FINANCING COMMITMENT
FOR
CEC RESOURCES LTD.
This Financing Commitment constitutes the whole and entire agreement between the
Borrower, CIBC and PLC and cancels and supersedes any prior agreements,
undertakings, declarations, representations and warranties, written or verbal,
among the parties in respect of the subject matter of this Financing Commitment,
including any prior Financing Commitment or arrangements.
MAY 18, 2001
BORROWER: CEC Resources Ltd. (the "BORROWER")
GUARANTOR: Carbon Energy Corporation (the "GUARANTOR")
LENDER: Canadian Imperial Bank of Commerce ("CIBC")
GAS PURCHASE AND
SALE TRANSACTIONS
FACILITATOR: CIBC World Markets PLC or any other subsidiary of CIBC from
time to time ("PLC")
CONFIDENTIALITY: This Financing Commitment will be treated in confidence by
the Borrower, CIBC and PLC unless disclosure is required by
law or other reporting or disclosure requirements.
AMOUNT: Cdn. $14,000,000 as a revolving/term production loan (the
"PRODUCTION LOAN") and,
U.S. $3,500,000 as a swap facility (the "SWAP FACILITY")
(collectively, the "FACILITY").
PURPOSE OF
THE FACILITY: PRODUCTION LOAN
For normal operating requirements and to assist the Borrower
in the exploration, development, production and/or
acquisition of oil and gas reserves in Western Canada.
SWAP FACILITY
To provide for the Borrower's contingent exposure under
commodity swaps either financially or physically settled.
HOSTILE
ACQUISITION: The Borrower shall not utilize whether directly or
indirectly Availments to facilitate, assist or participate
in a hostile acquisition without the prior written consent
of CIBC which may be withheld in CIBC's sole discretion.
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BORROWING BASE: Subject to the satisfaction of the Conditions Precedent to
Funding, the Production Loan currently permits draws of up
to Cdn. $14,000,000, (the "BORROWING BASE") subject to
adjustment as herein provided, and will remain in effect
until expiration of the Revolving Phase.
CIBC will undertake at any time, but not less frequently
than semi-annually during the Revolving and Term phase if
CIBC so chooses, a review of the Borrower's oil and gas
properties evaluated in an independently prepared economic
and reserve evaluation report (provided annually) for
purposes of redetermining the Borrowing Base applicable to
the Facility. To assist in such redetermination, the
Borrower will provide to CIBC operating statements and such
other technical information with respect to the properties
being reviewed as CIBC may request.
Should CIBC determine at any time that there is a Borrowing
Base Shortfall, during both the Revolving Phase and the Term
Phase, the Borrower will, within 60 days, use whatever means
necessary to reduce its indebtedness under this Financing
Commitment by that amount stipulated by CIBC, or
alternatively pledge additional security to CIBC sufficient
to cover, in CIBC's opinion, such deficiency.
While a Borrowing Base Shortfall exists, the Borrower shall:
* not request new Availments;
* provide CIBC with information needed to determine the
Borrower's Available Cash Flow;
* dedicate on a monthly basis for repayment of this
Financing Commitment such portion of its Available Cash
Flow as is required to eliminate the Borrowing Base
Shortfall within 60 days from the date CIBC delivers
notice to the Borrower of the Borrowing Base Shortfall;
and
* pay the increased compensation required under the
heading "Borrowing Base Rate Shortfall or Event of
Default".
PRODUCTION LOAN
AVAILABILITY: The Production Loan can be advanced by way of any
combination of the following availments:
* overdraft borrowings in Canadian dollars;
* letters of credit, letters of guarantee, cheque
credits, bid cheques for out of Province land sales and
corporate visa (collectively the "SUNDRY OPTIONS").
SWAP FACILITY
AVAILABILITY: At the Borrower's request and subject to market
availability, CIBC and/or PLC will provide quotes for (i)
forward rate agreements to provide fixed or floating rate
funding for part or all of the Production Loan, (ii)
commodity swaps covering a portion of the Borrower's oil and
gas production, (iii) forward exchange contracts and (iv)
firm gas purchase and sale transactions, subject to the
following:
o Forward Rate Agreements - terms shall not exceed the
lesser of two years and the date of expiry or
termination of the Production Loan, with
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aggregate amounts hedged not to exceed 60% of the
average Principal Indebtedness outstanding during the
Borrower's previous fiscal quarter;
o Commodity Swaps - terms shall not exceed the lesser of
two years and the date of expiry or termination of the
Production Loan, with aggregate production volumes
hedged from all sources, for both natural gas and oil,
(calculated separately, not collectively) not to exceed
60% of the Borrower's average production as forecast by
CIBC.
o Forward Exchange Contracts - terms shall not exceed the
lesser of two years and the date of expiry or
termination of the Production Loan, with aggregate
amounts hedged not to exceed 60% of the Borrower's
applicable foreign revenue;
o Physical Gas Purchase and Sale Transactions - terms and
conditions as outlined in the Master Firm Gas
Purchase/Sale Agreement, terms shall not exceed the
lesser of two years and the date of expiry or
termination of the Production Loan, with aggregate
production volumes hedged from natural gas not to
exceed 60% of the Borrower's current daily production
volume as determined by CIBC;
provided that in all instances, the Borrower's contingent
liability to CIBC and/or PLC under the Swap Facility shall
be secured and rank PARI PASSU with the Principal
Indebtedness.
Notwithstanding the foregoing, the sum of the aggregate
production volumes hedged with CIBC and/or PLC from natural
gas under both the commodity swaps and physical gas purchase
and sale transactions described above shall not at any time
exceed 60% of the Borrower's current daily production
volumes of natural gas as determined by CIBC.
TERM AND
REPAYMENT: The Production Loan will revolve and fluctuate at the
Borrower's option until August 31, 2001 (the "REVOLVING
PHASE") with interest payable monthly in arrears. At the
request of the Borrower, the Production Loan may be renewed
upon such terms and for such period, and subject to the
requirements listed below, as CIBC may in its discretion
agree to (a "REVOLVING PERIOD"). CIBC may elect to renew all
or only a portion of the Production Loan for a further
Revolving Phase.
REVOLVING PHASE
While the Production Loan is in the Revolving Phase, the
Borrower may, at least 60 days prior to the termination of
the then current Revolving Phase, request an extension of
the Revolving Phase provided:
* the extension is for 364 days or less;
* the extension will not result in the then current
Revolving Period extending beyond 364 days; and
* CIBC, in its unrestricted discretion, consents to the
extension.
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An extension of the Revolving Phase will create a new and
separate Revolving Phase which in turn can only be extended
as provided above.
Upon the expiration or termination of the then current
Revolving Phase, any amount undrawn under the Production
Loan will be permanently cancelled.
TERM PHASE
During the Term Phase, the Production Loan will be
permanently reduced by way of consecutive monthly principal
payments commencing 30 days after the end of the Revolving
Phase over an amortization period consistent with the
Borrower's cash flow profile, as determined by CIBC, by
applying its usual practice for similar type loans in
comparable circumstances, provided that such amortization
period shall not exceed 36 months.
Where used herein, the term "TERM PHASE" means the period
commencing immediately after the end of the Revolving Phase
until repayment of the Production Loan in full.
PREPAYMENT AND
CANCELLATION: The Borrower may permanently prepay the Facility in whole or
in part, subject to the following:
* All prepayments, during the Term Phase, will be made in
inverse order of maturity;
* Availments by way of commodity swaps (financial or
physical), forward rate agreements and forward exchange
contracts may be prepaid only at maturity except where
the Borrower agrees to pay CIBC's breaking costs due to
early redemption of offsetting positions or otherwise,
including all costs associated with reversing
positions, provided such early redemption is possible;
and
* the Borrower may at any time, upon giving CIBC two
Banking Days prior notice, cancel any unused part of
the Facility and any cancelled portion will not be
reinstated.
RATES AND
STAMPING FEES: REVOLVING PHASE
* CIBC Prime Rate in effect from time to time plus 1/2 of
1% per annum with interest payable monthly in arrears.
TERM PHASE
* CIBC Prime Rate in effect from time to time plus 1 1/2%
per annum with interest payable monthly in arrears.
STANDBY FEE: During the Revolving Phase, a Standby Fee of 1/4 of 1% per
annum calculated on the undrawn portion of the available and
unused Production Loan is payable monthly in arrears.
RENEWAL FEE: $20,000 is payable upon the Borrower's acceptance of the
terms and conditions hereof.
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SUNDRY OPTIONS: Fees on Sundry Options are subject to change without notice
and are payable as follows:
Letters of Credit/ - 1.3% per annum or portion thereof
Letters of Guarantee in advance with a minimum of $150
Corporate Visa - CIBC standard rates
Bid Cheques - 2.0% per annum plus $10.00 per
cheque for out of province Bid
Cheque transactions
BORROWING BASE
SHORTFALL OR
EVENT OF DEFAULT: Effective on the 30th day following receipt by the Borrower
of a notice of a Borrowing Base Shortfall or an Event of
Default (the "Effective Date"), the interest rates then
applicable to CIBC Prime Rate loans shall increase by 2% per
annum and such increase shall remain in effect for as long
as a Borrowing Base Shortfall or Event of Default subsists.
LEGAL FEES: CIBC's costs, including legal and the cost to prepare any
environmental assessments, in connection with the
preparation, establishment, operation or enforcement of this
Financing Commitment, including the Security, are for the
account of the Borrower.
SECURITY: The Borrower will provide to CIBC and PLC and maintain the
following as security for all obligations of the Borrower
arising under this Financing Commitment, including any
liability or exposure of CIBC under the Sundry Options and
CIBC and/or PLC under the Swap Facility;
* Acknowledgement, in form satisfactory to CIBC, from the
Borrower to CIBC and PLC that all previous Security
granted to CIBC by the Borrower under any existing
facility or any other previous facilities including,
without limitation, the financing commitments dated
November 25, 1998, October 8, 1999 and September 15,
2000, remains in full force and effect;
* a Second Supplemental Debenture in the amount of
$25,000,000 conveying a first floating charge (with
right to fix) over all the present and after-acquired
property of the Borrower together with a pledge
thereof;
* Negative pledge from CEC Resources Ltd. and undertaking
to provide fixed charge security;
* Guarantee from Carbon Energy Corporation with respect
to the unconditional guarantee of the Borrower's
indebtedness to CIBC and PLC (containing an
acknowledgement that the Negative Pledge dated October
6, 2000 granted by the Guarantor continues in full
force and effect), together with a legal opinion of the
Guarantor's counsel in support thereof, in form
satisfactory to CIBC;
* General Security Agreement providing a first priority
security interest in all present and after-acquired
personal property of the Borrower;
* Officer's certificate certifying ownership of
properties and interests as evaluated by CIBC;
* Standard CIBC agreement respecting hydrocarbons;
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* Standard CIBC agreement and documentation relative to
Sundry Options;
* Standard CIBC overdraft lending agreement;
* Standard ISDA form agreement relative to swap
transactions, (when required);
* Master Firm Gas Purchase/Sale Agreement with any
relating documents as required by CIBC or its counsel,
(when required); and
* Any and all other security or documents as required by
CIBC or its counsel.
(collectively the "Security").
In the event of any conflict between this Financing
Commitment and the Security, this Financing Commitment shall
govern.
OTHER COVENANT: The Borrower covenants not to provide any financial support
by guarantee, pledge of its shares, granting of a security
interest or other mortgage, charge, lien or encumbrance of
any kind, or otherwise to an affiliate (as such term is
defined in the BUSINESS CORPORATIONS ACT (Alberta)) without
the prior written consent of CIBC, in its sole discretion.
UNDERTAKING: Upon request, the Borrower agrees to provide CIBC with such
additional security that in CIBC's reasonable opinion is
required to cover its or PLC's contingent exposure and all
indebtedness under the Swap Facility, including without
limitation, an acknowledgement and amending agreement and
such other documentation as CIBC may request to confirm that
the Security held by CIBC as at date hereof secures such
contingent exposure and indebtedness to PLC and to amend the
Security accordingly.
CONDITIONS
PRECEDENT
TO FUNDING: CIBC's obligation to provide increased Availments shall be
subject to the following conditions precedent being met,
unless waived in writing by CIBC:
* execution of the Financing Commitment;
* the Security in form and substance satisfactory to
CIBC;
* the receipt by CIBC of a duly executed environmental
certificate in CIBC's standard form;
* no Event of Default shall have occurred nor any event
which, after notice or lapse of time or both, would
become an Event of Default; and
* the appropriate notice of borrowing shall have been
delivered in accordance with the notice provisions
provided herein.
ADDITIONAL
CONDITION: In addition to the conditions set forth above, CIBC's
obligation to provide Availments, other than rollovers or
conversions of a then maturing advance, shall be suspended
for as long as there exists a Borrowing Base Shortfall.
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REPORTING
REQUIREMENTS: The Borrower will provide to CIBC:
* audited financial statements of the Guarantor within
120 days of the Borrower's fiscal year-end;
* the Guarantor's quarterly 10 Q filings within 60 days
of the end of the first three fiscal quarters of each
fiscal year;
* unaudited annual financial statements of the Borrower
within 120 days of the Borrower's fiscal year-end;
* unaudited quarterly financial statements within 60 days
of the end of the first three fiscal quarters of each
fiscal year;
* an independently prepared economic and reserve
evaluation report covering the Borrower's oil and gas
properties along with annual cash flow projections and
capital expenditure budgets within 90 days of the end
of each fiscal year;
* at the request of CIBC, production revenue statements
on a monthly basis within 60 days of each month end,
such statements indicating the gross oil and gas
production, net production, total revenues, royalties
and other burdens, operating expenses and net revenues,
in a format acceptable to CIBC;
* compliance certificate substantially in the form of
Schedule B hereto within 60 days of the end of each
fiscal quarter; and
* such other documentation and information as CIBC may
reasonably request, including any internally or
independently prepared environmental assessment reports
in the Borrower's possession.
DISPOSITION
LIMIT: In addition to the Borrower's covenants found in Schedule A
hereto, the Borrower will not sell, convey or otherwise
dispose of any of its Proved Producing Reserves or related
facilities, other than in the normal course of business and
on arm's length terms, provided that, if cumulative proceeds
of all dispositions to be received by the Borrower exceed
$1,000,000 in any calendar year, such proceeds will be used
to permanently repay the Principal Indebtedness, unless
other arrangements are made with CIBC.
CHANGE
OF CONTROL: The Borrower shall notify CIBC of a Change of Control as
soon as it becomes aware thereof, and CIBC may at its sole
discretion, by written notice to the Borrower, terminate the
Facility upon a Change of Control occurring. Such
termination will be effective on the 30th day following the
giving of the notice by CIBC and thereupon all Principal
Indebtedness, interest, fees and all amounts due by the
Borrower to CIBC or PLC under the Facility will be due and
payable.
INDEMNITY: The Borrower agrees to indemnify and hold CIBC and its
officers, directors, employees and agents harmless against
any and all liabilities and costs associated with or as a
result of CIBC and PLC entering into and performing their
obligations under this Financing Commitment, including but
not limited to liabilities
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or costs associated with or as a result of (i) any
transaction financed or to be financed in whole or part,
directly or indirectly, by the proceeds of this Facility; or
(ii) any breach or non-compliance of any legislation, order,
directive or judgment by the Borrower for the protection of
the environment. This indemnity will survive the repayment,
cancellation or termination of this Financing Commitment.
NOTICES: Any notice or communication to be given hereunder and under
the Security may be effectively given by delivering the same
at the addresses hereinafter set forth or by telecopy or by
sending the same by prepaid registered mail to the parties
at such addresses. Any notice so mailed will be deemed to
have been given upon actual receipt thereof. The address of
the parties are:
CEC Resources Ltd.
0000, 000 - 0xx Xxxxxx X.X.
Calgary, Alberta
T2P 3S8
Attention: Xxxxxx X. Xxxxxxxx
President
Telecopy: (000) 000-0000
Canadian Imperial Bank of Commerce
Oil and Gas Group
10th Floor Bankers Hall
000 - 0xx Xxxxxx X.X.
Calgary, Alberta
T2P 2P2
Attention: Vice President, Oil & Gas
Telecopy: (000) 000-0000
Either party may from time to time notify the other, in
accordance with the provisions hereof, of any change of
address or addressee, which thereafter, until changed by
like notice, will be the address of such party for all
purposes of this Financing Commitment and the Security.
GENERAL TERMS
AND CONDITIONS: Schedule A hereto contains general definitions, covenants,
events of default, terms and conditions which form part of
this Financing Commitment.
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PRIOR
INDEBTEDNESS: All amounts owing by the Borrower as at the effective date
hereof under any other financing commitment or agreement
shall be deemed to be amounts owing under this Facility and
this Financing Commitment as of the effective date hereof.
OUR FINANCING COMMITMENT IS OPEN TO ACCEPTANCE BY YOU ON OR
PRIOR TO JUNE 29, 2001.
CANADIAN IMPERIAL BANK OF COMMERCE
Per:
---------------------------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: Vice President
Per:
---------------------------------------------
Name: Xxxxx Xxxxxx
Title: Manager, Commercial Banking
THE ABOVE TERMS AND CONDITIONS AND THOSE CONTAINED IN THE
ATTACHED SCHEDULE "A" ARE AGREED TO BE EFFECTIVE THE 29TH
DAY OF JUNE, 2001.
CEC RESOURCES LTD.
Per:
---------------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: President
Per:
---------------------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Treasurer
