Document:

UNIT INCENTIVE PLAN OF PARAMOUNT ENERGY TRUST

 

Exhibit 10.2

 

PARAMOUNT ENERGY TRUST

UNIT INCENTIVE PLAN

     This document sets out the terms and conditions of the Unit Incentive Plan (the
“Plan”) of Paramount Energy Trust (“PET”) adopted and approved by its
unitholders (the “Unitholders”) on August 7, 2002.

1.     The purpose of the Plan is to provide an effective long term incentive for
the directors, officers, employees and direct and indirect service providers
(collectively, the “Service Providers”) of PET and its subsidiaries and
affiliates from time to time. For certainty, a Service Provider will be
eligible to participate under the Plan notwithstanding services are being
provided indirectly by such person through a management agreement or other
arrangement with PET or its subsidiaries and affiliates. The Plan shall come
into effect on August 7, 2002, subject to the approval of the Toronto Stock
Exchange (the “TSX”) and any revisions or amendments thereof as may be required
from time to time by the TSX.

2.     3,963,906 trust units (“Trust Units”) of PET, or such lesser number of Trust
Units equal to 10% of the number of Trust Units of PET issued and outstanding
following the completion of a rights offering of Trust Units to be undertaken
by PET following the listing of the Trust Units on the TSX, are reserved for
issuance for the granting of rights (“Incentive Rights”) to acquire Trust Units
under the Plan. The number of Trust Units reserved for issuance upon the
exercise of Incentive Rights may be increased subject to the policies and
approval of the TSX and the approval of the Unitholders by way of ordinary
resolution at a meeting of the Unitholders.

3.     The Plan shall be administered by the board of directors of Paramount Energy
Operating Corp. or a committee thereof (the “Administrator”) which shall from
time to time at its sole discretion determine the Service Providers who shall
participate under the Plan, the numbers of Incentive Rights to be granted to
such Service Providers and the terms of vesting of such Incentive Rights, if
any; provided, however, that the aggregate number of Incentive Rights granted
to any one Service Provider shall not exceed 5% of the issued and outstanding
Trust Units of PET at the date of grant, the aggregate number of Trust Units
which may be reserved for issuance to “insiders” (as such term is referred to
in the policies of the TSX) under the Plan shall not exceed ten percent (10%)
of the issued and outstanding Trust Units of PET at the date of grant, and,
during any one-year period, the Administrator shall not grant to such insiders
a number of Trust Units exceeding ten percent (10%) of outstanding Trust Units
of PET, or to any one insider and such insider’s associates, a number of Trust
Units exceeding five percent (5%) of the outstanding Trust Units of PET.

4.     Incentive Rights granted under the Plan may not be transferred or assigned.

5.     The Plan and any amendments thereto, including to the number of Trust Units
reserved from time to time for issuance hereunder, are subject to the approvals
of the TSX and the Unitholders and no Incentive Rights which have been granted
prior to the receipt of such approvals may be exercised until such approvals
have been received.

6.     Subject to the restrictions on exercise set out in paragraph 5 above and
paragraphs 10 and 11 below, Incentive Rights granted under the Plan may be
exercised during a period (the “Exercise Period”) not exceeding 10 years from
the date upon which the Incentive Rights were granted (the “Grant Date”),
subject to such terms of vesting as the Administrator may determine, and at the
expiration of the Exercise Period, any Incentive Rights which have not been
exercised shall expire and become null and void.

7.     The grant price per Incentive Right granted hereunder (the “Grant Price”)
shall be equal to the per Trust Unit closing price of the Trust Units traded
through the facilities of the TSX on the trading day immediately preceding the
Grant Date. In the event the Trust Units are not traded through the facilities
of the TSX, the Grant Price shall be equal to the per Trust Unit closing price
of the Trust Units on such other stock exchange as the Trust Units may then be
traded on the trading day immediately preceding the Grant Date. In the event
the Trust Units are not traded on

 

any stock exchange, the Grant Price shall be equal to an amount determined by
the Administrator in its sole discretion, acting reasonably, based upon such
information as may from time to time be available to the Administrator
indicating a valuation of the Trust Units.

8.     At the option of a holder of Incentive Rights, the strike price per
Incentive Right granted hereunder (the “Strike Price”) may be reduced on or
before the effective date of exercise of such Incentive Rights by deducting
from the Grant Price the aggregate amounts from the distributions on a per
Trust Unit basis made by PET to Unitholders during each calendar quarter after
the Grant Date which represent a return of more than 2.5% on PET’s consolidated
net fixed assets on its balance sheet at the end of each such calendar quarter.
Where a Grant Date falls other than on the first day of a calendar quarter,
the per Trust Unit amount deducted from the Grant Price for that calendar
quarter shall be pro-rated from the Grant Date to the end of such calendar
quarter. Notwithstanding anything contained herein, the Strike Price shall
never be less than $0.001 per Trust Unit and the holder of an Incentive Right
may elect to have the Strike Price equal the Grant Price.

9.     The Administrator may, by resolution, vary the 2.5% threshold referred to in
paragraph 8 herein from time to time in accordance with the view of the
Administrator of the economic environment in which PET operates.

10.     Upon any holder of Incentive Rights ceasing to be a Service Provider for
any reason whatsoever during the Exercise Period, other than the death of such
holder, all Incentive Rights which have not vested at such date shall terminate
and become null and void, and such holder of Incentive Rights shall have until
the earlier of:

	 	(a)	 	sixty (60) days from the date that such holder ceased to be a
Service Provider; or
	 
	 	(b)	 	the end of the Exercise Period,

to exercise the vested Incentive Rights, at the Strike Price in effect at the
time the holder ceased being a Service Provider, and at the expiration of such
time, all vested Incentive Rights which have not been exercised shall terminate
and become null and void; provided, however, that upon the termination of an
employee for cause, the Administrator may, in its sole discretion, determine
that all vested Incentive Rights which have not been exercised shall
immediately terminate and become null and void. Incentive Rights shall not be
affected by any change of the provision of services by a Service Provider so
long as such Service Provider continues to be a Service Provider of PET or its
subsidiaries and affiliates. For the purposes of the Plan, the date of
termination of a Service Provider shall be the date on which notice is given in
writing to such Service Provider by the Administrator of his termination or of
the acceptance of his resignation. Such date shall not be effected by any
notice period required at law or otherwise.

11.     Upon the death of any individual holder of Incentive Rights during the
Exercise Period, all Incentive Rights which have not vested at such date shall
terminate and become null and void, and the executor, administrator or personal
representative of such holder of Incentive Rights shall have until the earlier
of:

	 	(a)	 	six (6) months from the date of the death of such holder; or
	 
	 	(b)	 	the end of the Exercise Period,

to exercise the vested Incentive Rights, at the Strike Price in effect at the
time of death of the Service Provider, and at the expiration of such time, all
vested Incentive Rights which have not been exercised shall terminate and
become null and void.

12.     Incentive Rights granted hereunder shall be exercisable by a holder by
delivering written notice to the Administrator specifying the number of
Incentive Rights being exercised and the Strike Price, accompanied by payment
in full of the Strike Price for the number of Incentive Rights for which such
exercise is made. The calculation of the Strike Price shall be ratified and
confirmed by the chief financial officer of the Administrator. Upon receipt of
such notice made in

 

accordance with the terms and conditions of the Plan, PET shall cause to be
issued and delivered to such holder a certificate representing the Trust Units
for which such Incentive Rights have been exercised.

13.     In the event that during the Exercise Period of any Incentive Rights
granted hereunder there is a consolidation, subdivision, re-division or change
of the Trust Units into a greater or lesser number of Trust Units, outstanding
Incentive Rights shall be amended to be for such greater or lesser number of
Trust Units as would have resulted if the Trust Units represented by such
Incentive Rights had been issued and outstanding at the date of such
consolidation, subdivision, re-division or change, and the Strike Price of
outstanding Incentive Rights shall be adjusted accordingly.

14.     Vesting provisions of Incentive Rights, if any, shall be accelerated and
all unexercised Incentive Rights may be exercised upon the effective date of a
change of control of PET or its subsidiaries and affiliates. For purposes of
this agreement, a “change of control” shall be deemed to occur upon the
effective date of the earlier of any of the following events, provided that
such event results in an actual change of control to PET or its subsidiaries
and affiliates:

	 	1.	 	the issuance to or acquisition by any person, or group of
persons acting in concert excluding officers, directors or other
insiders of PET or its subsidiaries and affiliates, of Trust Units
which in the aggregate total 20% or more of the then outstanding
issued Trust Units, as the case may be; or
	 
	 	2.	 	an Offer, as defined in the Trust Indenture of PET dated June
28, 2002, as amended, is made for the acquisition of Trust Units and
the Offeror, as defined in such Trust Indenture, has taken up and
paid for Trust Units pursuant to the Offer such that the Offeror
holds, together with Trust Units already held by the Offeror, in the
aggregate 20% or more of the then outstanding Trust Units.

15.     The granting of Incentive Rights hereunder to any Service Provider shall
not obligate such Service Provider to exercise such Incentive Rights or any
portion thereof. The holding of Incentive Rights shall not entitle a holder to
any rights as a Unitholder.

16.     The Plan and any issued Incentive Rights may be amended, modified or
terminated with the approvals of the TSX and the Unitholders by ordinary
resolution at a meeting of the Unitholders.

	 
	COMPUTERSHARE TRUST COMPANY OF CANADA, as

trustee of PARAMOUNT ENERGY TRUST, by its agent,

PARAMOUNT ENERGY OPERATING CORP.
	 
	 
	Per:                                                                       
	 
	 
	Per:                                                                       

 

SCHEDULE “A”

NOTICE OF EXERCISE OF TRUST UNIT INCENTIVE RIGHTS

To: The Board of Directors of Paramount Energy Operating Corp.

The undersigned holder of Incentive Rights hereby gives notice of intention to
exercise my Incentive Rights to purchase              Trust Units of
Paramount Energy Trust granted on                        , 20      , at the
following Strike Price:

	 	 	 
	Grant Price	 	
($        .        )
	 	 	 
	Strike Price	 	
($        .        )

Payment in full of the aggregate Strike Price for the total number of Incentive
Rights being exercised is enclosed.

	 	 	 
	 	 	
 
	

Date	 	

Signature of Holder of Incentive Rights
	 	 	
 
	 	 	
 
	 	 	

Name — Please Print
	 	 	
 
	 	 	
 
	 	 	

	 	 	
Address
	 	 	
 
	 	 	
 
	 	 	

	 	 	
 
	 	 	
 
	 	 	

	 	 	
 
	Please have my certificate sent to me at: 	 	
               above addressCOMMITMENT LETTER DATED AUGUST 15,2002

 

Exhibit 10.5

 

August 15, 2002

Computershare Trust Company of Canada,

as Trustee of Paramount Energy Trust and

Paramount Energy Operating Corp, as Trustee

of Paramount Operating Trust

c/o #500, 630 – 4th Avenue S.W.

Calgary, Alberta T2P 0J9

Dear Sirs:

     Computershare Trust Company of Canada (“Computershare”), as trustee of
Paramount Energy Trust (“PET”) and Paramount Energy Operating Corp. (“PEOC”) as
Trustee of Paramount Operating Trust (“POT”) (collectively the “Credit Parties”
or “you”) have asked Bank of Montreal, Canadian Imperial Bank of Commerce and
Bank of Nova Scotia (the “Lead Arrangers”) to assist the Credit Parties in
arranging commercial bank financing, which would be available for the purchase
by POT of certain assets of Paramount Resources Ltd. (“PRL”) and for general
trust purposes for PET, as borrower (the “Borrower”) and POT, as guarantor (the
“Guarantor”). We are pleased to inform you that each of the Lead Arrangers
individually commits for 33 1/3% of up to $100 million (the “Facility”). Within
Bank of Montreal’s commitment to the Facility, Bank of Montreal will create a
$10 million working capital sub-tranche of the Facility for cash management
purposes (the “Working Capital Facility”). The terms and conditions applicable
to the Facility are set forth in this letter and in the attached “Summary of
Terms and Conditions (the “Term Sheet”).

     The commitments of the Lead Arrangers herein are provided on a several basis
and not jointly or jointly and severally. The Lead Arrangers’ commitments are
subject to your execution of this letter (the “Commitment Letter”).

Syndication:

     The Lead Arrangers reserve the right prior to or after the execution of
definitive documentation to syndicate all or a portion of the Facility to one
or more financial institutions that will become parties to the applicable
definitive documentation (the “Lenders”) pursuant to a syndication to be
managed by the Lead Arrangers.

     The Lead Arrangers will manage all aspects of the syndication, in consultation
with you, including the list of all potential Lenders; the timing of all offers
to potential Lenders, the acceptance of commitments, and the determination of
the amounts offered and compensation provided.

     You will agree to take all action as the Lead Arrangers may reasonably request
to assist them in forming a syndicate acceptable to the Lead Arrangers and the
Credit Parties; make representatives of Computershare and senior management of
PEOC available to participate in information meetings with potential Lenders at
such times and places as the Lead Arrangers may reasonably request; use your
best efforts to ensure a successful syndication; and provide all information
reasonably deemed necessary to successfully complete the syndication. In
accordance with market practice and at the request of the Lead Arrangers an
information package (the

 

“Information Memorandum”) containing certain relevant information about the
Credit Parties and their subsidiaries will be provided on a confidential basis
to potential Lenders and participants. The Credit Parties agree to provide
such financial and other information in respect of the Credit Parties and their
subsidiaries as reasonably requested by the Lead Arrangers for the purposes of
the Information Memorandum.

     To ensure an orderly and effective syndication of the Facility, you agree that
until a reasonable time period to be mutually agreed upon, you will not, and
will not permit any of your controlled subsidiaries to syndicate, attempt to
syndicate, announce or authorize the announcement of the syndication, or engage
in discussions concerning the syndication, of any debt facility or debt
security or any renewal or refinancing of existing debt (unless according to
the same terms and with the same parties) in the commercial bank market or
enter into bilateral arrangements with commercial banks, without in each case
the prior written consent of the Lead Arrangers.

     The Credit Parties agree to supplement information, data and projections from
time to time so as to complete the syndication of the Facility and to ensure
that all such information, data and projections will be complete and correct in
all material respects and will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order for the statements
contained therein to not be misleading in light of the circumstances under
which they are made or received. In syndicating the Facility, the Lead
Arrangers will be entitled to use and rely primarily on the information, data
and projections provided by the Credit Parties without responsibility for any
independent check or verification thereof. Each Lead Arranger reserves the
right to employ the services of its affiliates in providing services
contemplated by this Commitment Letter and to allocate, in whole or in part to
any such affiliates certain fees payable to such Lead Arranger in such manner
as it and such affiliate may agree in their sole discretion. The Credit
Parties acknowledge that the Lead Arrangers may share with any of their
affiliates information relating to the Credit Parties and their subsidiaries or
any of the matters contemplated hereby, insofar as may be necessary in
connection with the syndication or administration of the Facility.

     The Lead Arrangers shall be entitled, after consultation with you and acting in
good faith, to change the structure and/or the pricing (including, without
limitation, applicable margins and fees) if the syndication has not been
completed and if the Lead Arrangers determine that such changes are advisable
in order to ensure a successful syndication of the Facility, to achieve the
Lead Arrangers’ individual retention level of $25 million for the Facility.

Conditions Applicable to Commitments

     The commitment and undertaking of the Lead Arrangers hereunder are subject to:

	 	(i)	 	satisfactory execution and delivery of a credit agreement,
security documents and related documentation, incorporating the
terms and conditions of the Facility in form and substance
satisfactory to the Lead Arrangers (collectively the “Loan
Documents”);
	 
	 	(ii)	 	absence of (A) a material adverse change in the business,
condition (financial or otherwise), operations, performance or
properties of any of the Credit Parties, or (B) any change in loan
syndication, financial or capital market conditions generally that,
in the Lead Arrangers’ judgment, would materially impair syndication
of the Facility;
	 
	 	(iii)	 	the Lead Arrangers’ satisfaction with the results of their
due diligence review of the Credit Parties and the Lead Arrangers
shall have been given reasonable access to all information regarding
the Credit Parties as has been requested and the Lead Arrangers
shall have received such financial, business and other

2

 

	 	 	 	information regarding the Credit Parties, and their subsidiaries
as requested and as reasonably available to the Credit Parties;
	 
	 	(iv)	 	the accuracy and completeness of all representations that you
make to us and all information, data and financial projections that
you furnish to us;
	 
	 	(v)	 	your compliance with the terms of this Commitment Letter and
satisfaction of the other terms and conditions of the Term Sheet;
	 
	 	(vi)	 	payment in full of all fees and expenses and other amounts
payable under this Commitment Letter and the Term Sheet; and
	 
	 	(vii)	 	the receipt of all required corporate, security and
regulatory approvals by the Credit Parties and appropriate legal
opinions, in form and substance satisfactory to the Lead Arrangers.

     The Lead Arrangers’ commitment and undertakings set forth in this Commitment
Letter will terminate if the initial advance of the Facility does not occur by
the earlier of (i) September 30, 2002 or such later date as may be agreed in
writing by each of the Lead Arrangers and the Credit Parties, and (ii) the
Conversion Event (as defined in the Term Sheet).

Indemnity

     The Credit Parties agree to jointly and severally indemnify and hold harmless
the Lead Arrangers, each Lender, each of their affiliates and each of their
respective officers, directors, employees, advisors, agents and
representatives (each, an “Indemnified Party”) from and against any and all
claims, damages, losses, liabilities and expenses (including without
limitation, fees and disbursements of counsel), joint or several, that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with (or relating to any investigation,
litigation or proceeding, or the preparation of any defense with respect
thereto) this Commitment Letter, the Loan Documents or any of the transactions
contemplated hereby or thereby or any use made or proposed to be made with the
proceeds of the Facility, whether or not such investigation, litigation or
proceeding is brought by either of the Credit Parties, any of their
unitholders, beneficiaries or creditors, an Indemnified Party or any other
person, or an Indemnified Party is otherwise a party thereto and whether or not
the transaction contemplated hereby is consummated, except to the extent such
claim, damage, loss, liability or expense is found in a final, non-appealable
judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party’s gross negligence or willful misconduct.

     You agree that no Indemnified Party shall have any liability (whether direct or
indirect, in contract, tort or otherwise) to the Credit Parties or any of their
beneficiaries, unitholders or creditors for or in connection with the
transactions contemplated hereby, except to the extent such liability is found
in a final nonappealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party’s gross negligence or willful misconduct.

Fees and Expenses

     In further consideration of the commitment and undertaking of the Lead
Arrangers hereunder, and recognizing that in connection herewith the Lead
Arrangers are incurring costs and expenses, you jointly and severally hereby
agree to pay, or reimburse the Lead Arrangers for, all reasonable costs and
expenses incurred by the Lead Arrangers and all their affiliates (including the
legal fees and expenses of counsel and agents retained by counsel) and
syndication expenses arising in connection with the transactions described
herein and including all of the cost and expense

3

 

categories set out in the Term Sheet, within 30 days of receipt of a request
for such reimbursement.

     In addition, under a separate administration letter (the “Agency Letter”), but
forming part of this Commitment Letter, the Borrower shall agree to pay a
predetermined annual fee for administrative services performed by Bank of
Montreal on behalf of the Borrower and the lenders to the Borrower.

Confidentiality

     By accepting delivery of this Commitment Letter, the Credit Parties agree that
this Commitment Letter is for their confidential use only and that neither its
existence nor any of the terms hereof will be disclosed by you to any person
other than your partners, sponsors, officers, directors, employees,
accountants, lawyers and other advisors, and then only on a “need to know”
basis in connection with the transaction contemplated hereby and on a
confidential basis. Notwithstanding the foregoing, following your acceptance
of the provisions hereof and your return of an executed counterpart of this
Commitment Letter to us as provided below, you may make public disclosure of
the existence, the total amount and the terms of the commitment provided by the
Lead Arrangers and you may make such other public disclosures of the terms and
conditions hereof as you are required by law, to make or as may be required in
connection with the filing of a prospectus in relation to an offering of rights
in PET.

     Please indicate your acceptance of our commitment and your agreement to the
terms and conditions hereof by signing the enclosed duplicate copy of this
Commitment Letter and returning signed originals to Yuki Sanda, Vice-President,
Debt Solutions, Investment Banking Group, BMO Nesbitt Burns, First Canadian
Place, 4th floor, P.O. Box 150, Toronto, Ontario M5X 1H3 or Glenn Kalyniuk,
Director Commercial Credit, Canadian Imperial Bank of Commerce, 10th Floor,
Banker’s Hall East, 855 – 2nd Street S.W., Calgary, Alberta T2P 2P2, and
Richard Lee, Managing Director, The Bank of Nova Scotia, 2000, 700 – 2nd Street
SW, Calgary, Alberta T2P 2N7. Please be advised that this offer is open for
acceptance until 5:00 p.m., mountain daylight saving time on August 9, 2002,
after which the commitment herein shall terminate. Should you have any
questions regarding the foregoing, please contact Mr. Sanda at 416-867-6573,
Mr. Kalyniuk at 403-221-5704 or Mr. Lee at 403-221-6429.

     This Commitment Letter may be executed and delivered by facsimile transmission
in any number of counterparts, each of which when executed and delivered is an
original but all of which taken together constitute one and the same
instrument.

     The parties acknowledge and agree:

	 	(a)	 	that Computershare is entering into this Commitment Letter in its
capacity as trustee of PET, that the obligations of the Borrower under
this Commitment Letter, the Facility, the credit agreement provided for by
the Term Sheet and any other credit documentation shall be binding upon
Computershare in its capacity as trustee of PET, provided that recourse to
Computershare in such capacity shall be limited to and satisfied only out
of the “Trust Fund” as defined in the First Amended and Restated Trust
Indenture entered into between BMO Nesbitt Burns Inc., Computershare and
PEOC and made effective as of August 1, 2002 (the “PET Trust Indenture”);
	 
	 	(b)	 	that the obligations of the Guarantor under this Commitment Letter, the
Guarantee of the Guarantor provided by the Term Sheet, the Facility, the
credit agreement provided for by the attached Summary of Terms and
Conditions and any other credit or security documentation shall be binding
upon PEOC both personally (and without any limitation thereof), and with
full recourse to the “Trust Properties” as defined in the First Amended

4

 

	 	 	 	and Restated Trust Indenture between CIBC World Markets Inc. and PEOC and
made effective as of August 1, 2002 (the “PET Trust Indenture” and
together with the POT Trust Indenture, the “Trust Indenture”), and to any
and all other property and assets that PEOC may hold in its own right;
and
	 
	 	(c)	 	that the unitholders of PET, in their capacities as such, shall not incur
any indebtedness, liability or obligation by virtue of or in relation to
the terms of this Commitment Letter, the Facility, the credit agreement
provided for by the Term Sheet or any other credit or security
documentation.

Yours very truly,

	 	 	 
	BANK OF MONTREAL	 	
CANADIAN IMPERIAL BANK OF COMMERCE
	 
	Per:
                                                           

         Yuki Sanda	 	
Per:
                                                           

         David W. Richardson
	 
	 	 	
Per:
                                                           

         Glenn Kalyniuk
	 
	 	 	
THE BANK OF NOVA SCOTIA
	 
	 	 	
Per:
                                                           

         Shari Sentner
	 
	 	 	
Per:
                                                           

         Jeff Cebryk

Accepted and Agreed this          day of August, 2002

Computershare Trust Company of Canada,

as Trustee of Paramount Energy Trust

By:
                                                   

Name:

Title

Acknowledged and agreed to this
        day of August, 2002.

Paramount Energy Operating Corp. as Trustee of

Paramount Operating Trust, and in its own right

By:
                                                   

Name:

Title

5

 

SUMMARY OF TERMS AND CONDITIONS

PARAMOUNT ENERGY TRUST and

PARAMOUNT OPERATING TRUST

All amounts are in Canadian dollars, unless otherwise indicated. Terms not otherwise defined herein are
defined in Schedule “A”, or in the Commitment Letter to which this Summary is attached.

	 	 	 
	Borrower:	 	
Computershare Company of Canada (“Computershare”) as trustee of Paramount Energy
Trust (“PET” and also sometimes herein referred to as the “Borrower”)
	 	 	
 
	Guarantor:	 	
Paramount Energy Operating Corp. (“PEOC”) in its capacity as trustee of Paramount
Operating Trust (“POT” and also sometimes referred to herein as the “Guarantor”)
	 	 	
 
	Administrative Agent:	 	
Bank of Montreal (the “Agent” or “BMO”)
	 	 	
 
	Credit

Facility/Amount:	 	
Up to $100 million, demand, revolving loan (the “Facility”), subject to the amount
of the Borrowing Base.
	 	 	
 
	 	 	
The Facility will include a $10,000,000 working capital subtranche to be retained
by the Agent for day-to-day operating requirements (the “Working Capital
Facility”)
	 	 	
 
	Purpose:	 	
The Facility will be used to assist the Guarantor in the acquisition of the assets
described in Appendices I and II (the “Assets”), to repay the PET Note (as defined
in the definition of “Conveyances”), and for general trust purposes of the
Borrower and the Guarantor (collectively, the “Credit Parties”)
	 	 	
 
	Availability:	 	
The Facility will revolve and will be governed by a Borrowing Base.
	 	 	
 
	Funding Options:	 	
Subject to the conditions precedent set out herein, the Borrowing Base amount,
minimum draw amounts and standard notice periods, the Facility will be available
in:

	 	 	 
	 	(a)	
Canadian Dollars by way of Prime Rate advances (“Prime”) and Bankers’
Acceptances (“B/A’s”);
	 	 	
 
	 	(b)	
U.S. Dollars by way of U.S. Base Rate advances (“U.S. Base”) and U.S. LIBOR
(“LIBOR”); and

	 	 	 
	 	 	
the Working Capital Facility will include letters of credit.

	 	 	 
	 	 	
Prime Rate means a fluctuating rate of interest per annum equal to
the higher of: (a) Bank of Montreal Prime Rate; and (b) the average of the 30 day discount rates
on BA’s, as quoted on the CDOR page of Reuters at approximately 10:00 am (Toronto
time) plus 1.0% per annum.

 

	 	 	 
	 	 	
 
	 	 	
Bankers’ Acceptance Rate will be determined based on: (a) in the case of any
Lender which is a Schedule 1 bank, CDOR; and (b) in the case of any other Lender,
the lesser of (i) their quoted rate and (ii) CDOR plus 0.10%. BA’s will be
available for 30 to 90 days, subject to availability.
	 	 	
 
	 	 	
LIBOR will be available for one, two and three months, subject to
availability.

	 	 	
 
	 	 	
U.S. Base Rate will equal the higher of: (a) Bank of Montreal U.S. Base Rate; and
(b) the federal funds overnight rate plus 1.0% per annum.
	 	 	
 
	Exchange Rate

Fluctuations:	 	
Total U.S. dollar borrowings converted into Canadian dollars at the Bank of Canada
noon rate (calculated by the Agent), together with aggregate Canadian dollar
borrowings shall not exceed the total Facility amount.
	 	 	
 
	Security:	 	
The security shall comprise of first fixed and floating charges over all of the
assets and undertaking of the Credit Parties, including, without limitation:

	 	 	 
	 	(a)	
Guarantee by the Guarantor;
	 	 	
 
	 	(b)	
Fixed and floating charge debentures conveying a first fixed and floating
charge over all of the assets of the Credit Parties (including reserve and
reclamation funds). Attached to the debenture of the Guarantor will be a schedule
of the oil and gas properties of the Guarantor. The fixed charges of the Guarantor
debenture as against such properties will not be registered at the closing of the
Facility, however, the Lenders may perfect the fixed charges at any time in their
sole discretion; and
	 	 	
 
	 	(c)	
priority agreement and appropriate subordination and postponements to ensure
that (i) upon realization of the Guarantor’s assets, the Lenders have the
unfettered right to dispose of the Guarantor’s assets (which shall include all
properties and assets comprising the “Trust Properties” of POT and any other
property, assets or rights owned by PEOC in its own right) free of any royalty,
indebtedness or other interests of the Borrower, PEOC or Computershare; and (ii)
all liabilities, indebtedness, obligations and indemnities of the Borrower to the
Guarantor, of the Guarantor to the Borrower, of the Guarantor to a trustee of
either Credit Party, or of a Credit Party to any holders of notes issued by it, is
postponed and subordinated to obligations to the Lenders.

	 	 	 
	 	 	
The above security shall also support, on a pari passu basis to the Facility, any
obligations arising from hedging and swap transactions entered into by any Credit
Party with the Lenders, including, without limitation, commodity swaps for up to
50% of the Guarantor’s daily 

- 7 -

 

	 	 	 
	 	 	
oil and gas production for a maximum term of up to
two years (“Swap Indebtedness”). It is acknowledged that Computershare, as
trustee of PET will be allowed a lien on royalty proceeds held by PET to Borrower,
prior to their distribution to unitholders, for its fees expenses and indemnities.
	 	 	
 
	Credit Margins and	 	
The credit margins and commitment fee for the Facility are as follows:
	Commitment Fee:	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Debt/Cash	 	 	 	 	 	 	 	 	 	Undrawn
	 	Flow	 	B/A's/LIBOR	 	Prime Rate/USBR	Fee
	 	
	 	
	 	
	

	 	* 2.0x
	 	 	1.500	%	 	 	0.500	%	 	 	0.225	%
	 	

	 	 	
	 	 	 	
	 	 	 	
	 
	 	> 2.0x * 2.5x
	 	 	1.750	%	 	 	0.750	%	 	 	0.275	%
	 	

	 	 	
	 	 	 	
	 	 	 	
	 
	 	> 2.5x * 3.0x
	 	 	2.000	%	 	 	1.000	%	 	 	0.300	%
	 	

	 	 	
	 	 	 	
	 	 	 	
	 
	 	> 3.0x
	 	 	2.625	%	 	 	1.625	%	 	 	0.400	%
	 	

	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 
	 	 	
* Less than or equal to
	 	 	
 
	 	 	
For financial letters of credit/guarantees the annual fee shall equal the
applicable B/A /LIBOR Credit Margins. The annual fee for performance letters of
credit/guarantee shall equal 50% of the applicable B/A /LIBOR Credit Margins.
	 	 	
 
	 	 	
The credit margins and commitment fee shall initially be set on closing at the
Debt to Cash Flow level resulting from pro-forma financial statements of the
Credit Parties to be provided on closing. After two fiscal quarters have passed,
actual Debt to Cash Flow ratios during the first two fiscal quarters will be
calculated by the Lenders based on, inter alia, compliance certificates and
financial information delivered by the Credit Parties and the Agent will advise
the Borrower if the Lenders have determined that the applicable Debt to Cash Flow
Ratio should have been at a higher level than was established at closing and
retroactive adjustments are required. If the Agent so notifies the Borrower, then
the Agent will at the same time advise as to any required additional payments
required to reflect the retroactive adjustments for the higher credit margins and
commitment fee and the Borrower shall make payment of such adjustments forthwith.
	 	 	
 
	Conditions Precedent
to Disbursements:	 	
Usual and customary for transactions of this type, all of which must be fulfilled
to the satisfaction of the Lenders (and Lenders’ legal counsel where appropriate),
including without limitation: (a) no breach of any covenant; (b) there shall have
occurred no change in respect of any Credit Party, which could reasonably be
expected to have a material adverse effect on the ability of either of them to
perform its obligations under this commitment; and (c) Representations and
Warranties shall have been confirmed as of the disbursement date.
	 	 	
 
	 	 	
In addition to the foregoing, conditions precedent for the initial disbursement
will include, without limitation, (a) satisfactory execution of all Loan
Documents; (b) receipt of legal opinions satisfactory to the Lenders from the
Borrowers’, Guarantor’s and Lenders’ legal counsel as to all matters including,
without limitation, enforceability of all Loan Documents and specified provisions
of certain material contracts, and as to status and powers and capacity of

- 8 - 

 

	 	 	 
	 	 	
the Credit Parties; (c) review by the Lenders and counsel of all material contracts of
the Credit Parties and the terms and conditions of which must be satisfactory to
the Lenders; (d) proceeds of the initial disbursement under the Facility will be
used to repay all funded debt of the Borrower and the Guarantor (excluding a
$16,848,000 note from the Guarantor to the Borrower issued at the time of the
Conveyances); and (e) a Conversion Event must have occurred prior to, or be
completed concurrently with, the first advance.
	 	 	
 
	Representations and 
Warranties:	 	
Usual and customary for transactions of this type, including, without
limitation: (i) corporate and trust status; (ii) corporate and trust power and
authority/enforceability; (iii) no material violation of law or contracts or
organizational documents; (iv) no material litigation; (v) correctness of
specified financial statements; (vi) no required governmental or third party
approvals (except as have been obtained and which are in full force and effect);
(vii) use of proceeds; (viii) material environmental matters; and (ix) good/valid
title to properties.
	 	 	
 
	Covenants:	 	
Usual and customary for transactions of this type, including, without
limitation: (i) delivery of financial statements, engineering and other reports; (ii)
compliance certificate; (iii) notices of default, material litigation and material
governmental and environmental proceedings; (iv) compliance with laws and
maintenance of permits; (v) payment of taxes; (vi) maintenance of insurance; (vii)
prohibition on liens (subject to permitted encumbrances); (viii) prohibitions on
mergers, consolidations; (ix) limitation on asset sales; (x) prohibition on
incurrence of debt (subject to permitted indebtedness) /limitation on hedging
exposure; (xi) prohibition on dividends, redemptions and other distributions
during a default or Borrowing Base Shortfall (as defined below) and at all other
times not to exceed POT’s free cash flow, after considering ongoing capital
expenditure requirements and reserves; provided that the foregoing will not
preclude issuance of redemption notes by PET that have been subordinated and
postponed in form satisfactory to the Lenders, (xii) limitations on investments
and asset acquisitions, excluding asset acquisitions in the Western Canadian
Sedimentary Basin; (xiii) no speculative trading; (xiv) no change in business;
(xv) negative pledge; (xvi) perfection of security interests; (xvii) use of
proceeds; and (xviii) prohibition on material amendments, waivers or consents to
(A) the trust indentures or royalty agreement without the prior written consent
of the Lenders, and (B) any other material contract which may have an adverse
effect on the rights or remedies of the Lenders.
	 	 	
 
	Repayment:	 	
All indebtedness and obligations under the Facility shall be payable on demand by
any Lender at its sole discretion and shall automatically become payable in full
upon the occurrence of insolvency events in relation to a Borrower or the
Guarantor. If not demanded earlier, all obligations, liabilities and indebtedness
shall be repaid and satisfied in full by May 31, 2003.
	 	 	
 
	Optional Prepayment/

Cancellation:	 	
Subject to notice periods and minimum amounts: (i) any unused portion of the
Facility may be cancelled without penalty by the Borrowers; or (ii) any advances
under the Facility may be prepaid by the Borrowers,

- 9 -

 

	 	 	 
	 	 	
without penalty, subject to
breakage costs, if any. Prepayments of B/A’s may be made on B/A rollover dates
only and subject to notice requirements.
	 	 	
 
	Assignment:	 	
Neither Credit Party shall assign any of its rights or obligations under the
Facility without the prior written consent of the Lenders. The Lenders will be
permitted to assign their loans, commitments and security to other financial
institutions and customary participation rights will be available, subject to the
consent of the Borrower and the Agent, such consents not to be unreasonably
withheld. The Borrower’s consent shall not be required during a default.
	 	 	
 
	Increased Costs:	 	
If due to any change in law, regulations, rules or orders or as a result of
compliance with any guideline or requirement from any authority with which it is
customary for the Lenders to comply (including any capital adequacy requirement),
a Lender incurs or will incur increased costs or a reduced return on its capital
relating to the outstanding indebtedness from time to time of the Borrower to the
Lenders, the Borrower will indemnify the Lenders against such increased costs or
reduced return.
	 	 	
 
	Expenses:	 	
All reasonable costs, fees and expenses incurred by the Lenders or the Agent in
connection with the preparation, negotiation, documentation, syndication and
enforcement of the Facility (including legal fees), will be for the account of the
Borrower.
	 	 	
 
	Governing Law:	 	
Province of Alberta
	 	 	
 
	Borrowing Base:	 	
The total amount of the Facility available to the Borrower at all times shall not
exceed the prevailing Borrowing Base. The Lenders shall determine the amount of
the Borrowing Base based on, among other things, their review of the hydrocarbon
reserves of POT. All determinations of the Borrowing Base shall be unanimous
determinations of the Lenders. The determination of the Borrowing Base, either
upward or downward, shall be made by the Lenders in the exercise of their sole
discretion. One week prior to the expiry date for the exercise of rights pursuant
to the Rights Issue, the Lenders will notify the Borrower as to the Borrowing Base
amounts which would result from various levels of Rights Exercise.
	 	 	
 
	 	 	
On an annual basis, and by no later than March 31st of each year, the Lenders will
be provided with an independent engineering report dated no earlier than January
1st of the same year and on the basis of which the Lenders will redetermine the
Borrowing Base. This report shall set forth, as a minimum, royalty interests and
the proved developed producing, proved developed non-producing and proved
undeveloped hydrocarbon reserves and a projection of the rate of production and
cash flow with respect thereto, and shall be in form and substance satisfactory to
the Lenders. Subsequent to June 30th of each year, the Lenders will be provided
with an internal engineering report as requested by the Lenders and on the basis
of which the Lenders will perform a subsequent redetermination of the Borrowing
Base. Each Lender reserves the right to request an independent engineering report
and/or to re-determine the Borrowing Base (i) at any other time if, in its sole
discretion, it deems such

- 10 -

 

	 	 	 
	 	 	
request/re-determination warranted, acting in a
reasonable manner; and (ii) at any time in the event of the issuance of redemption
notes by a Credit Party.
	 	 	
 
	 	 	
In the event that the aggregate advances under the Facility are in excess of the
Borrowing Base at any time (a “Borrowing Base Shortfall”), and without prejudice
to the right of a Lender to demand repayment at any time, any undrawn portion will
be immediately cancelled, no Credit Party shall make any distributions, (excluding
distributions in the form of additional trust units and excluding redemptions by
way of the issuance of (but not any payment upon), redemption notes of the Credit
Party which have been subordinated and postponed in a form and substance
satisfactory to the Lenders), without the prior written consent of the Lenders,
and the Credit Parties shall, within 30 days; (i) provide the Lenders with
additional security, in a form satisfactory to the Lenders, to increase the
Borrowing Base by an amount at least equal to such excess; or (ii) repay the
outstanding principal balance by an amount at least equal to such excess. It is
understood that the Lenders will not be obligated to make further advances during
the aforesaid 30 day period.
	 	 	
 
	Syndication

Provisions:	 	
Usual and customary for transactions of this type, including without limitation,
the Lenders shall be entitled, after consultation with the Borrower, to change the
pricing and structure of the Facility, but not the amount of the Facility, if the
Lenders determine that such change is reasonably necessary in order to ensure a
successful syndication to the Lenders’ desired retention level for the Facility.
During the period of such syndication, the Borrower will maintain a clear market.

	 	 	 
	Recourse:	(a)	
the obligations of the Borrower under the Loan Documents shall be binding upon
Computershare in its capacity as trustee of PET, provided that recourse to
Computershare in such capacity shall be limited to and satisfied only out of the
“Trust Fund” under the PET Trust Indenture relating to PET;
	 	 	
 
	 	(b)	
the obligations of the Guarantor under the Loan Documents shall be binding
upon PEOC both personally (and without any limitation thereof) and with full
recourse to the “Trust Properties” under the POT Trust Indenture and any and all
other property, assets and rights that PEOC may hold in its own right; and
	 	 	
 
	 	(c)	
the unitholders of PET, in their capacities as such, shall not incur any
indebtedness, liability or obligation by virtue of or in relation to the Loan
Documents.

- 11 -

 

SCHEDULE A

DEFINITIONS

     For the purposes of the foregoing term sheet, the following terms and phrases
shall have the following meanings:

“Bankers’ Acceptance Rate” shall mean the average Bankers’ Acceptance rate as
quoted on Reuters CDOR page for Schedule I Lenders and with respect to any
Schedule II or III Lenders, if any, the lesser of (i) the CDOR rate plus 10
bps, and (ii) its quoted rate.

“Banking Day” means a day which is both a Business Day and a day on which
dealings in US Dollars may be carried on by and between banks in the London,
England interbank market.

“B/A’s” means bankers’ acceptances denominated in Canadian Dollars.

“Bank of Montreal Prime Rate” means the floating annual rate of interest as
established from time to time by the Bank as a base rate it will use to
determine rates of interest on Canadian dollar loans to customers in Canada and
designated by it as its Prime Rate;

“Bank of Montreal U.S. Base Rate” means the floating annual rate of interest
established from time to time by the Bank as a base rate it will use to
determine rates of interest on loans in U.S. Dollars to customers in Canada and
designated by it as its U.S. base rate;

“Borrowing Base” means the amount (not in excess of the amount of the Facility)
determined by the Lenders from time to time in their sole discretion and which
determination shall constitute the Lenders’ estimate of the net present value
of revenues (adjusted to take into account coverage ratios customarily applied)
expected to be derived by the Guarantor in the future over the full economic
life of, and from, its O & G Properties after deducting therefrom such capital
expenditures, operating expenses and other expenses and such charges,
royalties, burdens or encumbrances on or in respect of any of such properties
or deductible in arriving at revenues obtained by the Guarantor therefrom, such
abandonment or reclamation costs in respect thereof, as the Lenders reasonably
determine from time to time, and other liabilities of the Guarantor as the
Lenders determine from time to time. In making the determination of the
Borrowing Base from time to time, the Lenders will utilize their estimates, at
the time of determination, of economic factors, quantity and recoverability of
reserves, capital expenditures, operating expenses, taxes, discount rates,
demand for and deliverability of petroleum substances, pricing forecasts,
abandonment and reclamation costs, burdens, foreign exchange rates, escalation
or de-escalation of commodity prices and expenses over the economic life of the
relevant reserves and other assumptions and factors as the Lenders considers
affect such determination.

“bp” or “basis point” means 1/100 of 1%.

“Business Day” means a day, excluding Saturday and Sunday, on which banking
institutions are open for business in Calgary, Alberta and Toronto, Ontario
and, in the case of transactions in US Dollars, also open for business in New
York, New York.

“Canadian Dollars", “Cdn $” and “Cdn Dollars” each means lawful money of
Canada.

“Cash Flow” is defined as the two most recent financial quarters consolidated
net income from operations as determined by GAAP (after taxes), without giving
effect to extraordinary items, plus, to the extent deducted in the
determination of net income: (i) deferred income taxes; (ii) depreciation,
depletion and amortization expense; and (iii) provisions for future site
restorations. The most recent two quarter’s cash flow is multiplied by two to
produce an annual cash flow estimate.

- 12 -

 

“Conversion Event” means, in the aggregate, the occurrence of all of the
following events and circumstances:

	(a)	 	the formation of PET and POT;
	 
	(b)	 	the Conveyances;
	 
	(c)	 	the Distribution;
	 
	(d)	 	the completion of the Rights Issue and the exercise thereof such that the
Borrower has received therefrom all net proceeds resulting from the
exercise of all rights issued to POG and its subsidiaries pursuant to the
Rights Issue and in all events being not less than 48.5% of all rights
exercisable by unitholders of PET pursuant to the Rights Issue, subject to
de minimus reduction in that percentage as the result of the exercise of
existing outstanding employee stock options for not more than 784,000
shares of PRL;
	 
	(e)	 	the satisfaction of all of the conditions precedent to the first
disbursement under the Facility, including the execution and delivery of
all Loan Documents;
	 
	(f)	 	the completion of the purchase and sale of an interest in the Assets by
POT such that POT has become the beneficial owner thereof and PRL has
received full payment (including all cash payments provided for)
thereunder pursuant to the applicable purchase and sale agreements and
which purchase and sale agreements are in form and substance satisfactory
to the Lenders;
	 
	(g)	 	the repayment in full of the PET Note; and
	 
	(h)	 	the completion by the Lenders of a satisfactory review of the management
and ownership structure of the Credit Parties, the organizational and
legal structure of the Credit Parties and all legal, tax and accounting
aspects of the Credit Parties.

“Conveyances” means the transactions and steps pursuant to which:

	(a)	 	the Guarantor acquires all or substantially all of the assets as
described in Appendix 1 from Paramount Resources Ltd. (“PRL”) for a
purchase price of not less than $81,000,000 (subject to customary
adjustments) and PRL ultimately receives, in return, trust units of PET
and demand secured interest bearing indebtedness of the Borrower of not
less than $30,000,000 (the “PET Note”) and, as a result of which, PRL
becomes at that time the sole holder of units in PET and which are
subsequently transferred to the shareholders of PRL pursuant to the
Distribution; and
	 
	(b)	 	the Guarantor enters into an agreement with PRL to acquire all or
substantially all of the additional properties described in Appendix 2
from PRL for a cash purchase price of not less than $220 million (in the
event of acquisition of 100% of PRL’s interest therein, as a result of the
exercise of all rights pursuant to the Rights Issue) and subject to
customary closing adjustments.
	 

“Debt” is defined, on a consolidated basis, as the sum of (i) all obligations
which would be considered by GAAP to be indebtedness for borrowed money, (ii)
the amount of letters of credit and letters of guarantees, (iii) obligations
under capital leases and synthetic leases, (iv) other obligations under which
interest charges are customarily paid, (v) prepaid obligations, (vi) any
secured swaps to the extent there is an obligation by the any Credit Party to
the counterparty at the end of the applicable quarter and any guarantee of the
aforementioned, all excluding current liabilities, (vii) plus/(minus) the
average of any working capital deficiency/surplus at the end of

- 13 -

 

the two most recent fiscal quarters (excluding amounts accounted for above) in
respect of the two most recently completed fiscal quarters of the Borrower.

“Distribution” means:

	(a)	 	the distribution by PRL by way of dividend in kind to its shareholders of
all the units in PET acquired by it pursuant to the transactions
associated with the first of the Conveyances, and
	 
	(b)	 	an issue by the Borrower to such shareholders of rights to acquire
further units of PET pursuant to the Rights Issue.

“Engineering Report” means an engineering report (in form and substance
satisfactory to the Lenders) in respect of the Oil and Gas Properties which is
prepared at the cost of the Borrower and, unless otherwise agreed to by the
Lenders, is prepared by independent petroleum engineers (satisfactory to the
Lenders acting reasonably in the circumstances).

“Guarantor” means Paramount Energy Operating Corp. in its capacity as trustee
of POT.

“Letters of Credit” means letters of credit or letters of guarantee denominated
in Canadian Dollars or US Dollars.

“Loan Documents” means a comprehensive credit agreement with the Credit Parties
incorporating and documenting all the terms and conditions of this term sheet,
all of the security described under the section entitled “Security”, all
bankers’ acceptance documentation, all letter agreements detailing fees all
subordination agreements and all other documents and instruments entered into
from time to time by any Credit Party in connection with the Facility.

“LIBOR” means the per annum rate of interest (rounded up to the nearest 1/16%)
determined by the Agent as appearing on Telerate Page 3750 as the rates per
annum at which the leading banks in the London InterBank market offer,
calculated on a 360 day basis, for placing US dollar deposits at approximately
11:00 a.m. (London time) two business days prior to the first day of the
applicable LIBOR Borrowing for a period comparable to such period and in an
amount approximately equal to the Borrowing.

“Libor Borrowings” means Libor rate based loans in US Dollars.

“O & G Properties” means as of any time the proven producing oil and gas
reserves (and such proven non-producing oil and gas reserves as may be agreed
to by the Lenders in their sole discretion) described in the most recent
Engineering Report delivered to the Lenders by the Credit Parties and provided
such reserves are, as of such time, owned by the Guarantor.

“PRL” means Paramount Resources Ltd.

“POG” means Paramount Oil & Gas Ltd.

“Rights Issue” means the issuance by the Borrower of rights to acquire units of
PET, and which rights are distributed at substantially the same time as the
dividend in kind by PRL of units in PET to its shareholders, which is
substantially all the holders of the units of PET at that time.

- 14 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}]]