana’s Net Revenue Interest for that Lease (or wells loEcated on that Lease), and (d) do not cumulatively operate to materially reduce Encana’s Net Revenue Interest with respect to Gas produced from any Lease (or wells located on any lease) below the percentage identified in Exhibit A-1 as “Encana’s Net Revenue Interest” for that Lease (or wells located on that Lease);

 

(iii) liens for Taxes or governmental assessments that are not yet delinquent or are being contested in good faith by appropriate proceedings which effectively delay any enforcement thereof;

 

(iv) materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s, Tax, and other similar liens or charges arising by law or contract in the ordinary course of business securing current accounts payable (owing with respect to goods or services provided with respect to the Leasehold Interests) that are not more than sixty (60) days past the invoice or due date, whichever is earlier, unless being contested in good faith by appropriate proceedings which effectively delay any enforcement thereof;

 

(v) easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations that do not interfere materially with the operation, value or use of such Leasehold Interest; and

 

(vi) all rights reserved to or vested in any governmental, statutory or public authority to control or regulate any of the Leasehold Interests in any manner, and all applicable laws, rules and orders of Governmental Authority.

 

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For purposes of clauses (i) and (ii) above, a reduction in the interest of Encana with respect to Gas produced from a Lease listed in Exhibit A-1, or an increase in the portion of the costs and expenses relating to any such Lease that Encana is obligated to pay, shall not be material if the reduction or increase is 0.1% or less (by way of example, and without limiting the generality of the foregoing, if “Encana’s Net Revenue Interest” percentage shown in Exhibit A-1 for a unit or well is 88.0%, a reduction in the interest of Encana will not be material if Encana is entitled to receive not less than 87.9% of all Gas produced from such unit or well).

 

2.53 “Person” shall mean an individual, corporation, partnership, limited liability company, association, joint stock company, pension fund, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity.

 

2.54 “Post-Carry Well” shall mean one or more additional wells which may or may not be drilled pursuant to Section 3.6 following the drilling and completion of [***] Net Carry Wells.

 

2.55 “Processing Agreement” shall mean that First Amended and Restated Gas Processing Agreement between Enterprise Gas Processing, LLC, a Delaware limited liability company, and Encana dated March 21, 2007 but effective as of February 1, 2006.

 

2.56 “Property” has the meaning set forth in the first Recital above.

 

2.57 “Property Tax” has the meaning set forth in Section 15.1 below.

 

2.58 “Quarterly Statement” has the meaning set forth in Section 3.6 below.

 

2.59 “Redelivery Points” shall mean (i) [***], as defined in the [***], and (ii) as to NWN’s share of Residue Gas, as defined in the [***], the [***].

 

2.60 “Reserve Report” shall mean the Year End 2010 Reserve Report prepared for Encana by Netherland, Sewell & Associates, Inc.  The term “Reserve Report” shall not include nor refer to any prior or subsequent reserve reports prepared for Encana by any other Person.

 

2.61 “Rig Release Date” shall mean the date Encana releases the drilling rig from the wellbore of a Carry Well.

 

2.62 [***]

 

2.63 [***]

 

2.64 [***]

 

 

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2.65 “Services” is defined in Section 10.1 below.

 

2.66 “Tax” or “Taxes” means any and all federal, state, local, foreign or other ad valorem, real or personal property, gathering, transportation, pipeline regulating, gross receipts, severance, production, excise, heating content, carbon, environmental, occupation, sales, use, value added, fuel, franchise, employment, premium, windfall profits, excess profits, customs duties, capital stock, profits, withholding, social security (or similar), unemployment, disability, transfer, registration, estimated, alternative or add-on minimum, or other tax, government charge or assessment of any kind whatsoever imposed on or with respect to all or any part of the Leasehold Interests, the Gas produced from Leasehold Interests or the proceeds thereof, or activities in connection with the Leasehold Interests, regardless of the point at which or the manner in which or the Person against whom such taxes, charges or assessments are charged, collected, levied or otherwise imposed, and including any interest, penalties and additions thereto and any obligations to indemnify or otherwise assume or succeed to the liability of any other Person; provided, however, that Taxes shall not include federal and state net income taxes and any penalty or interest surcharges thereon.

 

2.67 “Term” is defined in Section 12 below.

 

2.68 “Third Party Failure” is defined in Section 5.3 below.

 

2.69 “Total NWN Share” is Two Hundred Fifty Million Nine Hundred Twenty Thousand Dollars ($250,920,000).

 

2.70 “Unspent NWN Share” shall mean the amount by which the NWN Share for a Carry Well exceeds the actual expended Costs of Drilling and Costs of Completing the Carry Well.

 

2.71 “Updip Area” has the meaning set forth in the first Recital above.

 

2.72 “Updip Carry Well” shall mean a Carry Well drilled in the Updip Area.

 

2.73 “Wellbore Assignment” shall mean the wellbore assignment attached to this Agreement as Exhibit B-1.

 

Section 3. Carry Wells 

 

3.1 Drilling of Carry Wells.  During the Term of this Agreement, Encana shall designate and drill [***] Net Carry Wells in which NWN shall participate pursuant to the terms of this Agreement.  The location of each Carry Well shall be determined by Encana in its sole discretion, provided that (i) all Carry Wells shall be drilled within either the Updip Area or the Downdip Area on the Leases insofar as they are described in Exhibit A-1, unless NWN elects, under Section 3.10, to allow well(s) planned to be drilled within Acquisition lands to be designated as Carry Wells; (ii) Carry Wells shall be drilled within all areas of proved undeveloped reserves in the Updip Area, as designated in the Reserve Report, that have not been drilled on the Effective Date (i.e., [***] wells); (iii) Encana shall endeavor to drill [***] additional Carry Wells within areas of proved undeveloped reserves in the Updip Area that may

 

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be identified in subsequent reserve reports; and (iv) each Carry Well in the Downdip Area shall be drilled within an area of proved undeveloped reserves, as designated in the Reserve Report.

 

Encana shall drill all [***] Net Carry Wells prior to the fifth (5th) anniversary of the Effective Date, as such period may be extended by Force Majeure Events.  Encana shall drill no fewer than [***] Net Carry Wells in total during each of the first three (3) twelve- (12-) month periods following the Effective Date, and no fewer than [***] Net Carry Wells in total during each of the last two (2) twelve- (12-) month periods following the Effective Date.  If the number of Net Carry Wells actually drilled in any calendar quarter is less than the number shown on the Drilling Schedule, then Encana shall make commercially reasonable efforts to drill makeup Net Carry Wells in the next calendar quarter, in addition to the Net Carry Wells scheduled for that quarter on the Drilling Schedule.  If Encana drills more Net Carry Wells than shown on the Drilling Schedule in any calendar quarter, the excess Net Carry Well(s) can be credited to any other calendar quarter in which Encana drills fewer Net Carry Wells than scheduled on the Drilling Schedule.  Encana shall drill and complete, equip, tie in and produce, or plug and abandon the Carry Wells, with due diligence and reasonable dispatch in accordance with applicable laws and the Operating Agreement and in a good and workmanlike manner, in accordance with good oil field practice.  Encana shall act as a reasonable and prudent operator to complete each Carry Well within a reasonable and customary period of time without consideration of market prices for production.

 

Notwithstanding anything to the contrary in this Agreement, Encana shall not be required to drill Carry Wells and NWN shall not be required to pay the NWN Share, if Encana is unable to secure necessary permits for Carry Wells from any Governmental Authority.

 

3.2 Costs of Carry Wells.  NWN agrees to pay Encana the NWN Share for each Carry Well drilled pursuant to this Agreement, chargeable in accordance with the Operating Agreement for the Costs of Drilling and Costs of Completing each Carry Well.  After [***] Net Carry Wells have been drilled, to the extent that NWN has not contributed the Total NWN Share, then Encana shall issue an AFE to NWN for the amount of such deficiency, to be applied to the Costs of Drilling and Costs of Completing one or more Post-Carry Wells.  [***].  Encana shall provide NWN with an AFE for Costs of Equipping each Carry Well, which shall be solely for information purposes, and NWN shall have no obligation to make any payment towards any such informational AFE.

 

Unless the obligation to fund and drill Carry Wells is terminated early pursuant to Section 14.1 or Section 14.3, NWN’s obligation to fund Carry Wells shall terminate when NWN has paid the Total NWN Share to Encana.

 

3.3 Payment of NWN Share.  At least fifteen (15) days but no more than thirty (30) days prior to the anticipated spud date for each Carry Well, Encana shall issue to NWN an AFE that (i) identifies the well as a Carry Well, (ii) specifies the anticipated spud date, and (iii) provides a specific description of the location and the survey plat and wellbore diagram for the

 

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well.  In connection with any AFE, Encana agrees promptly to provide any additional information regarding the Carry Well that is reasonably requested by NWN.  NWN shall pay Encana the NWN Share (less any credit for an Unspent NWN Share as described in the following paragraph) for each Carry Well within fifteen (15) days after receipt of notice from Encana that such Carry Well has been spudded.  Payment shall be pursuant to the wiring instructions attached to this Agreement as Exhibit E.

 

As each Carry Well is drilled and completed, Encana shall apply the NWN Share to [***] of the amount invoiced by third parties [***].  After Encana closes its accounting for a Carry Well’s AFE, the Unspent NWN Share, if any, shall be shown as a credit towards the NWN Share on the AFE issued to NWN for the next Carry Well and shall reduce the amount NWN must pay on that AFE.

 

In the event NWN fails to timely pay all or a portion of the NWN Share (taking into account any credit for Unspent NWN Share from a prior Carry Well) for one or more Carry Wells, Encana shall give NWN written notice of such failure, and NWN shall have thirty (30) days thereafter to remedy the default.  If NWN fails to timely remedy the default, Encana may, at its sole discretion and upon notice to NWN, elect to terminate the obligation to fund and drill any future Carry Wells under this Agreement, and

 

(i)           if the Marketing Agreement is then in effect, Encana may withhold delivery of a sufficient amount of NWN’s share of production proceeds from the Updip Area and Downdip Area and apply such proceeds to offset the cumulative total delinquent amount due on the AFE(s) until such time as the delinquent amounts have been recouped, at which time Encana shall assign to NWN the interests provided by this Section 3 for the affected Carry Well(s), if Encana has not done so already; or

 

(ii)           whether or not the Marketing Agreement is in effect, Encana may elect to either

 

(1)           demand that NWN pay the cumulative total delinquent amount due on the AFE(s), and upon receipt of such amount Encana shall assign to NWN the interests provided by this Section 3 for the affected Carry Well(s), if Encana has not done so already; or

 

(2)           not demand that NWN pay the cumulative total delinquent amount due on the AFE(s), in which case Encana shall have no obligation to assign to NWN the interests provided by this Section 3 for the affected Carry Well(s) and may keep the Net Revenue Interest share of Gas that would have been assigned to NWN pursuant to this Section 3 for the affected Carry Well(s).

 

Any termination pursuant to this Section 3.3 shall not affect NWN’s rights and Encana’s obligations in relation to Carry Wells for which (a) the full NWN Share has been paid (taking into account any credit for Unspent NWN Share from a prior Carry Well) prior to the date of termination and (b) pursuant to the preceding paragraph, Encana recoups delinquent amounts out of production proceeds or receives payment of the total deliquent amount due on the AFE(s).

 

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The Leasehold Interests that NWN has earned under this Agreement shall continue to be governed by this Agreement and the Operating Agreement.  If Encana elects to terminate the obligation to fund and drill Carry Wells pursuant to the preceding paragraph, NWN shall pay [***] to Encana within thirty (30) days of receipt of written notice of termination from Encana under this Section 3.3, and such payment shall be the exclusive remedy for early termination of the obligation to drill Carry Wells under this Agreement due to NWN’s failure to timely pay the NWN Share.  The Parties agree that actual damages for early termination of the obligation to drill Carry Wells under this Agreement cannot be ascertained with certainty and intend for the payments to Encana under the preceding sentence to serve as liquidated damages for such default.

 

3.4 NWN’s Earned Interest in Carry Wells and Leases in the Downdip Area.  In consideration of  NWN’s timely payment of the NWN Share for each Carry Well drilled in the Downdip Area, Encana shall promptly execute, acknowledge and deliver a Wellbore Assignment, effective as of the first day of the month following the Rig Release Date for each such Downdip Carry Well, assigning to NWN (i) Five Percent (5%) of eight-eighths (8/8ths) of the Leasehold Interest in the wellbore of such Downdip Carry Well together with Five Percent (5%) of “Encana’s Net Revenue Interest,” as set forth for the applicable Lease in Exhibit A-1, in the wellbore of such Downdip Carry Well, limited in depth to the interval correlative to the stratigraphic equivalent of the Lance Pool as encountered in each such Carry Well and excluding any right, title or interest in and to Condensate produced from such Carry Well, and (ii) the right to use the Assets insofar as they are necessary for the production, gathering and processing of Gas produced from such Carry Well, all subject to the terms and conditions of this Agreement and the Permitted Encumbrances in existence on the Effective Date including without reservation Basic Contracts that satisfy Section 2.52(ii).  Such percentages shall be proportionately reduced if any Carry Well is a Boundary Well or Election Well in which one or more third parties own a working interest by multiplying such percentages by a decimal fraction equal to (a) the cumulative working interest percentage of production in that Carry Well allocated to NWN and Encana, divided by (b) the total production from such Carry Well.  For a Boundary Well or Election Well drilled in the Downdip Area, the decimal fraction so calculated shall be the fraction of a Net Carry Well represented by such well for the purpose of  determining when [***] Net Carry Wells have been drilled.  With respect only to a Post-Carry Well, in the event the Post-Carry Well is drilled in the Downdip Area, then the Five Percent (5%) interests to be assigned to NWN in the Wellbore Assignment pursuant to this Section 3.4 for the Post-Carry Well shall be multiplied by a decimal fraction equal to (1) the amount of the cumulative Unspent NWN Share paid for that well [***].

 

Encana shall execute, acknowledge and deliver Wellbore Assignment(s) pursuant to this Section 3.4 once each calendar quarter for interests earned in the preceding calendar quarter.  Promptly thereafter, Encana shall cause the Wellbore Assignment(s) to be placed of record in the official records of the County Clerk and Recorder in Sublette County, Wyoming to effect the 

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assignment and shall then promptly provide a copy of the recorded Wellbore Assignment(s) to NWN.  Additionally, Encana shall promptly prepare the federal/state assignment forms to transfer the applicable operating rights to NWN and file such documents in the appropriate BLM or Wyoming Office of State Lands and Investments office on behalf of NWN. NWN shall reimburse Encana promptly for any fees incurred in connection with the recording or filing of assignments on behalf of NWN.

 

3.5 NWN’s Earned Interest in Updip Carry Wells and Leases.  In consideration of  NWN’s timely payment of the NWN Share for each Carry Well drilled in either the Updip Area or the Downdip Area, and without regard to the actual location of any Carry Well, Encana shall execute, acknowledge and deliver an Assignment and Stipulation of Interest effective as of the first day of the month following the Rig Release Date for such Carry Well, assigning to NWN (i) One and Two-Tenths Percent (1.2%) of eight-eighths (8/8ths) of the Leasehold Interest in the appropriate Assigned Section (as defined below in this Section 3.5) together with One and Two-Tenths Percent (1.2%) of “Encana’s Net Revenue Interest,” as set forth in Exhibit A-1, in such Assigned Section, limited in depth to the interval correlative to the stratigraphic equivalent of the Lance Pool and excluding any right, title or interest in and to Condensate produced from the Assigned Section, and (ii) the right to use the Assets insofar as they are necessary for the production, gathering and processing of Gas produced from the Assigned Section, all subject to the terms and conditions of this Agreement and the Permitted Encumbrances in existence on the Effective Date, including without reservation Basic Contracts that satisfy Section 2.52(ii).  Such percentages shall be proportionately reduced if any Carry Well is a Boundary Well or Election Well in which one or more third parties owns a working interest by multiplying such percentages by a decimal fraction equal to (a) the cumulative working interest percentage of production in that Carry Well allocated to NWN and Encana, divided by (b) the total production from such Carry Well.  For a Boundary Well drilled in the Updip Area, the decimal fraction so calculated shall be the fraction of a Net Carry Well represented by such well for the purpose of  determining when [***] Net Carry Wells have been drilled.  With respect only to a Post-Carry Well, in the event the Post-Carry Well is drilled in the Updip or Downdip Area, then the One and Two-Tenths Percent (1.2%) interests to be assigned to NWN in the Assignment and Stipulation of Interest pursuant to this Section 3.5 for the Post-Carry Well shall be multiplied by a decimal fraction equal to (1) the amount of the cumulative Unspent NWN Share paid for that well [***].

 

The Assignment and Stipulation of Interest shall cover the Leasehold Interest in Existing Wells in the Assigned Section (and, in the case of a Carry Well drilled in the Updip Area that triggers this Section 3.5, specifically including that Carry Well).

 

The “Assigned Section” shall initially be Section 32 until such time as the cumulative Leasehold Interest assigned to NWN by Encana in Section 32 reaches Forty-Five Percent (45%) of eight-eighths (8/8ths) of the Leasehold Interest in Section 32, after which the Assigned Section shall be Section 33, until such time as the cumulative Leasehold Interest assigned to NWN in Section 33 reaches Forty-Five Percent (45%) of eight-eighths (8/8ths) of the Leasehold Interest in Section 32, after which the Assigned Section shall be Section 34.  Any fraction of a Leasehold Interest percentage that NWN earns that would cause NWN’s cumulative Leasehold Interest to exceed Forty-Five Percent (45%) of eight-eighths (8/8ths) of the Leasehold Interest in Section 32 or 33 shall be assigned to Section 33 or 34, respectively.

 

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Encana shall execute, acknowledge and deliver Assignment(s) and Stipulation(s) of Interest pursuant to this Section 3.5 once each calendar quarter for interest earned in the preceding calendar quarter.  Promptly thereafter,  Encana shall cause the Assignment(s) and Stipulation(s) of Interest to be placed of record in the official records of the County Clerk and Recorder in Sublette County, Wyoming to effect the assignment and shall promptly provide a copy of the recorded Assignment(s) and Stipulation(s) of Interest to NWN.  Additionally, Encana shall promptly prepare the federal assignment forms to transfer the applicable operating rights to NWN and file such documents in the appropriate BLM office on behalf of NWN.  NWN shall reimburse Encana promptly for any fees incurred in connection with the recording of any assignment on behalf of NWN.

 

3.6 Post-Carry Wells.  After [***] Net Carry Wells have been drilled, the cumulative Unspent NWN Share, if any, shall be used to drill one or more Post-Carry Wells.  Encana shall issue one or more AFEs to NWN for the cumulative Unspent NWN Share, provided that Encana shall not issue an AFE for a Post-Carry Well for more than the NWN Share.  Except as provided in this Section 3.6, the Parties’ rights and obligations vis-à-vis a Post-Carry Well shall be the same as for a Carry Well.  If a Post-Carry Well is drilled in the Downdip Area, the interest assigned to NWN in the Wellbore Assignment for that Post-Carry Well shall be calculated as provided in  Section 3.4.  If a Post-Carry Well is drilled in the Updip Area or the Downdip Area, the interest assigned to NWN in the Assignment and Stipulation of Interest for that Post-Carry Well shall be calculated as provided in Section 3.5.

 

3.7 Quarterly Statements.  Within twenty (20) days of the first day of each calendar quarter following the Effective Date, Encana shall prepare and submit to NWN a statement (the “Quarterly Statement”) showing the drilling activity and earned interest on a quarterly and cumulative basis.  The Quarterly Statement shall identify (i) the number and legal location of all Carry Wells drilled in the prior three-month period, (ii) the status of each Carry Well, (iii) the amount NWN paid for each Carry Well, (iv) the Unspent NWN Share, if any, for each Carry Well, (v) the amount and location of Leasehold Interest and Net Revenue Interest earned pursuant to Sections 3.4 and 3.5 above, and (vi) the cumulative totals since the Effective Date for each of the foregoing.

 

3.8 Example of Sections 3.4, 3.5 and 3.6.

 

(i) By way of illustration only, the following example shows the interests NWN would earn pursuant to Sections 3.4 and 3.5 during two hypothetical calendar quarters.

 

Assume that the first day of the month following the Rig Release Date for the following [***] Carry Wells falls in the first hypothetical calendar quarter:

●  [***]

●  [***]

●  [***]

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During that first quarter, NWN would have earned an assignment of (i) pursuant to Section 3.4, a 5% Leasehold Interest and corresponding Net Revenue Interest in the wellbores of the [***] Downdip Carry Wells, and (ii) pursuant to Section 3.5, a 6.0% Leasehold Interest (i.e., 1.2% multiplied by the five Carry Wells) and the corresponding Net Revenue Interest in all Carry Wells, all Existing Wells, and in Encana’s Leasehold Interest in Section 32, each assignment being effective on the first day of the month following the Rig Release Date of the respective Carry Well.

Assume that the first day of the month following the Rig Release Date for the following [***] Carry Wells falls in the second hypothetical calendar quarter:

●  [***]

●  [***]

●  [***]

●  [***]

During that second quarter, NWN would have earned an assignment of (i) pursuant to Section 3.4, a 5% Leasehold Interest and the corresponding Net Revenue Interest in the wellbores of the two Downdip Carry Wells, and (ii) pursuant to Section 3.5, a 7.2% Leasehold Interest (i.e., 1.2% multiplied by the six Carry Wells) and the corresponding Net Revenue Interest in all Carry Wells, all Existing Wells, and Encana’s Leasehold Interest in Section 32, each assignment being effective on the first day of the month following the Rig Release Date of the respective Carry Well.

(ii) By way of illustration only, the following example shows the interests NWN would earn  pursuant to Section 3.6 in a hypothetical situation:

Assume that after [***] Net Carry Wells have been drilled, the cumulative Unspent NWN Share equals $[***] and Encana drills [***] Post-Carry Well in the Downdip Area.  NWN would have earned an assignment of (i) pursuant to Sections 3.6 and 3.4, a 2.5% Leasehold Interest (i.e., [***] cumulative Unspent NWN Share divided by $2.46 million) and the corresponding Net Revenue Interest in the wellbore of the Post-Carry Well, and (ii) pursuant to Sections 3.6 and 3.5, a [***] Leasehold Interest (i.e., [***] cumulative Unspent NWN Share divided by $[***] in all Carry Wells, all Existing Wells, and Encana’s Leasehold Interest in Section 34, each assignment being effective on the first day of the month following the Rig Release Date of the Post-Carry Well.

3.9 Tax Partnership.  On the date of execution of this Agreement, the Parties shall enter into a tax partnership agreement in the form set forth in Exhibit G to the Operating Agreement.

 

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[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

3.10 Subsequent Acquisitions in Downdip Area.  In the event Encana acquires an oil and gas Leasehold Interest or an option to acquire any oil and gas Leasehold Interest in the Downdip Area (“Acquisition”) prior to drilling [***] Net Carry Wells, Encana shall provide written notice of the terms, conditions, burdens, obligations and commitments associated with the Acquisition to NWN within thirty (30) days of the closing of the Acquisition.  If an Acquisition includes lands located within the Downdip Area and lands located outside the boundaries of the Downdip Area, the Acquisition shall be deemed to include only those lands located inside the Downdip Area for purposes of this Section 3.10, unless the Parties agree otherwise.  NWN shall have thirty (30) days after receipt of the notice to notify Encana whether NWN elects to participate in well(s) that Encana may elect to drill on the Acquisition lands (“Election Wells”).  Failure to provide such election notice within the thirty- (30-) day period will be deemed an election not to participate in any Election Well, and the interests acquired in the Acquisition will not be subject to this Agreement or the Operating Agreement.  If NWN elects to participate, the Election Well(s) will be considered to be drilled on the Leases as described in the first Recital above and will be deemed Carry Wells subject to the terms of the Agreement, provided that (i) an election by NWN to participate will be deemed consent and agreement by NWN to be bound by the terms, conditions, burdens, obligations and commitments of the Acquisition, (ii) Encana shall have no obligation to extend any warranty, representation or indemnification under this Agreement to NWN with respect to any Election Well, and (iii) NWN’s election to participate in any Election Well will be at its sole cost, risk, expense and liability.  If an Election Well is drilled and completed in a location in which Encana and NWN collectively own or acquire less than One Hundred Percent (100%) of the working interest, the NWN Share payable for such Carry Well, and the interests assigned to NWN for such Carry Well pursuant to Section 3.4 and 3.5 shall each be proportionately reduced according to the formulae provided in those Sections, and such decimal fraction so calculated shall be the fraction of a Net Carry Well represented by such Election Well for the purpose of  determining when [***] Net Carry Wells have been drilled.

 

3.11 Boundary Line Wells.  In the event that a Carry Well is drilled and completed such that the bottomhole location is not in conformance with applicable setback requirements of the Wyoming Oil & Gas Conservation Commission, or if the well is in an approved spacing unit in which Encana and NWN collectively own less than One Hundred Percent (100%) of the working interest (“Boundary Well”), the NWN Share payable for such Carry Well, and the interests assigned to NWN for such Boundary Well pursuant to Section 3.4 or 3.5, as applicable, shall each be proportionately reduced according to the formulae in such Sections, and such fraction of a Net Carry Well shall be counted in determining when [***] Net Carry Wells have been drilled.

 

Section 4. Title and Other Information

 

4.1 Title Information.  NWN shall have the right, but not the obligation, to review title documentation in Encana’s file relating to any Carry Well at any time.  Any title information provided to NWN by Encana is without warranty as to accuracy of title information.  Except as required by the Operating Agreement, Encana shall have no obligation to purchase new or supplemental abstracts of title.  Encana will undertake curative work in connection with title to 

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[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

the Carry Wells which is required by the Operating Agreement or any other operating agreement applicable to such Carry Well and which a reasonably prudent operator would undertake in a similar situation.  Encana shall use reasonable commercial efforts to ensure that no liens or encumbrances, other than Permitted Encumbrances, attach to the Updip Area or the Downdip Area prior to the time that all Carry Wells under this Agreement have been drilled and the respective assignments have been delivered, and to cause any such liens or encumbrances to be released reasonably promptly upon receipt of notice thereof.

 

4.2 Assumption of Certain Obligations. Subject to the other provisions of this Agreement, NWN shall not assume and shall not take title to any interest in the Property from Encana subject to any obligation not listed on the Disclosure Statement.  To the extent such obligations are found to exist, Encana and NWN shall take such actions as are necessary to provide NWN with the full benefit of the transactions contemplated by this Agreement as if such obligation did not exist.

 

Section 5. Operations

 

5.1 Operating Agreement.  Concurrent with the execution of this Agreement, Encana and NWN shall enter into the Operating Agreement that, subject to the terms of this Agreement, shall govern all operations for the Carry Wells and all Existing Wells in which NWN earns an interest pursuant to this Agreement.  Encana shall be designated as Operator under the Operating Agreement.  The Parties may record or file all documents reasonably required to perfect the Operator’s lien and NWN’s lien, including but not limited to (i) a detailed memorandum in the form attached to the Operating Agreement as Exhibit I that Encana shall promptly record in the official records of Sublette County, Wyoming, upon satisfaction of the condition subsequent identified in Section 7, and (ii) a financing statement in the form attached to the Operating Agreement as Exhibit J that shall be filed with the Delaware Secretary of State upon satisfaction of the condition subsequent identified in Section 7, both of which shall secure Encana’s obligations under the Operating Agreement.

 

As each Carry Well is drilled, completed and equipped as provided in Section 3.1, Encana and NWN shall each bear and pay its share of the costs and expenses of such Carry Well in accordance with this Agreement and the Operating Agreement, provided that, as between Encana and NWN, Encana shall bear One Hundred Percent (100%) of all capital costs for:

 

(i) equipment or improvements in the [***] beyond the wellhead of any well governed by the Operating Agreement (including without limitation the cost of connecting the wells to the [***]),

 

(ii)  equipment and improvements at the CDPs, and

 

(iii)  improvements to the [***].

 

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In addition, Encana shall bear [***] of all costs for  fines and/or penalties arising out of alleged violations of [***], without regard to whether such violation arose or was discovered prior to or during the Term of this Agreement.  Encana shall also bear [***] of costs for remediation or remedial action which exceed Twenty Thousand Dollars ($20,000) as lease operating expense incurred per incident.

 

Encana shall also bear and pay One Hundred Percent (100%) of the costs to [***] pursuant to this Agreement and [***] and to perform [***] in accordance with applicable laws, including but not limited to [***].

 

Provided NWN has timely paid the NWN Share for any specific Carry Well, NWN shall be entitled to, and Encana shall credit to the account of NWN, and unless Encana markets NWN Gas, deliver to NWN at the Redelivery Points its Net Revenue Interest share of Gas produced from each Carry Well drilled in the Downdip Area, and NWN’s cumulative Net Revenue Interest share of Gas produced from each Assigned Section from the effective date of the respective Wellbore Assignments and Assignments and Stipulations of Interest.

 

5.2 Conflicts.  If there is any conflict between this Agreement and the Operating Agreement, this Agreement shall control.

 

5.3 Sharing of Recoveries.  If Encana declares a Force Majeure Event pursuant to Section 9 as a result of the interruption or suspension of the receipt or delivery of Gas (or any of its constituents) due to the inability or failure of any party not a party to this Agreement to receive or deliver such Gas (a “Third Party Failure”), then in the event of the recovery by Encana of any damage amount or other compensation for a Third Party Failure, NWN shall be entitled to a share of such damage amount or compensation calculated based on NWN’s proportionate share of the volume of Gas from the Property affected as a percentage of the total volume of Gas affected.

 

Section 6. Representations, Warranties and Agreements

 

6.1 Representations and Warranties.  Each Party, with respect to itself only, represents and warrants to the other Party the following:

 

(i) Existence.  Each Party is duly organized, validly existing and in good standing under the applicable laws of the State of its incorporation or formation, and is qualified to do business and is in good standing in the State of Wyoming and in every other jurisdiction where the failure to so qualify would have a Material Adverse Effect on its ability to execute, deliver and perform this Agreement and the other agreements contemplated in this Agreement.

 

(ii) Power.  Except for the required approval described in Section 7, each Party has all requisite power and authority to (a) own, lease or operate its assets and properties and to carry on the business as now conducted, and (b) enter into and perform its obligations under this Agreement and to carry out the transactions contemplated by this Agreement.

 

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(iii) Authority.  Each Party has taken (or caused to be taken) all acts and other proceedings required to be taken by such Party to authorize the execution, delivery and performance by such Party of this Agreement and the other agreements contemplated in this Agreement.  This Agreement has been duly executed and delivered by each Party and constitutes the valid and binding obligation of each Party, enforceable against such Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the rights of creditors generally and by principles of equity, whether considered in a proceeding at law or in equity.  The execution, delivery and performance of this Agreement by each Party does not and will not (a) conflict with, or result in any violation of or constitute a breach or default (with notice or lapse of time, or both) under (1) any provision of the organizational documents of such Party, or (2) any applicable statute, law, rule, regulation, order, writ, judgment, decree, agreement, instrument or license applicable to such Party, except as would not have a Material Adverse Effect, or (b) require the submission of any notice, report, consent or other filing with or from any Governmental Authority or third persons, other than such consents as are customarily obtained after assignment of an interest similar to the Wellbore Assignment and Assignment and Stipulation of Interest.

 

(iv) Pending Matters.  Except as set forth in Section 6.1(iv) of the Disclosure Statement, there are no actions, suits or proceedings by a third party or a Governmental Authority pending or, to such Party’s knowledge, threatened against a Party which if decided unfavorably to such Party could have a Material Adverse Effect on the ability of such Party to execute, deliver or perform this Agreement or could materially affect its title to, or ownership or operation of the Property.

 

(v) Broker Fee.  No Party has incurred any obligation or liability, contingent or otherwise, (or taken any action) for any fee payable to a broker or finder with respect to the matters provided for in this Agreement or the other agreements contemplated in this Agreement which could be attributable to or charged to the other Party.  Each Party shall indemnify, defend and hold harmless the other Party from any claims, damages, liabilities, costs and expenses, including reasonable attorneys’ fees in the event the prior sentence should be or become untrue as to such Party.

 

(vi) Enforceability.  This Agreement has been duly executed and delivered by each Party.  This Agreement and the Operating Agreement constitute, and each Wellbore Assignment and Assignment and Stipulation of Interest will constitute, on the date of their respective executions, the legal, valid and binding acts and obligations of each Party, enforceable against each Party in accordance with its terms, subject, however, to bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally and to general principles of equity.

 

(vii) No Conflicts.  Encana’s execution, delivery and performance of this Agreement and the Operating Agreement, and each Wellbore Assignment and Assignment and Stipulation of Interest, and NWN’s execution, delivery and performance of this Agreement and the Operating Agreement will not (a) result in a breach of or constitute a default under any Lease or any agreement binding or affecting the Leasehold Interests, any indenture, bank loan, credit agreement or farmout agreement, program agreement or operating agreement, or any other material agreement or instrument to which either Encana or NWN is a party or by either Party or 

 

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its respective properties may be currently bound or affected, (b) cause either Party to become obligated to, or to offer to, prepay, redeem or purchase any indebtedness, or (c) except as set forth in Section 6.2(vii) of the Disclosure Statement, result in or require the creation or imposition of any mortgage, lien, pledge, security interest, charge or other encumbrance upon or of any of the properties or assets of either Party (including the Leasehold Interests).  Neither Party is in default under any order, writ, judgment, decree, determination, indenture, agreement or instrument in any manner that now or in the future could reasonably be expected to have a Material Adverse Effect.

 

(viii) Governmental Approvals.  Except for approvals by Governmental Authorities that are customarily obtained after execution of the respective document and listed in Section 6.1(viii) of the Disclosure Statement, no authorization, consent, approval, license or exemption of, and no filing or registration with, any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for the valid execution and delivery by either Party of, or the performance by either Party of its respective obligations under this Agreement or the Operating Agreement that has not been obtained or performed or the period for objection thereto expired.

 

6.2 Representations and Warranties of Encana.   Encana represents and warrants to NWN, and to any mortgagee or beneficiary under a deed of trust given by NWN, as of the Effective Date and on each date Encana executes, acknowledges, and delivers an assignment pursuant to Sections 3.4 and 3.5, the following:

 

(i) Disclosure.  Taken as a whole, and to the best of Encana’s knowledge based upon commercially reasonable inquiry, none of the information, memoranda, exhibits, reports, financial statements, and other data furnished by or on behalf of Encana to NWN in connection with the transactions described in this Agreement, including without limitation the Reserve Report, contains an untrue statement of a material fact or omits to state any material fact.  To the best of Encana’s knowledge based upon commercially reasonable inquiry, there is no material fact that has not been disclosed to NWN that might reasonably be expected to have a Material Adverse Effect.  The Leasehold Interests constitute all of the properties and interests of Encana within the Updip Area and the Downdip Area that are the subject of the Reserve Report, and, except for (a) production from the Property in the ordinary course of business, (b) matters listed in Section 6.2(i) of the Disclosure Statement, and (c) changes in the general market prices of oil and natural gas, no material adverse change in the condition of or remaining recoverable reserves attributable to the Property has occurred since the date of the Reserve Report.  Except for matters listed in Section 6.2(i) of the Disclosure Statement, no material adverse change in the financial condition, or results of operations or cash flows, of Encana has occurred since the date of the most recent audited financial statements delivered to NWN, if any.  The actions of Encana in furnishing information to NWN in connection with the transactions described in this Agreement do not and will not violate any duty owed by Encana to any Person to which such information relates or any obligation of Encana under any existing agreement, document, or instrument.

 

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(ii) Lessee Qualification.  Encana is qualified pursuant to federal and state law, as applicable, to own and operate federal and state oil and gas leases in the State of Wyoming, and is in good standing with, authorized by, and qualified with all Governmental Authorities with jurisdiction over operations on such oil and gas leases, to the extent Encana is required by such Governmental Authorities to so qualify and maintain good standing.

 

(iii) Status of Leases.  The Leases are in full force and effect, are valid and subsisting and cover the entire estate which they purport to cover.  Encana is not aware of any material alleged or actual default under any contract or agreement pertaining to the Property, including without limitation the Basic Contracts.  No party to any Lease has given to Encana or threatened to give notice of any action to terminate, cancel, rescind or procure judicial reformation of any Lease or of any provision thereof.

 

(iv) Marketable Title.  Encana represents and warrants that it holds Marketable Title to the Leasehold Interests as shown on Exhibit A-1 sufficient to convey to NWN the percentages of the working interest and Net Revenue Interest in the Leasehold Interests provided in Section 3 of this Agreement, provided that this warranty is personal to NWN and may not be conveyed by NWN.  Encana owns good title to the Assets, free and clear of any encumbrances, liens or security interests other than Permitted Encumbrances.

 

(v) Consents, Preferential Rights and Required Notices.  Except as disclosed in Section 6.2(v) of the Disclosure Statement, all consents and approvals necessary to permit the valid conveyance by Encana of the Leasehold Interests and execution and delivery of this Agreement and the Operating Agreement, and each Wellbore Assignment and Assignment and Stipulation of Interest, have been obtained (or deemed obtained, due to the time for exercising such preferential rights having expired).  Waivers of all preferential purchase rights affecting Encana’s right, title and interest in the Leasehold Interests have been obtained.  All advance notifications required to be given to third parties of the transactions contemplated in this Agreement and the Operating Agreement, and each Wellbore Assignment and Assignment and Stipulation of Interest, necessary to permit the valid conveyance to NWN of the Leasehold Interests and execution and delivery of this Agreement and the Operating Agreement, and each Wellbore Assignment and Assignment and Stipulation of Interest, have been timely and properly given.

 

(vi) Operations.  Neither the Existing Wells nor the Carry Wells that will be drilled pursuant to this Agreement are subject to any third-party operating agreements.

 

(vi) Commitments to Contracts.  Except as set forth in Section 6.2(vii) of the Disclosure Statement:

 

(a) no third party has any right to purchase from Encana any natural gas from the Property (including any call, right of first refusal or preferential right to purchase) that does not terminate within one month or is not terminable by Encana without penalty on notice of one month or less;

 

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             (b) neither the Leasehold Interests nor the Gas attributable to the Leasehold Interests are subject, committed, or dedicated to any joint operating, unitization, pooling, communitization or area of mutual interest agreement; and

 

(c) neither the Leasehold Interests nor the Gas attributable to the Leasehold Interests are subject, committed, or dedicated to any contract that will or could reasonably be expected to prevent or interfere with the ownership, exploration, development, operation, maintenance or use of any of the Leasehold Interests in accordance with prudent industry practices or in accordance with the manner in which such Leasehold Interest is currently being owned, explored, developed, operated, maintained or used.

 

(viii) Documents.  To the best of Encana’s knowledge upon commercially reasonable inquiry, (a) all Basic Contracts are listed on Section 6.2(viii) of the Disclosure Statement; (b) Encana has furnished or made available to NWN accurate and complete copies of all Basic Contracts; (c) all Basic Contracts are in full force and effect and are the valid and legally binding obligations of the parties to the Basic Contracts and are enforceable in accordance with their respective terms; (d) no default, event of default, or other similar condition or event (however described) exists or, with the lapse of time or the giving of notice, or both, would exist for any Basic Contracts; and (e) the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in a breach of, constitute a default under, or result in a violation of the provisions of any Basic Contract to which Encana is a party or any overriding royalty agreement applicable to those lands subject to the Leases.

 

(ix) Compliance with Laws.  Except as disclosed in Section 6.2(ix) of the Disclosure Statement, and to the best of Encana’s knowledge based upon commercially reasonable inquiry, (a) the Leasehold Interests have been and are being owned and operated, in all material respects, in accordance with all applicable laws, rules and regulations (including Environmental Laws) of all Governmental Authorities having or asserting jurisdiction relating to the Leasehold Interests or to the ownership and operation of the Leasehold Interests, and (b) Encana has obtained and is and has been in compliance in all material respects with all licenses, approvals and permits required under any such laws, and all licenses, approvals and permits are in full force and effect (including those relating to past or present treatment, storage, disposal or release of a Hazardous Substance into the environment).

 

(x) No Casualties.  During the last twelve (12) months, no Casualty Defect adversely affecting (a) the operation of the Leasehold Interests or (b) the ability of Encana to perform Encana’s obligations under this Agreement, the Wellbore Assignments, the Assignments of Leasehold and Wellbore Interests, and the Operating Agreement, has occurred.

 

(xi) ORRI Amendments.  The  overriding royalty agreements affecting the Leases that were subject to that certain Amendment of Assignments of Overriding Royalty Interests dated June 1, 2000 have been made subject to an amendment in the identical form to that certain Second Amendment of Assignments of Overriding Royalty Interest between Encana and  Joseph J. Scott Trust dated December 27, 2010.

 

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The representations and warranties provided in this Section 6.2 shall in no event be deemed waived or made ineffective by reason of NWN’s opportunity for or results from conducting due diligence prior to the execution of this Agreement.

 

Section 7. Condition Subsequent:  OPUC Approval

 

This Agreement shall have no force and effect unless and until the OPUC approves this Agreement in full and without modification in an order satisfactory to NWN.

 

Section 8. Additional Covenants

 

8.1 Encana shall keep the representation and warranty in Section 6.2(iii) true until the obligations under Section 3 have been completed.

 

8.2 Encana shall use commercially reasonable efforts to maintain the Leases in effect without liens or encumbrances arising after the Effective Date until all Carry Wells have been drilled and all assignments required by Sections 3.4 and 3.5 have been recorded.

 

8.3 Encana shall not, during the Term, create or suffer any calls on production or contracts for sale of production encumbering NWN’s interest in all Existing Wells, Carry Wells, and any future wells drilled in the Updip Area which provide for the delivery of Gas at a price below the prevailing market price.

 

8.4 Prior to drilling a Carry Well, Encana shall have obtained all consents, approvals, certificates, licenses, permits, and other authorizations of the necessary Governmental Authorities required for Encana to own, develop, operate, and maintain the Property insofar as it pertains to such Carry Well.

 

8.5 Each Party shall take its pro-rata share of all Gas produced from the Property so as to not go out of balance.

 

8.6 In all material respects, Encana shall use commercially reasonable efforts to ensure that Encana’s operations on the Property comply with all applicable laws, rules and regulations (including Environmental Laws) of all Governmental Authorities having or asserting jurisdiction relating to the Property.

 

8.7 As to the overriding royalty interests owned by Encana affecting the Leases, if any, insofar as Leasehold Interests are assigned to NWN pursuant to this Agreement, Encana shall accept payment calculated pursuant to terms in the identical form to that certain Second Amendment of Assignments of Overriding Royalty Interest between Encana and  Joseph J. Scott Trust dated December 27, 2010.

 

Section 9. Force Majeure

 

If a Party is rendered unable, wholly or in part, by a Force Majeure Event to carry out its obligations under this Agreement, other than the obligations to make monetary payments and to 

 

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Section deliver assignments of interests in the Carry Wells, the affected Party shall give the other Party prompt written notice describing the Force Majeure Event in reasonable detail.  Thereupon, the obligations of the Party giving notice, so far as it is affected by the Force Majeure Event, shall be suspended and any time periods provided for in this Agreement shall be extended for a period equal to the period of the continuance of the Force Majeure Event.  The affected Party shall use all reasonable diligence to remove the Force Majeure Event as quickly as practicable.  The requirement that any Force Majeure Event be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts or other labor difficulty by the Party affected, contrary to its wishes, and settlement or resolution of such matters shall be within the discretion of the affected Party.

 

Section 10. Gas Gathering and Processing Services, Marketing

 

10.1 Provision of Services.  NWN Gas shall be gathered, processed and/or treated (“Services”) on facilities owned and operated by third parties pursuant to the [***] as the same may be amended from time to time.   The Parties shall execute, and Encana shall cause [***] and Enterprise Gas Processing, LLC to execute the Letters of Attornment. As provided in the Letters of Attornment, [***].  Subject to the terms of this Agreement, NWN shall bear its allocated share of the fees and costs for Services under the [***], including, without limitation, its allocated share of any fees and costs associated with the delivery of gas in violation of applicable gas quality specifications.  Production from Existing Wells operated by Encana or in which Encana has an interest at the Effective Date shall not be included for purposes of determining NWN’s allocated share of incremental capacity fees and costs, until such time as NWN may take assignment of any interest in such wells pursuant to Section 3.5 of this Agreement.  Encana shall invoice NWN on a monthly basis for NWN’s share of fees and costs incurred pursuant to this Section 10.1.  Except with respect to said fees and costs, Encana RELEASES and DISCHARGES NWN from any and all liabilities, losses, and costs suffered or sustained by Encana in connection with the provision of the Services pursuant to this Section 10.1.

 

10.2 Redelivery Obligations and Conveyance of Rights to Encana.  With respect to the provision of Services for NWN Gas, the Parties agree as follows:

 

(i) Encana shall cause to be gathered and redelivered at the Redelivery Points NWN Gas less the Gas consumed and the Gas lost and unaccounted for (in proportion to NWN’s Net Revenue Interest in the wells from which the Gas was produced) in connection with the gathering of NWN Gas.  NWN shall be entitled to the [***] NWN Gas at the [***] will be redelivered to the Redelivery Points in the same manner as Encana’s gas.

 

 

 

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(ii) Curtailments.  If the quantity of NWN Gas and all other Gas available for delivery at any point on the facilities exceeds the capacity of the facilities available to the Parties pursuant to the Gathering Agreement and Processing Agreement, then Encana shall, without liability, allocate the available capacity pro-rata by volume between Encana and NWN.  During any period when all or any portion of the Services are unavailable because of a Force Majeure Event, or maintenance, or if the third parties providing the Services determine that the operation of all or any portion of the facilities will cause injury or harm to persons or property or to the integrity of such facilities, NWN Gas may be curtailed on a pro-rata basis as described in this Section 10.2(ii) without liability.  As between Encana and NWN, if the processing of NWN Gas is partially or entirely interrupted pursuant to the Processing Agreement, the Gas produced from the Property that is delivered to Encana at the Redelivery Points shall be allocated between Encana and NWN based on their respective interests in the Property.

 

10.3 Marketing Election.  NWN desires that Encana market NWN Gas for NWN, and Encana agrees that it will procure such marketing services under the terms of the Marketing Agreement.  [***].  For so long as the Marketing Agreement remains in effect, Encana shall be responsible for payment of all burdens applicable to NWN Gas.

 

10.4 Take-In-Kind Election. NWN shall have the right but not the obligation to take its Gas in-kind at the Redelivery Points pursuant to Article VI.G. of the Operating Agreement.  If NWN makes an election to take its Gas in-kind, (i) the Marketing Agreement shall terminate, (ii) NWN shall remit to Encana [***], and (iii) NWN shall be responsible for making the necessary arrangements to dispose of NWN Gas at the Redelivery Points.

 

10.5 Amendment of Gathering and Processing Agreements.  Encana may amend the Gathering Agreement or the Processing Agreement subject to the following:

 

(i) Encana may enter into any such amendment without the consent of NWN so long as such amendment does not affect the rights under the Gathering Agreement or the Processing Agreement as assigned under the Letters of Attornment;

 

(ii) If Encana desires that NWN’s rights be subject to the amendment, Encana shall provide thirty (30) days advance written notice to NWN in order to provide NWN an opportunity to discuss with Encana the amendments in advance of and during negotiations.  The Parties acknowledge that because [***], and because Encana has interests in multiple producing properties other than the Leases, [***].

 

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Section 11. Indemnities

11.1 [***].

 

11.2 [***].

 

Section 12. Term 

 

The “Term” of this Agreement shall begin on the Effective Date and shall continue in full force and effect until all Carry Wells and all wells in the Assigned Sections have been plugged and abandoned and those portions of the Property reclaimed in accordance with applicable law, subject to the provisions of Section 14 below.

Section 13. Assignability

 

Either Party may assign or transfer, by assignment, sale, farmout or otherwise, or pledge or encumber in any way, in whole or in part, any of its rights or obligations under this Agreement or its interests in the Property and Carry Wells without the prior written consent of the other Party provided that (i) the assignment or transfer shall be void unless the assignee or transferee is expressly made subject to and agrees to be bound by the terms of this Agreement; (ii) if Encana seeks to assign or transfer all or substantially all of its interest in the Property, the Updip Area, or the Downdip Area, it shall promptly provide written notice to NWN of this fact, and if NWN so desires, NWN may request that Encana market NWN’s interests in the Property, the Updip Area, or the Downdip Area on NWN’s behalf on the same terms as Encana is marketing its interests, subject to NWN bearing its proportionate share of any costs associated with such marketing; and (iii) if Encana assigns or transfers all or substantially all of its interest in the Property, NWN shall have the right to terminate the obligation to fund and drill Carry Wells under this Agreement.

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Section 14. Termination of Obligations to Fund and Drill Carry Wells 

 

14.1 Right of Termination of Obligation to Fund and Drill Carry Wells.  The obligation to fund and drill Carry Wells under this Agreement may be terminated at any time, such termination to be effective upon delivery of a notice of termination by the terminating Party(ies):

 

(i) By mutual consent of the Parties;

 

(ii) By Encana pursuant to Section 3.3 above;

 

(iii) By NWN pursuant to Section 13 above;

 

(iv) By either Party if a Force Majeure Event delays the drilling of Carry Wells more than one (1) year;

 

(v) By NWN if drilling is more than [***] Net Carry Wells behind schedule for any reason, regardless of whether all or part of such delay is due to a Force Majeure Event, compared to the Drilling Schedule;

 

(vi) By either Party if the other Party has a Material Change in Financial Condition;

 

(vii) By Encana in the event that the monthly Composite PPI exceeds the Composite PPI from December 2010 by a factor of more than One Hundred Thirty Percent (130%) at any time after January 2014;

 

(viii) By NWN if it will prospectively lose substantially all of the benefit to its customers from drilling additional Carry Wells, as determined in OPUC proceedings approving the transaction, as a result of changes in tax laws governing this transaction or Environmental Laws governing the drilling of Carry Wells; or

 

(ix) By either Party in the event that IRS treatment of the tax partnership structure set forth in Exhibit G to the Operating Agreement removes substantially all of the tax benefits of the transaction.

 

14.2 Effect of Termination; Survival of Provisions. If the obligation to fund and drill Carry Wells under this Agreement is terminated pursuant to Section 14.1, then neither Encana nor NWN shall have the obligation to fund or drill additional Carry Wells and Encana shall return any cumulative Unspent NWN Share to NWN within thirty (30) days after such termination; provided that if either Party is in material default of its obligations under this Agreement at the time this Agreement is so terminated, such defaulting Party shall continue to be liable to the other Party for damages or specific performance in respect of such default, except as provided in Section 3.3, and such liability shall not be affected by such termination.  Upon completion of the obligation to fund and drill Carry Wells, or upon earlier termination of the obligation to fund and drill Carry Wells pursuant to Section 14.1 or Section 14.3, the obligations under Section 3, Section 4, Section 6.1(iv), Section 6.1(v), Section 6.2 (except Sections 6.2(iv)

 

Page 28 of 35

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

and 6.2(xi)), Section 8 (except Section 8.5-8.7), Section 15.2, Section 16, Section 17, Section 21, and Section 24 of this Agreement shall terminate, provided that the remainder of this Agreement shall continue in full force and effect until all Carry Wells and all wells in the Assigned Sections have been plugged and abandoned and those portions of the Property reclaimed in accordance with applicable law, including but not limited to Environmental Laws.  Following termination of Section 24, disputes under this Agreement shall be governed by the dispute resolution procedure in the Operating Agreement.

 

14.3 Termination for Failure or Refusal to Drill Carry Wells.  In the event that Encana fails or refuses to designate and/or to drill Carry Wells as required by this Agreement for reasons other than those set forth in Section 9 or Section 14.1, and such failure or refusal is not remedied by Encana within thirty (30) days following receipt of written notice that NWN believes Encana is in default of its obligations to designate and/or drill Carry Wells, then NWN shall be entitled to compel specific performance of Encana’s obligations under this Agreement.  The Parties acknowledge that the Property and the rights conferred under this Agreement are unique and that, in the event of Encana’s failure or refusal to designate and/or to drill Carry Wells, NWN could not be made whole by monetary damages.

 

Section 15. Taxes 

 

15.1 Apportionment of Ad Valorem and Property Taxes.  Except as otherwise provided in this Section 15.1, all ad valorem real and personal property Taxes and similar obligations (“Property Taxes”), excluding gross product tax assessed pursuant to Wyoming Statutes § 39-13-102, with respect to the Leases and all property located on or used in connection with the Leases shall be borne by Encana.  Notwithstanding the foregoing, all Property Taxes with respect to any Downdip Carry Well or any interest in the Updip Area for a taxable period that includes the date on which an interest in such Downdip Carry Well or Updip Area is transferred to NWN pursuant to Sections 3.4 or 3.5 shall be apportioned between the Parties based upon (i) the total percentage interest in the Downdip Carry Well and the Updip Area that is transferred to NWN during such taxable period and (ii) the actual number of days during such taxable period that elapse before the date of transfer and the number of days in such taxable period after the transfer.  Encana shall be responsible for all Property Taxes apportioned to periods before the transfer and each of Encana and NWN shall be responsible for its percentage share of all Property Taxes apportioned to periods after the transfer.  If any refund, rebate or similar payment is received by Encana or NWN for Property Taxes that are apportioned between the Parties pursuant to this Section 15.1, such refund shall be apportioned between Encana and NWN in the same manner as Property Taxes for the period to which the refund relates.

 

15.2 Sales Taxes. Each Party shall be liable for and shall bear any sales and use Taxes, conveyance, transfer and recording fees and real estate transfer stamps or Taxes that may be imposed on such Party with respect to any transfer of property pursuant to this Agreement.  All such Taxes shall be collected and remitted by each Party respectively as required under applicable law.

 

Page 29 of 35

  

  

  

Section 16. Notices

 

All notices and communications required or permitted under this Agreement shall be in writing addressed as indicated below, and any communication or delivery made pursuant to this Section 16 shall be deemed to have been duly delivered upon the earliest of:  (i) actual receipt by the Party to be notified; (ii) three days after deposit with the U.S. Postal Service, certified mail, postage prepaid, return receipt requested; (iii) if by facsimile transmission, upon written confirmation of receipt by the receiving Party; or (iv) two days after deposit with Federal Express overnight delivery (or other reputable overnight delivery service), postage prepaid, return receipt requested.  Addresses for all such notices and communication shall be as follows:

To Encana:                      Encana Oil & Gas (USA) Inc.

370 17th Street, Suite 1700

Denver, Colorado  80202

Attention:  Team Lead Land, North Rockies Business Unit

Fax:   720.876.4551

	
  

	
With a copy of all notices to:

Encana Oil & Gas (USA) Inc.

370 17th Street, Suite 1700

Denver, Colorado  80202

Attention:  Debbie Nichols

Fax:   720.876.6009

To NWN:                      Northwest Natural Gas Company

220 NW Second Avenue

Portland, Oregon 97209-3991

Attention:  Randolph Friedman, Director, Gas Supply

Fax:           503.220.2584

	
  

	
With a copy of all notices to:

Northwest Natural Gas Company

220 NW Second Avenue

Portland, Oregon 97209-3991

Attention:  MardiLyn Saathoff

Fax:           503.220.2584

Either Party may, upon written notice to the other Party, change the address and person to whom such communications are to be directed.

Page 30 of 35

  

  

  

Section 17. Relationship of the Parties

This Agreement is not intended to create, and shall not be construed to create, an association for profit, a trust, a joint venture, a mining partnership or other relationship of partnership, or entity of any kind between the Parties.  Notwithstanding anything to the contrary contained in this Agreement, the Parties understand and agree that the arrangement and undertakings evidenced by this Agreement, taken together, result in a partnership for purposes of federal income taxation and for purposes of certain state income tax laws which incorporate or follow federal income tax principles as to tax partnerships.  For these purposes, the Parties agree to be governed by the tax partnership provisions in Exhibit G of the Operating Agreement, which are incorporated into this Agreement and made a part of this Agreement by this reference.  For every purpose other than the above-described income tax purposes, however, the Parties understand and agree that the liabilities of the Parties shall be several, not joint or collective, and that each Party shall be solely responsible for its own obligations except as otherwise provided in this Agreement.  In the event of any conflict or inconsistency between the terms and conditions in Exhibit G of the Operating Agreement and the terms and conditions of this Agreement or any attachment or exhibit to this Agreement, the terms and conditions in Exhibit G of the Operating Agreement shall govern and control.

Section 18. Entire Agreement

 

This Agreement and the exhibits to this Agreement contain the entire agreement of the Parties with respect to the subject matter of this Agreement and supersede all previous agreements or communications between the Parties, verbal or written, with respect to the subject matter of this Agreement.

 

Section 19. Governing Law; Venue for Disputes

 

This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Wyoming, without reference to its conflicts of laws provisions.

 

Section 20. Amendments; Waiver

 

No amendments or other modifications or changes to this Agreement shall be effective or binding on either Party unless the same shall be in a writing executed by both Parties.  No waiver by either Party of any one or more defaults by the other in the performance of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature.

 

Section 21. Public Announcements 

 

Unless otherwise agreed or required by law as determined either Party, neither Party shall make any public announcement or statement with respect to this Agreement or the transactions contemplated by this Agreement without the consent of the other Party, provided that the non-announcing Party shall be afforded an opportunity to review and comment upon any required public announcement or statement prior to the announcement or statement being made.  A Party

 

Page 31 of 35

  

  

  

shall obtain the consent of the other Party prior to including such other Party’s name in a press release issued at any time.

 

Section 22. Severability

 

If a court of competent jurisdiction determines that any clause or provision of this Agreement is void, illegal, unenforceable or unconscionable under any present or future law (or interpretation thereof), the remainder of this Agreement shall remain in full force and effect, and the clauses or provisions that are determined to be void, illegal, unenforceable or unconscionable shall be deemed severed from this Agreement as if this Agreement had been executed with the invalid provisions eliminated; provided, however, that notwithstanding the foregoing, if the removal of such provisions destroys the legitimate purposes of this Agreement, then this Agreement shall no longer be of any force or effect.  The Parties shall negotiate in good faith for any required modifications to this Agreement required as a result of this provision.

 

Section 23. Mutuality

 

The Parties acknowledge and declare that this Agreement is the result of extensive negotiations between them.  Accordingly, if there is any ambiguity in this Agreement, there shall be no presumption that this instrument was prepared solely by either Party.

 

Section 24. Dispute Resolution

 

The Parties agree to resolve all disputes concerning or relating to this Agreement pursuant to the provisions of this Section 24.  The Parties agree to submit all disputes to binding arbitration in Denver, Colorado.  The arbitration will be conducted according to the procedure that follows.  The arbitration proceedings shall be governed by Wyoming law and shall be conducted in accordance with the rules for Non-Administered Arbitration of Business Disputes published by The Center for Public Resources, Inc., with discovery to be conducted in accordance with the Federal Rules of Civil Procedure, and with any disputes over the scope of discovery to be determined by the Arbitrators (as defined below in this Section 24).  The arbitration shall be before a single Arbitrator chosen by the mutual agreement of the Parties, or if no agreement as to the identity of the Arbitrator can be reached within ten (10) days, a three- (3-) person panel of neutral Arbitrators, consisting of one person chosen by each Party, and the two Arbitrators so selected choosing the third.  The panel so chosen or the single person are referred to in this Agreement as the “Arbitrators.”  The Arbitrators shall conduct a hearing no later than sixty (60) days after submission of the matter to arbitration, and the Arbitrators shall render a written decision within thirty (30) days of the hearing.  At the hearing, the Parties shall present such evidence and witnesses as they may choose, with or without counsel.  Adherence to formal rules of evidence shall not be required, but the Arbitrators shall consider any evidence and testimony that they determine to be relevant, in accordance with procedures that they determine to be appropriate.  Any award entered in the arbitration shall be made by a written opinion stating the reasons and basis for the award made and any payment due pursuant to the arbitration shall be made within fifteen (15) days of the decision by the Arbitrators.  The decision of the Arbitrators shall be binding on the Parties, final and non-appealable, and may be filed in a court

 

Page 32 of 35

  

  

  

of competent jurisdiction and may be enforced by either Party as a final judgment of such court.  Each Party shall bear its own costs and expenses of the arbitration, provided, however, that the costs of employing the Arbitrators shall by shared equally by the Parties.

 

Section 25. Waiver of Specified Damages

 

FOR THE AVOIDANCE OF DOUBT, EACH PARTY EXPRESSLY DISCLAIMS, WAIVES AND RELEASES THE OTHER PARTY FROM ITS OWN EXEMPLARY, PUNITIVE, REMOTE OR SPECULATIVE DAMAGES OR ANY OTHER DAMAGES THAT ARISE SOLELY FROM THE SPECIAL CIRCUMSTANCES OF THE PARTY WHICH MAY NOT HAVE BEEN COMMUNICATED TO THE OTHER PARTY RELATING TO, ASSOCIATED WITH, OR ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. NO LAW, THEORY, OR PUBLIC POLICY SHALL BE GIVEN EFFECT WHICH WOULD UNDERMINE, DIMINISH, OR REDUCE THE EFFECTIVENESS OF THE FOREGOING WAIVER, IT BEING THE EXPRESS INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT SUCH DAMAGE WAIVER IS TO BE GIVEN THE FULLEST EFFECT, NOTWITHSTANDING THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY PARTY.

Section 26. Further Assurances

 

The Parties shall execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such instruments and take such other action as may be necessary or advisable to carry out their obligations under this Agreement and under any document or other instrument delivered pursuant to this Agreement.

 

Section 27. Rules of Construction

 

The headings of the articles and sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.  All references in this Agreement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise.  Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions.  Unless the context otherwise requires, “including” and its grammatical variations mean “including without limitation”; “or” is not exclusive; words in the singular form shall be construed to include the plural and vice versa; words in any gender include all other genders; references in this Agreement to any instrument or agreement refer to such instrument or agreement as it may be from time to time amended or supplemented; and references in this Agreement to any Person include such Person’s successors and assigns.  All references in this Agreement to exhibits refer to exhibits attached to this Agreement unless expressly provided otherwise.  This Agreement has been drafted with the joint participation of Encana and NWN

 

Page 33 of 35

  

  

  

and shall be construed neither against nor in favor of either such Party but in accordance with the fair meaning thereof.

 

Section 28. Counterpart Execution

 

This Agreement may be executed by signing an original or a counterpart thereof.  If this Agreement is executed in counterparts, all counterparts taken together shall have the same effect as if all the Parties had signed the same instrument.

 

 

[Remainder of page intentionally left blank.]

 

Page 34 of 35

  

  

  

 

This Agreement is executed and effective as of the Effective Date.

 

Encana:                                                                NWN:

 

Encana Oil & Gas (USA) Inc.                                                                Northwest Natural Gas Company

 

 

By: /s/                                                                      By: /s/                                               

 

John Schopp                                                                   Gregg S. Kantor

	
  

	
Vice President

	
Chief Executive Officer

	
  

	
North Rockies Business Unit

Page 35 of 35

  

  

  

Exhibit A

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011, by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

Property

Updip Area:                                           Township 29 North, Range 108 West of the 6th P.M.

Section 32:  All

Section 33:  All

Section 34:  All

Downdip Area:                                Township 29 North, Range 108 West of the 6th P.M.

Section 9:    All

Section 10:  All

Section 11:  SW/4

Section 14:  All

Section 15:  All

Section 16:  All

Section 17:  All

All within Sublette County, Wyoming.

Page 1 of 2

Carry and Earning Agreement – Exhibit A

  

  

  

 

Page 2 of 2

Carry and Earning Agreement – Exhibit A

  

  

  

Exhibit A-1

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011, by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

Lease Schedule

A)      Lessor:                           USA WYW 125944

Lessee:                           High Plains Energy Company

Effective Date:                           January 1, 1992

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 32:                      All

Section 33:                      All

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 78.462481%

Burdens of Record:

Royalty Interest - Minerals Management Service: 12.500000%

Overriding Royalty Interests: 9.037519%

	
B)

	
Lessor:

	
USA WYW 100902

Lessee:                           Eugene J. Wait, Jr.

Effective Date:                           August 1, 1986

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 34:                      All

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 77.182501%

Burdens of Record:

Royalty Interest - Minerals Management Service: 12.500000%

Overriding Royalty Interests: 10.317499%

Page 1 of 4

Carry and Earning Agreement – Exhibit A-1

  

  

  

C)      Lessor:                           USA WYW 128703

Lessee:                           McMurry Oil Company

Effective Date:                           March 1, 1993

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 10:  NE/4, SW/4

Section 14:  NE/4, N/2SW/4

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 78.462481%

Burdens of Record:

Royalty Interest - Minerals Management Service: 12.500000%

Overriding Royalty Interests: 9.037519%

D)      Lessor:                           USA WYW 118154

Lessee:                           Home Petroleum Corporation

Effective Date:                           December 1, 1989

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 9:  NE/4, SW/4

Section 17: NE/4, SW/4

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 78.462481%

Burdens of Record:

Royalty Interest - Minerals Management Service: 12.500000%

Overriding Royalty Interests: 9.037519%

Page 2 of 4

Carry and Earning Agreement – Exhibit A-1

  

  

  

E)      Lessor:                           USA WYW 144998

Lessee:                           McMurry Oil Company

Effective Date:                           May 1, 1992

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 11:  SW/4

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 78.462481%

Burdens of Record:

Royalty Interest - Minerals Management Service: 12.500000%

Overriding Royalty Interests: 9.037519%

F)      Lessor:                           USA WYW 127749

Lessee:                           McMurry Oil Company

Effective Date:                           November 1, 1992

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 15:  NE/4, SW/4

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 78.462481%

Burdens of Record:

Royalty Interest - Minerals Management Service: 12.500000%

Overriding Royalty Interests: 9.037519%

Page 3 of 4

Carry and Earning Agreement – Exhibit A-1

  

  

  

G)      Lessor:                           St WY 92 00196

Lessee:                           McMurry Oil Company

Effective Date:                           April 1, 1992

Description:                           Only insofar as the lease covers

Township 29 North, Range 108 West, 6th P.M.

Section 16:  NE/4, SW/4

Encana’s Working Interest: 100%

Encana’s Net Revenue Interest: 77.419173%

Burdens of Record:

Royalty Interest: 16.666667%

Overriding Royalty Interests: 5.914160%

Page 4 of 4

Carry and Earning Agreement – Exhibit A-1

  

  

  

Exhibit B-1

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011 by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

Wellbore Assignment and Conveyance

In this WELLBORE ASSIGNMENT AND CONVEYANCE (“Assignment”) dated effective as of 7:00 a.m. Mountain Standard Time on the date(s) set forth on Exhibit A attached hereto, (each individually, the respective “Effective Date”), Encana Oil & Gas (USA) Inc., whose address is 370 17th Street, Suite 1700, Denver, CO  80202 (“Assignor”) for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN, AND CONVEY unto Northwest Natural Gas Company, whose address is 220 N.W. Second Avenue, Portland, Oregon 97209-3991 (“Assignee”)  the following  (collectively, the “Assigned Interests”):

	
a.  

	
For each well and associated wellbore described on the attached Exhibit A (each, individually, a “Well” and collectively, the “Wells”), the working interest and Net Revenue Interest set forth therein as to the gaseous hydrocarbons found in the stratigraphic equivalent of the Lance Pool as encountered in each Well, defined as the interval correlative to that shown on the Schlumberger Phasor Induction-SFL with Linear Correlation Log run on December 4, 1994 in the Stud Horse Butte No. 13-27 well located in the southwest quarter of the southwest quarter of Section 27, Township 29 North, Range 108 West, 6th P.M. Sublette County, Wyoming, which is from a depth of 7,975 feet (equivalent to a subsea -695 feet) to a bottom depth of 12,400 feet (-5,120 feet, subsea), as defined by the Wyoming Oil & Gas Conservation Commission in Cause No. 1, Order No. 1, Docket No. 84-2003 dated April 25, 2003, but excepting and excluding any right, title or interest in and to those liquid hydrocarbons that are separated from the gas at a central delivery point.

	
b.  

	
The rights in and to the oil and gas leases described on the attached Exhibit A (“Leases”), insofar and only insofar as said Leases are necessary to operate, maintain, produce and plug and abandon the Wells, but excepting and excluding any right, title or interest in and to those liquid hydrocarbons that are separated from the gas at a central delivery point.

	
c.  

	
The interests in and to the personal property and fixtures associated with the Wells, including without limitation the following: tubing, casing and other equipment in the wellbore, and wellhead equipment.

Page 1 of  5

Carry and Earning Agreement – Exhibit B-1

  

  

  

d. All rights under the Gathering Agreement and Processing Agreement, insofar as they relate to the properties and interests described in paragraphs (a) through (c) above and are assigned to Assignee pursuant to the Letters of Attornment attached to the Carry and Earning Agreement.

	
e.  

	
All surface and subsurface rights incident or appurtenant to the to the properties and interests described in paragraphs (a) through (c) above, and all of Assignor’s right, title and interest in and to all easements, rights-of-way, permits, licenses, servitudes or other similar interests affecting the properties and interests described in paragraphs (a) through (c) above insofar as they are necessary for the production of gas from the Wells.

	
f.  

	
The right to use the Assets insofar as is necessary for the production, gathering and processing of gas produced from the Wells.

Assignor and Assignee further agree as follows:

	
1.  

	
This Assignment is made and accepted subject to, and Assignee assumes the Permitted Encumbrances to which the Leases may be subject to, to the extent the Permitted Encumbrances cover and affect the Assigned Interests.

	
2.  

	
Assignee accepts the Assigned Interests subject to all of the express and implied covenants and obligations of the Leases, insofar as they relate to the Assigned Interests.  Furthermore, Assignee accepts the Assigned Interests subject to the terms and conditions of all existing valid orders, rules, regulations and ordinances of federal, state and other governmental agencies if any, which cover and affect the Assigned Interests.

	
3.  

	
Assignor warrants title as against all parties claiming an interest in the Assigned Interests by, through or under Assignor.  This Assignment is made with full substitution and subrogation of Assignee in and to all covenants and warranties made or given by others before the Effective Date.

	
4.  

	
This Assignment is made in accordance with, and is subject to all the terms, provisions, and conditions of that certain Carry and Earning Agreement dated and effective as of May 1, 2011, by and between Assignor and Assignee (“Carry and Earning Agreement”) which is incorporated by this reference the same as though fully set out in this Assignment.  Capitalized terms not otherwise defined in this Assignment shall have the meanings provided in the Carry and Earning Agreement.  However, this Assignment is neither intended as, nor shall it be deemed to accomplish, a merger of the terms and provisions directly set out in this Assignment and the terms and provisions of said Carry and Earning Agreement.  Should there be any conflict between this Assignment and the Carry and Earning Agreement, the terms and conditions set out in the Carry and Earning Agreement shall prevail.  This Assignment is subject to the terms of the [***].

	
5.  

	
This Assignment is made in accordance with and is subject to that certain unrecorded Operating Agreement dated effective May 1, 2011 and attached to the Carry and Earning Agreement as Exhibit C.   Should there be any conflict between this Assignment and the foregoing Operating Agreement, the terms and conditions set out in this Assignment shall prevail.

Page 2 of 5

Carry and Earning Agreement – Exhibit B-1

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

 

	
6.  

	
The Assigned Interests do not include, and Assignor does not intend to assign and Assignee does not intend to receive, any interest in the following to the extent that such items do not directly relate to the operation of, and production of gas from, a Well:  all lands, minerals, oil and gas leases and lands pooled therewith, units, working interests, executory interests, reversionary interests, net profits interests, net revenue interests, term interests, royalty and overriding royalty interests, fee interests, surface interests, and any other interests of a similar nature, all contracts, agreements, licenses, and servitudes, all easements, leases, surface use, and right-of-way agreements, all other property and equipment not directly used in connection with the operation of, and production from, the Wells and any and all rights not expressly in this Assignment conveyed as part of the Assigned Interests.

	
7.  

	
The references in this Assignment to liens, encumbrances, burdens, defects, agreements and other matters shall not be deemed to recognize or create any rights in third parties or merge with, modify, or limit the rights of Assignor or Assignee, as between themselves.

	
8.  

	
This Assignment may be executed by signing an original or a counterpart of an original. If this Assignment is executed in counterparts, all counterparts taken together shall have the same effect as if Assignor and Assignee had signed the same instrument.

TO HAVE AND TO HOLD the assigned interest unto Assignee and its successors and assigns, subject to all the express and implied covenants and obligations of the Leases and this Assignment.

[Remainder of page intentionally left blank.]

Page 3 of 5

Carry and Earning Agreement – Exhibit B-1

  

  

  

EXECUTED this ___ day of ____20__, but effective as of the Effective Date(s) set forth on the attached Exhibit A .

ENCANA OIL & GAS (USA) INC.

By:_________________________________________

Constance D. Heath, Attorney in Fact

ACKNOWLEDGEMENT

STATE OF COLORADO                                                      §

§

CITY AND COUNTY OF DENVER                                                                §

BEFORE ME, the undersigned authority, on this day personally appeared Constance D. Heath, Attorney-in-Fact for ENCANA OIL & GAS (USA) INC., known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and consideration therein expressed and in the capacity therein stated.

GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this _________ day of __________ 20__.

MY COMMISSION EXPIRES:

______________________________                                                                

Notary Public in and for the State of Colorado

Page 4 of 5

Carry and Earning Agreement – Exhibit B-1

  

  

  

NORTHWEST NATURAL GAS COMPANY

By: ________________________________________

Name/Title:

ACKNOWLEDGEMENT

STATE OF  §

 §

COUNTY OF  §

BEFORE ME, the undersigned authority, on this day personally appeared _____________________, as ________________ for NORTHWEST NATURAL GAS COMPANY known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated.

__________ 20__.

MY COMMISSION EXPIRES:

______________________________                                                                           

Notary Public

Page 5 of 5

Carry and Earning Agreement – Exhibit B-1

  

  

  

Exhibit B-2

Attached to and made a part of that Carry and Earning Agreement

  dated and effective as of May 1, 2011 by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

Assignment and Stipulation of Interest

In this ASSIGNMENT AND STIPULATION OF INTEREST (“Assignment”) dated effective as of 7:00 a.m. Mountain Standard Time on the date(s) set forth on Exhibit A attached hereto, (each individually, the respective “Effective Date”), Encana Oil & Gas (USA) Inc., whose address is 370 17th Street, Suite 1700, Denver, CO  80202 (“Assignor”) for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN, AND CONVEY unto Northwest Natural Gas Company, whose address is 220 N.W. Second Avenue, Portland, Oregon 97209-3991 (“Assignee”) the following (collectively, the “Assigned Interests”):

 

 

	
a.  

	
For the lands described in Part I of the attached Exhibit A (the “Property”), the working interest and Net Revenue Interest set forth in Part II of the attached Exhibit A to the gaseous hydrocarbons found in the stratigraphic equivalent of the Lance Pool, defined as the interval correlative to that shown on the Schlumberger Phasor Induction –SFL with Linear Correlation Log run on December 4, 1994 in the Stud Horse Butte No. 13-27 well located in the southwest quarter of the southwest quarter of Section 27, Township 29 North, Range 108 West, 6th P.M., Sublette County, Wyoming, which is from a depth of 7,975 feet (equivalent to a subsea -695 feet) to a bottom depth of 12,400 feet (-5,120 feet, subsea), as defined by the Wyoming Oil & Gas Conservation Commission in Cause No. 1, Order No. 1, Docket No. 84-2003 dated April 25, 2003, but excepting and excluding any right, title or interest in and to those liquid hydrocarbons that are separated from the gas at a central delivery point.

	
b.  

	
The rights in and to the oil and gas lease described in Part III of the attached Exhibit A (“Lease”), insofar and only insofar the Lease applies to the Property, but excepting and excluding any right, title or interest in and to those liquid hydrocarbons that are separated from the gas at a central delivery point.

	
c.  

	
The interests in and to the personal property and fixtures associated with all production wells on the Property, including without limitation the following: tubing, casing and other equipment in the wellbore, and wellhead equipment.

	
d.  

	
All rights under the Gathering Agreement and Processing Agreement, insofar as they relate to the properties and interests described in paragraphs (a) through (c) above and are assigned to Assignee pursuant to the Letters of Attornment attached to the Carry and Earning Agreement.

Page 1 of 6

Carry and Earning Agreement – Exhibit B-2

  

  

  

	
 

	
 

	
e.  

	
All surface and subsurface rights incident or appurtenant to the to the properties and interests described in paragraphs (a) through (c) above, and all of Assignor’s right, title and interest in and to all easements, rights-of-way, permits, licenses, servitudes or other similar interests affecting the properties and interests described in paragraphs (a) through (c) above insofar as they are necessary for the production of gas from the Property.

	
f.  

	
The right to use the Assets insofar as is necessary for the production, gathering and processing of gas produced from the Property.

Assignor and Assignee further agree as follows:

	
1.  

	
This Assignment is made and accepted subject to, and Assignee assumes the Permitted Encumbrances to which the Lease may be subject to, to the extent the Permitted Encumbrances cover and affect the Assigned Interests.

	
2.  

	
Assignee accepts the Assigned Interests subject to all of the express and implied covenants and obligations of the Lease, insofar as they relate to the Assigned Interests.  Furthermore, Assignee accepts the Assigned Interests subject to the terms and conditions of all existing valid orders, rules, regulations and ordinances of federal, state and other governmental agencies if any, which cover and affect the Assigned Interests.

	
3.  

	
Assignor warrants title as against all parties claiming an interest in the Assigned Interests by, through or under Assignor.  This Assignment is made with full substitution and subrogation of Assignee in and to all covenants and warranties made or given by others before the Effective Date.

	
4.  

	
This Assignment is made in accordance with, and is subject to all the terms, provisions, and conditions of that certain Carry and Earning Agreement dated and effective as of May 1, 2011, by and between Assignor and Assignee (“Carry and Earning Agreement”) which is incorporated by this reference the same as though fully set out in this Assignment.  Capitalized terms not otherwise defined in this Assignment shall have the meanings provided in the Carry and Earning Agreement.  However, this Assignment is neither intended as, nor shall it be deemed to accomplish, a merger of the terms and provisions directly set out in this Assignment and the terms and provisions of said Carry and Earning Agreement.  Should there be any conflict between this Assignment and the Carry and Earning Agreement, the terms and conditions set out in the Carry and Earning Agreement shall prevail.  This Assignment is subject to the terms of the [***].

	
5.  

	
This Assignment is made in accordance with and is subject to that certain unrecorded Operating Agreement dated effective May 1, 2011 and attached to the Carry and Earning Agreement as Exhibit C.   Should there be any conflict between this Assignment and the foregoing Operating Agreement, the terms and conditions set out in this Assignment shall prevail.

Page 2 of 6

Carry and Earning Agreement – Exhibit B-2

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

	
 

	
 

	
6.  

	
The Assigned Interests do not include, and Assignor does not intend to assign and Assignee does not intend to receive, any interest in the following to the extent that such items do not directly relate to the operation of, and production of gas from, the Property:  minerals, surface interests and any other interests of a similar nature, contracts, agreements, licenses, and servitudes,  easements,  surface use and right-of-way agreements, all other property and equipment not directly used in connection with the operation of, and production from, the Property and any and all rights not expressly in this Assignment conveyed as part of the Assigned Interests

	
7.  

	
The Parties stipulate that as of each date set forth in Part IV of the attached Exhibit A, Assignee and Assignor, respectively, own the cumulative working interest and Net Revenue Interest set forth in Part IV of the attached Exhibit A in the Lease, insofar as the Lease pertains to the Property, and the production attributable thereto.

	
8.  

	
The references in this Assignment to liens, encumbrances, burdens, defects, agreements and other matters shall not be deemed to recognize or create any rights in third parties or merge with, modify, or limit the rights of Assignor or Assignee, as between themselves.

	
9.  

	
This Assignment may be executed by signing an original or a counterpart of an original. If this Assignment is executed in counterparts, all counterparts taken together shall have the same effect as if Assignor and Assignee had signed the same instrument.

[Remainder of this page left intentionally blank]

Page 3 of 6

Carry and Earning Agreement – Exhibit B-2

  

  

  

TO HAVE AND TO HOLD the assigned interest unto Assignee and its successors and assigns, subject to all the express and implied covenants and obligations of the Leases and this Assignment.

EXECUTED this ___ day of ____20__, but effective as of the Effective Date(s) set forth in Part II of the attached Exhibit A.

ENCANA OIL & GAS (USA) INC.

By:_________________________________________

Constance D. Heath, Attorney in Fact

ACKNOWLEDGEMENT

STATE OF COLORADO                                                      §

§

CITY AND COUNTY OF DENVER                                                                §

BEFORE ME, the undersigned authority, on this day personally appeared Constance D. Heath, Attorney-in-Fact for ENCANA OIL & GAS (USA) INC., known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and consideration therein expressed and in the capacity therein stated.

GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this _________ day of __________ 20__.

MY COMMISSION EXPIRES:

______________________________                                                                

Notary Public in and for the State of Colorado

Page 4 of 6

Carry and Earning Agreement – Exhibit B-2

  

  

  

NORTHWEST NATURAL GAS COMPANY

By: ________________________________________

Name/Title:

ACKNOWLEDGEMENT

STATE OF  §

 §

COUNTY OF  §

BEFORE ME, the undersigned authority, on this day personally appeared _____________________, as ________________ for NORTHWEST NATURAL GAS COMPANY known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated.

__________ 20__.

MY COMMISSION EXPIRES:

______________________________                                                                           

Notary Public

Page 5 of 6

Carry and Earning Agreement – Exhibit B-2

  

  

  

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT

Exhibit “C”

OPERATING AGREEMENT

DATED

	  	
May 1

	
,

	
2011

	
,

	
year

	
OPERATOR

	
Encana Oil & Gas (USA) Inc.

	  
	
CONTRACT AREA

	
Township 29, Range 108 West, 6th P.M.

	
 

	
 

	
                                   Sections 9, 10, 14, 15, 16, 17, 32, 33, 34: All

	
                                   Section 11: SW/4

	  
	
COUNTY OR PARISH OF

	
Sublette

	
, STATE OF

	
Wyoming

COPYRIGHT 1989 – ALL RIGHTS RESERVED

AMERICAN ASSOCIATION OF PETROLEUM

LANDMEN, 4100 FOSSIL CREEK BLVD.

FORT WORTH, TEXAS, 76137, APPROVED FORM.

A.A.P.L. NO. 610 – 1989

  

  

  

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

TABLE OF CONTENTS

Article                                                                  TitlePage

       I.DEFINITIONS 1

       II.EXHIBITS 1

       III.INTERESTS OF PARTIES 2

A.  OIL AND GAS INTERESTS: 2

B.  INTERESTS OF PARTIES IN COSTS AND PRODUCTION: 2

C.  SUBSEQUENTLY CREATED INTERESTS: 2

       IV.TITLES 2

A.  TITLE EXAMINATION: 2

B.  LOSS OR FAILURE OF TITLE: 3

1.  Failure of Title 3

2.  Loss by Non-Payment or Erroneous Payment of Amount Due 3

3.  Other Losses 3

4.  Curing Title 3

       V.OPERATOR 4

A.  DESIGNATION AND RESPONSIBILITIES OF OPERATOR: 4

B.  RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR: 4

1.  Resignation or Removal of Operator 4

2.  Selection of Successor Operator 4

3.  Effect of Bankruptcy 4

C.  EMPLOYEES AND CONTRACTORS: 4

D.  RIGHTS AND DUTIES OF OPERATOR: 4

1.  Competitive Rates and Use of Affiliates 4

2.  Discharge of Joint Account Obligations 4

3.  Protection from Liens 4

4.  Custody of Funds 5

5.  Access to Contract Area and Records 5

6.  Filing and Furnishing Governmental Reports 5

7.  Drilling and Testing Operations 5

8.  Cost Estimates 5

9.  Insurance 5

       VI.DRILLING AND DEVELOPMENT 5

A.  INITIAL WELL: 5

B.  SUBSEQUENT OPERATIONS: 5

1.  Proposed Operations 5

2.  Operations by Less Than All Parties 6

3.  Stand-By Costs 7

4.  Deepening 8

5.  Sidetracking 8

6.  Order of Preference of Operations 8

7.  Conformity to Spacing Pattern 9

8.  Paying Wells 9

C.  COMPLETION OF WELLS; REWORKING AND PLUGGING BACK: 9

1.  Completion 9

2.  Rework, Recomplete or Plug Back 9

D.  OTHER OPERATIONS: 9

E.  ABANDONMENT OF WELLS: 9

1.  Abandonment of Dry Holes 9

2.  Abandonment of Wells That Have Produced 10

3.  Abandonment of Non-Consent Operations 10

F.  TERMINATION OF OPERATIONS: 10

G.  TAKING PRODUCTION IN KIND: 10

(Option 1) Gas Balancing Agreement 10

(Option 2) No Gas Balancing Agreement 11

VII.          EXPENDITURES AND LIABILITY OF PARTIES 11

A.  LIABILITY OF PARTIES: 11

B.  LIENS AND SECURITY INTERESTS: 12

C.  ADVANCES: 12

D.  DEFAULTS AND REMEDIES: 12

1.  Suspension of Rights 13

2.  Suit for Damages 13

3.  Deemed Non-Consent 13

4.  Advance Payment 13

5.  Costs and Attorneys’ Fees 13

E.  RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:13

F.  TAXES: 13

VIII.          ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST 14

A.  SURRENDER OF LEASES: 14

B.  RENEWAL OR EXTENSION OF LEASES: 14

C.  ACREAGE OR CASH CONTRIBUTIONS: 14

i.

  

  

  

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

TABLE OF CONTENTS

D.     ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: 15

E.     WAIVER OF RIGHTS TO PARTITION: 15

F.     PREFERENTIAL RIGHT TO PURCHASE: 15

       IX.INTERNAL REVENUE CODE ELECTION 15

       X.CLAIMS AND LAWSUITS 15

       XI.FORCE MAJEURE 16

XII.          NOTICES 16

XIII.          TERM OF AGREEMENT 16

XIV.          COMPLIANCE WITH LAWS AND REGULATIONS  16

A.     LAWS, REGULATIONS AND ORDERS: 16

B.     GOVERNING LAW: 16

C.     REGULATORY AGENCIES: 16

XV.          MISCELLANEOUS 17

A.     EXECUTION: 17

B.     SUCCESSORS AND ASSIGNS: 17

C.     COUNTERPARTS: 17

D.     SEVERABILITY 17

XVI.          OTHER PROVISIONS 17

ii.

  

  

  

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

OPERATING AGREEMENT

THIS AGREEMENT, entered into by and between     Encana Oil & Gas (USA) Inc. ,

hereinafter designated and referred to as "Operator," and the signatory party or parties other than Operator, sometimes

hereinafter referred to individually as "Non-Operator," and collectively as "Non-Operators."

WITNESSETH:

WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land

identified in Exhibit "A," and the parties hereto have reached an agreement to explore and develop these Leases and/or Oil

and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,

NOW, THEREFORE, it is agreed as follows:

ARTICLE I.

DEFINITIONS

As used in this agreement, the following words and terms shall have the meanings here ascribed to them:

A.  The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of

estimating the costs to be incurred in conducting an operation hereunder.

B.  The term "Completion" or "Complete" shall mean a single operation intended to complete a well as a producer of Oil

and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation

and production testing conducted in such operation.

C.  The term "Contract Area" shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be

developed and operated for Oil and Gas purposes under this agreement.  Such lands, Oil and Gas Leases and Oil and Gas

Interests are described in Exhibit "A."

D.  The term "Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest

Zone in which the well was previously drilled, or below the Deepest Zone proposed in the associated AFE, whichever is the

lesser.

E.  The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the

cost of any operation conducted under the provisions of this agreement.

        wells

F.  The term "Drilling Unit" shall mean the area fixed for the drilling of one well  / by order or rule of any state or federal

body having authority.  If a Drilling Unit is not fixed by any such rule or order, a Drilling Unit shall be the drilling unit as

established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.

G.  The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be

located.

H.  The term "Initial Well" shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.

I.  The term "Non-Consent Well" shall mean a well in which less than all parties have conducted an operation as

provided in Article VI.B.2.

J.  The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who elects not to participate in a

proposed operation.

K.  The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous

hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is

specifically stated.

L.  The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts

of land lying within the Contract Area which are owned by parties to this agreement.

M.  The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas leases or interests therein

covering tracts of land lying within the Contract Area which are owned by the parties to this agreement.

N.  The term "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a

Completion in a shallower Zone.

O.  The term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned

in order to attempt a Completion in a different Zone within the existing wellbore.

P.  The term "Rework" shall mean an operation conducted in the wellbore of a well after it is Completed to secure,

restore, or improve production in a Zone which is currently open to production in the wellbore.  Such operations include, but

are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking,

Deepening, Completing, Recompleting, or Plugging Back of a well.

Q.  The term "Sidetrack" shall mean the directional control and intentional deviation of a well from vertical so as to

change the bottom hole location unless done to straighten the hole or drill around junk in the hole to overcome other

mechanical difficulties.

R.  The term "Zone" shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and

Gas separately producible from any other common accumulation of Oil and Gas.

Unless the context otherwise clearly indicates, words used in the singular include the plural, the word "person" includes

natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.

ARTICLE II.

EXHIBITS

The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

 

 

X       A.              Exhibit "A," shall include the following information:

(1) Description of lands subject to this agreement,

(2) Restrictions, if any, as to depths, formations, or substances,

(3) Parties to agreement with addresses and telephone numbers for notice purposes,

(4) Percentages or fractional interests of parties to this agreement,

(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,

(6) Burdens on production.

B.     Exhibit "B," Form of Lease.

X      C.     Exhibit "C," Accounting Procedure.

X      D.     Exhibit "D," Insurance.

X      E.     Exhibit "E," Gas Balancing Agreement.

 

 

     X          F.     Exhibit "F," Non-Discrimination and Certification of Non-Segregated Facilities.

X      G.     Exhibit "G," Tax Partnership.

X      H.     Other: Exhibit “H,” Marketing Agreement; Exhibit “I.” Memorandum; Exhibit “J.” Financing Statement.

-  -

  

  

  

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

If any provision of any exhibit, except Exhibits "E," "F" and "G," is inconsistent with any provision contained in

the body of this agreement, the provisions in the body of this agreement shall prevail.

ARTICLE III.

INTERESTS OF PARTIES

A.  Oil and Gas Interests:

If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this

agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit "B,"

and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

B.  Interests of Parties in Costs and Production:

Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne

and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their

interests are set forth in Exhibit "A."  In the same manner, the parties shall also own all production of Oil and Gas from the

Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.

Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other

burdens may be payable and except as otherwise expressly provided in this agreement, each party shall pay or deliver, or

cause to be paid or delivered, all burdens on its share of the production from the Contract Area up to, but not in excess of,

burdens shown on Exhibit “A” and shall indemnify, defend and hold the other parties free from any liability therefor.

Except as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is

burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts

stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend

and hold the other parties hereto harmless from any and all claims attributable to such excess burden.  However, so long as

the Drilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to

be paid or delivered, all burdens on production from the Contract Area due under the terms of the Oil and Gas Lease(s)

which such party has contributed to this agreement, and shall indemnify, defend and hold the other parties free from any

liability therefor.

No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party's

lessor or royalty owner, and if such other party's lessor or royalty owner should demand and receive settlement on a higher

price basis, the party contributing the affected Lease shall bear the additional royalty burden attributable to such higher price.

Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,

and in the event two or more parties contribute to this agreement jointly owned Leases, the parties' undivided interests in

said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.

C.  Subsequently Created Interests:

If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security

for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production

payment, net profits interest, assignment of production or other burden payable out of production attributable to its working

interest hereunder, such burden shall be deemed a "Subsequently Created Interest."  Further, if any party has contributed

hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interests, or other burden

in excess of the burdens

payable out of production created prior to the date of this agreement, / and such burden is not shown on Exhibit "A," such

burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such party's

Lease or Interest to exceed the amount stipulated in Article III.B. above.

The party whose interest is burdened with the Subsequently Created Interest (the "Burdened Party") shall assume and

alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other

parties from and against any liability therefor.  Further, if the Burdened Party fails to pay, when due, its share of expenses

chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in the

same manner as they are enforceable against the working interest of the Burdened Party.  If the Burdened Party is required

under this agreement to assign or relinquish to any other party, or parties, all or a portion of its working interest and/or the

production attributable thereto, said other party, or parties, shall receive said assignment and/or production free and clear of

said Subsequently Created Interest, and the Burdened Party shall indemnify, defend and hold harmless said other party, or

parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.

ARTICLE IV.

TITLES

A.  Title Examination:

Title examination shall be made on the Drillsite of any proposed well prior to commencement of drilling operations and,

      If

if / a majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made on the entire

Drilling Unit, or maximum anticipated Drilling Unit, of the well.   The opinion will include the ownership of the working

interest, minerals, royalty, overriding royalty and production payments under the applicable Leases.   Each party contributing

Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator

all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of

charge.  All such information not in the possession of or made available to Operator by the parties, but necessary for the

examination of the title, shall be obtained by Operator.  Operator shall cause title to be examined by attorneys on its staff or

      Upon request by Drilling Party                                                                                 the

by outside attorneys. / Copies of all title opinions shall be furnished to each / Drilling Party.  Costs incurred by Operator in

procuring abstracts, fees paid outside attorneys for title examination (including preliminary, supplemental, shut-in royalty

opinions and division order title opinions) and other direct charges as provided in Exhibit "C" shall be borne by the Drilling

Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties as such

interests appear in Exhibit "A."  Operator shall make no charge for services rendered by its staff attorneys or other personnel

in the performance of the above functions.

Each party shall be responsible for securing curative matter and pooling amendments or agreements required in

connection with Leases or Oil and Gas Interests contributed by such party.  Operator shall be responsible for the preparation

and recording of pooling designations or declarations and communitization agreements as well as the conduct of hearings

before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to

the conduct of operations hereunder.  This shall not prevent any party from appearing on its own behalf at such hearings.

Costs incurred by Operator, including fees paid to outside attorneys, which are associated with hearings before governmental

agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct

charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit "C."

-  -

  

  

  

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above

functions.

No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has

been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by

all of the Drilling Parties in such well.

B. Loss or Failure of Title:

1.  Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which results in a

reduction of interest from that shown on Exhibit "A," the party credited with contributing the affected Lease or Interest

(including, if applicable, a successor in interest to such party) shall have ninety (90) days from final determination of title

failure to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject

to Article VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining Oil and Gas

Leases and Interests; and,

(a) The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if

applicable, a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from

Operator or the other parties any development or operating costs which it may have previously paid or incurred, but there

shall be no additional liability on its part to the other parties hereto by reason of such title failure;

(b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the

Lease or Interest which has failed, but the interests of the parties contained on Exhibit "A" shall be revised on an acreage

basis, as of the time it is determined finally that title failure has occurred, so that the interest of the party whose Lease or

Interest is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;

(c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract

Area is increased by reason of the title failure, the party who bore the costs incurred in connection with such well attributable

to the Lease or Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and

burdens attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well

attributable to such failed Lease or Interest;

(d) Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest

which has failed, pay in any manner any part of the cost of operation, development, or equipment, such amount shall be paid

to the party or parties who bore the costs which are so refunded;

(e) Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises

by reason of title failure shall be borne severally by each party (including a predecessor to a current party) who received

production for which such accounting is required based on the amount of such production received, and each such party shall

severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;

(f) No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of

the Lease or Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title

it shall bear all expenses in connection therewith; and

(g) If any party is given credit on Exhibit "A" to a Lease or Interest which is limited solely to ownership of an

interest in the wellbore of any well or wells and the production therefrom, such party's absence of interest in the remainder

of the Contract Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest

is reflected on Exhibit "A."

2.  Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well

payment, minimum royalty or royalty payment, or other payment necessary to maintain all or a portion of an Oil and Gas

Lease or interest is not paid or is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary

liability against the party who failed to make such payment.  Unless the party who failed to make the required payment

secures a new Lease or Interest covering the same interest within ninety (90) days from the discovery of the failure to make

proper payment, which acquisition will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit "A"

shall be revised on an acreage basis, effective as of the date of termination of the Lease or Interest involved, and the party

who failed to make proper payment will no longer be credited with an interest in the Contract Area on account of ownership

of the Lease or Interest which has terminated.  If the party who failed to make the required payment shall not have been fully

reimbursed, at the time of the loss, from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest,

calculated on an acreage basis, for the development and operating costs previously paid on account of such Lease or Interest,

it shall be reimbursed for unrecovered actual costs previously paid by it (but not for its share of the cost of any dry hole

previously drilled or wells previously abandoned) from so much of the following as is necessary to effect reimbursement:

(a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less operating expenses and lease

burdens chargeable hereunder to the person who failed to make payment, previously accrued to the credit of the lost Lease or

Interest, on an acreage basis, up to the amount of unrecovered costs;

(b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed

to make payment, up to the amount of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and

marketed (excluding production from any wells thereafter drilled) which, in the absence of such Lease or Interest termination,

would be attributable to the lost Lease or Interest on an acreage basis and which as a result of such Lease or Interest

termination is credited to other parties, the proceeds of said portion of the Oil and Gas to be contributed by the other parties

in proportion to their respective interests reflected on Exhibit "A"; and,

(c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner

of the Lease or Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.

3. Other Losses: All losses of Leases or Interests committed to this agreement, other than those set forth in Articles

IV.B.1. and IV.B.2. above, shall be joint losses and shall be borne by all parties in proportion to their interests shown on

Exhibit "A."  This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because

express or implied covenants have not been performed (other than performance which requires only the payment of money),

and the loss of any Lease by expiration at the end of its primary term if it is not renewed or extended.  There shall be no

readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.

4. Curing Title: In the event of a Failure of Title under Article IV.B.1. or a loss of title under Article IV.B.2. above, any

Lease or Interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety

(90) day period provided by Article IV.B.1. and Article IV.B.2. above covering all or a portion of the interest that has failed

or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B.

shall not apply to such acquisition.

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

ARTICLE V.

OPERATOR

A.  Designation and Responsibilities of Operator:

Encana Oil & Gas (USA) Inc.                                                            shall be the Operator of the Contract Area, and shall conduct

and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of

this agreement.  In its performance of services hereunder for the Non-Operators, Operator shall be an independent contractor

not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance

with the election procedures contained in this agreement.  Operator shall not be deemed, or hold itself out as, the agent of the

Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third

party.  Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike

manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and

regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred

except such as may result from gross negligence or willful misconduct.

B. Resignation or Removal of Operator and Selection of Successor:

1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators.

If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of

serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a

successor.  Operator may be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest

based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be

deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and

Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an

operation then being conducted, within forty-eight (48) hours of its receipt of the notice.  For purposes hereof, "good cause" shall

mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of

operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.

Subject to Article VII.D.1., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first

day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator

or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of

Operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a

Non-Operator.  A change of a corporate name or structure of Operator or transfer of Operator's interest to any single

subsidiary, parent or successor corporation shall not be the basis for removal of Operator.

2.  Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a

successor Operator shall be selected by the parties.  The successor Operator shall be selected from the parties owning an

interest in the Contract Area at the time such successor Operator is selected.  The successor Operator shall be selected by the

affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A";

provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to

succeed itself, the successor Operator shall be selected by the affirmative vote of the party or parties owning a majority

interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that was

removed or resigned.  The former Operator shall promptly deliver to the successor Operator all records and data relating to

the operations conducted by the former Operator to the extent such records and data are not already in the possession of the

successor operator.  Any cost of obtaining or copying the former Operator's records and data shall be charged to the joint

account.

3.  Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have

resigned without any action by Non-Operators, except the selection of a successor.  If a petition for relief under the federal

bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all

Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or

assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in

possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators,

except the selection of a successor.  During the period of time the operating committee controls operations, all actions shall

require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A."  In

the event there are only two (2) parties to this agreement, during the period of time the operating committee controls

operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a

member of the operating committee, and all actions shall require the approval of two (2) members of the operating

committee without regard for their interest in the Contract Area based on Exhibit "A."

C.  Employees and Contractors:

The number of employees or contractors used by Operator in conducting operations hereunder, their selection, and the

hours of labor and the compensation for services performed shall be determined Operator, and all such employees or

contractors shall be the employees or contractors of Operator.

D.  Rights and Duties of Operator:

1. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive

contract basis at the usual rates prevailing in the area.  If it so desires, Operator may employ its own tools and equipment in

the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges

shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by

Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors

who are doing work of a similar nature.  All work performed or materials supplied by affiliates or related parties of Operator

shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and

standards prevailing in  the industry.

2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay

and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall

charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit "C."

Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits

made and received.

3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts

of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in

respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or

materials supplied.

4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced

or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the

Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until

used for their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of debts as

provided in Article VII.B.  Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator

and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided.  Nothing in

this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the

parties otherwise specifically agree.

5. Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator

 

 

or its duly authorized representative, at the Non-Operator's sole risk and cost, full and free access at all reasonable times to

all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of

operations conducted thereon or production therefrom, including Operator's books and records relating thereto.  Such access

rights shall not be exercised in a manner interfering with Operator's conduct of an operation hereunder and shall not obligate

Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such

 

 

interpretive data was charged to the joint account.  Operator will furnish to each Non-Operator upon request copies of any

and all reports and information obtained by Operator in connection with production and related items, including, without

limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding

 

 

purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the

information.  Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures

shall be conducted in accordance with the audit protocol specified in Exhibit "C."

6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to

 

 

each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications

required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.

Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.

Completed, Reworked, Recompleted, Sidetracked or Plugged Back

7. Drilling and Testing Operations: The following provisions shall apply to each well drilled / hereunder, including but not

limited to the Initial Well:

(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which

drilling operations are commenced.

(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on  the well

as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.

proposed under Proposed Operations as provided under Article VI.B.1 that are

(c) Operator shall adequately test all Zones / encountered which may reasonably be expected to be capable of producing

Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted

hereunder.

8. Cost Estimates: Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs

incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement.

Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.

9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers

compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self-

insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall

be as provided in Exhibit "C."  Operator shall also carry or provide insurance for the benefit of the joint account of the parties

as outlined in Exhibit "D" attached hereto and made a part hereof.  Operator shall require all contractors engaged in work on

or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted

and to maintain such other insurance as Operator may require.

In the event automobile liability insurance is specified in said Exhibit "D," or subsequently receives the approval of the

parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive

equipment.

ARTICLE VI.

DRILLING AND DEVELOPMENT

A.  Initial Well:

On or before the                                                         day of ,, Operator shall commence the drilling of the Initial

Well at the following location:

and shall thereafter continue the drilling of the well with due diligence to

The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation

in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.

B.  Subsequent Operations:

1.  Proposed Operations: If any party hereto should desire to drill any well on the Contract Area other than the Initial Well, or

if any party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of

producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under

this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written

notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be

performed, the location, proposed depth, objective Zone and the estimated cost of the operation.  The parties to whom such a

notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing to do the work

whether they elect to participate in the cost of the proposed operation.  If a drilling rig is on location, notice of a proposal to

Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to forty-

eight (48) hours, exclusive of Saturday, Sunday and legal holidays.  Failure of a party to whom such notice is delivered to reply

within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.

Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties

within the time and in the manner provided in Article VI.B.6.

If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be

contractually committed to participate therein provided such operations are commenced within the time period hereafter set

one-hundred twenty (120)

forth, and Operator shall, no later than ninety (90) / days after expiration of the notice period of thirty (30) days (or as

promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case

may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of

the parties participating therein; provided, however, said commencement date may be extended upon written notice of same

by Operator to the other parties, for a period of up to thirty (30) additional days if, in the sole opinion of Operator, such

additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-

way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or

acceptance.  If the actual operation has not been commenced within the time provided (including any extension thereof as

specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct

said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior

proposal had been made.  Those parties that did not participate in the drilling of a well for which a proposal to Deepen or

Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,

reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance

with Article VI.B.5. in the event of a Sidetracking operation.

2.  Operations by Less Than All Parties:

(a) Determination of Participation.  If any party to whom such notice is delivered as provided in Article VI.B.1. or

VI.C.1. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this

Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no

one-hundred twenty (120)

later than ninety (90) / days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the

expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the

proposed operation and complete it with due diligence.  Operator shall perform all work for the account of the Consenting

Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,

the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the

account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work.  The

rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party

designated as Operator for an operation in which the original Operator is a Non-Consenting Party.  Consenting Parties, when

conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this

agreement.

If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the

applicable notice period, shall advise all Parties of the total interest of the parties approving such operation and its

recommendation as to whether the Consenting Parties should proceed with the operation as proposed.  Each Consenting Party,

within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after delivery of such notice, shall advise the

proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit "A" or (ii) carry only its

proportionate part (determined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in

the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of

Non-Consenting Parties' interests together with all or a portion of its proportionate part of any Non-Consenting Parties'

interests that any Consenting Party did not elect to take.  Any interest of Non-Consenting Parties that is not carried by a

Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its

proposal.  Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a

drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a

total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays).  The proposing party, at its election, may

withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)

days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.

If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties

of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the

period provided in Article VI.B.1., subject to the same extension right as provided therein.

(b) Relinquishment of Interest for Non-Participation. The entire cost and risk of conducting such operations shall be

borne by the Consenting Parties in the proportions they have elected to bear same under the terms of the preceding

paragraph.  Consenting Parties shall keep the leasehold estates involved in such operations free and clear of all liens and

encumbrances of every kind created by or arising from the operations of the Consenting Parties.  If such an operation results

in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall plug and abandon the well and restore

the surface location at their sole cost, risk and expense; provided, however, that those Non-Consenting Parties that

participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate

shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not

increased by the subsequent operations of the Consenting Parties.  If any well drilled, Reworked, Sidetracked, Deepened,

Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in

paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the

well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the

expense and for the account of the Consenting Parties.  Upon commencement of operations for the drilling, Reworking,

Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the

provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the

Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non-

Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking,

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1.  Option No. 2, all of such Non-

Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect

to participate.  Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or

market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,

royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production

from such well accruing with respect to such interest until it reverts), shall equal the total of the following:

(i)      100          % of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment

beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and

piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first

production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other

provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that

interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning

of the operations; and

(ii) 200               % of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening,

Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C.,

and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections),

which would have been chargeable to such Non-Consenting Party if it had participated therein.

Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone

described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable

substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each

Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a

shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-

Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the

cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a).  If any such Non-

Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions

of this Article VI.B.2. (b) shall apply to such party's interest.

(c) Reworking, Recompleting or Plugging Back. An election not to participate in the drilling, Sidetracking or

Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in

such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full

recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount.  Similarly, an election not to

participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking

operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at

any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount.  Any such

Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the

cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties __  300  ____% of

that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to

such Non-Consenting Party had it participated therein.  If such a Reworking, Recompleting or Plugging Back operation is

proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting

Parties in said well.

(d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's

share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,

production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to

Non-Consenting Party's share of production not excepted by Article III.C.

In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting

Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all

such equipment shall remain unchanged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back,

Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each

party receiving its proportionate part in kind or in value, less cost of salvage.

Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations

for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to

the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,

Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement

quarter

of such costs of operation, may submit a detailed statement of monthly billings.  Each month / thereafter, during the time the

Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties

shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of

the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from

    quarter

the sale of the well's working interest production during the preceding month /.  In determining the quantity of Oil and Gas

produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or

periodic well tests.  Any amount realized from the sale or other disposition of equipment newly acquired in connection with

any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited

against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such

Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-

Consenting Party.

If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided

            1st day of the month

for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day /

following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall

own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as

such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking,

Deepening, Recompleting or Plugging Back of said well.  Thereafter, such Non-Consenting Party shall be charged with and

shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this

agreement and Exhibit "C" attached hereto.

3. Stand-By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have

been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise

terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party's notice proposing a Reworking,

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required

under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening

operation just completed.  Stand-by costs subsequent to all parties responding, or expiration of the response time permitted,

whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms

of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and borne as part of the proposed operation,

but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated

between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total

interest as shown on Exhibit "A" of all Consenting Parties.

In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party

may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in

Article VI.B.1. within which to respond by paying for all stand-by costs and other costs incurred during such extended

response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending

the response period.  If more than one party elects to take such additional time to respond to the notice, standby costs shall be

allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's

interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties.

4. Deepening: If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed

pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article

VI.B.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or Zone

of which the parties were given notice under Article VI.B.1. ("Initial Objective").  Such well shall not be Deepened beyond the

Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate

in the Deepening operation.

In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,

such party shall give notice thereof, complying with the requirements of Article VI.B.1., to all parties (including Non-

Consenting Parties).  Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to

participate or not participate in the Deepening of such well pursuant to said Articles VI.B.1. and 2.  If a Deepening operation

is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,

such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses.

(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying

quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs

and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-

Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting

Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other

provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well

incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the

sole account of Consenting Parties.

(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing

in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or

reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and

equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less

those costs recouped by the Consenting Parties from the sale of production from the well.  The Non-Consenting Party shall

also pay its proportionate share of all costs of re-entering said well.  The Non-Consenting Parties' proportionate part (based

on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent

Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in

connection with such well shall be determined in accordance with Exhibit "C."  If the Consenting Parties have recouped the

cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-

Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the

well for Deepening

The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior

to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article

VI.F.

5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an

interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its

proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore

to be utilized as follows:

(a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs

incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is initiated.

(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of

such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth

at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above.  Such party's

proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the Sidetracking

operation is initiated shall be determined in accordance with the provisions of Exhibit "C."

6. Order of Preference of Operations. Except as otherwise specifically provided in this agreement, if any party desires to

propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such

party shall have fifteen (15) days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform

an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal

holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be

conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such

alternate proposal to contain the same information required to be included in the initial proposal.  Each party receiving such

proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within

twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the

subject of the proposals, to participate in one of the competing proposals.  Any party not electing within the time required

shall be deemed not to have voted.  The proposal receiving the vote of parties owning the largest aggregate percentage

interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

initial proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the operation

within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday

and legal holidays, if a drilling rig is on location).  Each party shall then have two (2) days (or twenty-four (24) hours if a rig

is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to

relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within

such period shall be deemed an election not to participate in the prevailing proposal.

7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be

proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract

or proposed

Area is producing, unless such well conforms to the then-existing well / spacing pattern for such Zone.

8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or

 Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except

with the consent of all parties that have not relinquished interests in the well at the time of such operation.

C.  Completion of Wells; Reworking and Plugging Back:

1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well

drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the drilling,

Deepening or Sidetracking shall include:

	
  

	
o

	
Option No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and

equipping of the well, including necessary tankage and/or surface facilities.

	
  

	
þ

	
Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When

such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results

thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to

participate in a Completion attempt whether or not Operator recommends attempting to Complete the well,

together with Operator's AFE for Completion costs if not previously provided.  The parties receiving such notice

shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of

notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an

accompanying AFE.  Operator shall deliver any such Completion proposal, or any Completion proposal conflicting

with Operator's proposal, to the other parties entitled to participate in such Completion in accordance with the

procedures specified in Article VI.B.6.  Election to participate in a Completion attempt shall include consent to all

necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface

facilities but excluding any stimulation operation not contained on the Completion AFE.  Failure of any party

receiving such notice to reply within the period above fixed shall constitute an election by that party not to

participate in the cost of the Completion attempt; provided, that Article VI.B.6. shall control in the case of

conflicting Completion proposals.  If one or more, but less than all of the parties, elect to attempt a Completion, the

provision of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening, Recompleting or Plugging

Back" as contained in Article VI.B.2. shall be deemed to include "Completing") shall apply to the operations

thereafter conducted by less than all parties; provided, however, that Article VI.B.2. shall apply separately to each

separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting

Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party

in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier

Completions or Recompletion have recouped their costs pursuant to Article VI.B.2.; provided further, that any

recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in

which the Completion attempt is made.  Election by a previous Non-Consenting party to participate in a subsequent

Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable

materials and equipment installed in the well pursuant to the previous Completion or Recompletion attempt,

insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a

Completion attempt.

2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,

Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the Reworking,

Recompleting or Plugging Back of a well shall include all necessary expenditures in conducting such operations and

Completing and equipping of said well, including necessary tankage and/or surface facilities.

D.  Other Operations:

Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of

Fifty Thousand                                                                        Dollars ($                                50,000.00                          ) except in connection with the

drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously

authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden

emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion

are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the

emergency to the other parties.  If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so

requesting an information copy thereof for any single project costing in excess of Fifty Thousand  Dollars

($     50,000.00).  Any party who has not relinquished its interest in a well shall have the right to propose that

Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as

salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but

not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall

be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the

amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under

Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively be those Articles).  Operator shall deliver such

proposal to all parties entitled to participate therein.  If within thirty (30) days thereof Operator secures the written consent

of any party or parties owning at least                                                                50           % of the interests of the parties entitled to participate in such operation,

each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated

to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms

of the proposal.

E.  Abandonment of Wells:

1.  Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has

been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

plugged and abandoned without the consent of all parties.  Should Operator, after diligent effort, be unable to contact any

party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after

delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the

proposed abandonment.  All such wells shall be plugged and abandoned in accordance with applicable regulations and at the

operator

cost, risk and expense of the / parties who participated in the cost of drilling or Deepening such well.  Any party who objects to

plugging and abandoning such well by notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday,

Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such

forty-eight (48) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of

Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct

such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and

abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well.  The party

taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against

liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and

restoring the surface, for which the abandoning parties shall remain proportionately liable.

2. Abandonment of Wells That Have Produced: Except for any well in which a Non-Consent operation has been

conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has

been completed as a producer shall not be plugged and abandoned without the consent of all parties.  If all parties consent to

such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk

thirty (30)

and expense of all the parties hereto.  Failure of a party to reply within sixty (60) / days of delivery of notice of proposed

thirty (30)

abandonment shall be deemed an election to consent to the proposal.  If, within sixty (60) / days after delivery of notice of the

proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its

operation from the Zone then open to production shall be obligated to take over the well as of the expiration of the

applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties

against liability for any further operations on the well conducted by such parties.  Failure of such party or parties to provide

proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well

within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession

of such well and plug and abandon the well.

Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of

the well's salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost

of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event

the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the

value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing

operations their proportionate shares of the estimated excess cost.  Each abandoning party shall assign to the non-abandoning

parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all

of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only

insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production.  If the

interest of the abandoning party is or includes and Oil and Gas Interest, such party shall execute and deliver to the non-

abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of

one (1) year and so long thereafter as Oil and/or Gas is produced from the Zone covered thereby, such lease to be on the form

attached as Exhibit "B."  The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located.

The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their

respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract

Area of all assignees.  There shall be no readjustment of interests in the remaining portions of the Contract Area.

Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production

from the well in the Zone then open other than the royalties retained in any lease made under the terms of this Article.  Upon

request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and

charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate

ownership of the assigned well.  Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor

shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in

further operations therein subject to the provisions hereof.

3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as

between Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided,

however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further

operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well

in accordance with the provisions of this Article VI.E.; and provided further, that Non-Consenting Parties who own an interest

in a portion of the well shall pay their proportionate shares of abandonment and surface restoration cost for such well as

provided in Article VI.B.2.(b).

F.  Termination of Operations:

Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,

Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without

consent of parties bearing   51%___% of the costs of such operation; provided, however, that in the event granite or other

practically impenetrable substance or condition in the hole is encountered which renders further operations impractical,

Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.1, and the

provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.

G.  Taking Production in Kind:

þ     Option No. 1: Gas Balancing Agreement Attached

Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the

Contract Area, exclusive of production which may be used in development and producing operations and in preparing and

treating Oil and Gas for marketing purposes and production unavoidably lost.  Any extra expenditure incurred in the taking

in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party.  Any

party taking its share of production in kind shall be required to pay for only its proportionate share of such part of

Operator's surface facilities which it uses.

Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

**  only in so far as production from the Drilling Unit is attributable to that wellbore.

production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

directly from the purchaser thereof for its share of all production.

If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate

share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by

the party owning it, but not the obligation, to purchase such Oil or sell it to others at any time and from time to

time, for the account of the non-taking party.  Any such purchase or sale by Operator may be terminated by

thirty (30)

Operator upon at least ten (10) / days written notice to the owner of said production and shall be subject always to

thirty (30)

the right of the owner of the production upon at least ten (10) / days written notice to Operator to exercise at any

time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.

Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time

as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a

period in excess of one (1) year.

Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator

shall have no duty to share any existing market or to obtain a price equal to that received under any existing

market.  The sale or delivery by Operator of a non-taking party's share of Oil under the terms of any existing

contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said

contract.  No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days

written notice of such intended purchase and the price to be paid or the pricing basis to be used.

All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following

month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.

Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which

records shall be made available to Non-Operators upon reasonable request.

In the event one or more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate

pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion-

ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with

any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a

separate agreement.  Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.

o     Option No. 2: No Gas Balancing Agreement:

Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from

the Contract Area, exclusive of production which may be used in development and producing operations and in

preparing and treating Oil and Gas for marketing purposes and production unavoidably lost.  Any extra expenditures

incurred in the taking in kind or separate disposition by any party of its proportionate share of the production shall

be borne by such party.  Any party taking its share of production in kind shall be required to pay for only its

proportionate share of such part of Operator's surface facilities which it uses.

Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

directly from the purchaser thereof for its share of all production.

If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate

share of the Oil and/or Gas produced from the Contract Area, Operator shall have the right, subject to the

revocation at will by the party owning it, but not the obligation, to purchase such Oil and/or Gas or sell it to others

at any time and from time to time, for the account of the non-taking party.  Any such purchase or sale by Operator

may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall

be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator

to exercise its right to take in kind, or separately dispose of, its share of all Oil and/or Gas not previously delivered

to a purchaser; provided, however, that the effective date of any such revocation may be deferred at Operator's

election for a period not to exceed ninety (90) days if Operator has committed such production to a purchase

contract having a term extending beyond such ten (10) -day period.  Any purchase or sale by Operator of any other

party's share of Oil and/or Gas shall be only for such reasonable periods of time as are consistent with the

minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1)

year.

Any such sale by Operator shall be in a manner commercially reasonable under the circumstances, but Operator

shall have no duty to share any existing market or transportation arrangement or to obtain a price or transportation

fee equal to that received under any existing market or transportation arrangement.  The sale or delivery by

Operator of a non-taking party's share of production under the terms of any existing contract of Operator shall not

give the non-taking party any interest in or make the non-taking party a party to said contract.  No purchase of Oil

and Gas and no sale of Gas shall be made by Operator without first giving the non-taking party ten days written

notice of such intended purchase or sale and the price to be paid or the pricing basis to be used. Operator shall give

notice to all parties of the first sale of Gas from any well under this Agreement.

All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following

month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.

Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which

records shall be made available to Non-Operators upon reasonable request.

ARTICLE VII.

EXPENDITURES AND LIABILITY OF PARTIES

A.  Liability of Parties:

The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations,

and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area.  Accordingly, the

liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have

any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation

hereunder.  It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other

partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or

principals.  In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have

established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own

respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other

with respect to activities hereunder.

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

B.  Liens and Security Interests:

Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas

Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any

interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection

therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense,

interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil

and Gas Leases as required hereunder, and the proper performance of operations hereunder.  Such lien and security interest

granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and

overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or

otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or

used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts

(including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),

contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the

foregoing.

To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording

supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time

a memorandum of

following execution hereof, and Operator is authorized to file / this agreement or the recording supplement executed herewith as

a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform

Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate

a memorandum of

to perfect the security interest granted hereunder.  Any party may file / this agreement, the recording supplement executed

herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a

financing statement with the proper officer under the Uniform Commercial Code.

Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to

the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security

interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or

under such party.  All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,

whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject

to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder

whether or not such obligations arise before or after such interest is acquired.

To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the

Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.

The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an

election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof.  In

addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use

of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect

from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by

such party, plus interest as provided in "Exhibit C," has been received, and shall have the right to offset the amount

owed against the proceeds from the sale of such defaulting party's share of Oil and Gas.  All purchasers of production

may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the

default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in

this paragraph.

If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefor by

Operator, the non-defaulting parties, including Operator, shall upon request by Operator, pay the unpaid amount in the

proportion that the interest of each such party bears to the interest of all such parties.  The amount paid by each party so

paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each

paying party may independently pursue any remedy available hereunder or otherwise.

If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure

or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting

party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement

of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshaling of assets

and any required bond in the event a receiver is appointed.  In addition, to the extent permitted by applicable law, each party

hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted

hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable

manner and upon reasonable notice.

Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien

law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder.  Without limiting

the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or

utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the

payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.

C.  Advances:

Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other

parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations

hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an

itemized statement of such estimated expense, together with an invoice for its share thereof.  Each such statement and invoice

for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.

Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and

invoice is received.  If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as

provided in Exhibit "C" until paid.  Proper adjustment shall be made monthly between advances and actual expense to the end

that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.

D.  Defaults and Remedies:

If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to

make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for

such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the

remedies specified below shall be applicable.  For purposes of this Article VII.D., all notices and elections shall be delivered

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-Operator,

and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator.

Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified

below or otherwise available to a non-defaulting party.

1. Suspension of Rights: Any party may deliver to the party in default a Notice of Default, which shall specify the default,

specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of one

or more of the remedies provided in this Article.  If the default is not cured within thirty (30) days of the delivery of such

Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the

default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of

the defaulting party previously accrued or thereafter accruing under this agreement.  If Operator is the party in default, the

Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area

after excluding the voting interest of Operator, to appoint a new Operator effective immediately.  The rights of a defaulting

party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right

to receive information as to any operation conducted hereunder during the period of such default, the right to elect to

participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being

conducted under this agreement even if the party has previously elected to participate in such operation, and the right to

receive proceeds of production from any well subject to this agreement.

2. Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint

account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default

until the date of collection at the rate specified in Exhibit "C" attached hereto.  Nothing herein shall prevent any party from

suing any defaulting party to collect consequential damages accruing to such party as a result of the default.

3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of Non-Consent Election to the

defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in

which event if the billing is for the drilling a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a

well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting

party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with

respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party,

notwithstanding any election to participate theretofore made.  If election is made to proceed under this provision, then the

non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure

its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit "C," provided, however, such

payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-

defaulting parties as a result of the default.  Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the

non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership

of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.

4. Advance Payment: If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or

Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting

party of such defaulting party's anticipated share of any item of expense for which Operator, or Non-Operators, as the case may

be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of

the previous default.  Such right includes, but is not limited to, the right to require advance payment for the estimated costs of

drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made.  If the

defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided

in the Article VII.D. or any other default remedy provided elsewhere in this agreement.  Any excess of funds advanced remaining

when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.

5. Costs and Attorneys' Fees: In the event any party is required to bring legal proceedings to enforce any financial

obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of

collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.

E.  Rentals, Shut-in Well Payments and Minimum Royalties:

Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid

by the party or parties who subjected such lease to this agreement at its or their expense.  In the event two or more parties

own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to

make said payments for and on behalf of all such parties.  Any party may request, and shall be entitled to receive, proper

evidence of all such payments.  In the event of failure to make proper payment of any rental, shut-in well payment or

minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which

results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.

Operator shall notify Non-Operators of the anticipated completion of a shut-in well, or the shutting in or return to

production of a producing well, at least five (5) days (excluding Saturday, Sunday, and legal holidays) prior to taking such

action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so.  In the event of

failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure to make

timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article

IV.B.3.

F.  Taxes:

Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all

property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed

thereon before they become delinquent.  Prior to the rendition date, each Non-Operator shall furnish Operator information as

to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and

Gas Interests contributed by such Non-Operator.  If the assessed valuation of any Lease is reduced by reason of its being

subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes

resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator shall adjust the charge to

such owner or owners so as to reflect the benefit of such reduction.  If the ad valorem taxes are based in whole or in part

upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to

the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's

working interest.  Operator shall bill the other parties for their proportionate shares of all tax payments in the manner

provided in Exhibit "C."

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner

prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final

determination.  During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes

and any interest and penalty.  When any such protested assessment shall have been finally determined, Operator shall pay the tax for

the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be

paid by them, as provided in Exhibit "C."

Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect

to the production or handling of such party's share of Oil and Gas produced under the terms of this agreement.

ARTICLE VIII.

ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

A.  Surrender of Leases:

The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole

or in part unless all parties consent thereto.

However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written

notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after

delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto.  Failure of a

party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases

described in the notice.  If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or

implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be

located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender.  If the interest of the

assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not

consenting to such surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long

thereafter as Oil and/or Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit "B."

Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore

accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party

shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained

in any lease made under the terms of this Article.  The party assignee or lessee shall pay to the party assignor or lessor the

reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased

acreage.  The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C," less

the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface.  If such value is less

than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit.  If the

assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the

interest of each bears to the total interest of all such parties.  If the interest of the parties to whom the assignment is to be made

varies according to depth, then the interest assigned shall similarly reflect such variances.

Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering

party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage

assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this

agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.

B. Renewal or Extension of Leases:

If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to this agreement, then all other parties

shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease,

promptly upon expiration of the existing Lease.  The parties notified shall have the right for a period of thirty (30) days following

delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease

affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost

allocated to that part of such Lease within the Contract Area, which shall be in proportion to the interest held at that time by the

parties in the Contract Area.  Each party who participates in the purchase of a renewal or replacement Lease shall be given an

assignment of its proportionate interest therein by the acquiring party.

If some, but less than all, of the parties elect to participate in the purchase of a renewal or replacement Lease, it shall be owned

by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in

the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the

purchase of such renewal or replacement Lease.  The acquisition of a renewal or replacement Lease by any or all of the parties hereto

shall not cause a readjustment of the interests of the parties stated in Exhibit "A," but any renewal or replacement Lease in which

less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating

Agreement in the form of this agreement.

If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in

renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.

The provisions of this Article shall apply to renewal or replacement Leases whether they are for the entire interest covered by

        or lease nominated for sale that is

the expiring Lease or cover only a portion of its area or an interest therein.  Any renewal or replacement Lease / taken before the

expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the

existing Lease, shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time

the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the

expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this

agreement.

The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.

C.  Acreage or Cash Contributions:

While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other

operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall

be applied by it against the cost of such drilling or other operation.  If the contribution be in the form of acreage, the party to whom

the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the

proportions said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to  the

extent possible, be governed by provisions identical to this agreement.  Each party shall promptly notify all other parties of any

acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area.  The above

provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in support of well drilled

inside Contract Area.

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,

such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.

D.  Assignment; Maintenance of Uniform Interest:

For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas

Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other

disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells,

equipment and production unless such disposition covers either:

1.      the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or

2.      an equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells,

equipment and production in the Contract Area.

Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement

and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and

Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of

the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale,

encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the

instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee.  No assignment or other

disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect

to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation

conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security

interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.

two

If, at any time the interest of any party is divided among and owned by four / or more co-owners, Operator, at its discretion,

may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,

receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to

bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-

owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of

the Oil and Gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale

proceeds thereof.

E. Waiver of Rights to Partition:

If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an

undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its

undivided interest therein.

F.  Preferential Right to Purchase:

o     (Optional; Check if applicable.)

Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract

Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which

shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase

price, a legal description sufficient to identify the property, and all other terms of the offer.  The other parties shall then have an

optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the

same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the

purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all

purchasing parties.  However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage

its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its interests,

or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets

to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent company, or to any

company in which such party owns a majority of the stock.

ARTICLE IX.

INTERNAL REVENUE CODE ELECTION  (SEE ARTICLE XVI)

If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the

parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each

party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle

"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and

the regulations promulgated thereunder.  Operator is authorized and directed to execute on behalf of each party hereby affected

such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal

Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by

Treasury Regulation §1.761.  Should there be any requirement that each party hereby affected give further evidence of this

election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal

Revenue Service or as may be necessary to evidence this election.  No such party shall give any notices or take any other action

inconsistent with the election made hereby.  If any present or future income tax laws of the state or states in which the Contract

Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K," Chapter

1, Subtitle "A," of the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party

hereby affected shall make such election as may be permitted or required by such laws.  In making the foregoing election, each

such party states that the income derived by such party from operations hereunder can be adequately determined without the

computation of partnership taxable income.

ARTICLE X.

CLAIMS AND LAWSUITS

Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure

does not exceed                                                               Fifty Thousand                                                                        Dollars ($50,000.00 ) and if the payment is in complete settlement

of such claim or suit.  If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over

the further handling of the claim or suit, unless such authority is delegated to Operator.  All costs and expenses of handling settling,

or otherwise discharging such claim or suit shall be a the joint expense of the parties participating in the operation from which the

claim or suit arises.  If a claim is made against any party or if any party is sued on account of any matter arising from operations

hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall

immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder.

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

ARTICLE XI.

FORCE MAJEURE

If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other

than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties

prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the

party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the

continuance of the force majeure.  The term "force majeure," as here employed, shall mean an act of God, strike, lockout, or

other industrial disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of

nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other

cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party

claiming suspension.

The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The

requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,

lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall

be entirely within the discretion of the party concerned.

ARTICLE XII.

NOTICES

All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise

specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,

telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on

Exhibit "A."  All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written

notice.  The originating notice given under any provision hereof shall be deemed delivered only when received by the party to

whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date

the originating notice is received.  "Receipt" for purposes of this agreement with respect to written notice delivered hereunder

shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or

to the telecopy, facsimile or telex machine of such party.  The second or any responsive notice shall be deemed delivered when

deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy

or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or

48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. Each party

shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other

parties.  If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required

to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall

be deemed delivered in the same manner provided above for any responsive notice.

ARTICLE XIII.

TERM OF AGREEMENT

This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject

hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title

or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.

þ     Option No. 1: So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in

force as to any part of the Contract Area, whether by production, extension, renewal or otherwise.

o     Option No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision

of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying

quantities, this agreement shall continue in force so long as any such well is capable of production, and for an

additional period of   days thereafter; provided, however, if, prior to the expiration of such

additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,

Plugging Back, testing or attempting to Complete or Re-complete a well or wells hereunder, this agreement shall

continue in force until such operations have been completed and if production results therefrom, this agreement

shall continue in force as provided herein.  In the event the well described in Article VI.A., or any subsequent well

drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the

Contract Area, this agreement shall terminate unless drilling, Deepening, Sidetracking, Completing, Re-

completing, Plugging Back or Reworking operations are commenced within   days from the

date of abandonment of said well.  "Abandonment" for such purposes shall mean either (i) a decision by all parties

not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any

operations on the well, whichever first occurs.

The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any

remedy therefor which has accrued or attached prior to the date of such termination.

Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this

Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a

notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon

request of Operator, if Operator has satisfied all its financial obligations.

ARTICLE XIV.

COMPLIANCE WITH LAWS AND REGULATIONS

A.  Laws, Regulations and Orders:

This agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules,

regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state,

and local laws, ordinances, rules, regulations and orders.

B.  Governing Law:

This agreement and all matters pertaining hereto, including but not limited to matters of performance, non-

performance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and

determined by the law of the state in which the Contract Area is located.  If the Contract Area is in two or more states,

the law of the state of                                                       shall govern.

C.  Regulatory Agencies:

Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any

rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or

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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or

production of wells, on tracts offsetting or adjacent to the Contract Area.

With respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,

injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation

or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission

or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not

constitute gross negligence.  Each Non-Operator further agrees to reimburse Operator for such Non-Operator's share of

production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such

an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such

incorrect interpretation or application.

ARTICLE XV.

MISCELLANEOUS

A.  Execution:

This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been

executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of

the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which

own, in fact, an interest in the Contract Area.  Operator may, however, by written notice to all Non-Operators who have

become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no

event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this

agreement if Operator in its sole discretion determines that there is insufficient participation to justify commencement of

drilling operations.  In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease

as of such termination.  In the event any Non-Operator has advanced or prepaid any share of drilling or other costs

hereunder, all sums so advanced shall be returned to such Non-Operator without interest.   In the event Operator proceeds

with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit "A" as having a

current working interest in such well, Operator shall indemnify Non-Operators with respect to all costs incurred for the

Initial Well which would have been charged to such person under this agreement if such person had executed the same and

Operator shall receive all revenues which would have been received by such person under this agreement if such person had

executed the same.

B. Successors and Assigns:

This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,

devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or

Interests included within the Contract Area.

C. Counterparts:

This instrument may be executed in any number of counterparts, each of which shall be considered an original for all

purposes.

D.  Severability:

For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws,

this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to

this agreement to comply with all of its financial obligations provided herein shall be a material default.

ARTICLE XVI.

OTHER PROVISIONS

See attached Article XVI.

-  -

  

  

  

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

IN WITNESS WHEREOF, this agreement shall be effective as of the 1st day of May, 2011

.

 , who has prepared and circulated this form for execution, represents and warrants

that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610-1989 Model Form

Operating Agreement, as published in computerized form by Forms On-A-Disk, Inc. No changes, alterations, or

modifications, other than those made by strikethrough and/or insertion and that are clearly recognizable as changes in

Articles , have been made to the form.

ATTEST OR WITNESS:                                                                        OPERATOR

 

                      Encana Oil & Gas (USA) Inc. 

          By /s/                                                  

                           John Schopp

Type or print name

Title   Vice President, North Rockies                                                           

Date   March 11, 2011                                                           

Tax ID or S.S. No.                                                              

 

NON-OPERATORS

 

                 Northwest Natural Gas Company 

 

          By /s/                                                  

 

                           Gregg Kantor

Type or print name

 

Title  CEO                                              

Date February 24, 2011                                                            

Tax ID or S.S. No.                                                              

 

 

          By

 

 

Type or print name

 

Title                                                              

Date                                                              

Tax ID or S.S. No.                                                              

 

          By

 

 

Type or print name

 

Title                                                              

Date                                                              

Tax ID or S.S. No.                                                              

-  -

  

  

  

ACKNOWLEDGMENTS

Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.

The validity and effect of these forms in any state will depend upon the statutes of that state.

Individual acknowledgment:

State of                               )

) ss.

County of                              )

This instrument was acknowledged before me on

 by

(Seal, if any)                                                                      

Title (and Rank)

My commission expires:

Acknowledgment in representative capacity:

State of                               )

) ss.

County of                              )

This instrument was acknowledged before me on

 by  as

 of  .

(Seal, if any)                                                                      

Title (and Rank)

My commission expires:

 

  

  

  

ARTICLE XVI.

OTHER PROVISIONS

A.   Other Provisions.  This Article XVI Other Provisions is attached to and made a part of that certain Operating Agreement (this “Agreement”) dated effective May 1, 2011 by and between Encana Oil & Gas (USA) Inc. (“Encana”) and Northwest Natural Gas Company.  In the event of a conflict between the terms and conditions of this Article XVI and the terms and conditions of this Agreement, the terms and conditions of this Article XVI shall control and govern the point in conflict.

B.             Carry and Earning Agreement.  This Agreement is subject to the terms and conditions of that certain Carry and Earning Agreement dated and effective as of May 1, 2011 by and between Encana and Northwest Natural Gas Company (the “Carry and Earning Agreement”).  Except as otherwise defined in this Agreement, all capitalized terms shall have the meaning assigned to them in the Carry and Earning Agreement. In the event of a conflict between the terms and conditions of this Agreement and the terms and conditions of the Carry and Earning Agreement the terms and conditions of the Carry and Earning Agreement shall control and govern the point in conflict; provided that pursuant to Section 14.2 of the Carry and Earning Agreement certain sections of the Carry and Earning Agreement will terminate upon termination of the obligation to fund and drill Carry Wells and as to the subjects of those terminated sections identified in Section 14.2 of the Carry and Earning Agreement, this Agreement will control after that time.

C.             Conflicts. If all or parts of the Contract Area are subject to an existing operating agreement with a third party, such existing operating agreement shall control as to such third party. However, as between Operator and Non-Operator, this Agreement and the Carry and Earning Agreement shall control. In the event of any conflict or inconsistency between the terms of this Agreement and the Carry and Earning Agreement, the Carry and Earning Agreement shall prevail to the extent of such conflict. If Operator and/or Non-operator acquire the entire interest covered by an existing third party operating agreement, then such third party agreement shall be superseded and replaced in its entirety by this Agreement. The parties intend that this Agreement shall govern a Party’s election to participate in subsequent operations on the Existing Wells, Carry Wells, and any other future wells drilled in the Assigned Sections.

D.           Contract Area.  As used in this Agreement, the term “Contract Area” shall mean (i) all of the lands, Oil and Gas Leases and/or Oil and Gas Interests in the Updip Area described in Exhibit A and (ii) those lands, Oil and Gas Leases and/or Oil and Gas Interests in the Downdip Area described in Exhibit A insofar as they comprise the wellbores of Carry Wells drilled pursuant to the Carry and Earning Agreement, in all cases limited to the interval correlative to the stratigraphic equivalent of the Lance Pool (as defined by Cause No. 1, Order No. 1, Docket No. 84-2003 dated April 25, 2003 of the Wyoming Oil & Gas Conservation Commission), or lands pooled therewith.

E.           Burdens.  Notwithstanding anything in Article III.B of this Agreement to the contrary, with respect to the Carry Wells and Contract Area, the burdens on the production shall be equal to and shall not exceed those listed on Exhibit A.  If any Party receives acreage support for a Carry Well from a third party, the burdens shall include any burdens reserved by such third party, but the party receiving such acreage support shall not reserve any additional burdens to itself burdening such acreage support.

After the Effective Date, if any party creates any additional burdens on the Contract Area, the party creating such additional burden shall be solely responsible for and shall pay such additional burden.  Subject to the foregoing sentence, Operator shall make payment of all burdens affecting the Contract Area and wells located on the Contract Area, and Non-Operator shall reimburse Operator for all burdens on the interest of Non-Operator.

F. Non-Consent Penalties.  The Carry Wells are obligation wells under the Carry and Earning Agreement, and neither party shall be permitted to non-consent the drilling of a Carry Well.  The non-consent penalty provided for in Article VI.B.2(b) of this Agreement shall only apply to (i) subsequent operations for a Carry Well, and (ii) operations of wells in the Updip Area others than Carry Wells.

G. Priority of Operations.  If at any time, there is more than one operation proposed in connection with any well subject to this Agreement, then unless all participating parties agree on the sequence of such operations, such proposals shall be considered and disposed of in the following order of priority:

1.           Proposals to do additional testing, coring or logging.

	
  

	
2.

	
Proposals to attempt a Completion in the Initial Objective.

	
  

	
3.

	
Proposals to Rework the well.

	
  

	
4.

	
Proposals to Plug Back and attempt Recompletions in shallower zones, in ascending order.

5.           Proposals to Deepen the well, in descending order.

6.           Proposals to Sidetrack the well.

No party may propose any operation with respect to any well while there is in progress any operation on such well until such operation has been completed.

 

  

  

  

It is provided, however, that if, at the time said participating parties are considering any of the above operations, the hole is in such a condition that a reasonable prudent Operator would not conduct an operation in the sequence above provided for fear of placing the hole in jeopardy or losing the same prior to completing the well in the Initial Objective, such operation shall not be given priority as set forth above.

H. Termination of Operations.  Except for the drilling of Carry Wells, in the event the parties are unable to secure the requisite fifty-one percent (51%) consent to terminate an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing, or plugging of a well as provided in Article VI.F and the parties agree the condition of the hole is not in jeopardy, the party proposing to continue such operation shall bear all associated risk and expense until such operation is completed or terminated; the non-consenting party shall relinquish its interest in the well until the proceeds of the sale of such share, calculated at the well, or market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by Article III.C payable out of or measured by the production from such well accruing with respect to such interest until it reverts), shall equal the total of the percentages set forth in Article VI.B.2(b)(i)-(ii) of the Agreement for expenses incurred until such operation is completed or terminated.

I. Marketing Agreement.  For so long as the Marketing Agreement attached as Exhibit H remains in effect, Article VI.G shall not apply.  If the Marketing Agreement is terminated, Article VI.G shall apply as modified by Section 10 of the Carry and Earning Agreement.

J. Internal Revenue Code Election.  This Agreement is not intended to create, and shall not be construed to create, an association for profit, a trust, a joint venture, a mining partnership or other relationship of partnership, or entity of any kind between the Parties.  Notwithstanding anything to the contrary contained herein, the Parties understand and agree that the arrangement and undertakings evidenced by this Agreement, taken together, result in a partnership for purposes of federal income taxation and for purposes of certain state income tax laws which incorporate or follow federal income tax principles as to tax partnerships.  For these purposes, the Parties agree to be governed by the tax partnership provisions attached as Exhibit G, which are incorporated into and made a part of this Agreement by this reference.  For every purpose other than the above described income tax purposes and except as provided in the Carry and Earning Agreement, the Parties understand and agree that the liabilities of the of the Parties shall be several, not joint or collective, and that each Party shall be solely responsible for its own obligations.  In the event of any conflict or inconsistency between the terms and conditions of Exhibit G and the terms and conditions of this Agreement or any attachment or exhibit hereto (other than Exhibit G), the terms and conditions of Exhibit G shall govern and control.

K. Liability.  [***].

L. Liens and Security Interests.  The initial memorandum of agreement and fixture filing (the “Memorandum”) referenced in Article VII.B of this Agreement shall be in the form attached as Exhibit I, and shall be recorded in Sublette County, Wyoming.  The initial financing statement (the “Financing Statement”) referenced in Article VII.B shall be in the form attached as Exhibit J, and shall be filed with the Delaware Secretary of State.  The collateral subject to the liens described in this Agreement shall be as described in Article VII.B., and as further supplemented and described in the Memorandum and the Financing Statement.  Nothing in this Article XVI.L is intended to constrain or modify the obligation or ability of either party to execute, record, or file such memoranda of agreement, recording supplements, or other documents either party deems necessary to evidence, attach, or perfect the liens created by this Agreement.

M. Maintenance of Uniform Interest.  The Parties agree to waive the Maintenance of Uniform Interest provision in Article VIII.D only with respect to the assignments contemplated by the Carry and Earning Agreement and only to the extent assignments are made between parties to the Carry and Earning Agreement regarding the interest earned under the Carry and Earning Agreement.

N. Operations.  Notwithstanding anything in Article V.B of this Agreement to the contrary, if the Operator of existing wells or the Carry Wells sells, assigns or otherwise transfers its interest in said wells or Carry Wells, such Operator’s successor-in-interest shall have the right to vote for itself and elect itself as successor Operator.

O. Dispute Resolution.  The Parties agree to resolve all disputes concerning or relating to this Agreement pursuant to the provisions of this Section.  The Parties agree to submit all disputes to binding arbitration in Denver, Colorado.  The arbitration will be conducted according to the procedure that follows.  The arbitration proceedings shall be governed by Wyoming law and shall be conducted in accordance with the rules for Non-Administered Arbitration of Business Disputes published by The Center for Public Resources, Inc., with discovery to be conducted in accordance with the Federal Rules of Civil Procedure, and with any disputes over the scope of discovery to be determined by the Arbitrators (as defined below).  The arbitration shall be before a single Arbitrator chosen by the mutual agreement of the Parties, or if no agreement as to the identity of the Arbitrator can be reached within ten (10) days, a three-person panel of neutral Arbitrators, consisting of one person chosen by each Party, and the two Arbitrators so selected choosing the third.  The panel so chosen or the single person are referred to herein as the “Arbitrators.”  The Arbitrators shall conduct a hearing no later than sixty (60) days after submission of the matter to arbitration, and the Arbitrators shall render a written decision within thirty (30) days of the hearing.  At the hearing, the Parties shall present such evidence and witnesses as they may choose, with or without counsel.  Adherence to formal rules of evidence shall not be required, but the Arbitrators shall consider any evidence and testimony that they determine to be relevant, in accordance with procedures that they determine to be appropriate.  Any award entered in the arbitration shall be made by a written opinion stating the reasons and basis for the award made and any payment due pursuant to the arbitration shall be made within fifteen (15) days of the decision by the Arbitrators.  The decision of the Arbitrators shall be binding on the Parties, final and non-appealable, and may be filed in a court of competent jurisdiction and may be enforced by either Party as a final judgment of such court.  Each Party shall bear its own costs and expenses of the arbitration, provided, however, that the costs of employing the Arbitrators shall by shared equally by the Parties.

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

P. Well Requirements. Operator agrees to furnish information to participating Non-Operator on a current basis, including but not limited to daily drilling reports, test reports, logs and all other related reports and data.

Q. Well Connects.  Operator shall issue Non-Operator an AFE for its allocable share of the cost of construction of all well connects for all non-Carry Wells.  Non-Operator shall bear its proportionate share of the operating costs of gathering facilities as provided in the Carry and Earning Agreement.

R. Surface Facilities, Central Delivery Point, Method of Allocation:

	
1.  

	
An election to participate in the drilling and completion of a non-Carry Well includes a commitment to participate in the cost of facilities beyond the wellhead connection.  The flow lines, tie-in and facilities informational AFE will accompany Operator’s notice of a new well proposal or Operator’s recommended completion attempt of the well as provided under Article VI.  The notice will identify the production facilities and Central Delivery Point (“CDP”) to which the well will be connected.

	
2.  

	
Except as provided in Article XVI.R.3 of this Agreement, the Parties agree that if production from any well completed in the Contract Area should be commingled at a CDP, all production shall be allocated among the Parties in accordance with the method approved by the Wyoming Oil and Gas Conservation Commission (“WOGCC”), as described in the Order dated May 11, 2010 for Docket No. 16-2010, or pursuant to any other applicable Order as the same may be amended from time to time. The approved method of allocation currently in use is as follows:

(a) Measurement:

The measurement of oil and gas shall comply with the requirements of BLM Onshore Orders 4 and 5 and all other applicable laws, regulations, rules, NTL's and orders issued by BLM, WOGCC or other federal, state or local governmental entity with jurisdiction over the Contract Area.

Individual wellhead volumes will be monitored and edited on a weekly basis to ensure production remains consistent with its historical trend.  Individual wellhead meter calibrations will be performed on an as needed basis as volumes deviate from its historical trend.  Custody meter calibrations will be performed on a quarterly basis or pursuant to Operator’s agreement with its third party gatherer.

(b) CDP Capital and Operating Cost Allocation:

The cost to build/install the CPD (“CDP Cost”) shall be allocated among the well or wells that will be producing to the CDP at the time the CDP is built/installed. Encana shall bear CDP Cost for Carry Wells pursuant to the Carry and Earning Agreement.  For non-Carry Wells, CDP Cost shall be allocated to (i) the owners in the wells in proportion to their before payout working interest in the well(s), if one or more owners have elected not to participate in the well, or (ii) the owners’ working interests if all owners in a well elected to participate in the well.  The allocated CDP Cost of a non-Carry Well shall be deemed to be part of the initial capital subject to standout penalties and subsequent recovery (at 100%).

CDP operating expenses shall be allocated to each working interest owner in proportion to their working interest.

(c)  Gas Production and Sales:

Actual CDP gas sales volumes (the “Custody Transfer Meter” volumes) shall be allocated to each individual well by multiplying the Custody Transfer Meter volume, in MCF, by the ratio of each well’s metered wellhead gas volume, in MCF, to the sum of

 

  

  

  

all metered wellhead gas volumes, in MCF, of all wells delivering gas to the CDP that month.  The BTU per cubic foot for produced gas volumes reported for each well shall be based on the composite sales gas BTU per cubic foot from the CDP for the month.

Each well’s allocated gas production, in MCF, shall be the sum of the MCF of sales gas allocated to the well.

(d)  Oil Production:

Actual CDP oil production, defined as CDP oil sales, (bbls) plus closing inventory (bbls) less opening inventory (bbls) shall be allocated back to each individual well by multiplying the actual CDP oil production volume, in bbls, by the ratio of each well’s metered wellhead gas volume, in MCF, to the sum of all metered wellhead gas volumes, in MCF, of all wells delivering gas to the CDP that month, provided that Non-Operator shall have no right to Condensate.  The oil gravity reported for oil production and sales volumes for each well shall be the composite gravity for oil sales from the CDP for the month.

(e)  Water Production:

CDP water production shall be allocated back to each individual well by multiplying the CDP water production volume, in bbls, by the ratio of each well’s metered wellhead gas volume, in MCF, to the sum of all metered wellhead gas volumes, in MCF, of all wells delivering gas to the CDP that month.

	
  

	
3.

	
In the event that the WOGCC or the BLM require modifications to any of the allocation procedures described in Article XVI.R.2 or otherwise fail to approve any of the procedures described herein, the Parties agree the terms provided above shall be deemed to be amended in compliance with such modifications.

S. Royalties, Overriding Royalties And Other Payments. Operator shall use reasonable good faith efforts to pay or cause to be paid all royalties, shut-in royalties, minimum royalties, overriding royalties, payments out of production, or other amounts or charges which may be or become payable out of production and shall charge all such payments to the account of the party or parties responsible therefor.  However, Operator shall never be liable for a standard of performance in making such payment or payments in excess of a reasonable good faith effort to pay same prior to the due date; and no liability is to be incurred for the failure to make payment within the time, in the manner and for the amounts due through error or omission of the employees or representatives of Operator.

T. Shut-in Production. Operator shall not shut-in Non-Operator’s share of production from any well without Non-Operator’s consent, except as may be necessary for routine maintenance, equipment installation, or other similar operations.

U. Mutuality. The parties hereto acknowledge and declare that this Agreement is the result of extensive negotiations between themselves.  Accordingly, in the event of any ambiguity in this Agreement, there shall be no presumption that this instrument was prepared solely by either Party hereto.

V. Headings. The heading of the several articles and sections of this Agreement are for convenience only, and shall not control or affect the meaning or construction of the terms and provisions hereof.

 

  

  

  

Exhibit D

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011 by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

Disclosure Statement

Sections 2.52(ii) and 6.2(viii)

Basic Contracts

	
ENCANA CONTRACT NO.

 

	
CONTRACT NAME

 

	
CONTRACT DATE

 

	
7140

	
[***]

	
January 1, 2010

	
10515

	
[***]

	
December 18, 2008

	
10522

	
[***]

	
January 1, 2008

	
9419

	
Programmatic Agreement among The Bureau of Land Management et al, effective June 26, 2007, regarding the Mitigation of adverse effects to Diverse Criterion Historic Properties within the [***].

	
June 26, 2007

	
10800

	
[***]

	
August 11, 2006

	
7008

 

	
Communitization Agreement No. 168669, approved March 16, 2003, Encana Oil & Gas (USA) Inc., as operator

 

	
March 16, 2006

	
9418

	
US Department of Interior Jonah Infill Development Programmatic Agreement - Record of Decision dated March 15, 2006  - Jonah Environmental Impact Statement.

	
March 14, 2006

	
7007

	
[***]

	
June 1, 2005

	
5250

	
Communitization Agreement No. 156992, approved January 17, 2003, by and between McMurry Oil Company, et al, and State of Wyoming.

	
January 17, 2003

	
5251

	
Communitization Agreement No. 156993, approved January 17, 2003, by and between McMurry Oil Company, et al, and State of Wyoming.

 

	
January 17, 2003

	
5265

	
[***]

	
June 1, 1994

	
5263

	
[***]

	
March 9, 1992

Section 6.1(iv)

OPUC approval pursuant to Section 7 of the Carry and Earning Agreement

Biodiversity Conservation Alliance v. United States Bureau of Land Management, et al., Case No. 10-8064, U.S. Court of Appeals for the Tenth Circuit (filed August 10, 2010).

Section 6.1(vii)

None

Section 6.1(viii)

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

OPUC approval pursuant to Section 7 of the Carry and Earning Agreement

Section 6.2(i)

None

Section 6.1(v)

None

Section 6.2(vii)

None

Section 6.2(ix)

As disclosed to ENVIRON International Corp.

in response to Document Request dated February 1, 2011

from [***]

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

Exhibit E

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011, by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

 

Wire Instructions for NWN Share

 

 

 

 

ENCANA WIRE TRANSFER INSTRUCTIONS

 

[***]

Page 1 of 1

Carry and Earning Agreement – Exhibit E

  

  

  

Exhibit F

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011, by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

 

  

  

  

GAS GATHERING AGREEMENT ATTORNMENT LETTER

Encana Oil & Gas (USA) Inc.                                                                           Northwest Natural Gas Company

370 Seventeenth Street, Suite 1700                                                                                     220 NW Second Avenue

Denver, Colorado  80202                                                                                     Portland, Oregon  97209-3991

[***]

Subject: [***]

Ladies and Gentlemen:

1.           [***]

2.           [***]

3.           [***]

4.           [***]

5.           [***]

 

6.           [***]

7.           Counterparts.  This document may be executed in any number of counterparts, each of which when combined and taken together, shall be considered but one and the same document.

8.           [***]

 [Signature Page Follows]

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

 

  

  

  

ENCANA OIL & GAS (USA) INC.

Agreed to and approved this ___5th____ day of

_______April___________, 2011.

By:    /s/                                                 

 

Name:  John B. Jones                                                    

 

Title:  Vice President, USA Midstream                                                              

NORTHWEST NATURAL GAS COMPANY

Agreed to and approved this ___12th____ day of

________April__________, 2011.

By:     /s/                                                                                     

 

Name:   Gregg Kantor                                                   

 

Title:   President & CEO                                                             

[***]

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

 

  

  

  

SCHEDULE I

Updip Area:                                Township 29 North, Range 108 West of the 6th P.M.

Section 32:  All

Section 33:  All

Section 34:  All

Downdip Area:                                Township 29 North, Range 108 West of the 6th P.M.

Section 9:    All

Section 10:  All

Section 11:  SW/4

Section 14:  All

Section 15:  All

Section 16:  All

Section 17:  All

All within Sublette County, Wyoming.

 

  

  

  

SCHEDULE II

[***]

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

 

  

  

  

GAS PROCESSING AGREEMENT ATTORNMENT LETTER

Encana Oil & Gas (USA) Inc.                                                                           Northwest Natural Gas Company

370 Seventeenth Street, Suite 1700                                                                                     220 NW Second Avenue

Denver, Colorado 80202                                                                                     Portland, Oregon 97209-3991

[***]

Subject:                 Transfer of Interests in Dedicated Lands

Ladies and Gentlemen:

1.           [***]

2.           [***]

3.           [***]

4.           [***]

5.           [***].

 

6.           [***].

7.           Counterparts.  This document may be executed in any number of counterparts, each of which when combined and taken together, shall be considered but one and the same document.

8.           [***].

[Signature Page Follows]

 

Carry and Earning Agreement – Exhibit F

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

ENCANA OIL & GAS (USA) INC.

Agreed to and approved this ____5th___ day of

_____April_____________, 2011.

By:  /s/                                                     

 

Name:  John B. Jones                                                   

 

Title:  Vice President, USA Midstream                                                              

NORTHWEST NATURAL GAS COMPANY

Agreed to and approved this ___12th____ day of

________April__________, 2011.

By:  /s/                                                                                         

 

Name:  Gregg Kantor                                                    

 

Title: President & CEO                                                               

[***]

 

Carry and Earning Agreement – Exhibit F

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

SCHEDULE I

Updip Area:                                Township 29 North, Range 108 West of the 6th P.M.

Section 32:  All

Section 33:  All

Section 34:  All

Downdip Area:                                Township 29 North, Range 108 West of the 6th P.M.

Section 9:    All

Section 10:  All

Section 11:  SW/4

Section 14:  All

Section 15:  All

Section 16:  All

Section 17:  All

All within Sublette County, Wyoming.

 

Carry and Earning Agreement – Exhibit F

  

  

  

SCHEDULE II

[***]

 

Carry and Earning Agreement – Exhibit F

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

  

  

  

Exhibit G

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011, by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

Composite Producer Price Index

U.S. Bureau of Labor Statistics - Producer Price Index Data

Industries and their products  (NAICS Classifications)

Oil and Gas Industry Data - NAICS Series 211xxx and 213xxx

O&G Industry - Drilling O&G Wells Indexes

Series Id:  PCU213111 - 213111

Industry:   Drilling oil and gas wells

Product:    Same

Base Date:  1985-12

	  	
December 2010

	
INDEX:

	
  335.90                      

	
Weight @20%:

	
  67.18

Series Id:  PCU213112 - 213112

Industry:  Support Activities for oil and gas operations

Product:   Same

Base Date:  1985-12

	  	
December 2010

	
INDEX:

	
182.10

	
Weight @65%:

	
118.37

Metal & Metal Products - Steel Pipe & Tube Index

Series Id:  WPU0101706 – 0101706

Commodity Group - Metal & Metal Products

Product:   Steel Pipe & Tube

Base Date: 1982-06

	  	
December 2010

	
INDEX:

	
249.2

	
Weight @15%:

	
37.38

Composite Index:                                     222.93

Page 1 of 1

Carry and Earning Agreement – Exhibit G

  

  

  

Exhibit H

Attached to and made a part of that Carry and Earning Agreement

dated and effective as of May 1, 2011, by and between

Encana Oil & Gas (USA) Inc. and Northwest Natural Gas Company

	
Drilling Schedule

	  	  
	  	
Well Count

	
May-June 2011

	
[***]

	
July - Sept 2011

	
[***]

	
Oct - Dec 2011

	
[***]

	
[***]

	
[***]

	
[***]

	
[***]

	
July - Sept 2012

	
[***]

	
Oct - Dec 2012

	
[***]

	
Jan - March 2013

	
[***]

	
April-June 2013

	
[***]

	
[***]

	
[***]

	
[***]

	
[***]

	
Jan - March 2014

	
[***]

	
April - June 2014

	
[***]

	
July - Sept 2014

	
[***]

	
Oct - Dec 2014

	
[***]

	
Jan - March 2015

	
[***]

	
April -June 2015

	
[***]

	
July - Sept 2015

	
[***]

	
Oct - Dec 2015

	
[***]

	
Jan - March 2016

	
[***]

TOTAL       [***]

Page 1 of 1

Carry and Earning Agreement – Exhibit H

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment

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