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.
--------------------------------------------------------------------------------
SEPTEMBER 15, 2000
BORROWER: CEC Resources Ltd. (the "Borrower")
---------
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. $6,600,000 as a revolving/term production loan
------- (the "Production Loan") and, U.S. $3,000,000 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.
BORROWING BASE: Subject to the satisfaction of the Conditions
--------------- Precedent to Funding, the Production Loan currently
permits draws of up to Cdn. $6,600,000, (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, except for the
rollover or conversion of a then maturing
Availment for a term not exceeding 30 days;
* 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 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 December 31, 2000 (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.
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 3/4 of 1% per annum with interest payable
monthly in arrears.
Term Phase
* CIBC Prime Rate in effect from time to time
plus 1 3/4% 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: $5,000 is payable upon the Borrower's acceptance of
------------ the terms and conditions hereof.
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 in advance
Letters of Guarantee - 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;
* all Security granted CIBC by the Borrower under
the Existing Facility or any other previous
facilities including, without limitation, the
financing commitments dated November 25, 1998
and October 8, 1999;
* a First Supplemental Debenture in the amount of
$17,500,000 conveying a first floating charge
(with right to fix) over all the present and
after-acquired property of the Borrower;
* Negative pledge from CEC Resources Ltd. and
undertaking to provide fixed charge security;
* Negative pledge from Carbon Energy Corporation
with respect to not pledging, mortgaging,
charging or otherwise creating a security
interest in the Borrower's shares without the
prior written consent of CIBC, in its sole
discretion;
* 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;
* Standard CIBC agreement and documentation
relative to Sundry Options;
* Standard CIBC overdraft lending agreement and;
* 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
* Acknowledgement of Security from Borrower to
PLC and CIBC
* 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: CEC Resources Ltd. 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, notice of
rollover or notice of conversion 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.
REPORTING
REQUIREMENTS: The Borrower will provide to CIBC:
-------------
* audited financial statements of Carbon Energy
Corporation within 120 days of the Borrower's
fiscal year-end;
* Carbon Energy Corporation's quarterly 10 Q
filings;
* 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, 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
$500,000 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 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.
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxxx X. Xxxxxxxx
President
Telecopy: (000) 000-0000
Canadian Imperial Bank of Commerce
Oil and Gas Group
10th Floor Bankers Hall
855 - 2nd Street S.W.
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" contains general definitions,
--------------- covenants, events of default, terms and conditions
which form part of this Financing Commitment.
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 OCTOBER 20, 2000.
CANADIAN IMPERIAL BANK OF COMMERCE
Per:
Name: X.X. XxxXxxxxx
Title: Director, Corporate Lending
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 DAY OF OCTOBER, 2000.
CEC RESOURCES LTD.
Per:
Name: Xxxxxx Xxxxxxxx
Title: President
Per:
Name: Xxxxx X. Xxxxxxxxx
Title: Treasurer
