<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-5426
THE WISER OIL COMPANY
A DELAWARE CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 55-0522128
8115 PRESTON ROAD, SUITE 400
DALLAS, TEXAS 75225
TELEPHONE: (214) 265-0080
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------- -------------------
COMMON STOCK-PAR VALUE, $3.00 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Indicate by check mark whether registrant has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and has been subject to such filing requirements for the
past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 27, 1998, registrant had outstanding 8,951,965 shares of common
stock, $3.00 par value ("Common Stock"), which is registrant's only class of
common stock.
The aggregate market value of registrant's Common Stock held by non-affiliates
based on the closing price on February 27, 1998 was approximately $114 million.
DOCUMENTS INCORPORATED BY REFERENCE
(SPECIFIC INCORPORATIONS ARE IDENTIFIED UNDER THE APPLICABLE ITEM HEREIN.)
Portions of the registrant's proxy statement furnished to stockholders in
connection with the May 18, 1998 Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference in Part III of this Report. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the close of the registrant's fiscal year.
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TABLE OF CONTENTS
DESCRIPTION
Item Page
PART I
1. BUSINESS.......................................................... 3
2. PROPERTIES........................................................ 26
3. LEGAL PROCEEDINGS................................................. 26
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 26
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 27
6. SELECTED FINANCIAL DATA........................................... 28
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 31
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 36
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 36
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 36
11. EXECUTIVE COMPENSATION............................................ 36
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 37
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 37
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.................................................. 38
2
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THE WISER OIL COMPANY
PART I
ITEM 1. Business
GENERAL
Founded in 1905, The Wiser Oil Company (the "Company" or "Wiser") is one of
the oldest public independent oil and gas companies in the United States. In
recent years, the Company has successfully implemented a new business strategy
adopted in 1991, emphasizing growth in reserves and production volumes through
acquisitions and subsequent development and exploitation of acquired properties.
Since its change in strategic direction, the Company's total proved reserves
have grown to 49.7 MMBOE (approximately 60% of which were oil and NGLs) at
December 31, 1997 from 24.3 MMBOE at December 31, 1991, and its annual net
production has grown to 4.9 MMBOE in 1997 from 2.3 MMBOE in 1991. The Company's
primary operations, representing approximately 51% of its proved reserves at
December 31, 1997, are located in the Permian Basin in West Texas and Southeast
New Mexico. Wiser has additional operations in Alberta, Canada, the Appalachian
Basin in Kentucky, Tennessee and West Virginia, and the San Juan Basin in New
Mexico.
Prior to 1991 the Company focused primarily on the acquisition of non-operated
interests in oil and gas properties. In 1991 the Company moved its headquarters
from Sistersville, West Virginia to Dallas, Texas and began to assemble a team
of experienced management with substantial acquisition, exploitation and
development expertise. After reviewing the Company's existing property portfolio
and refining the new business strategy, the management team began disposing of
the Company's non-strategic assets and acquiring and operating properties in new
core areas with the potential for increased reserves and production volumes.
Pursuant to this strategy, the Company acquired and developed properties in the
Permian Basin and Canada, and successfully added reserves and production through
workovers, recompletions, waterfloods and CO2 gas injections, as well as the
drilling of exploratory, development and infill wells.
A substantial portion of the Company's growth in reserves and production
volumes since 1991 has been the result of (i) two successful enhanced oil
recovery projects on properties acquired from 1992 to 1995 in the Permian Basin
and (ii) the Company's 1994 acquisition and subsequent exploration on and
exploitation of properties in Alberta, Canada. From June 1993 through December
1997, the Company completed 163 producing wells on its Maljamar waterflood
project in Southeast New Mexico. As a result, the Company's average daily net
production from the three units in this project increased to 2,921 BOE in 1997
from 580 BOE in January 1993 (on a pro forma combined basis, assuming the
Company had acquired all three units at January 1, 1993). At its Wellman Unit in
West Texas, the Company used CO2 gas injection to increase average daily net
production to 1,458 BOE in 1997 from 650 BOE in December 1993. In June 1994 the
Company acquired oil and gas properties located primarily in Alberta, Canada for
$52.0 million. From the date of their acquisition through December 1997, the
Company completed 42 net wells on these properties. As a result, the Company's
average daily net Canadian production increased to 3,232 BOE in 1997 from 1,860
BOE in June 1994.
The Company's principal executive offices are located at 8115 Preston Road,
Suite 400, Dallas, Texas 75225, and its telephone number is (214) 265-0080.
Certain oil and gas industry terms used herein are defined in the "Glossary of
Oil and Gas Terms" appearing at the end of this Item 1.
3
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PRINCIPAL OIL AND GAS PROPERTIES
The following table summarizes certain information with respect to each of the
Company's principal areas of operation at December 31, 1997.
<TABLE>
<CAPTION>
Proved Reserves
-------------------------------------------
1997
Total Total Percent Average
Gross Oil Proved of Total Net
Oil and and NGLs Gas Reserves Proved Production
Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day)
--------- --------- ------ -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar.................................. 231 13,739 5,424 14,643 30% 2,921
Wellman................................... 18 6,696 2,367 7,091 14% 1,458
Dimmitt/Slash Ranch....................... 83 2,265 7,694 3,546 7% 901
----- ------ ------- ------- ----- ------
Total................................... 332 22,700 15,485 25,280 51% 5,280
Appalachian Basin........................... 466 807 35,233 6,679 13% 1,273
San Juan Basin.............................. 2,200 46 20,571 3,474 7% 1,066
Other....................................... 476 1,764 25,659 6,042 12% 2,281
----- ------ ------- ------- ----- ------
Total United States......................... 3,474 25,317 96,948 41,475 83% 9,900
Canada...................................... 322 4,404 23,146 8,262 17% 3,232
----- ------ ------- ------- ----- ------
Total Company............................... 3,796 29,721 120,094 49,737 100% 13,132
===== ====== ======= ======= ===== ======
</TABLE>
Permian Basin
Maljamar. The Company's Maljamar properties are situated in Southeast New
Mexico. At December 31, 1997, the Maljamar properties contained 14.6 MMBOE of
proved reserves, which represented 30% of the Company's total proved reserves
and 24% of the Company's Present Value of total proved reserves.
The Maljamar properties consist primarily of three oil producing units
acquired by the Company in separate transactions between 1992 and 1995: the
Maljamar Grayburg and Caprock Maljamar Units, both of which are in Lea County,
New Mexico, and the Skelly Unit in Eddy County, New Mexico. The Maljamar
Grayburg Unit produces from the Grayburg and San Andres formations at depths
ranging from 3,800 to 4,500 feet, and the Caprock Maljamar Unit produces from
the same formations at depths ranging from 4,000 to 5,000 feet. The Skelly Unit
is located approximately five miles west of the two Lea County units and
produces from the Seven Rivers, Grayburg and San Andres formations at depths
ranging from 2,100 to 4,000 feet. The Company has a 100% working interest in
each of these units, which, along with some smaller adjacent properties, have
been combined into a single large scale waterflood project encompassing
approximately 12,800 gross leasehold acres.
Exploitation efforts at the project include recompletions of existing wells
and the drilling of infill development wells on 20-acre spacing to create a
five-spot water injection pattern of 40 acres. From June 1, 1993 through
December 31, 1997, the Company made capital expenditures of $75.5 million and
completed 163 producing wells at the project. At December 31, 1997, the project
included 231 producing wells and 175 water injection wells, all of which were
operated by the Company. During 1997, Wiser placed a total of 50 wells on
production, and had 12 additional wells in various stages of drilling or
completion at year end. At December 31, 1997, a total of 3 wells remain to be
drilled at the project, all of which are expected to be drilled in 1999 as part
of a total capital expenditure thereon of $1.3 million.
The Company's net production from the Maljamar properties averaged 2,586 Bbls
of oil, 107 Bbls of NGLs and 1,367 Mcf of natural gas per day in 1997. The
Company's cumulative net production from the Maljamar properties since acquired
by the Company has been 2,304 MBbls of oil and 1.2 Bcf of natural gas through
December 31, 1997.
Wellman Unit. In 1993 the Company acquired a 62% working interest in and
became operator of the Wellman Unit in Terry County, Texas, located in the
northwestern edge of the Horseshoe Atoll. At December 31, 1997, the
4
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Company's Wellman property contained 7.1 MMBOE of proved reserves, which
represented 14% of the Company's total proved reserves and 4% of the Company's
Present Value of total proved reserves.
The Company owns approximately 2,300 gross (1,400 net) leasehold acres in the
Wellman Unit. The Wellman Unit produces oil from the Wolfcamp Reef formation at
depths ranging from 9,100 to 10,000 feet through the injection of water and CO2
into the reservoir. Water injection at the unit began in 1979, and CO2 injection
began in 1983. The unit also includes a gas processing plant, which processes
wellhead gas produced from the unit. Wiser's interest in this plant is
proportionate to its working interest in the Wellman Unit. Processing at the
plant involves subjecting the wellhead gas to high pressure and low temperature
treatments that cause the gas to separate into various products, including NGLs,
residual natural gas and CO2. The NGLs and residual natural gas are sold to
pipeline companies, and the CO2 is reinjected into the unit's reservoir. At
December 31, 1997, the unit included 18 productive wells, 3 water injection
wells, 3 CO2 injection wells and 3 water disposal wells, all of which were
operated by the Company.
The Company's net production from the Wellman Unit averaged 946 Bbls of oil,
432 Bbls of NGLs and 480 Mcf of natural gas per day in 1997. The Company's
cumulative net production from the unit since acquired by the Company has been
1,526 MBbls of oil, 436 MBbls of NGLs and 311 MMcf of natural gas through
December 31, 1997.
In 1994 the Company began reconditioning the gas processing plant at the
Wellman Unit to enhance the extraction of NGLs and residual natural gas from the
wellhead gas. The Company completed the reconditioning project in June 1995 at a
total cost of approximately $6.0 million. For the year ended December 31, 1997,
the gas plant processed an average of 34 MMcf of gross natural gas and CO2 per
day and recovered an average of 784 Bbls of NGLs and 808 Mcf of residual natural
gas per day. The plant currently operates at 96% of its maximum capacity of 35
MMcf of gas per day.
Dimmitt/Slash Ranch Fields. The Company's Dimmitt/Slash Ranch properties are
situated in Loving County, Texas, 80 miles west of Midland, Texas. At December
31, 1997, the Dimmitt/Slash Ranch properties contained 3.5 MMBOE of proved
reserves, which represented 7% of the Company's total proved reserves and 8% of
the Company's Present Value of total proved reserves.
The Company owns approximately 5,320 gross (5,290 net) leasehold acres in the
Dimmitt Field, and has working interests in this acreage ranging from 75% to
100%. The Company acquired its initial interest in and became operator of the
field in 1993. The Dimmitt Field produces oil and gas from the Cherry Canyon and
Bell Canyon formations at depths ranging from 4,700 to 6,700 feet. At December
31, 1997, the field included 80 productive wells. The Company completed 1 well
in the Cherry Canyon formation and performed 9 recompletions on producing wells
in the Bell Canyon formation in 1997. The Company plans to recomplete 18
additional Bell Canyon wells during the next six years for an estimated total
capital expenditure of approximately $1.25 million. The Company's net production
from the Dimmitt Field averaged 411 Bbls of oil and 1,377 Mcf of natural gas per
day in 1997.
The Slash Ranch Field is a natural gas field that underlies the Dimmitt Field.
The Company owns approximately 4,160 gross (3,390 net) leasehold acres in the
Slash Ranch Field. The Slash Ranch Field produces from the Atoka, Fusselman and
Ellenburger formations at depths ranging from 15,000 to 20,000 feet. At December
31, 1997, the field included 3 producing wells, all of which were operated by
the Company. The Company's working interests in these wells range from 34% to
100%. The Company's net production from the Slash Ranch Field averaged 1,564 Mcf
of natural gas per day in 1997. The Company has identified several exploratory
prospects in this field and intends to further define these prospects with 3-D
seismic in 1997. See "-Exploration Activities-United States-West Texas."
The Company's net production from the Dimmitt/Slash Ranch properties averaged
411 Bbls of oil and 2,941 Mcf of natural gas per day in 1997. The Company's
cumulative net production from the properties since acquired by the Company has
been 455 MBbls of oil and 4.1 Bcf of natural gas through December 31, 1997.
5
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Appalachian Basin
The Company's Appalachian Basin properties are situated in Kentucky, Tennessee
and West Virginia. At December 31, 1997, these properties contained 6.7 MMBOE of
proved reserves, which represented 13% of the Company's total proved reserves
and 15% of the Company's Present Value of total proved reserves. The Appalachian
Basin reserves are long-lived reserves (generally, over 40 years) characterized
by gradual decline rates.
The Company has operated in Kentucky and Tennessee since 1917 and owns
approximately 123,000 gross (108,000 net) leasehold acres in 22 shallow natural
gas fields in southeastern Kentucky and northeastern Tennessee. The Company's
working interests in this acreage range from 33% to 100%. The Company has a 100%
working interest in approximately 90% of the total acreage. The primary
producing formations in these fields are the Maxon, Big Lime and Corniferous at
a maximum depth of less than 3,000 feet. At December 31, 1997, the Company owned
368 gross (309 net) productive wells in these fields, of which approximately 98%
were operated by the Company. Although daily production from individual wells in
the fields is low (on average, 30 Mcf per day), the production generally
receives a higher sales price than the Company's other natural gas production
because of the proximity of the fields to the northeastern United States gas
markets. The Company completed 4 development wells in Kentucky and Tennessee in
1997. The Company expects to spend approximately $0.3 million on development
drilling activities in Kentucky and Tennessee in 1998. The Company's net
production from its Kentucky and Tennessee properties averaged 5,070 Mcf of
natural gas, 84 Bbls of oil and 143 Bbls of NGLs per day in 1997.
The Company owns approximately 20,000 gross (14,000 net) leasehold acres in
the Blue Creek Field in Clay and Kanawha Counties, West Virginia. The Company
has an average 70% working interest in this acreage, which it acquired in
February 1995. The Blue Creek Field produces from the Rosedale, Injun, Keener
and Weir formations, ranging from depths of 1,200 to 2,800 feet. At December 31,
1997, the Company owned 98 gross (68 net) productive gas wells in this field,
all of which were operated by another company. During 1997, the Company
participated in the drilling of 20 gross (15 net) development wells in the Blue
Creek Field. The Company has identified 30 low-risk exploratory drilling
locations in the field and plans to drill 25 of these locations in 1998 for an
estimated total capital expenditure of $3.6 million. The Company's net
production from its West Virginia properties averaged 1,205 Mcf of natural gas
per day in 1997.
The Company owns and operates an extensive natural gas gathering and
transportation system located in its producing areas of Kentucky and Tennessee.
The system consists of approximately 340 miles of gas gathering pipelines, 6 gas
compressor stations, two gas processing plants and two gas storage reservoirs.
The pipelines have a throughput capacity of approximately 20 MMcf of natural gas
per day. During the year ended December 31, 1997, the pipelines gathered an
average of 10.9 MMcf of natural gas per day. The two processing plants have a
total capacity of 16 MMcf of natural gas per day. During the year ended December
31, 1997, the plants processed an average of 10.5 MMcf of natural gas per day
and recovered an average of 143 Bbls of NGLs per day. See "-Marketing of
Production."
The Company's net production from its Appalachian Basin properties averaged
6,275 Mcf of natural gas, 84 Bbls of oil and 143 Bbls of NGLs per day in 1997.
San Juan Basin
The Company's San Juan Basin properties are located in Rio Arriba County in
northwestern New Mexico. At December 31, 1997, the San Juan Basin properties
contained 3.5 MMBOE of proved reserves, which represented 7% of the Company's
total proved reserves and 8% of the Company's Present Value of total proved
reserves. The Company owns approximately 11,100 gross (5,300 net) leasehold
acres in the San Juan Basin. The Company's average 48% working interest in the
acreage was contributed in connection with a unitization of the wells in the San
Juan Basin fields in the 1950's, resulting in the ownership by the Company of
small non-operated working interests in the wells. At December 31, 1997, the
Company owned working interests in approximately 2,200 producing gas wells in
the San Juan Basin. These working interests range from 0.21% to 4.2% and average
approximately 1.8%. The Company's San Juan Basin properties produce from
multiple formations ranging from depths of 3,500 feet to 8,000 feet. The
Company's net production from these properties averaged 6,277 Mcf of natural gas
and 20 Bbls of
6
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oil per day in 1997. During the year ended December 31, 1997, approximately
50% of the Company's net production from these properties was from the Fruitland
Coal seams. Such production generates nonconventional fuels income tax credits
for Wiser under Section 29 of the Internal Revenue Code of 1986, as amended. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations." The Company expects that future development
of the properties will depend on natural gas prices, and that its share of the
costs of any such future development activities will not be significant.
Other U.S. Properties
The Company's other United States properties include properties located in the
Anadarko Basin in Texas and Oklahoma and the Gulf Coast onshore region. The
Company intends to develop its Anadarko Basin and Gulf Coast properties as new
core operating areas if certain exploration projects it is currently pursuing
prove successful. See "-Exploration Activities-United States."
CANADA
In June 1994, Wiser established an important new core area with the completion
of a $52.0 million acquisition of Canadian oil and gas properties from Eagle
Resources, Ltd. The purchase included 7.2 MMBOE of proved reserves and 2.8 MMBOE
of probable reserves, approximately 127,000 net undeveloped acres, seven
exploration prospects and an existing staff of 23 persons. At December 31, 1997,
the Company's Canadian properties contained 8.3 MMBOE of proved reserves, which
represented 17% of the Company's total proved reserves and 21% of the Present
Value of the Company's total proved reserves.
The following table summarizes certain information with respect to each of the
Company's principal Canadian areas of operation at December 31, 1997:
<TABLE>
<CAPTION>
Proved Reserves
------------------------------------------
Percent 1997
Total Total of Total Average
Gross Oil Proved Canadian Net
Oil and and NGLs Gas Reserves Proved Production
Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day)
--------- --------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Evi......................................... 14 2,047 -- 2,047 25% 520
Provost..................................... 74 870 1,113 1,056 13% 614
Portage..................................... 7 -- 3,902 650 8% --
Pine Creek.................................. 5 133 1,659 410 5% 103
Leahurst.................................... 19 220 300 270 3% 305
Other....................................... 193 1,134 16,172 3,829 46% 1,690
---- ----- ------ ----- ----- -----
Total Canada................................ 312 4,404 23,146 8,262 100% 3,232
==== ===== ====== ===== ==== =====
</TABLE>
Evi. The Company's Evi Field is located approximately 400 miles north of
Calgary. At December 31, 1997, the Evi Field contained 2,047 MBOE of proved
reserves, which represented 25% of the Company's total Canadian proved reserves
and 47% of the Present Value of the Company's total Canadian proved reserves.
The Company owns approximately 5,440 gross (2,330 net) leasehold acres in the
Evi Field, and has an average 42% working interest in this acreage. The Evi
Field produces oil from the Granite Wash formation at depths ranging from 4,900
to 5,000 feet. The Company's net production from the Evi Field averaged 520 Bbls
of oil per day in 1997. At December 31, 1997, the Company owned 14 gross (5.1
net) productive wells and two gross (0.4 net) water disposal wells in the field,
of which 11 productive wells and both water disposal wells were operated by
Wiser.
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In December 1997, the Company exchanged all of its interest in the Grand
Prairie Field located northwest of Calgary and paid $4.3 million in cash to
purchase additional working interests in the Evi Field. This acquisition
increased the Company's average working interests in the Evi Field from 34% to
42%.
Provost. The Company's Provost properties are located approximately 210 miles
northeast of Calgary. At December 31, 1997, the Provost properties contained
1,056 MBOE of proved reserves, which represented 13% of the Company's total
Canadian proved reserves and 13% of the Present Value of the Company's total
Canadian proved reserves.
The Company owns approximately 10,853 gross (7,055 net) leasehold acres in the
Provost properties, and has an average 65% working interest in this acreage. The
Provost properties produce mainly from the Dina formation at depths of 3,070 to
3,170 feet. The Provost Dina 'X' Pool is the Company's main producing pool in
these properties and water injection in this pool began in 1990. The Company
drilled 27 wells in the Provost properties in 1997 and plans to drill 4
additional wells in Provost in 1998.
The Company's net production from the Provost properties averaged 614 Bbls of
oil per day in 1997. At December 31, 1997, the Company owned 74 gross (50.8 net)
productive wells and 2 gross (2 net) water injection wells on the properties, of
which 54 gross productive wells and both water injection wells were operated by
the Company.
Portage. The Company's Portage properties are located approximately 350 miles
northeast of Calgary. At December 31, 1997, the Portage properties contained 650
MBOE of proved reserves, which represented 8% of the Company's total Canadian
proved reserves and 3% of the Present Value of the Company's total Canadian
proved reserves.
The Company owns approximately 16,000 gross (11,648 net) leasehold acres in
the Portage properties, and has an average 73% working interest in this acreage.
The Portage properties produce from the Grand Rapids formation at depths of
1,050 to 1,100 feet. At December 31, 1997, the Company owned 7 gross (6.5 net)
productive wells, all of which were operated by Wiser. All of the wells are
temporarily shut-in, and the Company expects to commence production in April
1998. There was no production from the Portage properties during 1997.
Pine Creek. The Company's Pine Creek Field is located approximately 240 miles
northwest of Calgary. At December 31, 1997, the Pine Creek Field contained 410
MBOE of proved reserves, which represented 5% of the Company's total Canadian
proved reserves and 4% of the Present Value of the Company's total Canadian
proved reserves. The Company owns approximately 8,000 gross (2,100 net)
leasehold acres in the Pine Creek Field, and has a 26% working interest in this
acreage. The Pine Creek Field produces gas from the Bluesky and Gething
formations at depths of 8,000 to 8,200 feet. At December 31, 1997, the Company
owned 5 gross (1.3 net) productive wells in the Pine Creek Field, all of which
were operated by a third party. The Company's net production from the Pine Creek
Field averaged 620 Mcf of natural gas per day in 1997.
Leahurst. The Company's Leahurst properties are located approximately 180
miles northeast of Calgary. At December 31, 1997, the Leahurst properties
contained 270 MBOE of proved reserves, which represented 3% of the Company's
total Canadian proved reserves and 6% of the Present Value of the Company's
total Canadian proved reserves.
The Company owns approximately 880 gross (560 net) leasehold acres in the
Leahurst properties, and has an average 63% working interest in this acreage.
The Leahurst properties produce from the Glauconite formation at depths of 4,150
to 4,250 feet. At December 31, 1997, the Company owned 19 gross (3.0 net)
productive wells and 3 gross (0.5 net) water injection wells on the Leahurst
properties. All of the wells in the properties have been unitized in the
Leahurst Glauconite 'B' Unit, in which the Company has a 16% working interest.
The unit is operated by a third party. Water injection in the unit began in 1994
to enhance oil recovery. The Company's net production from the Leahurst
properties averaged 278 Bbls of oil, 117 Mcf of natural gas and 8 Bbls of NGLs
per day in 1997.
Other Canadian Properties. The Company owns interests in approximately 30
other Canadian properties, primarily located in its principal areas of
operation. For the year ended December 31, 1997, these properties
8
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individually represented less than 5%, and in the aggregate represented
approximately 46%, of the Company's total Canadian proved reserves.
EXPLORATION ACTIVITIES
United States
Wiser's domestic exploration program seeks to maintain a balanced portfolio of
drilling opportunities that range from lower risk field extension wells to
higher risk, high reserve potential prospects. The Company focuses primarily on
exploration opportunities that can benefit from advanced technologies, including
3-D seismic, designed to reduce risks and increase success rates. Prospects are
developed in-house and through strategic alliances with exploration companies
that have expertise in specific target areas. In addition, the Company evaluates
some externally generated prospects and participates in farm-ins to enhance its
portfolio. In 1997, Wiser participated in 18 gross (10 net) domestic exploration
wells, compared with 3 gross (2 net) wells in 1996, spending $8.9 million in
1997 and $0.9 million in 1996 on domestic exploration. The Company has budgeted
$19.0 million for its 1998 domestic exploration program.
The Company is currently focusing its domestic exploration activities in the
following geographical areas:
South Texas. In the second half of 1997, the Company generated the Frio Project
by initially acquiring interests in the Welder Ranch prospect, which included 29
producing wells and approximately 30 undeveloped drilling locations, and also
acquiring interests in the nearby Terrell Ranch, Roche Ranch, Fitzsimmons and
Blanco Creek prospects . During 1997, the Company utilized 3-D seismic to
identify shallow (3,000 to 6,000 feet) natural gas objectives on the Frio
Project, and during the second half of 1997 the Company drilled 9 successful
wells and 4 dry holes on the project. The Company considers this project as
having relatively low risk and plans to drill 76 wells in the project in
1998. The Company's working interests in the project range from 30% to 80%.
West Texas. The Company has identified deep exploratory prospects in both the
Slash Ranch Field in Loving County and the Wellman Field in Terry County where
they are currently producing at shallower depths. The Company intends to define
the Slash Ranch prospect further with 3-D seismic and plans to drill 1 well at
Slash Ranch and 1 well at Wellman in 1998. In Pecos County, Wiser has a 25%
working interest in both the Indian Mesa and Panther Bluff prospects. The
Company has completed 3-D seismic on the Indian Mesa prospect and an
unsuccessful exploratory well was drilled on this prospect in 1997 at no cost to
the Company. The Company has identified several single-well gas prospects at
Indian Mesa and plans to drill 2 wells in 1998. The Company has identified
unproven drilling potential in the Panther Bluff prospect to be defined further
with 3-D seismic data. Approximately 26 square miles of 3-D seismic will be
processed in 1998. One well is planned for Panther Bluff in 1998. Late in 1997,
the Company acquired a 33% working interest in the Coyanosa prospect, and a well
is currently drilling to test the Cherry Canyon formation.
Gulf Coast. During 1997, the Company participated in the drilling of a dry
hole at the South Lakeside prospect in Cameron Parish, Louisiana. Wiser does
not plan to drill any additional wells at this prospect. The Company has a 20%
working interest in the Bison Ridge prospect in Layfayette Parish, Louisiana
where a 62 square mile 3-D seismic survey was underway at year-end 1997. Two
wells are planned to be drilled on the prospect in 1998 to a depth of 13,000 to
17,000 feet. In Conecuh County, Alabama, the Company has a 50% working interest
in the Castleberry prospect. During 1997, a 31 square mile 3-D seismic survey
was completed and Wiser expects to drill 2 wells at the Castleberry prospect in
1998.
Canada
Wiser focuses its Canadian exploration activities in specific regions within the
Western Canadian Sedimentary Basin in close proximity to known producing
horizons where the potential for significant reserves exists. The
9
<PAGE>
Company's technical personnel have considerable experience in this focus area.
During 1997, the Company drilled 4 gross (3 net) exploratory wells of which 3
gross (2 net) were successful. The Company spent $3.5 million on exploration in
Canada in 1997 and has budgeted $1.9 million for its 1998 Canadian exploration
program.
The Company is currently focusing its Canadian exploration activities in the
following geographical areas:
Northeast British Columbia. During 1997, the Company continued expanding,
delineating and developing its 1996 oil discovery at the Elm prospect. Currently
3 wells are producing and 6 additional wells are planned for 1998. The Company's
working interests in the Elm prospect range from 50% to 100%.
West Central Alberta. In March 1997, the Company successfully completed an
exploratory well at the Sunchild prospect and identified a second prospect to
the south of Sunchild at the Ferrier prospect. A follow-up well is planned for
1998 at Sunchild, and an exploratory well is also planned for Ferrier in 1998.
The Company's working interests in the Sunchild and Ferrier prospects range from
25% to 50%.
The Company has a 50% working interest in the Windfall prospect. A natural
gas target has been confirmed, and Wiser plans to drill an exploratory well at
Windfall in 1998.
During 1997, the Company completed a 2-D seismic survey at Wild River and is
currently acquiring acreage in this prospect. A deep well test is planned for
1998 in which the Company will have a 50% working interest.
Southest Alberta. At Provost, the Company discovered the Provost W3W pool in
May 1997, and 24 follow-up oil wells were successfully completed during 1997.
The Company plans to initiate a waterflood at Provost during 1998 and another
exploratory well is planned for 1998 in which the Company will have a 50%
working interest. Wiser's average working interest is 65% in the Provost
properties.
International
Peru. The Company has a 12.5% working interest in Block 81 which is a high risk
and high potential exploration prospect operated by Quintana Minerals Peru that
comprises 2.5 million acres. The Company has budgeted approximately $1.3 million
for drilling a 13,200-foot exploratory well which is expected to start drilling
in April 1998.
Brazil. Wiser is currently participating in a group operated by Santa Fe Energy
Resources, Inc. that has applied for development and exploration concessions
from PETROBRAS, the Brazilian oil company.
MARKETING OF PRODUCTION
The Company markets its production of oil, natural gas and NGLs to a variety
of purchasers, including large refiners and resellers, pipeline affiliate
marketers, independent marketers, utilities and industrial end-users. To help
manage the impact of potential price declines, Wiser has developed a portfolio
of long- and short-term contracts with prices that are either fixed or related
to market conditions in varying degrees. Most of the Company's production is
sold pursuant to contracts that provide for market-related pricing for the areas
in which the production is located.
During the year ended December 31, 1997, revenues from the sale of production
to Highland Energy Company, Koch Oil Co. Ltd. and Enron Oil Trading and
Transportation represented approximately 37%, 15% and 12%, respectively, of the
Company's total oil and gas revenues. The sales to Koch Oil Co. Ltd. accounted
for approximately 75% of the Company's revenues from sales of its Canadian
production in 1997. The Company believes it would be able to locate alternate
purchasers in the event of the loss of any one or more of these purchasers, and
that any such loss would not have a material adverse effect on the Company's
financial condition or results of operations.
Crude Oil. The Company sells its crude oil and condensate to various refiners
and resellers in the United States and Canada at posting-related and
spot-related prices that also depend on factors such as well location,
production
10
<PAGE>
volume and product quality. The Company typically sells its crude oil and
condensate production at or near the well site, although in some cases it is
gathered by the Company or others and delivered to a central point of sale. The
Company's crude oil and condensate production is transported by truck or by
pipeline and is typically committed to arrangements having a term of one year or
less. The Company has not engaged in crude oil trading activities. Revenue from
the sale of crude oil and condensate totaled $44.0 million for the year ended
December 31, 1997 and represented 57% of the Company's total oil and gas
revenues for that year.
From time to time, the Company enters into crude oil price hedges to reduce
its exposure to commodity price fluctuation. At December 31, 1997, the Company
did not have any hedging agreements in place. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Other Matters" and
Note 1 to the Company's Consolidated Financial Statements included elsewhere in
this Report.
Natural Gas. The Company sells its produced natural gas and gathered gas to
utilities, marketers, processor/resellers and industrial end-users primarily
under market-sensitive, long-term contracts or daily, monthly or multi-month
spot agreements. An insignificant amount of the Company's natural gas is
committed to long-term, fixed-price sales agreements. To accomplish the delivery
and sale of certain of its natural gas, the Company has entered into long-term
agreements with various natural gas gatherers that deliver its gas to points of
sale on major transmission pipelines.
In Kentucky and Tennessee, the Company owns and operates an extensive natural
gas gathering and transportation system consisting of approximately 340 miles of
pipeline, 16 gas compressor stations, two gas processing plants and two gas
storage reservoirs. The Company utilizes this system to procure, aggregate and
deliver natural gas produced from over 260 wells that are owned and operated by
the Company, comprising most of its Appalachian Basin natural gas production,
together with natural gas produced from wells owned and operated by others, in
meeting its delivery obligations under a sales contract with a local utility.
This sales contract, which expires on October 31, 1999, provides for market-
related pricing plus payment of a stated standby demand charge based on an
established peak-day delivery obligation. The maximum daily volume of natural
gas that the utility may demand is subject to annual adjustment (never to exceed
12,000 Mcf per day) and currently is fixed at 9,900 Mcf per day and will decline
to 8,910 Mcf per day effective November 1, 1998. For the year ended December 31,
1997, approximately 9% of the Company's total natural gas production was sold
under this sales contract. The Company also utilizes its Kentucky/Tennessee
gathering and transportation system to transport natural gas on behalf of third
parties and natural gas purchased from third parties for resale.
The Company believes that it has sufficient production from its properties,
and from those of others tied to its gathering and transportation system, to
meet the Company's delivery obligations under its existing natural gas sales
contracts. Although the Company has not entered into financial transactions to
hedge the price of its estimated future natural gas production for 1997 or
beyond, it may consider various hedging arrangements in the future.
NGLs. From its natural gas processing plants in West Texas and Kentucky, the
Company sells NGLs to independent marketers for resale. A direct pipeline
connection to the Texas Gulf Coast market area facilitates the sale of NGLs from
the Company's Wellman Unit, and enables the Company to receive prices that are
representative of the daily market value of NGLs on the Texas Gulf Coast, less
transportation and fractionation costs. The market for NGLs in Kentucky is less
competitive, with higher transportation costs in that region due to the absence
of product pipelines. The Company's average price in 1997 for NGLs sold from
Company-operated plants or under processing agreements with others was $13.87
per Bbl. Prices for NGLs attributable to natural gas sold to plants operated by
others are generally included in the prices reported by the Company for the sale
of its natural gas.
Price Considerations. Crude oil prices are established in a highly liquid,
international market, with average crude oil prices received by the Company
generally fluctuating with changes in the futures price established on the NYMEX
for West Texas Intermediate Crude Oil ("NYMEX-WTI"). The average crude oil price
per Bbl received by the Company in 1997 was $18.02, compared to an average price
per Bbl of $18.99 that would have been received before the effects of the
Company's hedging activities. The average NYMEX-WTI closing price per Bbl for
1997 was $20.61.
11
<PAGE>
Natural gas prices in each of the geographical areas in which the Company
operates are closely tied to established price indices which are heavily
influenced by national and regional supply and demand factors and the futures
price per MMBtu for natural gas delivered at Henry Hub, Louisiana established on
the NYMEX ("NYMEX-Henry Hub"). At times, these indices correlate closely with
the NYMEX-Henry Hub price, but often there are significant variances between the
NYMEX-Henry Hub price and the indices used to price the Company's natural gas.
Average natural gas prices received by Wiser in each of its operating areas
generally fluctuate with changes in these established indices. The average
natural gas price per Mcf received by the Company in 1997 was $2.21. The
NYMEX-Henry Hub price per MMBtu for 1997, as represented by the annual average
of the closing price on the last three trading days for the prompt month NYMEX
natural gas futures contract applicable to each month in 1997, was $2.63. The
average natural gas price received by the Company in 1997 was lower than such
1997 NYMEX-Henry Hub price as a result of pricing differentials determined by
the location of the Company's natural gas production relative to the Henry Hub
trading point and lower natural gas prices generally applicable to Canadian
natural gas production relative to U.S. production. The Company did not enter
into any natural gas price hedges during 1997.
12
<PAGE>
OIL AND GAS RESERVES
The following table sets forth the proved developed and undeveloped reserves
of the Company at December 31, 1997:
<TABLE>
<CAPTION>
OIL AND NGLS (MBBLS) GAS (MMCF) TOTAL RESERVES (MBOE)
------------------------------ ---------------------------- ---------------------------
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL
--------- ---------- ----- --------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar........... 12,502 1,237 13,739 5,169 255 5,424 13,363 1,280 14,643
Wellman............ 6,696 -- 6,696 2,367 -- 2,367 7,091 -- 7,091
Dimmitt/Slash Ranch 2,037 227 2,264 7,236 454 7,690 3,234 312 3,546
------ ----- ------ ------- ------ ------- ------- ----- ------
Total............ 21,235 1,464 22,699 14,772 709 15,481 23,688 1,592 25,280
Appalachian Basin.... 788 -- 788 29,895 5,337 35,232 5,771 908 6,679
San Juan Basin....... 34 11 45 18,654 1,917 20,571 3,143 331 3,474
Other................ 1,741 44 1,785 24,367 1,297 25,664 5,810 232 6,042
------ ----- ------ ------- ------ ------- ------- ----- ------
Total United States.. 23,798 1,519 25,317 87,688 9,260 96,948 38,412 3,063 41,475
Canada............... 4,404 -- 4,404 21,771 1,375 23,146 8,032 230 8,262
------ ----- ------ ------- ------ ------- ------- ----- ------
Total Company........ 28,202 1,519 29,721 109,459 10,635 120,094 46,444 3,293 49,737
====== ===== ====== ======= ====== ======= ====== ===== ======
</TABLE>
The following table summarizes the Company's proved reserves, the estimated
future net revenues from such proved reserves and the Present Value and
Standardized Measure of Discounted Future Net Cash Flows attributable thereto at
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1997 1996 1995
--------- --------- ---------
(000's except weighted average sales prices)
<S> <C> <C> <C>
Proved reserves:
Oil and NGLs (Bbl)....................................... 29,721 31,612 32,208
Gas (Mcf)................................................ 120,094 113,377 109,915
BOE.................................................... 49,737 50,508 50,527
Estimated future net revenues before income taxes........ $ 359,293 $ 705,723 $ 401,037
Present Value............................................ $ 210,087 $ 414,314 $ 235,416
Standardized Measure(1).................................. $ 174,489 $ 317,180 $ 194,602
Proved developed reserves:
Oil and NGLs (Bbl)....................................... 28,202 28,117 21,556
Gas (Mcf)................................................ 109,459 103,129 102,026
BOE.................................................... 46,444 45,305 38,560
Estimated future net revenues before income taxes........ $ 359,293 $ 631,406 $ 310,034
Present Value............................................ $ 311,848 $ 381,169 $ 195,439
Weighted average sales prices:
Oil (per Bbl)............................................ $ 15.92 $ 24.63 $ 18.19
Gas (per Mcf)............................................ 2.35 3.45 1.84
NGLs (per Bbl)........................................... 11.40 19.79 12.87
</TABLE>
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Consolidated Financial Statements of
the Company included elsewhere in this Report for additional information
regarding the disclosure of the Standardized Measure information in
accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 69, "Disclosures about Oil and Gas Producing
Activities."
13
<PAGE>
All information set forth in this Report relating to the Company's proved
reserves, estimated future net revenues and Present Values is taken from reports
prepared by DeGolyer and MacNaughton (with respect to the Company's United
States properties) and Gilbert Lausten Jung Associates Ltd. (with respect to the
Company's Canadian properties), each of which is a firm of independent petroleum
engineers. The estimates of these engineers were based upon review of production
histories and other geological, economic, ownership and engineering data
provided by the Company. No reports on the Company's reserves have been filed
with any federal agency. In accordance with guidelines of the Securities and
Exchange Commission ("SEC"), the Company's estimates of proved reserves and the
future net revenues from which Present Values are derived are made using year
end oil and gas sales prices held constant throughout the life of the properties
(except to the extent a contract specifically provides otherwise). A decline in
prices relative to year end 1997 could cause a significant decline in the
Present Value attributable to the Company's proved reserves at December 31,
1997. Operating costs, development costs and certain production-related taxes
were deducted in arriving at estimated future net revenues, but such costs do
not include debt service, general and administrative expenses and income taxes.
There are numerous uncertainties inherent in estimating oil and gas reserves
and their values, including many factors beyond the Company's control. The
reserve data set forth in this Report represents estimates only. Reservoir
engineering is a subjective process of estimating the sizes of underground
accumulations of oil and gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data,
engineering and geological interpretation, and judgment. As a result, estimates
of different engineers, including those used by the Company, may vary. In
addition, estimates of reserves are subject to revision based upon actual
production, results of future development, exploitation and exploration
activities, prevailing oil and gas prices, operating costs and other factors,
which revisions may be material. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered and
are highly dependent upon the accuracy of the assumptions upon which they are
based. There can be no assurance that these estimates are accurate predictions
of the Company's oil and gas reserves or their values. Estimates with respect to
proved reserves that may be developed and produced in the future are often based
upon volumetric calculations and upon analogy to similar types of reserves
rather than actual production history. Estimates based on these methods are
generally less reliable than those based on actual production history.
Subsequent evaluation of the same reserves based upon production history will
result in variations, which may be substantial, in the estimated reserves.
14
<PAGE>
NET PRODUCTION, SALES PRICES AND COSTS
The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas property interests
owned by the Company for the three-year period ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
PRODUCTION VOLUMES:
Oil (MBbl)
United States.......................................... 1,769 1,732 1,445
Canada................................................. 672 693 635
------ ------ ------
Total Company........................................ 2,441 2,425 2,104
Gas (MMcf)
United States (1)...................................... 10,095 9,479 9,418
Canada................................................. 2,734 2,809 2,753
------ ------ ------
Total Company (1).................................... 12,829 12,288 12,171
NGLs (MBbl)
United States.......................................... 267 301 212
Canada................................................. 52 50 40
------ ------ ------
Total Company........................................ 319 351 252
WEIGHTED AVERAGE SALES PRICES (2):
Oil (per Bbl)
United States.......................................... $ 18.30 $ 18.91 $ 17.14
Canada................................................. 17.28 18.55 16.38
Total Company........................................ 18.02 18.81 16.91
Gas (per Mcf)
United States (1)...................................... $ 2.46 $ 1.95 $ 1.46
Canada................................................. 1.26 1.16 1.05
Total Company........................................ 2.21 1.77 1.37
NGLs (per Bbl)
United States.......................................... $ 13.34 $ 12.88 $ 9.67
Canada................................................. 16.64 16.21 12.45
Total Company........................................ 13.87 13.36 10.11
SELECTED EXPENSES PER BOE (3):
Lease operating
United States.......................................... $ 5.03 $ 4.53 $ 4.59
Canada................................................. 3.50 3.04 2.58
Total Company........................................ 4.65 4.14 4.06
Production taxes (4)
United States.......................................... $ 1.02 $ 0.93 $ 0.78
Depreciation, depletion and amortization
United States.......................................... $ 3.88 $ 3.36 $ 3.63
Canada................................................. 7.58 6.49 7.37
Total Company........................................ 4.79 4.16 4.62
General and administrative
United States.......................................... $ 2.17 $ 2.11 $ 1.99
Canada................................................. 1.54 1.61 1.70
Total Company........................................ 2.02 1.98 1.92
</TABLE>
- ---------------------
(1) Calculated by including volumes of natural gas purchased for resale as
follows: 1997 - 629 MMcf, 1996-605 MMcf and 1995-500 MMcf.
(2) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Other Matters."
(3) Calculated without including volumes of natural gas purchased for resale.
15
<PAGE>
(4) Canada does not assess production taxes on revenue derived from oil and gas
production from Crown lands. However, in Canada, royalties are payable to
the provincial governments on production from Crown lands, subject to
certain programs that provide for royalty rate reductions, royalty holidays
and tax credits for the purpose of encouraging oil and gas exploration and
development. See "-Governmental Regulation-Canada."
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's domestic and Canadian productive
wells at December 31, 1997:
<TABLE>
<CAPTION>
Productive Wells
----------------------------------------------------------------
Oil Gas Total
------------------ ------------- -----------------
Gross Net Gross Net Gross Net
------ ---- -------- --- ----- ----
<S> <C> <C> <C> <C> <C> <C>
United States............................... 782 667 2,692 (1) 431 3,474 1,098
Canada...................................... 241 73 81 31 322 104
----- --- ----- --- ----- -----
Total..................................... 1,023 740 2,773 462 3,796 1,202
===== === ===== === ===== =====
</TABLE>
(1) 2,200 of the Company's gross natural gas wells are located in the San Juan
Basin. The Company has non-operated working interests in these wells
ranging from 0.21% to 4.2%.
Acreage
The following table sets forth the Company's undeveloped and developed gross
and net leasehold acreage at December 31, 1997. Undeveloped acreage includes
leased acres on which wells have not been drilled or completed to a point that
would permit the production of commercial quantities of oil and gas, regardless
of whether or not such acreage contains proved reserves.
<TABLE>
<CAPTION>
Undeveloped Developed Total
---------------- -------------- -----------------
Gross Net Gross Net Gross Net
----- ---- ----- --- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar.................................. -- -- 11,773 11,761 11,773 11,761
Wellman................................... -- -- 2,280 1,432 2,280 1,432
Dimmitt/Slash Ranch....................... 440 418 5,715 5,183 6,155 5,601
---------- --------- --------- --------- --------- ---------
Total................................... 440 418 19,768 18,376 20,208 18,794
Appalachian Basin......................... 15,483 11,608 112,488 95,334 127,971 106,942
San Juan Basin............................ -- -- 11,160 5,831 11,160 5,831
Other..................................... 121,424 50,386 50,567 17,930 171,990 68,316
------- -------- -------- -------- ------- --------
Total United States..................... 137,347 62,412 193,982 137,470 331,329 199,882
Canada.................................... 172,058 80,807 61,132 24,334 233,190 105,141
------- -------- -------- -------- ------- -------
Total..................................... 309,405 143,219 255,114 161,804 564,519 305,023
======= ======= ======= ======= ======= =======
</TABLE>
(1) Excluded is acreage in which the Company's interest is limited to a mineral
or royalty interest. At December 31, 1997, the Company held mineral or
royalty interests in 278,536 gross (34,097 net) developed acres and
1,413,944 gross (208,159 net) undeveloped acres.
All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. The following table sets forth the minimum
remaining lease terms for the gross and net undeveloped acreage:
16
<PAGE>
Acres Expiring
--------------
Gross Net
----- ---
Twelve Months Ending:
December 31, 1997...................................... 62,521 22,403
December 31, 1998...................................... 43,651 19,498
Thereafter............................................. 203,233 101,318
------- -------
Total................................................ 309,405 143,219
======= =======
As is customary in the industry, the Company generally acquires oil and gas
acreage without any warranty of title except as to claims made by, through or
under the transferor. Although the Company has title to developed acreage
examined prior to acquisition in those cases in which the economic significance
of the acreage justifies the cost, there can be no assurance that losses will
not result from title defects or from defects in the assignment of leasehold
rights. In many instances, title opinions may not be obtained if in the
Company's judgment it would be uneconomical or impractical to do so.
DRILLING ACTIVITY
The following table sets forth for the three-year period ended December 31,
1997 the number of exploratory and development wells drilled by or on behalf of
the Company.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ --------------- ----------------
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
United States
Producing............................... 10 6 1 1 9 3
Dry..................................... 8 4 2 1 10 3
Canada
Producing............................... 3 2 1 1 3 2
Dry..................................... 1 1 6 4 4 2
Development Wells:
United States
Producing............................... 80 71 93 85 48 27
Dry..................................... 2 1 2 1 2 2
Canada
Producing............................... 39 18 21 15 4 2
Dry..................................... 6 4 5 3 2 2
Total Wells:
Producing............................... 132 97 116 102 64 34
Dry..................................... 17 10 15 9 18 9
--- --- --- --- -- --
Total................................. 149 107 131 111 82 43
=== === === === == ==
</TABLE>
OPERATIONS
The Company generally seeks to be named as operator for wells in which it has
acquired a significant interest, although, as is common in the industry, this
typically occurs only when the Company owns the major portion of the working
interest in a particular well or field. At December 31, 1997, the Company
operated 100% of its properties in the Permian Basin, comprising approximately
51% of the Company's total proved reserves, including Maljamar (231 gross
wells), Wellman (18 gross wells) and Dimmitt/Slash Ranch (83 gross wells). At
December 31, 1997, the Company owned 358 gross wells on its Kentucky and
Tennessee properties, of which approximately 98% were operated by the Company.
At that same date, the Company also operated 100 (out of a total of 322) gross
wells on its Canadian properties.
17
<PAGE>
As operator, the Company is able to exercise substantial influence over the
development and enhancement of a well and to supervise operation and maintenance
activities on a daily basis. The Company does not conduct the actual drilling of
wells on properties for which it acts as operator, but engages independent
contractors who are supervised by the Company. The Company employs petroleum
engineers, geologists and other operations and production specialists who strive
to improve production rates, increase reserves and/or lower the cost of
operating its oil and gas properties.
Oil and gas properties are customarily operated under the terms of a joint
operating agreement, which provides for reimbursement of the operator's direct
expenses and monthly per-well supervision fees. Per-well supervision fees vary
widely depending on the geographic location and producing formation of the well,
whether the well produces oil or gas and other factors. Such fees received by
the Company in 1997 ranged from $95 to $870 per well per month.
COMPETITION
The oil and gas industry is highly competitive. The Company encounters
competition from other oil and gas companies in all areas of its operations,
including the acquisition of producing properties. The Company's competitors
include major integrated oil and gas companies and numerous independent oil and
gas companies, individuals and drilling and income programs. Many of its
competitors are large, well established companies with substantially larger
operating staffs and greater capital resources than the Company. Such companies
may be able to pay more for productive oil and gas properties and exploratory
prospects and to define, evaluate, bid for and purchase a greater number of
properties and prospects than the Company's financial or human resources permit.
The Company's ability to acquire additional properties and to discover reserves
in the future will depend upon its ability to evaluate and select suitable
properties and to consummate transactions in a highly competitive environment.
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. There can be
no assurance that new wells drilled by the Company will be productive or that
the Company will recover all or any portion of its investment. Drilling for oil
and gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, many of which are beyond its control, including economic conditions,
mechanical problems, pressure or irregularities in formations, title problems,
weather conditions, compliance with governmental requirements and shortages in
or delays in the delivery of equipment and services. Such equipment shortages
and delays sometimes involve drilling rigs, especially in Canada, where weather
conditions result in a short drilling season, causing a high demand for rigs by
a large number of companies during a relatively short period of time. The
Company's future drilling activities may not be successful. Lack of drilling
success could have a material adverse effect on the Company's financial
condition and results of operations.
In addition, the Company's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although the Company believes
that its use of 3-D seismic will increase the probability of success of its
exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis of
2-D seismic and other traditional methods, unsuccessful wells are likely to
occur.
The Company's operations are subject to all the hazards and risks normally
incident to the development, exploitation, production and transportation of, and
the exploration for, oil and gas, including unusual or unexpected geologic
formations, pressures, downhole fires, mechanical failures, blowouts, cratering,
explosions, uncontrollable flows of oil, gas or well fluids and pollution and
other environmental risks. These hazards could result in substantial losses to
the Company due to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. The Company maintains comprehensive insurance coverage, including
a $1.0 million general liability insurance policy and a $20.0 million excess
liability policy. The Company believes that its insurance is adequate and
customary for companies of a similar size engaged
18
<PAGE>
in comparable operations, but losses could occur for uninsurable or uninsured
risks or in amounts in excess of existing insurance coverage.
TITLE TO PROPERTIES
The Company's land department and contract land professionals have reviewed
title records or other title review materials relating to substantially all of
its producing properties. The title investigation performed by the Company prior
to acquiring undeveloped properties is thorough, but less rigorous than that
conducted prior to drilling, consistent with industry standards. The Company
believes it has satisfactory title to all its producing properties in accordance
with standards generally accepted in the oil and gas industry. The Company's
properties are subject to customary royalty interests, liens incident to
operating agreements, liens for current taxes and other inchoate burdens which
the Company believes do not materially interfere with the use of or affect the
value of such properties. At December 31, 1997, the Company's leaseholds for
approximately 61% of its net acreage were being kept in force by virtue of
production on that acreage in paying quantities. The remaining net acreage was
held by lease rentals and similar provisions and requires production in paying
quantities prior to expiration of various time periods to avoid lease
termination.
The Company expects to make acquisitions of oil and gas properties from time
to time. In making an acquisition, the Company generally focuses most of its
title and valuation efforts on the more significant properties. It is generally
not feasible for the Company to review in-depth every property it purchases and
all records with respect to such properties. However, even an in-depth review of
properties and records may not necessarily reveal existing or potential
problems, nor will it permit the Company to become familiar enough with the
properties to assess fully their deficiencies and capabilities. Evaluation of
future recoverable reserves of oil and gas, which is an integral part of the
property selection process, is a process that depends upon evaluation of
existing geological, engineering and production data, some or all of which may
prove to be unreliable or not indicative of future performance. To the extent
the seller does not operate the properties, obtaining access to properties and
records may be more difficult. Even when problems are identified, the seller may
not be willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.
GOVERNMENTAL REGULATION
The Company's operations are affected from time to time in varying degrees by
political developments and federal, state, provincial and local laws and
regulations. In particular, oil and gas production and related operations are or
have been subject to price controls, taxes and other laws and regulations
relating to the oil and gas industry. Failure to comply with such laws and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and affects
its profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, because such laws and regulations are
frequently amended or reinterpreted, the Company is unable to predict the future
cost or impact of complying with such laws and regulations.
United States. Sales of natural gas by the Company are not regulated and are
generally made at market prices. However, the Federal Energy Regulatory
Commission ("FERC") regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
production. Sales of the Company's natural gas currently ARE made at
uncontrolled market prices, subject to applicable contract provisions and price
fluctuations which normally attend sales of commodity products.
19
<PAGE>
Since the mid-1980's, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. Order 636 mandated a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of the FERC's purposes in issuing the
orders was to increase competition within all phases of the natural gas
industry. Order 636 and subsequent FERC orders issued in individual pipeline
restructuring proceedings have been the subject of appeals, and the courts have
largely upheld Order 636. Because further review of certain of these orders is
still possible, and other appeals remain pending, it is difficult to exactly
predict the ultimate impact of the orders on the Company and its natural gas
marketing efforts. Generally, Order 636 has eliminated or substantially reduced
the interstate pipelines' traditional role as wholesalers of natural gas, and
has substantially increased competition and volatility in natural gas markets.
While significant regulatory uncertainty remains, Order 636 may ultimately
enhance the Company's ability to market and transport its natural gas, although
it may also subject the Company to greater competition, more restrictive
pipeline imbalance tolerances and greater associated penalties for violation of
such tolerances.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in which
interstate pipelines release capacity under Order 636 and, more recently, the
price which shippers can charge for their released capacity. In addition, in
1995, the FERC issued a policy statement on how interstate natural gas pipelines
can recover the costs of new pipeline facilities. In January 1997, the FERC
issued a policy statement and a request for comments concerning alternatives to
its traditional cost-of-service ratemaking methodology. A number of pipelines
have obtained FERC authorization to charge negotiated rates as one such
alternative. While any additional FERC action on these matters would affect the
Company only indirectly, these policy statements and proposed rule changes are
intended to further enhance competition in natural gas markets. The Company
cannot predict what action the FERC will take on these matters, nor can it
predict whether the FERC's actions will achieve its stated goal of increasing
competition in natural gas markets. However, the Company does not believe that
it will be treated materially differently than other natural gas producers and
marketers with which it competes.
Commencing in May 1994, the FERC issued a series of orders in individual cases
that delineate its new gathering policy. Among other matters, the FERC slightly
narrowed its statutory tests for establishing gathering status and reaffirmed
that, except in situations in which the gatherer acts in concert with an
interstate pipeline affiliate to frustrate the FERC's transportation policies,
it does not generally have jurisdiction over natural gas gathering facilities
and services, and that such facilities and services located in state
jurisdictions are properly regulated by state authorities. In addition, the FERC
has approved numerous transfers by interstate pipelines of gathering facilities
to unregulated independent or affiliated gathering companies, subject to the
transferee providing service for two years from the date of transfer to the
pipeline's existing customers pursuant to a default contract or pursuant to
mutually agreeable terms. In August 1997, the United States Court of Appeals for
the District of Columbia largely upheld the FERC's new gathering policy, but
remanded the FERC's default contract condition. The FERC has not yet issued an
order on remand. This new gathering policy may tend to increase competition
among gatherers, like the Company. This policy may also result in increased
state regulation of the Company's gathering facilities. However, the Company
does not believe that it will be affected materially differently by this policy
than other producers, gatherers and marketers with which it competes.
The Company's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement and management of facilities. Pipeline safety issues have
recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. The Company believes
its operations, to the extent they may be subject to current gas pipeline safety
requirements, comply in all material respects with such requirements. The
Company cannot predict what effect, if any, the adoption of this or other
additional pipeline safety legislation might have on its operations, but the
industry could be required to incur additional capital expenditures and
increased costs depending upon future legislative and regulatory changes.
20
<PAGE>
The price the Company receives from the sale of oil and NGLs is affected by
the cost of transporting such products to market. Effective January 1, 1995, the
FERC implemented regulations establishing an indexing system for transportation
rates for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. These regulations could increase
the cost of transporting oil and NGLs by interstate pipelines, although the most
recent adjustment generally decreased rates. These regulations have generally
been approved on judicial review. The Company is not able to predict with
certainty the effect, if any, of these regulations on its operations. However,
the regulations may increase transportation costs or reduce wellhead prices for
oil and NGLs.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration for and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells and the regulation
of spacing, plugging and abandonment of such wells. The statutes and regulations
of certain states limit the rate at which oil and gas can be produced from the
Company's properties. However, the Company does not believe it will be affected
materially differently by these statutes and regulations than any other
similarly situated oil and gas company.
Canada. In Canada producers of oil negotiate sales contracts directly with oil
purchasers, with the result that sales of oil are generally made at market
prices. The price of oil received by the Company depends in part on oil quality,
prices of competing fuels, distance to market, the value of refined products and
the supply/demand balance. Oil exports may be made pursuant to export contracts
with terms not exceeding one year in the case of light crude, and not exceeding
two years in the case of heavy crude, provided that an order approving any such
export has been obtained from the National Energy Board ("NEB"). Any oil export
to be made pursuant to a contract of a longer duration requires an exporter to
obtain an export license from the NEB and the issue of such license requires the
approval of the Governor General in Council.
In Canada the price of natural gas sold is determined by negotiation between
buyers and sellers. Natural gas exported from Canada is subject to regulation by
the NEB and the government of Canada. Exporters are free to negotiate prices and
other terms with purchasers, provided that export contracts in excess of two
years must continue to meet certain criteria prescribed by the NEB and the
government of Canada. As is the case with oil, natural gas exports for a term of
less than two years must be made pursuant to an NEB order, or, in the case of
exports for a longer duration, pursuant to an NEB license and Governor General
in Council approval. The government of Alberta also regulates the volume of
natural gas that may be removed from Alberta for consumption elsewhere based on
such factors as reserve availability, transportation arrangements and marketing
considerations.
In addition to Canadian federal regulation, Alberta and certain other
provinces have legislation and regulations that govern royalties payable on
production from Crown lands. The royalty regime that is in place at a particular
time or location is a significant factor in the profitability of oil and gas
production. Royalties payable on production from lands other than Crown lands
are determined by negotiations between the mineral owner and the lessee. Crown
royalties are determined by governmental regulation and are generally calculated
as a percentage of the value of the gross production. The rate of royalties
payable generally depends in part on prescribed reference prices, well
productivity, geographical location, field discovery date and the type and
quality of the petroleum product produced.
From time to time the government of Alberta has established incentive programs
that have included royalty rate reductions, royalty holidays and tax credits for
the purpose of encouraging oil and gas exploration or enhanced production
projects. For example, a producer of oil or gas is entitled to a credit against
the royalties payable to the Crown by virtue of the Alberta Royalty Tax Credit
("ARTC") program. The ARTC program provides a rebate on Crown royalties paid in
respect of eligible producing properties. The ARTC program is based on a
price-sensitive formula, and the ARTC rate currently varies between 25% and 75%
of the royalty otherwise payable on production. The ARTC rate is currently
applied to a maximum of $2.0 million of Alberta Crown royalties otherwise
payable by each producer or associated group of producers in each tax year. The
rate is established quarterly based on average "par price," as determined by the
Alberta Department of Energy for the previous quarterly period. Producing
21
<PAGE>
properties acquired from corporations claiming maximum entitlement to ARTC will
generally not be eligible for ARTC.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and changing
federal, state, provincial and local laws and regulations relating to
environmental protection, including the generation, storage, handling and
transportation of oil and gas and the discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may require the
acquisition of a permit or other authorization before construction or drilling
commences and for certain other activities; limit or prohibit construction,
drilling and other activities on certain lands lying within wilderness and other
protected areas; and impose substantial liabilities for pollution resulting from
the Company's operations. The permits required for various of the Company's
operations are subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce compliance with
their regulations, and violations are subject to fines, penalties or
injunctions. In the opinion of management, the Company is in substantial
compliance with current applicable environmental laws and regulations, and the
Company has no material commitments for capital expenditures to comply with
existing environmental requirements. Nevertheless, changes in existing
environmental laws and regulations or in interpretations thereof could have a
significant impact on the Company. The impact of such changes, however, would
not likely be any more burdensome to the Company than to any other similarly
situated oil and gas company.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. Furthermore,
neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
The Company generates typical oil and gas field wastes, including hazardous
wastes, that are subject to the federal Resources Conservation and Recovery Act
and comparable state statutes. The United States Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for
certain hazardous and nonhazardous wastes. Furthermore, certain wastes generated
by the Company's oil and gas operations that are currently exempt from
regulation as "hazardous wastes" may in the future be designated as "hazardous
wastes," and therefore be subject to more rigorous and costly operating and
disposal requirements.
The Oil Pollution Act ("OPA") imposes a variety of requirements on responsible
parties for onshore and offshore oil and gas facilities and vessels related to
the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. The "responsible party" includes the
owner or operator of an onshore facility or vessel or the lessee or permittee
of, or the holder of a right of use and easement for, the area where an onshore
facility is located. OPA assigns liability to each responsible party for oil
spill removal costs and a variety of public and private damages from oil spills.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes financial responsibility requirements. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions.
The Company's Canadian operations are also subject to environmental regulation
pursuant to local, provincial and federal legislation. Canadian environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced in association with certain oil and gas industry
operations and can affect the location of wells and facilities and the extent to
which exploration and development is permitted. In addition, legislation
requires that well and facilities sites be abandoned and reclaimed to the
satisfaction of provincial authorities. In most cases, an environmental
assessment and review is required prior to initiating exploration or
22
<PAGE>
development projects or undertaking significant changes to existing projects. A
breach of such legislation may result in the imposition of fines and issuance of
clean-up orders. Environmental legislation in Alberta has recently undergone a
major revision and has been consolidated in the Environmental Protection and
Enhancement Act. Under the new Act, environmental standards and compliance for
releases, clean-up and reporting are stricter. Also, the range of enforcement
actions available and the severity of penalties have been significantly
increased. These changes will have an incremental effect on the cost of
conducting operations in Alberta.
The Company owns, leases or operates numerous properties that for many years
have produced or processed oil and gas. The Company also owns and operates
natural gas gathering, transportation and processing systems. It is not uncommon
for such properties to be contaminated with hydrocarbons or polychlorinated
biphenyls. Although the Company or previous owners of these interests may have
used operating and disposal practices that were standard in the industry at the
time, hydrocarbons, polychlorinated biphenyls or other wastes may have been
disposed of or released on or under the properties or on or under other
locations where such wastes have been taken for disposal. These properties may
be subject to federal or state requirements that could require the Company to
remove any such wastes or to remediate the resulting contamination. In addition,
some of the Company's properties are operated by third parties over whom the
Company has no control. Notwithstanding the Company's lack of control over
properties operated by others, the failure of the previous owners or operators
to comply with applicable environmental regulations may, in certain
circumstances, adversely impact the Company.
ABANDONMENT COSTS
The Company is responsible for payment of plugging and abandonment costs on
its oil and gas properties pro rata to its working interest. Based on its
experience, the Company anticipates that the ultimate aggregate salvage value of
lease and well equipment located on its properties will exceed the costs of
abandoning such properties. There can be no assurance, however, that the Company
will be successful in avoiding additional expenses in connection with the
abandonment of any of its properties. In addition, abandonment costs and their
timing may change due to many factors, including actual production results,
inflation rates and changes in environmental laws and regulations.
EMPLOYEES
At February 27, 1998, the Company employed 143 full-time employees, of whom
five were executive officers, 28 were technical personnel, 57 were field
personnel and 53 were administrative personnel. Of the total employees, 115 were
located in the United States and 28 were located in Canada. At February 28,
1998, none of the Company's employees were represented by a labor union. The
Company considers its relations with its employees to be good.
FACILITIES
The Company's principal executive and administrative offices are located at
8115 Preston Road, Suite 400, Dallas, Texas. The offices contain approximately
21,000 square feet of space and are leased through December 31, 2001. Rental
payments are approximately $37,000 per month. The Company also maintains a
regional office in Corbin, Kentucky consisting of a one-story building
containing approximately 7,400 square feet of office space. The Company owns
this building. The office of the Company's Canadian subsidiary, The Wiser Oil
Company of Canada, is located at 645 7th Avenue, S.W., Suite 2550, Calgary,
Alberta. This office contains approximately 14,000 square feet of space and is
leased through June 30, 1999. Rental payments are approximately $12,500 per
month.
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in the
oil and gas industry that are used in this Report.
"BBL" means a barrel of 42 U.S. gallons.
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<PAGE>
"BCF" means billion cubic feet.
"BOE" means barrels of oil equivalent, converting volumes of natural gas to
oil equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of
oil.
"COMPLETION" means the installation of permanent equipment for the production
of oil or gas.
"DEVELOPMENT WELL" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"DRY HOLE" or "DRY WELL" means a well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
"EXPLORATORY WELL" means a well drilled to find and produce oil or gas
reserves not classified as proved, to find a new production reservoir in a field
previously found to be productive of oil or gas in another reservoir or to
extend a known reservoir.
"FARM-IN" means an agreement pursuant to which the owner of a working interest
in an oil and gas lease assigns the working interest or a portion thereof to
another party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to earn its interest in
the acreage. The assignor usually retains a royalty or reversionary interest in
the lease. The interest received by an assignee is a "farm-in."
"GAS" means natural gas.
"GROSS" when used with respect to acres or wells, refers to the total acres or
wells in which the Company has a working interest.
"INFILL DRILLING" means drilling of an additional well or wells provided for
by an existing spacing order to more adequately drain a reservoir.
"MBBL" means thousand Bbls.
"MBOE" means thousand BOE.
"MCF" means thousand cubic feet.
"MMBOE" means million BOE.
"MMBTU" means one million British Thermal Units. British Thermal Unit means
the quantity of heat required to raise the temperature of one pound of water by
one degree Fahrenheit.
"MMCF" means million cubic feet.
"NET" when used with respect to acres or wells, refers to gross acres or wells
multiplied, in each case, by the percentage working interest owned by the
Company.
"NET PRODUCTION" means production that is owned by the Company less royalties
and production due others.
"NGL" means natural gas liquid.
"OPERATOR" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.
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<PAGE>
"PRESENT VALUE" when used with respect to oil and gas reserves, means the
estimated future gross revenues to be generated from the production of proved
reserves calculated in accordance with the guidelines of the SEC, net of
estimated production and future development costs, using prices and costs as of
the date of estimation without future escalation (except to the extent a
contract specifically provides otherwise), without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense and depreciation, depletion and amortization, and
discounted using an annual discount rate of 10%.
"PRODUCTIVE WELLS" or "PRODUCING WELLS" consist of producing wells and wells
capable of production, including wells waiting on pipeline connections.
"PROVED DEVELOPED RESERVES" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
"PROVED RESERVES" means the estimated quantities of crude oil, natural gas and
NGLs which upon analysis of geological and engineering data appear with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is supported
by either actual production or conclusive formation tests. The area of a
reservoir considered proved includes (A) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts, if any; and (B)
the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (A) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas
and NGLs, the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics or economic factors;
(C) crude oil, natural gas, and NGLs, that may occur in undrilled
prospects; and (D) crude oil, natural gas and NGLs that may be recovered
from oil shales, coal, gilsonite and other such resources.
"PROVED UNDEVELOPED RESERVES" means reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for completion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
"RECOMPLETION" means the completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
"RESERVES" means proved reserves.
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<PAGE>
"RESERVOIR" means a porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
"ROYALTY" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"2-D SEISMIC" means an advanced technology method by which a cross-section of
the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.
"3-D SEISMIC" means an advanced technology method by which a three dimensional
image of the earth's subsurface is created through the interpretation of
reflection seismic data collected over surface grid. 3-D seismic surveys allow
for a more detailed understanding of the subsurface than do conventional surveys
and contribute significantly to field appraisal, development and production.
"WORKING INTEREST" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties.
"WORKOVER" means operations on a producing well to restore or increase
production.
ITEM 2. Properties
The information required by this Item is contained in Item 1. Business, and is
incorporated herein by reference.
ITEM 3. Legal Proceedings
The Company and its subsidiaries and affiliates are named defendants in
lawsuits and are involved in governmental proceedings from time to time, all
arising in the ordinary course of business. Although the outcome of these
lawsuits and proceedings cannot be predicted with certainty, management does not
expect these matters to have a material adverse effect on the financial position
of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders during the fourth quarter of the
year ended December 31, 1997.
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<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock is traded on the New York Stock Exchange under the symbol
WZR.
The quarterly high and low sales prices and dividends per share of Common
Stock during the three years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
High Low Dividends
---- --- ---------
<S> <C> <C> <C> y
1997
First Quarter........................................... $ 22.38 $ 17.63 $ .03
Second Quarter.......................................... 18.88 15.13 .03
Third Quarter........................................... 18.75 14.06 .03
Fourth Quarter.......................................... 18.75 13.06 .03
1996
First Quarter........................................... $ 13.38 $ 11.00 $ .03
Second Quarter.......................................... 14.00 12.25 .03
Third Quarter........................................... 15.50 12.88 .03
Fourth Quarter.......................................... 21.13 14.38 .03
1995
First Quarter........................................... $ 14.75 $ 13.38 $ .10
Second Quarter.......................................... 15.00 13.13 .10
Third Quarter........................................... 14.38 13.00 .10
Fourth Quarter.......................................... 13.75 10.88 .10
</TABLE>
At February 28, 1998, there were 8,951,965 shares of Common Stock outstanding
held by approximately 926 shareholders of record and approximately 2,569
beneficial owners.
Each share of Common Stock also represents one preferred stock purchase right
which entitles the holder thereof to purchase from the Company one-one
thousandth of a share (a "Unit") of Series B Preferred Stock of the Company at
an exercise price of $72.00 per Unit.
Although the Company does not have a written dividend policy, it has paid cash
dividends on the Common Stock for the previous 105 quarters. Dividends on the
Common Stock are reviewed by the Board of Directors of the Company each quarter,
and no assurances can be given that such cash dividends will continue in the
future or, if such dividends are paid, as to the amount of such dividends. In
addition, under the terms of the Credit Agreement (see Note 3 to the Company's
Consolidated Financial Statements), the payment of dividends in any year is
limited to the greater of (i) 80% of the Company's adjusted consolidated net
income (as defined in the Credit Agreement) for such year (which excludes gains
from sales of marketable securities) and (ii) $4.5 million.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company are derived
from information contained in the Company's consolidated financial statements.
The selected consolidated financial and operating data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (000'S EXCEPT PER SHARE AMOUNTS):
Revenues:
Oil and gas sales......................................... $ 76,729 $ 72,012 $54,400 $ 53,559 $ 40,329
Dividends and interest.................................... 1,113 683 1,241 1,641 1,855
Marketable security sales gains........................... 7,495 12,977 13,101 7,475 --
Other..................................................... 2,478 1,017 2,939 2,681 737
-------- -------- -------- -------- ---------
Total revenues.......................................... 87,815 86,689 71,681 65,356 42,921
------- ------- ------- ------- -------
Costs and expenses:
Production and operating.................................. 27,183 23,970 20,690 22,313 17,864
Purchased natural gas..................................... 1,622 1,462 727 759 1,182
Depreciation, depletion and amortization ("DD&A")......... 22,977 19,653 19,778 18,313 14,659
Property impairments...................................... 3,289 12,112 4,893 -- 693
Exploration............................................... 9,655 4,176 5,801 4,130 3,639
General and administrative................................ 9,661 9,364 8,193 6,502 5,429
Interest expense.......................................... 9,845 5,452 5,618 3,907 530
-------- -------- -------- --------- ---------
Total costs and expenses................................ 84,232 76,189 65,700 55,924 43,996
------- ------- ------- -------- -------
Earnings (loss) before income taxes......................... 3,583 10,500 5,981 9,432 (1,075)
Income tax expense (benefit)................................ 264 4,072 3,788 444 (2,091)
-------- -------- -------- -------- --------
Net income.................................................. $ 3,319 $ 6,428 $ 2,193 $ 8,988 $ 1,016
======== ======== ======== ======== ========
Average outstanding shares (000's) (1)...................... 8,949 8,939 8,939 8,941 8,939
Basic earnings per share.................................... $ 0.37 $ 0.72 $ 0.25 $ 1.01 $ 0.11
Cash dividends per share.................................... $ 0.12 $ 0.12 $ .40 $ 0.40 $ 0.40
OTHER FINANCIAL DATA (000'S):
EBITDA (2).................................................. $ 40,741 $ 38,233 $ 27,729 $ 26,666 $ 16,591
Operating cash flow......................................... 34,486 34,287 20,541 24,334 16,892
Capital and exploration expenditures........................ 78,323 47,115 30,153 74,610 71,002
BALANCE SHEET DATA - END OF PERIOD (000'S):
Cash and cash equivalents................................... $ 13,255 $ 5,870 $ 1,397 $ 2,714 $ 3,499
Working capital (3)......................................... 7,809 3,493 1,034 2,313 6,454
Marketable securities....................................... -- 7,176 19,592 27,337 34,781
Net property, plant and equipment........................... 220,708 179,718 169,089 167,371 127,708
Total assets................................................ 254,556 208,617 203,407 210,791 177,782
Long term debt.............................................. 124,304 78,654 74,171 78,013 46,777
Stockholders' equity........................................ 97,424 99,262 101,132 105,427 105,116
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESERVE AND OPERATING DATA:
Production and volumes:
Oil and NGLs (MBbl)....................................... 2,760 2,776 2,332 2,277 1,468
Gas (MMcf) (4)............................................ 12,829 12,288 12,171 11,076 8,296
BOE (000's) (4)......................................... 4,898 4,824 4,361 4,123 2,851
Weighted average sales prices (5):
Oil (per Bbl)............................................. $ 18.02 $ 18.81 $ 16.91 $ 15.60 $ 16.44
Gas (per Mcf)............................................. 2.21 1.77 1.37 1.73 2.07
NGLs (per Bbl)............................................ 13.87 13.36 10.11 9.00 9.42
BOE (per Bbl)........................................... 15.66 14.93 12.47 12.99 14.15
Selected expenses per BOE (6):
Lease operating........................................... $ 4.65 $ 4.14 $ 4.06 $ 4.54 $ 5.80
Production taxes.......................................... 1.02 0.93 0.78 0.97 0.72
DD&A...................................................... 4.79 4.16 4.62 4.53 5.35
General and administrative................................ 2.02 1.98 1.92 1.61 1.98
Proved reserves (end of year) (7):
Oil and NGLs (MBbls)...................................... 29,721 31,612 32,208 23,430 21,242
Gas (MMcf)................................................ 120,094 113,377 109,915 107,920 103,317
BOE (MBbls)............................................. 49,737 50,508 50,527 41,417 38,462
Estimated future net revenues before income taxes (000's). $ 359,293 $ 705,723 $ 401,037 $ 272,776 $ 241,251
Present Value............................................. 210,087 414,314 235,416 160,804 137,149
Standardized Measure (000's) (8).......................... 174,489 317,180 194,602 142,032 112,423
Weighted average sales prices (end of year) (7)(9):
Oil (per Bbl)............................................. $ 15.92 $ 24.63 $ 18.19 $ 16.11 $ 13.35
Gas (per Mcf)............................................. 2.35 3.45 1.84 1.57 2.34
NGLs (per Bbl)............................................ 11.40 19.79 12.87 9.80 9.07
</TABLE>
(1) Basic earnings per share is calculated without including dilutive effect
of common stock equivalents consisting of stock options. See Note 11 to the
Company's Consolidated Financial Statements.
(2) EBITDA is not a generally accepted accounting measure, but is presented as
a supplemental financial indicator of the Company's ability to service or
incur debt. EBITDA is calculated by adding interest expense, income tax
expense, depreciation, depletion and amortization, property impairment
costs and exploration costs to net income (excluding marketable security
sales gains and dividends and interest). EBITDA should not be considered in
isolation or as a substitute for net income, operating cash flows or any
other measure of financial performance prepared in accordance with
generally accepted accounting principles or as a measure of the Company's
profitability or liquidity.
(3) Working capital represents the difference between current assets and
current liabilities.
(4) Calculated by including volumes of natural gas purchased for resale as
follows: 1997-629 MMcf, 1996-605 MMcf, 1995-500 MMcf, 1994-469 MMcf and
1993-666 MMcf.
(5) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Other Matters."
(6) Calculated without including volumes of natural gas purchased for
resale.
(7) Estimates of proved reserves and future net revenues from which Present
Values are derived are based on year end prices of oil and gas held
constant (except to the extent a contract specifically provides otherwise)
in accordance with SEC regulations.
29
<PAGE>
(8) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Company's Consolidated Financial
Statements included elsewhere in this Report for additional information
regarding the disclosure of the Standardized Measure of Discounted Future
Net Cash Flows.
(9) Year end prices used to estimate proved reserves and future net revenues
from which Present Values are derived. See footnotes 7 and 8 above.
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each year
in the three-year period ended December 31, 1997. The Company's Consolidated
Financial Statements and notes thereto included elsewhere in this Report contain
detailed information that should be referred to in conjunction with the
following discussion.
GENERAL
The Company's results of operations have been significantly affected by its
Maljamar waterflood project, Wellman Unit CO2 gas injection project and 1994
acquisition and subsequent development, exploitation and exploration of its
Canadian oil and gas properties. The Company has achieved increases in its oil
and gas production primarily as a result of these activities.
The Company has been liquidating portions of its marketable securities
portfolio in order to fund a portion of the Company's capital and exploration
expenditures. The Company recognized pretax gains from the sale of marketable
securities of $7.5 million, $13.0 million and $13.1 million in 1997, 1996 and
1995, respectively. In the absence of such gains, the Company would have
reported net losses in each year of the three year period ended December 31,
1997. The Company completed the liquidation of its marketable securities
portfolio in 1997. Accordingly, the positive impact that sales of marketable
securities have had on the Company's net income will not continue, and sales of
marketable securities will no longer be a source of funds, beyond 1997.
During 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires the Company to assess the need for an impairment of capitalized costs
of oil and gas properties on a property-by-property (rather than a company-wide)
basis. Applying SFAS No. 121, the Company recognized non-cash property
impairment charges of $3.3 million in 1997, $12.1 million in 1996 and $4.9
million in 1995.
The Company's future results of operations and growth are substantially
dependent upon (i) its ability to acquire or find and successfully develop
additional oil and gas reserves and (ii) the prevailing prices for oil and gas.
At December 31, 1997, the Company's proved reserves were comprised of
approximately 89% proved developed reserves, and the Company does not have a
large inventory of development drilling locations or enhanced recovery projects
to pursue after 1997. If the Company is unable to economically acquire or find
significant new reserves for development and exploitation, the Company's oil and
gas production, and thus its revenues, would likely decline gradually as its
reserves are produced. In addition, oil and gas prices are dependent upon
numerous factors beyond the Company's control, such as economic, political and
regulatory developments and competition from other sources of energy. The oil
and gas markets have historically been very volatile, and any significant and
extended decline in the price of oil or gas would have a material adverse effect
on the Company's financial condition and results of operations, and could result
in a reduction in the carrying value of the Company's proved reserves and
adversely affect its access to capital.
RESULTS OF OPERATIONS
Production information presented below includes volumes of natural gas
purchased for resale; however, per unit of production information with respect
to production and operating expenses, depreciation, depletion and amortization
and general and administrative costs is calculated without including such
volumes. Such volumes were 629 MMcf in 1997, 605 MMcf in 1996 and 500 MMcf in
1995.
COMPARISON OF 1997 TO 1996
REVENUES
31
<PAGE>
OIL AND GAS SALES increased 7% to $76.7 million in 1997 from $72.0 million in
1996, primarily because of higher gas production and higher gas prices received
during 1997. Gas production during 1997 increased 4% to 12.8 Bcf from 12.3 Bcf
in 1996. The increase in gas production was primarily attributable to the
acquisition of the Welder Ranch field in South Texas which added 0.8 Bcf of gas
production during 1997. The average gas price received in 1997 increased 25% to
$2.21 per Mcf from $1.77 per Mcf in 1996. Oil production in 1997 increased less
than 1% to 2,441 MBbls from 2,425 MBbls in 1996. The Company completed 50 wells
in the Maljamar field during 1997 which increased 1997 production by 246 MBbls
over 1996 and offset declining oil production in other fields during 1997. The
average oil price received in 1997 decreased 4% to $18.02 per Bbl from $18.81
per Bbl in 1996. As a result of hedging activities, oil and gas sales were
reduced by $2.4 million and $6.9 million during 1997 and 1996, respectively. On
an equivalent unit basis, total production increased 2% to 4,898 MBOE in 1997
from 4,824 MBOE in 1996.
MARKETABLE SECURITY SALES GAINS decreased 42% to $7.5 million in 1997 from $13.0
million in 1996 as the Company completed the liquidation of its remaining
marketable securities in 1997.
OTHER REVENUES increased 144% to $2.5 million in 1997 from $1.0 million in 1996
primarily as a result of the sale of non-strategic oil and gas properties in
Michigan during 1997.
COSTS AND EXPENSES
PRODUCTION AND OPERATING EXPENSE increased 13% to $27.2 million in 1997 from
$24.0 million in 1996 and also increased 12% to $5.67 per BOE in 1997 from $5.07
per BOE in 1996. The increases were primarily attributable to additional wells
drilled at the Maljamar and Provost fields and increased production taxes
associated with the 7% increase in oil and gas sales during 1997.
DEPRECIATION, DEPLETION AND AMORTIZATION increased 17% to $23.0 million in 1997
from $19.7 million in 1996 and increased 15% to $4.79 per BOE in 1997 from $4.16
per BOE in 1996. The increases were primarily attributable to additional wells
drilled at the Maljamar field to develop proved undeveloped reserves combined
with increased depletion from the Shouldice and other Canadian properties which
have a higher than average cost basis and shorter than average reserve life.
IMPAIRMENT EXPENSE decreased 73% to $3.3 million in 1997 from $12.1 million in
1996. Impairment expense in 1997 was due primarily to low oil prices used to
value reserves at year-end 1997 while impairment expense in 1996 was due
primarily to downward revisions in reserve estimates for certain properties in
Michigan and Canada.
EXPLORATION EXPENSE increased 131% to $9.7 million in 1997 from $4.2 million in
1996 as the Company increased its exploration activities in the U.S. during
1997. Dry hole expense increased 141% to $4.1 million in 1997 from $1.7 million
in 1996. Dry hole expense in 1997 included $1.2 million at the South Lakeside
prospect in Louisiana, $1.0 million at the Tecumseh prospect in Louisiana and
$0.7 million at the Bronson prospect in Canada. Seismic expense also increased
to $3.4 million in 1997 from $0.3 million in 1996.
GENERAL AND ADMINISTRATIVE EXPENSE ("G&A") increased 3% to $9.7 million in 1997
from $9.4 million in 1996 and also increased 2% to $2.02 per BOE in 1997 from
$1.98 per BOE in 1996. The increase in G&A was attributable primarily to the
addition of exploration personnel and higher compensation costs.
INTEREST EXPENSE increased 81% to $9.8 million in 1997 from $5.5 million in 1996
as a result of the increase in long term debt and the higher interest rate
associated with the sale of 9 1/2% Senior Subordinated Notes ("2007 Notes") on
May 21, 1997.
INCOME TAX EXPENSE decreased $3.8 million to $0.3 million in 1997 from $4.1
million in 1996 as a result of a decrease in earnings before income taxes of
$6.9 million combined with a lower effective tax rate of 7% in 1997 compared to
39% in 1996. The lower effective tax rate in 1997 was attributable primarily to
the inclusion of Canadian operations in the Company's consolidated tax return
beginning in 1997.
32
<PAGE>
NET INCOME
Net income decreased 48% to $3.3 million in 1997 from $6.4 million in 1996
primarily as a result of higher production and operating expense, DD&A,
exploration and interest expense in 1997.
COMPARISON OF 1996 TO 1995
REVENUES
OIL AND GAS SALES increased 32% to $72.0 million in 1996 from $54.4 million in
1995 due to higher production and higher prices received during 1996. Oil
production in 1996 increased 17% to 2,425 MBbls from 2,080 MBbls in 1995. The
increase in oil production was primarily attributable to development activities
which resulted in the addition of 102 net wells in 1996. The average oil price
received in 1996 increased 11% to $18.81 per Bbl from $16.91 per Bbl in 1995.
Gas production during 1996 increased 1% to 12.3 Bcf from 12.2 Bcf in 1995 and
the average gas price received in 1996 increased 29% to $1.77 per Mcf from $1.37
per Mcf in 1995. As a result of hedging activities, oil and gas sales were
reduced by $6.9 million during 1996. On an equivalent unit basis, total
production increased 11% to 4,824 MBOE in 1996 from 4,361 MBOE in 1995.
MARKETABLE SECURITY SALES GAINS decreased 1% to $13.0 million in 1996 from $13.1
million in 1995 as the Company continued the liquidation of its marketable
securities portfolio in 1996.
OTHER REVENUES decreased 66% to $1.0 million in 1996 from $2.9 million in 1995
primarily as a result of fewer sales of non-strategic oil and gas properties
during 1996.
COSTS AND EXPENSES
PRODUCTION AND OPERATING EXPENSE increased 16% to $24.0 million in 1996 from
$20.7 million in 1995 and also increased 5% to $5.07 per BOE in 1996 from $4.84
per BOE in 1995. The increases were primarily attributable to increased
production taxes associated with the 32% increase in oil and gas sales during
1996.
DD&A decreased 1% to $19.7 million in 1996 from $19.8 million in 1995 and
decreased 10% to $4.16 per BOE in 1996 from $4.62 per BOE in 1995. The decreases
were primarily attributable to upward revisions in reserve estimates during 1996
for the Maljamar, Wellman and Evi fields.
IMPAIRMENT EXPENSE increased 148% to $12.1 million in 1996 from $4.9 million in
1995. Impairment expense in 1996 was due primarily to downward revisions in
reserve estimates for certain properties in Michigan and Canada while impairment
expense in 1995 was due to downward revisions in reserve estimates for certain
Canadian properties.
EXPLORATION EXPENSE decreased 28% to $4.2 million in 1996 from $5.8 million in
1995, primarily as a result of a temporary reduction by the Company in its 1996
domestic exploration activities due to a redirection of its exploration program
in the fourth quarter of 1996.
G&A increased 15% to $9.4 million in 1996 from $8.2 million in 1995 and also
increased 3% to $1.98 per BOE from $1.92 per BOE in 1995. The increase in G&A
was attributable primarily to higher compensation costs and professional fees
relating to acquisition and taxation matters.
INTEREST EXPENSE decreased 2% to $5.5 million in 1996 from $5.6 million in 1995.
INCOME TAX EXPENSE increased 7% to $4.1 million in 1996 from $3.8 million in
1995 as a result of an increase in earnings before income taxes of $4.5 million
offset by a lower effective tax rate of 39% in 1996 compared to 63% in 1995. The
lower effective tax rate in 1996 was attributable to a decrease in the amount of
tax loss attributable to the Company's Canadian operations that was not
deductible for U.S. federal income tax purposes. In addition, the
33
<PAGE>
Company's Section 29 income tax credits relating to its San Juan Basin
properties increased 15% to $1.5 million in 1996 from $1.3 million in 1995.
NET INCOME
Net income increased 191% to $6.4 million in 1996 from $2.2 million in 1995
primarily as a result of higher production and net realized prices received in
1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash flows from operating activities were $34.5 million and $34.3 million in
1997 and 1996, respectively. Cash flows in 1997 were increased by higher oil and
gas sales and decreased by higher interest expense and production and operating
expense resulting in a small net increase over 1996. Cash flows from financing
activities were $39.8 million in 1997, up $37.6 million from 1996 as a result of
the sale of $125 million of 2007 Notes. The sale of the 2007 Notes provided
$120.9 million of net cash proceeds to the Company, and $78.7 million of
borrowings under the Credit Agreement and the Company's Maljamar Credit Facility
were repaid during 1997. The Maljamar Credit Facility was terminated in 1997 in
connection with such repayment of borrowings. Cash flows used in investing
activities were $66.9 million in 1997 compared to $32.1 million in 1996. Capital
and exploration expenditures were $78.3 million in 1997, an increase of $31.2
million over 1996. The major components of capital and exploration expenditures
for 1997 were: $17.9 million for Maljamar development; $21.6 million for proved
property acquisitions; and $12.4 million for exploration. Proceeds from the sale
of marketable securities and oil and gas properties were $11.4 million in 1997,
down $3.6 million from 1996, primarily as a result of reduced sales of
marketable securities in 1997.
FINANCIAL POSITION
Cash and cash equivalents increased $7.4 million during 1997 to $13.3 million at
December 31, 1997 primarily because of the sale of the 2007 Notes. Working
capital of $7.8 million at December 31, 1997 was also higher than working
capital at December 31, 1996 due primarily to the sale of the 2007 Notes. Total
assets increased $45.9 million during 1997 to $254.6 million at December 31,
1997, and long term debt increased $45.7 million during 1997 to $124.3 million
at December 31, 1997.
At December 31, 1997, capitalization totaled $221.7 million and consisted of
$124.3 million of long term debt (56%) and $97.4 million of stockholders' equity
(44%).
CAPITAL SOURCES
Funding for the Company's business activities has been provided by cash flow
from operations, borrowings and sales of marketable securities. The Company
completed the liquidation of its marketable securities in 1997 and, accordingly,
this source of funds is no longer available.
While the Company regularly engages in discussions relating to potential
acquisitions of oil and gas properties, the Company has no current agreement or
commitment with respect to any such acquisitions which would be material to the
Company. Any future acquisitions may require additional financing and will be
dependent upon financing arrangements available at the time. The Company
believes that cash flows from operations and borrowings under the Credit
Agreement will be sufficient to meet anticipated capital and exploration
expenditure requirements (excluding any material property acquisitions) in 1998.
If the Company's cash flows from operations and borrowings under the Credit
Agreement are not sufficient to satisfy its capital and exploration expenditure
requirements, there is no assurance that additional equity or debt financing
will be available to meet such requirements.
The Company has entered into a Credit Agreement with a group of banks which
provides for the issuance of letters of credit and for revolving credit loans to
the Company (the "Credit Agreement"). The Credit Agreement's borrowing base is
currently $80 million. There were no outstanding borrowings at December 31,
1997. The borrowing base is redetermined annually by the lenders based on the
most recent valuation
34
<PAGE>
of the Company's oil and gas reserves. Accordingly, the current borrowing base
of $80 million could be reduced in 1998. See Note 3 to the Company's
Consolidated Financial Statements.
CAPITAL AND EXPLORATION EXPENDITURES
The Company requires capital primarily for the acquisition, development and
exploitation of, and the exploration for, oil and gas properties, the repayment
of indebtedness and general working capital needs. During 1998, subject to
market conditions and drilling and operating results, the Company expects to
spend approximately $52 million on acquisition, development, exploitation and
exploration activities. Of this amount, the Company has budgeted $12 million for
acquisition of proved and unproved properties, $18 million for development and
exploitation activities and $22 million for exploration activities.
OTHER MATTERS
HEDGING ACTIVITIES
The Company has in the past entered into and may in the future enter into
hedging arrangements with respect to portions of its oil, natural gas and NGL
production to reduce its sensitivity to volatile commodity prices. The Company
believes that hedging, although not free of risk, allows the Company to achieve
a more predictable cash flow and to reduce exposure to price fluctuations.
However, hedging arrangements limit the benefit to the Company of increases in
the prices of the hedged commodity. Moreover, the Company's hedging arrangements
apply only to a portion of its production and provide only partial price
protection against declines in prices. Such arrangements may expose the Company
to risk of financial loss in certain circumstances. The Company adjusts the
price received for the hedged production during the period the hedged
transactions occur. Adjustments to oil and gas sales from the Company's hedging
activities resulted in a reduction of $2.4 million and $6.9 million in the
Company's revenues for the years ended December 31, 1997 and 1996, respectively.
Hedging activities in 1995 did not result in any material increase or decrease
in oil and gas revenues. The Company expects that the amount of production it
hedges will vary from time to time. The Company continuously reevaluates its
hedging program in light of market conditions, commodity price forecasts,
capital spending and debt service requirements. There are currently no hedging
agreements in place. See Note 1 to the Company's Consolidated Financial
Statements.
EFFECTS OF FLUCTUATIONS IN EXCHANGE RATES
The Company receives a substantial portion of its revenue in Canadian dollars
(18% in 1997). As a result, fluctuations in the exchange rates of the Canadian
dollar with respect to the U.S. dollar could have an adverse effect on the
Company's financial condition and results of operations. Historically, exchange
rate fluctuations have not been material to the Company.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's business is subject to certain federal, state, provincial and
local laws and regulations relating to the development, exploitation, production
and gathering of, and the exploration for, oil and gas, including those relating
to the protection of the environment. Many of these laws and regulations have
become more stringent in recent years, often imposing greater liability on a
larger number of potentially responsible parties. Although the Company believes
it is in substantial compliance with all applicable laws and regulations, the
requirements imposed by laws and regulations are frequently changed and subject
to interpretation, and the Company is unable to predict the ultimate cost of
compliance with these requirements or their effect on its operations. Although
significant expenditures may be required to comply with governmental laws and
regulations applicable to the Company, compliance has not had a material adverse
effect on the earnings or competitive position of the Company.
YEAR 2000 ISSUE
The Company has assessed and continues to assess the impact of the "year 2000"
issue on its reporting systems and operations. The "year 2000" issue exists
because many computer systems and applications currently use two-digit
35
<PAGE>
date fields to designate a year. As the century date occurs, two-digit date
systems will recognize the year 2000 as 1900 or not at all. This inability to
recognize or properly treat the year 2000 may cause systems to process critical
financial and operational information incorrectly. The Company anticipates that
all its significant computer systems and software will be year 2000 compliant
during 1998. Management does not estimate future expenditures related to the
year 2000 exposure to be material.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in this Report, including without limitation statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and under "Business" and "Properties" regarding proved reserves,
estimated future net revenues, Present Values, planned capital expenditures
(including the amount and nature thereof), increases in oil and gas production,
the number of wells anticipated to be drilled in 1998 and thereafter and the
Company's financial position, business strategy and other plans and objectives
for future operations, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on its business or
operations. Among the factors that could cause actual results to differ
materially from the Company's expectations are the volatility of oil and gas
prices, the ability to acquire or find and successfully develop additional oil
and gas reserves, the uncertainty of estimates of reserves and future net
revenues, risks relating to acquisitions of producing properties, drilling and
operating risks, general economic conditions, competition, domestic and foreign
government regulations and other factors which are beyond the Company's control.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors. The Company assumes no obligation to update any such
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants, Consolidated Financial Statements and
supplementary financial data required by this Item are set forth on pages F-1
through F-20 of this Report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item will be contained in the Proxy Statement
under the headings "Election of Directors" and "Executive Officers" and is
incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by this Item will be contained in the Proxy Statement
under the heading "Executive Compensation" and is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
36
<PAGE>
The information required by this Item will be contained in the Proxy Statement
under the heading "Beneficial Ownership of Common Stock" and is incorporated
herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item, if any, will be contained in the Proxy
Statement under the heading "Executive Compensation" and is incorporated herein
by reference.
37
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. Financial Statements
The following documents are filed as part of this Report:
1. Report of Independent Accountants
Consolidated Statements of Income and Retained Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Scheduled are omitted because of the absence of conditions under which
they are required information is given in the financial statements or
notes thereto.
B. Reports on Form 8-K.
The following reports on Form 8-K were filed by the Company during the last
quarter of 1997:
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
October 15, 1997 Item 5 None
November 12, 1997 Item 5 None
C. EXHIBITS
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference as indicated.
Exhibit
Numbers
- -------
(3.1) Certificate of Incorporation of the Company, as amended, incorporated
by reference to Exhibit 4.2 to the Company's report on Form 8-K
(Commission File No. 0-5426), dated November 9, 1993 (Date of Event:
October 25, 1993).
(3.2) Bylaws of the Company, as amended, incorporated by reference to
Exhibit 4.3 to the Company's report on Form 8-K (Commission File No.
0-5426), dated November 9, 1993 (Date of Event: October 25, 1993).
(4) Rights Agreement dated as of October 25, 1993 by and between the
Company and The Chase Manhattan Bank (as successor to Chemical Bank),
as Rights Agent, which includes as Exhibit 2 thereto the Form of
Rights Certificate, incorporated by reference to Exhibit 4.1 to the
Company's report on Form 8-K (Commission File No. 0-5426), dated
November 9, 1993 (Date of Event: October 25, 1993).
(4a) Amendment No. 1 to the Rights Agreement dated as of October 25, 1993
by and between the Company and The Chase Manhattan Bank (as successor
to Chemical Bank), as Rights Agent, which includes as Exhibit 2
thereto the Form of Rights Certificate , incorporated by reference to
the Company's report on Form 8 -K/A filed on September 29,1995.
(4.1) Indenture dated May 21, 1997, among the Company, certain subsidiaries
of the Company and Texas Commerce Bank National Association, as
Trustee, incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (Commission File No. 333-29211),
filed on June 13, 1997.
38
<PAGE>
(4.2) Form of 9 1/2% Senior Subordinated Notes due 2007 (included in the
indenture filed as Exhibit 4.1), incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-4 (Commission
File No. 333-29211), filed on June 13, 1997.
(4.3) Registration Agreement dated May 21, 1997, among the Company, certain
subsidiaries of the Company and Salomon Brothers Inc., NationsBanc
Capital Markets, Inc. and Nesbitt Burns Securities Inc., as the
Initial Purchasers, incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (Commission File No.
333-29211), filed on June 13, 1997.
(4.4) Credit Agreement dated June 23, 1994 among The Wiser Oil Company and
The Wiser Oil Company of Canada, as Borrowers, and NationsBank of
Texas, N.A. (NationsBank), as Agent, and Certain Financial
Institutions Listed on the Signature Pages Thereto, as Banks,
incorporated by reference to the Exhibit 10.1 to the Company's report
on Form 8-K dated July 11, 1994 as amended on Form 8-K/A filed on
August 17, 1994.
(4.5) First Amendment to Credit Agreement dated November 29, 1995 among The
Wiser Oil Company and The Wiser Oil Company of Canada, as Borrowers,
and NationsBank, as Agent, and Certain Financial Institutions Listed
on the Signature Pages Thereto, as Banks, incorporated by reference
to Exhibit 4.5 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.6) Second Amendment to Credit Agreement dated May 20, 1997 among The
Wiser Oil Company and The Wiser Oil Company of Canada, Inc., as
Borrowers, and NationsBank, as Agent, and Certain Financial
Institutions Listed on the Signature Pages thereto, as Banks,
incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-4 (Commission File No. 333-29211),
filed on June 13, 1997.
(4.7) Guaranty Agreement dated May 20, 1997, by Wiser Oil Delaware, Inc.,
in favor of NationsBank and PNC Bank, National Association ("PNC"),
incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (Commission File No. 333-29211),
filed on June 13, 1997.
(4.8) Guaranty Agreement dated May 20, 1997, by Wiser Delaware LLC, in
favor of NationsBank and PNC, incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-4 (Commission
File No. 333-29211), filed on June 13, 1997.
(4.9) Guaranty Agreement dated May 20, 1997, by The Wiser Marketing
Company, in favor of NationsBank and PNC, incorporated by reference
to Exhibit 4.9 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.10) Guaranty Agreement dated May 20, 1997, by The Wiser Oil Company of
Canada, in favor of NationsBank and PNC, incorporated by reference to
Exhibit 4.10 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.11) Guaranty Agreement dated May 20, 1997, by T.W.O.C., Inc., in favor of
NationsBank and PNC, incorporated by reference to Exhibit 4.11 to the
Company's Registration Statement on Form S-4 (Commission File No.
333-29211), filed on June 13, 1997.
(4.12) Credit Agreement dated November 29, 1995 among The Wiser Oil Company
and Maljamar Development Partnership, L.P. as Borrowers, and
NationsBank of Texas, N.A., as Agent, and Certain Financial
Institutions Listed on the Signature Pages thereto, as Banks.
(4.13)* Credit Agreement dated December 23, 1997 among The Wiser Oil Company,
as borrowers, and NationsBank of Texas, N.A., as agent, and The
Financial Institutions Listed on the Signature Pages thereto, as
Banks.
39
<PAGE>
(10.3) Purchase and Sale Agreements made as of May 31, 1994 among Eagle
Resources Ltd., Caneagle Resources Corporation, The Erin Mills
Investment Corporation and The Wiser Oil Company, incorporated by
reference to Exhibit 10 to the Company's report on Form 8-K dated
July 11, 1994 as amended by Form 8-K/A filed on August 17, 1994.
(10.4)+ Employment Agreement dated August 1, 1994 between the Company and
Allan J. Simus, incorporated by reference to Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(10.5)+ Employment Agreement dated July 1, 1991 between the Company and
Andrew J. Shoup, Jr., incorporated by reference to Exhibit 10(a) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1993.
(10.5a)+* Amendment to Employment Agreement dated July 1, 1991 between the
Company and Andrew J. Shoup, Jr. dated May 20, 1997.
(10.6)+ The Wiser Oil Company 1991 Stock Incentive Plan, as amended,
incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Commission File No. 33-62441),
filed on September 8, 1995.
(10.6a)+ Amendment to The Wiser Oil Company 1991 Stock Incentive Plan,
incorporated by reference to the Company's Registration Statement on
Form S-8 (Commission File No. 333-29973), filed on June 25, 1997.
(10.7)+ The Wiser Oil Company 1991 Non-Employee Directors' Stock Option Plan,
as amended, incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (Commission File No.
333-22525), filed on February 28, 1997.
(10.8)+ Employment Agreement dated November 1, 1993 between the Company and
Lawrence J. Finn, incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.8a)+* Amendment to Employment Agreement dated November 1, 1993 between the
Company and Lawrence J. Finn dated May 20, 1997.
(10.9)+ Employment Agreement dated January 24, 1994 between the Company and
A. Wayne Ritter, incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.9a)+* Amendment to Employment Agreement dated January 24, 1994 between the
Company and A. Wayne Ritter dated May 20, 1997.
(10.10)+ Employment Agreement dated September 30, 1997 between the Company and
Kent E. Johnson, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K (Commission File No. 0-5426),
filed on March 26, 1997.
(10.10a)+* Amendment to Employment Agreement dated September 30, 1997 between
the Company and Kent E. Johnson dated May 20, 1997.
(10.11)+ The Wiser Oil Company Equity Compensation Plan For Non-Employee
Directors, incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K (Commission File No. 0-5426),
filed on March 26, 1997.
(10.12)* The Wiser Oil Company Savings Restoration Plan dated February 24,
1998.
40
<PAGE>
(21)* Subsidiaries of registrant.
(23.1)* Consent of Independent Public Accountants.
(23.2)* Consent of DeGolyer and MacNaugton, Independent Petroleum Engineers.
(23.3)* Consent of Gilbert Lausten Jung Associates Ltd., Independent
Petroleum Engineers.
(27)* Financial Data Schedule.
______________
+ Represent management compensatory plans or agreements.
* Filed herewith.
41
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 30TH DAY OF
MARCH 1998.
The Wiser Oil Company
By: /s/ Andrew J. Shoup, Jr.
----------------------------------
ANDREW J. SHOUP, JR.
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ ANDREW J. SHOUP, JR. President, Chief Executive March 30, 1998
- ------------------------------ Officer and Director
(Principal Executive
Officer)
/s/ PAUL D. NEUENSHWANDER Director March 30, 1998
- ------------------------------
/s/ C. FRAYER KIMBALL Director March 30, 1998
- ------------------------------
/s/ HOWARD G. HAMILTON Director March 30, 1998
- ------------------------------
/s/ A. W. SCHENCK, III Director March 30, 1998
- ------------------------------
/s/ JOHN W. CUSHING, III Director March 30, 1998
- ------------------------------
/s/ JON L. MOSLE, JR. Director March 30, 1998
- ------------------------------
/s/ LORNE H. LARSON Director March 30, 1998
- ------------------------------
/s/ LAWRENCE J. FINN Vice President and Chief March 30, 1998
- ------------------------------ Financial Officer
(Principal Financial and
Accounting Officer)
42
<PAGE>
THE WISER OIL COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants........................... F-2
Consolidated Statements of Income and Retained Earnings............ F-3
Consolidated Balance Sheets........................................ F-4
Consolidated Statements of Cash Flows.............................. F-5
Notes to Consolidated Financial Statements......................... F-6
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The Wiser Oil Company:
We have audited the accompanying consolidated balance sheets of The Wiser Oil
Company (a Delaware corporation) and subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of income and retained earnings and
cash flows for the years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Wiser Oil
Company and subsidiaries as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, at December 31,
1995, the Company changed its method of accounting for the impairment of
long-lived assets.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 18, 1998
F-2
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
(000's except per share data)
<S> <C> <C> <C>
Revenues:
Oil and gas sales.................................... $ 76,729 $ 72,012 $ 54,400
Dividends and interest............................... 1,113 683 1,241
Marketable security sales............................ 7,495 12,977 13,101
Other................................................ 2,478 1,017 2,939
----------------------------------------
87,815 86,689 71,681
----------------------------------------
Costs and Expenses:
Production and operating............................. 27,183 23,970 20,690
Purchased natural gas................................ 1,622 1,462 727
Depreciation, depletion and amortization............. 22,977 19,653 19,778
Property impairments................................. 3,289 12,112 4,893
Exploration.......................................... 9,655 4,176 5,801
General and administrative........................... 9,661 9,364 8,193
Interest expense..................................... 9,845 5,452 5,618
----------------------------------------
84,232 76,189 65,700
----------------------------------------
Earnings Before Income Taxes.............................. 3,583 10,500 5,981
Income Tax Expense........................................ 264 4,072 3,788
----------------------------------------
NET INCOME................................................ 3,319 6,428 2,193
Retained Earnings, beginning of year...................... 66,385 61,030 62,414
Dividends Paid............................................ (1,074) (1,073) (3,577)
----------------------------------------
Retained Earnings, end of year............................ $ 68,630 $ 66,385 $ 61,030
========================================
Earnings Per Share (Note 11):
Basic................................................... $.37 $.72 $.25
========================================
Diluted................................................. $.37 $.72 $.25
========================================
Cash Dividends Per Share.................................. $.12 $.12 $.40
========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(000's)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 13,255 $ 5,870
Accounts receivable....................................... 13,765 14,091
Inventories............................................... 1,007 1,289
Prepaid income taxes...................................... 725 --
Prepaid expenses.......................................... 438 473
--------------------------
Total current assets.................................. 29,190 21,723
--------------------------
Marketable Securities.......................................... -- 7,176
Property, Plant and Equipment, at cost:
Oil and gas properties (successful efforts method)........ 346,655 306,716
Other properties.......................................... 5,399 4,974
--------------------------
352,054 311,690
Accumulated depreciation, depletion and amortization...... (131,346) (131,972)
--------------------------
Net property, plant and equipment......................... 220,708 179,718
Other Assets................................................... 4,658 --
--------------------------
$ 254,556 $ 208,617
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 18,396 $ 14,996
Accrued income taxes...................................... -- 1,697
Accrued liabilities....................................... 2,985 1,537
--------------------------
Total current liabilities............................... 21,381 18,230
--------------------------
Long Term Debt................................................. 124,304 78,654
Deferred Benefit Cost.......................................... 1,169 1,496
Deferred Income Taxes.......................................... 10,278 10,975
Stockholders' Equity:
Common stock - $3 par value; 20,000,000 shares authorized;
shares issued, 1997 - 9,128,169, 1996 - 9,115,572;
shares outstanding, 1997 - 8,951,965, 1996 - 8,939,368 . 27,385 27,347
Paid-in capital........................................... 3,223 3,078
Retained earnings......................................... 68,630 66,385
Marketable securities valuation adjustment................ -- 4,328
Foreign currency translation.............................. 915 853
Treasury stock; 176,204 shares, at cost................... (2,729) (2,729)
--------------------------
Total stockholders' equity.............................. 97,424 99,262
--------------------------
$ 254,556 $ 208,617
==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
(000's except per share data)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 3,319 $ 6,428 $ 2,193
Adjustments to reconcile to cash flows from
operating activities:
Depreciation, depletion and amortization......... 22,977 19,653 19,778
Deferred income taxes............................ 1,530 2,056 1,914
Marketable securities and property sales gains... (9,370) (13,099) (14,092)
Exploration expense.............................. 9,655 4,176 5,801
Property impairments............................. 3,289 12,112 4,893
Foreign currency translation..................... 62 (2) (34)
Amortization of other assets..................... 282 -- --
Other changes:
Accounts receivable............................ 326 (3,665) 474
Inventories.................................... 282 228 (373)
Prepaid income taxes........................... (725)
-- --
Prepaid expenses............................... 35 360 19
Other assets................................... -- 553 (80)
Accounts payable............................... 3,400 4,853 661
Accrued income taxes........................... (1,697) 170 9
Accrued liabilities............................ 1,449 88 (690)
Deferred benefit costs......................... (328) 376 68
------------------------------------------
Operating Cash Flows......................... 34,486 34,287 20,541
-----------------------------------------
Cash Flows From Investing Activities:
Capital and exploration expenditures................. (78,323) (47,115) (30,153)
Proceeds from sales of property, plant and equipment. 3,288 1,022 1,280
Proceeds from sales of marketable securities......... 8,115 14,035 14,492
------------------------------------------
Investing Cash Flows......................... (66,920) (32,058) (14,381)
----------------------------------------
Cash Flows From Financing Activities:
Borrowings of long term debt......................... 125,000 25,508 11,170
Repayments of long term debt......................... (78,654) (22,191) (15,070)
Long term debt issuance costs and fees............... (5,636) -- --
Common stock issued.................................. 183 -- --
Dividends paid....................................... (1,074) (1,073) (3,577)
-----------------------------------------
Financing Cash Flows......................... 39,819 2,244 (7,477)
-----------------------------------------
Net Increase (Decrease) in Cash........................... 7,385 4,473 (1,317)
Cash and Cash Equivalents, beginning of year.............. 5,870 1,397 2,714
-----------------------------------------
Cash and Cash Equivalents, end of year.................... $ 13,255 $ 5,870 $ 1,397
========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation - The consolidated financial statements
include the accounts of The Wiser Oil Company (Company), a Delaware
corporation, and its wholly owned subsidiaries: T.W.O.C., Inc., The Wiser
Marketing Company, Maljamar Wiser Inc., Maljamar Development Partnership,
L.P., and The Wiser Oil Company of Canada ("Wiser Canada"). T.W.O.C., Inc.
is a Delaware holding company responsible for the management of investment
activities. The Wiser Marketing Company functions as a natural gas marketer
and broker. Maljamar Wiser Inc. was formed in 1995 as a wholly-owned
subsidiary of the Company. It was formed in order for the Company to fund
its $53,000,000 development of the Maljamar area with the use of
nonrecourse debt. The Maljamar Development Partnership, L.P. was formed in
1995 for the same reason. The Company is the limited partner of the
Maljamar Development Partnership, L.P. and owns 99% of the partnership.
Maljamar Wiser Inc. owns 1% of the Maljamar Development Partnership, L.P.
as a general partner. Effective May 14, 1997, Maljamar Wiser, Inc. was
merged into The Wiser Oil Company and Maljamar Development Partnership,
L.P. was terminated. Wiser Canada was formed in 1994 to conduct the
Company's Canadian activities. Prior to the formation of Wiser Canada, the
Company's oil and gas operations were conducted primarily in the United
States. Intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to conform prior years' amounts to
current presentation.
b. Risks and Uncertainties - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
c. Oil and Gas Properties - The Company is engaged in the exploration and
development of oil and gas in the United States and Canada. The Company
follows the "successful efforts" method of accounting for its oil and gas
properties. Under this method of accounting, all costs of property
acquisitions and exploratory wells are initially capitalized. If a well is
unsuccessful, the capitalized costs of drilling the well, net of any
salvage value, are charged to expense. The capitalized costs of unproven
properties are periodically assessed to determine whether their value has
been impaired below the capitalized cost, and if such impairment is
indicated, a loss is recognized. Geological and geophysical costs and the
costs of retaining undeveloped properties are expensed as incurred.
Expenditures for maintenance and repairs are charged to expense, and
renewals and betterments are capitalized. Upon disposal, the asset and
related accumulated depreciation, depletion and amortization are removed
from the accounts, and any resulting gain or loss is reflected currently in
income.
Prior to 1995, the Company evaluated the carrying value of its oil and gas
properties based on undiscounted future net revenues on a company wide
basis. During 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 requires the
Company to assess the need for an impairment of capitalized costs of oil
and gas properties on a property-by-property basis. If an impairment is
indicated based on undiscounted expected future cash flows, then an
impairment is recognized to the extent that net capitalized costs exceed
discounted future cash flows. During 1997, 1996 and 1995, the Company
provided impairments of $3,289,000, $12,112,000 and $4,893,000,
respectively. Management's estimate of future cash flows is based on their
estimate of reserves and prices. It is reasonably possible that a change
in reserve or price estimates could occur in the near term and adversely
impact management's estimate of future cash flows and consequently the
carrying value of properties.
F-6
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
d. Depreciation, Depletion and Amortization ("DD&A") - DD&A of the
capitalized costs of producing oil and gas properties are computed for
individual properties using the units-of-production method based on total
proved reserves. Depreciation of transportation, office and other
properties is computed generally using the straight-line method over the
estimated useful lives of these assets.
e. Cash and Cash Equivalents - Cash equivalents generally consist of
short-term investments maturing in three months or less from the date of
acquisition. These investments of $15,083,000 in 1997 and $3,801,000 in
1996 are recorded at cost plus accrued interest, which approximates market.
f. Inventories - Oil and gas product inventories are recorded at the
average cost of production. Materials and supplies are recorded at the
lower of average cost or market.
g. Accrued Liabilities - Accrued liabilities include accrued vacation and
payroll of $334,000 in 1997 and $576,000 in 1996.
h. Postretirement Benefits - SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", has no significant impact on
the Company. The Company has no significant liabilities for postretirement
benefits, other than pensions, and has historically recognized such
liabilities as they are incurred.
i. Gas Imbalances - Gas imbalances are accounted for using the sales
method. The Company's net imbalance position is not material at December
31, 1997 and 1996.
j. Hedging Arrangements - During 1997 and 1996, the Company entered into
numerous oil price collar agreements to hedge against price fluctuations
during those years. There were no hedging agreements in place after
December 31, 1997. Gains or losses from hedging transactions are recognized
as oil and gas sales in the accompanying Consolidated Statements of Income
and Retained Earnings as the underlying hedged production is sold. As of
December 31, 1996, the Company had no deferred net gains or net losses. The
Company incurred hedging losses of $2,372,000 and $6,923,000 in 1997 and
1996, respectively. The Company did not incur any material hedging gains or
losses in 1995.
k. Foreign Currency Translation - The functional currency of Wiser Canada
is the Canadian dollar. In accordance with SFAS No. 52, "Foreign Currency
Translation", Wiser Canada's financial statements have been translated from
Canadian dollars to U.S. dollars with the cumulative translation adjustment
gain of $915,000 for 1997 and $853,000 for 1996 classified in Stockholders'
Equity.
2. MARKETABLE SECURITIES
The Company follows the accounting procedures as established by SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
Under SFAS No. 115 marketable securities, such as those owned by the
Company, are classified as available-for-sale securities and are to be
reported at market value, with unrealized gains and losses, net of income
taxes, excluded from earnings and reported as a separate component of
stockholders' equity. The market value of these securities at December 31,
1996 was $7,176,000 and all of these securities were liquidated during
1997.
The Company recognized a pretax gain of $7,495,000, $12,977,000 and
$13,101,000 for 1997, 1996 and 1995, respectively, from the sale of its
marketable securities.
F-7
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
3. LONG TERM DEBT
a. On May 21, 1997, the Company sold $125 million in principal amount of
9 1/2% Senior Subordinated Notes ("2007 Notes") due May 15, 2007,
providing net proceeds to the Company of $120,898,000. The original
issue price was 99.718%. The Company used the net proceeds from the
sale of the 2007 Notes to repay all outstanding indebtedness under the
Credit Agreement and the Maljamar Credit Facility and for general
corporate purposes.
The 2007 Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after May 15, 2002 at a redemption price of
104.75%, plus accrued interest to the date of redemption, and declining
at the rate of 1.583% per year to May 15, 2005 and 100% thereafter.
Prior to May 15, 2000, the Company may, at its option, redeem up to 33
1/3% of the original principal amount at a redemption price of 109.5%,
plus accrued interest to the date of redemption, with the net proceeds
from any future public offering of Company stock.
Under the terms of the 2007 Notes, the Company must meet certain tests
before it is able to pay cash dividends or make other restricted
payments, incur additional indebtedness, engage in transactions with
its affiliates, incur liens and engage in certain sale and leaseback
arrangements. The terms of the 2007 Notes also limit the Company's
ability to undertake a consolidation, merger or transfer of all or
substantially all of its assets. In addition, the Company is, subject
to certain conditions, obligated to offer to repurchase the 2007 Notes
at par value plus accrued interest to the date of repurchase with the
net cash proceeds of certain sales or dispositions of assets. Upon a
change of control, as defined, the Company will be required to make an
offer to purchase the 2007 Notes at 101% of the principal amount
thereof, plus accrued interest to the date of purchase.
b. On June 23, 1994, the Company entered into a Credit Agreement with
NationsBank of Texas, N. A. as agent, which provided for a term loan
to Wiser Canada and a revolving credit facility to the Company. On
December 23, 1997, the Credit Agreement was renewed under the same
basic terms. The Credit Agreement provides the Company with up to a
$150 million line of credit through March 31, 2002. The amounts
available for borrowing are determined under formulas related to oil
and gas reserves and the Company's borrowing base at December 31, 1997
was $80 million. The indebtedness outstanding under the Credit
Agreement is secured by a guaranty from Wiser Canada. Available loan
and interest options are (i) Base Rate Advances, at the bank's prime
interest rate plus the Applicable Margin and (ii) Eurodollar Advances,
at LIBOR plus the Applicable Margin. Based on the amount of outstanding
advances, the Applicable Margin ranges between 0% and 1.25% and the
commitment fee on the unused borrowing base ranges from 0.25% to
0.375%. The average interest rate during 1997 under the Credit
Agreement was 6.24%. The Credit Agreement requires the Company to,
among other things, maintain certain financial ratios and imposes
certain restrictions on sales of assets, payment of dividends and
incurrence of indebtedness.
c. On November 29, 1995, the Company entered into a credit agreement with
NationsBank of Texas, NA as agent (the "Maljamar Credit Facility").
The Maljamar Credit Facility provided the Company with up to a $50
million nonrecourse facility to develop the expanded Maljamar project
area. The average interest rate during 1997 under the Maljamar Credit
Facility was 7.49%. The Maljamar Credit Facility was repaid and
canceled in May 1997.
F-8
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
The Company paid $8,120,000 in interest during 1997, $4,971,000 during 1996, and
$5,618,000 during 1995.
Long term debt consists of the following (000's):
<TABLE>
<CAPTION>
December 31,
-----------
1997 1996
--------- ---------
<S> <C> <C>
2007 Notes - 9.5% interest rate at December 31, 1997......... $ 124,304 $ --
Credit Agreement - 6.31% interest rate at December 31, 1996.. -- 58,000
Maljamar Credit Facility - 7.63% interest rate at
December 31, 1996......................................... -- 20,654
----------------------
124,304 78,654
Less current maturities...................................... -- --
----------------------
$ 124,304 $ 78,654
======================
</TABLE>
The annual requirements for reduction of principal of long term debt
outstanding as of December 31, 1997 are estimated as follows (000's):
<TABLE>
<CAPTION>
<S> <C>
1998......................................................... $ --
1999......................................................... --
2000......................................................... --
2001......................................................... --
Thereafter................................................... 124,304
----------
$ 124,304
==========
</TABLE>
4. INCOME TAXES
The Company provides deferred income taxes for differences between the tax
reporting basis and the financial reporting basis of assets and
liabilities. The Company follows the accounting procedures established by
SFAS No. 109, "Accounting for Income Taxes". The Company paid income taxes
of $566,000 in 1997, $900,000 in 1996 and $1,967,000 in 1995.
Income tax expense for the three years ended December 31, 1997 were as
follows (000's):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 375 $ 1,911 $ 1,607
State.............................................. 200 105 150
------- --------- --------
575 2,016 1,757
------- -------- -------
Deferred:
Federal............................................ (311) 1,919 1,934
State.............................................. -- 137 97
--------- --------- ---------
(311) 2,056 2,031
------ -------- -------
Total income tax expense............................. $ 264 $ 4,072 $3,788
====== ======= ======
</TABLE>
F-9
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate.................... 34.0% 34.0% 34.0%
Statutory depletion in excess of cost basis.......... (5.4) (2.0) (1.7)
Non-deductible Canadian operating loss............... -- 22.6 55.4
State taxes, net of federal income taxes............. 5.8 1.5 1.6
Dividends received credit............................ (1.3) (1.2) (4.4)
Non-conventional fuels credit........................ (7.3) (14.6) (22.4)
Other................................................ (18.4) (1.5) 0.8
-------- -------- --------
Effective tax rate................................... 7.4% 38.8% 63.3%
======== ======== ========
</TABLE>
The deferred tax liabilities and assets at December 31, 1997 and 1996 were as
follows (000's):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities (assets):
Intangible drilling and development cost........... $ 14,966 $ 12,998
Marketable securities valuation adjustment......... -- 2,229
Deferred pensions and compensation................. (468) (579)
Alternative minimum tax credit carryforwards....... (3,040) (2,318)
Property impairment reserve........................ (1,118) (1,767)
Wiser Canada excess property basis................. (3,866) (4,051)
Valuation allowance................................ 3,866 4,600
Other.............................................. (62) (137)
----------- ----------
$ 10,278 $ 10,975
=========== ==========
</TABLE>
The Company will only realize the benefits of alternative minimum tax
credit carryforwards by generating future regular tax liability in excess
of alternative minimum tax liability. The Company believes it is more
likely than not that the alternative minimum tax credits will be fully
realized. As of December 31, 1997, Wiser had Canadian net deferred tax
assets of $3,866,000 and a valuation allowance has been provided against
the Canadian net deferred tax assets at December 31, 1997. Beginning in
1997, Wiser Canada's operating results are included in the Company's
consolidated federal income tax return.
F-10
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
5. OIL AND GAS PRODUCING ACTIVITIES
Set forth below is certain information regarding the aggregate capitalized
costs of oil and gas properties and costs incurred in oil and gas property
acquisitions, exploration and development activities (000's):
<TABLE>
<CAPTION>
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
December 31, 1997:
Capitalized Costs:
Proved properties................................. $ 247,809 $ 76,325 $ 324,134
Unproved properties............................... 17,315 5,206 22,521
---------- ---------- ----------
Total .......................................... 265,124 81,531 346,655
Accumulated DD&A................................. (95,038) (34,589) (129,627)
---------- --------- ----------
Net capitalized cost.............................. $ 170,086 $ 46,942 $ 217,028
========= ========= ==========
Costs Incurred during 1997:
Property acquisition.............................. $ 22,399 $ 5,377 $ 27,776
Exploration....................................... 8,906 3,461 12,367
Development....................................... 27,380 9,593 36,973
December 31, 1996:
Capitalized Costs:
Proved properties................................. $ 226,411 $ 62,937 $ 289,348
Unproved properties............................... 9,659 7,709 17,368
---------- ---------- ----------
Total .......................................... 236,070 70,646 306,716
Accumulated DD&A................................ (100,016) (29,094) (129,110)
---------- --------- ----------
Net capitalized cost.............................. $ 136,054 $ 41,552 $ 177,606
========= ========= ==========
Costs Incurred during 1996:
Property acquisition.............................. $ 1,782 $ 1,054 $ 2,836
Exploration....................................... 875 1,888 2,763
Development....................................... 33,994 6,230 40,224
Gas plants........................................ 408 -- 408
December 31, 1995:
Capitalized Costs:
Proved properties................................. $ 191,567 $ 56,427 $ 247,994
Unproved properties............................... 10,110 7,588 17,698
----------- ---------- ----------
Total .......................................... 201,677 64,015 265,692
Accumulated DD&A................................ (81,561) (16,766) (98,327)
---------- --------- ----------
Net capitalized cost.............................. $ 120,116 $ 47,249 $ 167,365
========= ========= ==========
Costs Incurred during 1995:
Property acquisition.............................. $ 3,027 $ 3,210 $ 6,237
Exploration....................................... 2,753 2,270 5,023
Development....................................... 12,477 4,123 16,600
Gas plants........................................ 3,192 -- 3,192
</TABLE>
F-11
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
6. EMPLOYEE PENSION PLAN
The Company has a noncontributory defined benefit pension plan, which
covers substantially all full-time employees. Plan participants become
fully vested after five years of continuous service. The retirement benefit
formula is based on the employee's earnings, length of service and age at
retirement. Contributions required to fund plan benefits are determined
according to the Projected Unit Credit Method. The assets of the plan are
primarily invested in equity and debt securities.
The net periodic pension costs were determined as follows (000's):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current service cost................................. $ 345 $ 381 $ 368
Interest cost on projected benefit obligation........ 682 824 802
Actual return on assets.............................. (930) 1,890 (1,575)
Net amortization and deferral........................ 384 (2,652) 932
------- -------- --------
Net periodic pension cost............................ $ 481 $ 443 $ 527
======= ======== ========
</TABLE>
The principal assumptions for 1997, 1996 and 1995 utilized in computing
pension expense include an 8.0% discount rate, an 8.5% rate of return on
plan assets, and a 5.0% rate of increase in compensation levels.
amendment to the pension plan, effective January 1, 1993, reduced the
normal retirement age from 65 years to 62 years.
The following table presents the actuarial valuation of the plan's funded
status, as of December 31 (000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Actuarial present value of pension benefits obligations:
Vested............................................. $ 8,212 $ 8,155 $ 9,817
Nonvested.......................................... 289 415 354
------- -------- -------
Accumulated........................................ 8,501 8,570 10,171
Projected salary increases......................... 768 751 705
------- -------- -------
Projected benefits obligations...................... 9,269 9,321 10,876
Plan assets at fair value.......................... 8,547 8,010 10,247
------- -------- -------
Plan assets less than projected benefits obligations $ 722 $ 1,311 $ 629
======= ======== =======
Items not yet recognized:
Unrecognized net gain.............................. $ 1,032 $ 473 $ 1,169
Unamortized transition amount...................... 87 121 208
Unamortized prior service cost..................... (812) (957) (1,106)
------- -------- -------
Net pension liability.............................. $ 1,029 $ 948 $ 900
======= ======== ========
</TABLE>
F-12
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
7. EMPLOYEE SAVINGS PLAN
The Company has a qualified Savings Plan available to all employees. An
employee may elect to have up to 15% of the employee's base monthly
compensation, exclusive of other forms of special or extra compensation,
withheld and placed in the Savings Plan account. On a monthly basis, the
Company contributes to this account an amount equal to 50% of the
employee's contribution, limited to 3% of the employee's base compensation.
Company contributions to the Savings Plan were $142,000, $126,000 and
$122,000, in 1997, 1996 and 1995, respectively.
8. BUSINESS SEGMENT INFORMATION
The Company operates in one industry segment, the exploration for and
production of reserves of oil and gas, with sales made to domestic and
Canadian energy customers.
The following table summarizes the oil and gas activity of the Company by
geographic area for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
U.S. Canada Total
-------- -------- ---------
<S> <C> <C> <C>
1997:
Total revenues....................................... $ 71,706 $ 16,109 $ 87,815
Costs and expenses:
Production and operating........................... 23,058 4,125 27,183
Purchased natural gas.............................. 1,622 -- 1,622
DD&A............................................... 14,032 8,945 22,977
Property impairments............................... 1,786 1,503 3,289
Exploration........................................ 6,956 2,699 9,655
Other operating.................................... 16,407 3,099 19,506
--------- ---------- ---------
Total costs and expenses........................ 63,861 20,371 84,232
--------- ---------- ---------
Earnings before income taxes......................... 7,845 (4,262) 3,583
Income tax expense................................... 264 -- 264
--------- ---------- ---------
Net income........................................... $ 7,581 $ (4,262) $ 3,319
========= ========== =========
Identifiable assets (end of year).................... $ 202,474 $ 52,082 $ 254,556
========= ========== =========
</TABLE>
F-13
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
U.S. Canada Total
--------- ---------- ----------
<S> <C> <C> <C>
1996:
Total revenues....................................... $ 69,595 $ 17,094 $ 86,689
Costs and expenses:
Production and operating........................... 20,288 3,682 22,970
Purchased natural gas.............................. 1,462 -- 1,462
DD&A............................................... 11,783 7,870 19,653
Property impairments............................... 7,276 4,836 12,112
Exploration........................................ 1,837 2,339 4,176
Other operating.................................... 9,475 5,341 14,816
--------- ---------- ---------
Total costs and expenses........................ 52,121 24,068 76,189
--------- ---------- ---------
Earnings before income taxes......................... 17,474 (6,974) 10,500
Income tax expense................................... 4,072 -- 4,072
--------- ---------- ---------
Net income........................................... $ 13,402 $ (6,974) $ 6,428
========= ========== =========
Identifiable assets (end of year).................... $ 161,687 $ 46,930 $ 208,617
========= ========== =========
1995:
Total revenues....................................... $ 57,839 $ 13,842 $ 71,681
Costs and expenses:
Production and operating........................... 17,555 3,135 20,690
Purchased natural gas.............................. 727 -- 727
DD&A............................................... 11,418 8,360 19,778
Property impairments............................... -- 4,893 4,893
Exploration........................................ 4,173 1,628 5,801
Other operating.................................... 8,250 5,561 13,811
Total costs and expenses........................ 42,123 23,577 65,700
--------- ---------- ---------
Earnings before income taxes......................... 15,716 (9,735) 5,981
Income tax expense................................... 3,788 -- 3,788
--------- ---------- ---------
Net income........................................... $ 11,928 $ (9,735) $ 2,193
========= ========== =========
Identifiable assets (end of year).................... $ 152,710 $ 50,034 $ 202,744
========= ========== =========
</TABLE>
Annually, four or five of the Company's purchasers of oil and gas
individually account for 10% to 37% of oil and gas sales. In Canada, one
purchaser accounts for approximately 75% of Wiser Canada's oil and gas
sales. However, due to the nature of the oil and gas industry, the Company
is not dependent upon any of these purchasers. The loss of any major
customer would not have a material adverse impact on the Company's
business.
9. STOCK COMPENSATION PLANS
STOCK OPTIONS
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. During 1996, the Company adopted
the disclosure provisions of SFAS No. 123. The Company continues to apply
the accounting provisions of APB Opinion 25, "Accounting for Stock Issued
to Employees," and related interpretations to account for stock-based
compensation. Accordingly, compensation cost for stock options is measured
as the
F-14
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the
stock.
The Company has two stock option plans, the 1991 Stock Incentive Plan
("Incentive Plan") and the 1991 Non-Employee Directors' Stock Option Plan
("Directors' Plan"). The Incentive Plan provides for the issuance of ten-
year options with a variable vesting period and a grant price equal to the
fair market value at the issue date. The Directors' Plan, as amended,
provides for the issuance of ten-year options with a six month vesting
period and a grant price equal to the fair market value at the issue date.
A summary of the status of the Company's two stock option plans at December
31, 1997, 1996 and 1995 and changes during the years then ended follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Exercise Exercise Exercise
Shares Price(1) Shares Price(1) Shares Price(1)
--------- -------- -------- -------- -------- --------
Outstanding at beginning of year....... 879,500 $ 15.02 254,500 $ 16.88 253,500 $ 17.20
Granted................................ 164,500 18.87 647,250 14.35 16,000 13.81
Exercised............................. . (15,025) 15.68 -- -- -- --
Expired and cancelled.................. (6,500) 15.76 (22,250) 16.88 (15,000) 17.36
--------- -------- -------- -------- -------- --------
Outstanding at end of year............. 1,022,475 $ 15.62 879,500 $ 15.02 254,500 $ 16.88
========= ======= ======= ======= ======= =======
Exercisable at end of year............. 773,975 $ 15.23 145,650 $ 16.47 56,725 $ 16.59
========= ======= ======= ======= ======= =======
Fair value of options granted(1)....... $ 6.07 $ 4.30 $ 4.08
========= ======== ========
</TABLE>
1 Weighted average per option granted.
662,875 of the 1,022,475 options outstanding at December 31, 1997 have
exercise prices between $11 and $15, with a weighted average exercise price
of $14.37 and a weighted average remaining contractual life of 8.7 years.
586,250 of these options are currently exercisable with a weighted average
exercise price of $14.71. The remaining 359,600 options have exercise
prices between $15 and $20, with a weighted average exercise price of
$17.94 and a weighted average contractual life of 7.3 years. 187,725 of
these options are currently exercisable with a weighted average exercise
price of $16.85.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants for both the Incentive Plan and the Directors'
Plan:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate............................ 6.29% 6.36% 6.01%
Expected dividend yields........................... .64% .84% .87%
Expected lives, in years........................... 5.06 4.85 5.00
Expected volatility................................ 23.66% 22.22% 22.05%
</TABLE>
F-15
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income and basic earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income - as reported (in thousands)............ $ 3,319 $ 6,428 $ 2,193
Net income - pro forma (in thousands).............. 2,256 5,576 2,179
Earnings per share - as reported................... $ .37 $ .72 $ .25
Earnings per share - pro forma..................... .25 .62 .24
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of compensation cost to be
expected in future years.
SHARE APPRECIATION RIGHTS PLAN
The Company has a share appreciation rights ("SARs") plan which authorizes
the granting of SARs to employees of the Company. Upon exercise, SARs allow
the holder to receive the difference between the SARs exercise price and
the fair market value of the Company's common stock covered by the SARs on
the exercise date. The holders of the SARs vest at 25% per year and the
SARs expire at the earlier of 5 years or termination of employment. At
December 31, 1997, 85,000 SARs were outstanding with an exercise price of
$14.63 per share.
10. PREFERRED STOCK
In addition to Common Stock, the Company is authorized to issue 300,000
shares of Preferred Stock with a par value of $10 per share, none of which
has been issued.
11. EARNINGS PER SHARE
The Company accounts for earnings per share ("EPS") in accordance with SFAS
No. 128, "Earnings Per Share". Under SFAS No. 128, basic EPS is computed by
dividing net income by the weighted average common shares outstanding
without including any potentially dilutive securities. Diluted EPS is
computed by dividing net income by the weighted average common shares
outstanding plus, when their effect is dilutive, common stock equivalents
consisting of stock options. Previously reported EPS were equivalent to the
diluted EPS calculated under SFAS No. 128. Following are the weighted
average common shares outstanding used in the computation of basic EPS and
diluted EPS for the years ended December 31, 1997, 1996 and 1995 (000's):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic EPS shares................................ 8,949 8,939 8,939
===== ===== =====
Diluted EPS shares.............................. 8,982 8,954 8,939
===== ===== =====
</TABLE>
F-16
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1997, 1996 and 1995 (Unaudited)
The following pages include unaudited supplemental financial information as
currently required by the Securities and Exchange Commission (SEC) and the
Financial Accounting Standards Board.
12. ESTIMATED QUANTITIES OF OIL AND GAS RESERVES (UNAUDITED)
Proved reserves are the estimated quantities of crude oil, natural gas and
natural gas liquids, which upon analysis of geological and engineering
data appear with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed reserves are proved reserves which can be expected to be
recovered through existing wells with existing equipment and under
existing operating conditions.
The estimation of reserves requires substantial judgment on the part of
petroleum engineers and may result in imprecise determinations,
particularly with respect to new discoveries. Accordingly, it is expected
that the estimates of reserves will change as future production and
development information becomes available and that revisions in these
estimates could be significant.
F-17
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1997, 1996 and 1995 (Unaudited)
Following is a reconciliation of the Company's estimated net quantities of
proved oil and gas reserves, as estimated by independent petroleum consultants.
<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF)
------------------------------ --------------------------------
U.S. Canada Total U.S. Canada Total
------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994................. 20,013 3,417 23,430 86,548 21,372 107,920
Revisions of previous estimates......... 4,322 563 4,885 4,912 (1,140) 3,772
Properties sold and abandoned........... (187) -- (187) (333) -- (333)
Reserves purchased in place............. 5,825 307 6,132 695 1,132 1,827
Extensions, discoveries and other additions 124 157 281 2,046 6,354 8,400
Production.............................. (1,657) (676) (2,333) (8,918) (2,753) (11,671)
------- ------ -------- -------- -------- --------
Balance December 31, 1995................. 28,440 3,768 32,208 84,950 24,965 109,915
Revisions of previous estimates......... (301) (25) (326) 2,738 (535) 2,203
Properties sold and abandoned........... (78) -- (78) (72) -- (72)
Reserves purchased in place............. 12 -- 12 17 505 522
Extensions, discoveries and other additions 2,040 533 2,573 10,787 1,705 12,492
Production.............................. (2,033) (744) (2,777) (8,874) (2,809) (11,683)
------- ------ -------- -------- -------- --------
Balance December 31, 1996................. 28,080 3,532 31,612 89,546 23,831 113,377
Revisions of previous estimates......... (2,614) 274 2,340 1,208 1,988 3,196
Properties sold and abandoned........... (810) (344) (1,154) (902) (2,606) (3,508)
Reserves purchased in place............. 1,493 1,013 2,506 8,961 -- 8,961
Extensions, discoveries and other additions 1,205 653 1,858 7,601 2,667 10,268
Production.............................. (2,037) (724) (2,761) (9,466) (2,734) (12,200)
------- ------ -------- -------- -------- --------
Balance December 31, 1997................. 25,317 4,404 29,721 96,948 23,146 120,094
======= ====== ======== ======== ======== ========
Proved Developed Reserves at December 31, (1):
1994.................................... 15,950 3,209 19,159 84,715 13,655 98,370
1995.................................... 17,939 3,617 21,556 77,915 24,111 102,026
1996.................................... 24,892 3,225 28,117 80,652 22,477 103,129
1997.................................... 23,798 4,404 28,202 87,688 21,771 109,459
</TABLE>
(1) Reserve volumes as assigned by third party engineers have been
increased to reflect the effect of the Alberta Royalty Tax Credit refund.
Total proved and proved developed reserves were increased by 397 MBBL and
2,744 MMCF for 1995, 186 MBBL and 1,258 MMCF for 1996 and 364 MBBL and
1,914 MMCF for 1997.
Standardized Measure of Discounted Future
Net Cash Flows of Proved Oil and Gas Reserves (Unaudited)
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting
Standards Board through its Statement No. 69. The estimates of future cash
inflows and future production and development cost are based on current
year end sales prices for oil and gas. Estimated future production of
proved reserves and estimated future production and development costs of
proved reserves are based on current costs and economic conditions.
F-18
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1997, 1996 and 1995 (Unaudited)
This standardized measure of discounted future net cash flows is an attempt
by the Financial Accounting Standards Board to provide the users of
financial statements with information regarding future net cash flows from
proved reserves. However, the users of these financial statements should
use extreme caution in evaluating this information. The assumptions
required to be used in these computations are subjective and arbitrary. Had
other equally valid assumptions been used, significantly different results
of discounted future net cash flows would result. Therefore, these
estimates do not necessarily reflect the current value of the Company's
proved reserves or the current value of discounted future net cash flows
for the proved reserves.
The following are the Company's estimated standardized measure of
discounted future net cash flows from proved reserves (000's):
<TABLE>
<CAPTION>
U.S. Canada Total
-------- ---------- -----------
<S> <C> <C> <C>
December 31, 1997:
Future cash flows........................................ $ 650,810 $ 98,143 $ 748,953
Future production and development costs.................. (357,598) (32,062) (389,660)
Future income tax expense................................ (60,477) (6,512) (66,989)
---------- --------- ----------
Future net cash flows.................................... 232,735 59,569 292,304
10% Annual discount for estimated timing of cash flows... (97,116) (20,699) (117,815)
---------- --------- ----------
Standardized measure of discounted cash flows............ $ 135,619 $ 38,870 $ 174,489
========== ========= ==========
December 31, 1996:
Future cash flows........................................ $ 1,029,971 $ 116,203 $ 1,146,174
Future production and development costs.................. (415,276) (25,175) (440,451)
Future income tax expense................................ (172,024) -- (172,024)
----------- --------- -----------
Future net cash flows.................................... 442,671 91,028 533,699
10% Annual discount for estimated timing of cash flows... (187,332) (29,187) (216,519)
----------- --------- -----------
Standardized measure of discounted cash flows............ $ 255,339 $ 61,841 $ 317,180
=========== ========= ===========
December 31, 1995:
Future cash flows........................................ $ 679,754 $ 90,978 $ 770,732
Future production and development costs.................. (343,867) (25,828) (369,695)
Future income tax expense................................ (74,433) -- (74,433)
---------- --------- ----------
Future net cash flows.................................... 261,454 65,150 326,604
10% Annual discount for estimated timing of cash flows... (111,193) (20,809) (132,002)
---------- --------- ----------
Standardized measure of discounted cash flows............ $ 150,261 $ 44,341 $ 194,602
========== ========= ==========
</TABLE>
F-19
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1997, 1996 and 1995 (Unaudited)
The following are the sources of changes in the standardized measure of
discounted net cash flows (000's):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Standardized measure, beginning of year................... $ 317,180 $ 194,602 $ 142,032
Sales, net of production costs............................ (47,959) (46,580) (32,907)
Net change in price and production costs.................. (204,859) 142,806 19,536
Reserves purchased in place............................... 30,570 581 26,087
Extensions, discoveries and improved recoveries........... 11,751 42,582 9,297
Change in future development costs........................ 16,339 27,080 12,652
Revisions of previous quantity estimates and disposals.... (6,992) 314 26,525
Sales of reserves in place................................ (10,756) (987) (798)
Accretion of discount..................................... 41,431 23,542 16,081
Changes in timing and other............................... (33,752) (10,440) (1,863)
Net change in income taxes................................ 61,536 (56,320) (22,040)
--------- --------- ---------
Standardized measure, end of year......................... $ 174,489 $ 317,180 $ 194,602
========= ========= =========
</TABLE>
12 QUARTERLY FINANCIAL DATA
The supplementary financial data in the table below for each quarterly
period within the years ended December 31, 1997 and 1996 are derived from
the unaudited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Net Earnings
Income (Loss)
Revenues (Loss) Per Share
-------- ------- ---------
(000's) (000's)
<S> <C> <C> <C>
1997:
First quarter........................................... $ 25,575 $ 6,141 $ .69
Second quarter.......................................... 17,826 (1,944) (.22)
Third quarter........................................... 17,027 (1,878) (.21)
Fourth quarter.......................................... 27,387 1,000 .11
1996:
First quarter........................................... $ 18,567 $ 1,511 $ .17
Second quarter.......................................... 21,363 (5,368) (.60)
Third quarter........................................... 19,468 2,444 .27
Fourth quarter.......................................... 27,291 7,841 .88
</TABLE>
13. SUMMARY OF GUARANTIES OF 91/2% SENIOR SUBORDINATED NOTES
In May 1997, the Company issued $125 million aggregate principal amount of its 9
1/2% senior Subordinated Notes due 2007 pursuant to an offering exempt from
registration under the Securities Act of 1933. The notes are unsecured
obligations of the Company, subordinated in right of payment to all existing and
any future senior indebtedness of the Company. The notes rank pari passu with
any future senior subordinated indebtedness and senior to any future junior
subordinated indebtedness of the Company. The notes are fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by certain wholly owned subsidiaries
F-20
<PAGE>
of the Company (the "Subsidiary Guarantors"). At the time of the initial
issuance of the notes, Wiser Oil Delaware, Inc., The Wiser Marketing Company,
Wiser Delaware LLC, T.W.O.C., Inc. and The Wiser Oil Company of Canada were the
Subsidiary Guarantors (the "Initial Subsidiary Guarantors"). Except for two
wholly owned subsidiaries that are inconsequential to the Company on a
consolidated basis, the Initial Subsidiary Guarantors comprise all of the
Company's direct and indirect subsidiaries.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following unaudited summarized financial information of the
Subsidiary Guarantors. The Company has not presented separate financial
statements and other disclosures concerning each Subsidiary Guarantor because
such information is not material to investors. There are no significant
contractual restrictions on distributions from each of the Subsidiary Guarantors
to the Company.
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
----------------------------------------------------------
THE WISER
WISER T.W.O.C. MARKETING COMBINED
CANADA(1) INC. COMPANY TOTAL
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES:
For the Year Ended December 31, 1997............ $ 16,109 $ 7,687 $ 2,304 $ 26,100
For the Year Ended December 31, 1996............ 17,094 16,304 2,237 35,635
For the Year Ended December 31, 1995............ 13,842 15,884 1,217 30,943
EARNINGS (LOSS) BEFORE INCOME TAXES:
For the Year Ended December 31, 1997............ $ (4,262) $ 7,671 $ 231 $ 3,640
For the Year Ended December 31, 1996............ (6,974) 16,287 338 9,651
For the Year Ended December 31, 1995............ (9,735) 15,867 131 6,263
NET INCOME (LOSS):
For the Year Ended December 31, 1997............ $ (3,947) $ 7,103 $ 214 $ 3,370
For the Year Ended December 31, 1996............ (6,974) 12,492 259 5,777
For the Year Ended December 31, 1995............ (9,735) 12,043 99 2,406
CURRENT ASSETS:
December 31, 1997............................... $ 4,808 $ 44 $ 165 $ 5,017
December 31, 1996............................... 4,958 53 170 5,181
December 31, 1995............................... 3,039 27 94 3,160
TOTAL ASSETS:
December 31, 1997............................... $ 52,083 $ 44 $ 492 $ 52,619
December 31, 1996............................... 39,132 7,229 718 47,079
December 31, 1995............................... 43,763 19,619 332 63,714
CURRENT LIABILITIES:
December 31, 1997............................... $ 6,646 $ -- $ 250 $ 6,896
December 31, 1996............................... 4,931 -- 508 5,439
December 31, 1995............................... 2,779 -- 200 2,979
NONCURRENT LIABILITIES:
December 31, 1997............................... $ 9,474 $ -- $ -- $ 9,474
December 31, 1996............................... 52,439 2,227 -- 54,666
December 31, 1995............................... 52,380 6,007 -- 58,387
STOCKHOLDERS' EQUITY (DEFICIT):
December 31, 1997............................... $ 35,963 $ 44 $ 242 $ 36,249
December 31, 1996............................... (18,238) 5,002 210 (13,026)
December 31, 1995............................... (11,396) 13,612 132 2,348
</TABLE>
(1) Includes the accounts of Wiser Oil Delaware, Inc., Wiser Delaware LLC and
The Wiser Oil Company of Canada.
F-21
<PAGE>
INDEX TO EXHIBITS
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference as indicated.
Exhibit
Numbers
- -------
(3.1) Certificate of Incorporation of the Company, as amended, incorporated
by reference to Exhibit 4.2 to the Company's report on Form 8-K
(Commission File No. 0-5426), dated November 9, 1993 (Date of Event:
October 25, 1993).
(3.2) Bylaws of the Company, as amended, incorporated by reference to
Exhibit 4.3 to the Company's report on Form 8-K (Commission File No.
0-5426), dated November 9, 1993 (Date of Event: October 25, 1993).
(4) Rights Agreement dated as of October 25, 1993 by and between the
Company and The Chase Manhattan Bank (as successor to Chemical Bank),
as Rights Agent, which includes as Exhibit 2 thereto the Form of
Rights Certificate, incorporated by reference to Exhibit 4.1 to the
Company's report on Form 8-K (Commission File No. 0-5426), dated
November 9, 1993 (Date of Event: October 25, 1993).
(4a) Amendment No. 1 to the Rights Agreement dated as of October 25, 1993
by and between the Company and The Chase Manhattan Bank (as successor
to Chemical Bank), as Rights Agent, which includes as Exhibit 2
thereto the Form of Rights Certificate , incorporated by reference to
the Company's report on Form 8 -K/A filed on September 29,1995.
(4.1) Indenture dated May 21, 1997, among the Company, certain subsidiaries
of the Company and Texas Commerce Bank National Association, as
Trustee, incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (Commission File No. 333-29211),
filed on June 13, 1997.
(4.2) Form of 9 1/2% Senior Subordinated Notes due 2007 (included in the
indenture filed as Exhibit 4.1), incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-4 (Commission
File No. 333-29211), filed on June 13, 1997.
(4.3) Registration Agreement dated May 21, 1997, among the Company, certain
subsidiaries of the Company and Salomon Brothers Inc., NationsBanc
Capital Markets, Inc. and Nesbitt Burns Securities Inc., as the
Initial Purchasers, incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (Commission File No.
333-29211), filed on June 13, 1997.
(4.4) Credit Agreement dated June 23, 1994 among The Wiser Oil Company and
The Wiser Oil Company of Canada, as Borrowers, and NationsBank of
Texas, N.A. (NationsBank), as Agent, and Certain Financial
Institutions Listed on the Signature Pages Thereto, as Banks,
incorporated by reference to the Exhibit 10.1 to the Company's report
on Form 8-K dated July 11, 1994 as amended on Form 8-K/A filed on
August 17, 1994.
(4.5) First Amendment to Credit Agreement dated November 29, 1995 among The
Wiser Oil Company and The Wiser Oil Company of Canada, as Borrowers,
and NationsBank, as Agent, and Certain Financial Institutions Listed
on the Signature Pages Thereto, as Banks, incorporated by reference
to Exhibit 4.5 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.6) Second Amendment to Credit Agreement dated May 20, 1997 among The
Wiser Oil Company and The Wiser Oil Company of Canada, Inc., as
Borrowers, and NationsBank, as Agent, and Certain Financial
Institutions Listed on the Signature Pages thereto, as Banks,
incorporated by
<PAGE>
reference to Exhibit 4.6 to the Company's Registration Statement on
Form S-4 (Commission File No. 333-29211), filed on June 13, 1997.
(4.7) Guaranty Agreement dated May 20, 1997, by Wiser Oil Delaware, Inc.,
in favor of NationsBank and PNC Bank, National Association ("PNC"),
incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (Commission File No. 333-29211),
filed on June 13, 1997.
(4.8) Guaranty Agreement dated May 20, 1997, by Wiser Delaware LLC, in
favor of NationsBank and PNC, incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-4 (Commission
File No. 333-29211), filed on June 13, 1997.
(4.9) Guaranty Agreement dated May 20, 1997, by The Wiser Marketing
Company, in favor of NationsBank and PNC, incorporated by reference
to Exhibit 4.9 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.10) Guaranty Agreement dated May 20, 1997, by The Wiser Oil Company of
Canada, in favor of NationsBank and PNC, incorporated by reference to
Exhibit 4.10 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.11) Guaranty Agreement dated May 20, 1997, by T.W.O.C., Inc., in favor of
NationsBank and PNC, incorporated by reference to Exhibit 4.11 to the
Company's Registration Statement on Form S-4 (Commission File No.
333-29211), filed on June 13, 1997.
(4.12) Credit Agreement dated November 29, 1995 among The Wiser Oil Company
and Maljamar Development Partnership, L.P. as Borrowers, and
NationsBank of Texas, N.A., as Agent, and Certain Financial
Institutions Listed on the Signature Pages thereto, as Banks.
(4.13)* Credit Agreement dated December 23, 1997 among The Wiser Oil Company,
as borrowers, and NationsBank of Texas, N.A., as agent, and The
Financial Institutions Listed on the Signature Pages thereto, as
Banks.
(10.3) Purchase and Sale Agreements made as of May 31, 1994 among Eagle
Resources Ltd., Caneagle Resources Corporation, The Erin Mills
Investment Corporation and The Wiser Oil Company, incorporated by
reference to Exhibit 10 to the Company's report on Form 8-K dated
July 11, 1994 as amended by Form 8-K/A filed on August 17, 1994.
(10.4)+ Employment Agreement dated August 1, 1994 between the Company and
Allan J. Simus, incorporated by reference to Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(10.5)+ Employment Agreement dated July 1, 1991 between the Company and
Andrew J. Shoup, Jr., incorporated by reference to Exhibit 10(a) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1993.
(10.5a)+* Amendment to Employment Agreement dated July 1, 1991 between the
Company and Andrew J. Shoup, Jr. dated May 20, 1997.
(10.6)+ The Wiser Oil Company 1991 Stock Incentive Plan, as amended,
incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Commission File No. 33-62441),
filed on September 8, 1995.
(10.6a)+ Amendment to The Wiser Oil Company 1991 Stock Incentive Plan,
incorporated by reference to the Company's Registration Statement on
Form S-8 (Commission File No. 333-29973), filed on June 25, 1997.
<PAGE>
(10.7)+ The Wiser Oil Company 1991 Non-Employee Directors' Stock Option Plan,
as amended, incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (Commission File No.
333-22525), filed on February 28, 1997.
(10.8)+ Employment Agreement dated November 1, 1993 between the Company and
Lawrence J. Finn, incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.8a)+* Amendment to Employment Agreement dated November 1, 1993 between the
Company and Lawrence J. Finn dated May 20, 1997.
(10.9)+ Employment Agreement dated January 24, 1994 between the Company and
A. Wayne Ritter, incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.9a)+* Amendment to Employment Agreement dated January 24, 1994 between the
Company and A. Wayne Ritter dated May 20, 1997.
(10.10)+ Employment Agreement dated September 30, 1997 between the Company and
Kent E. Johnson, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K (Commission File No. 0-5426),
filed on March 26, 1997.
(10.10a)+* Amendment to Employment Agreement dated September 30, 1997 between
the Company and Kent E. Johnson dated May 20, 1997.
(10.11)+ The Wiser Oil Company Equity Compensation Plan For Non-Employee
Directors, incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K (Commission File No. 0-5426),
filed on March 26, 1997.
(10.12)* The Wiser Oil Company Savings Restoration Plan dated February 24,
1998.
(21)* Subsidiaries of registrant.
(23.1)* Consent of Independent Public Accountants.
(23.2)* Consent of DeGolyer and MacNaugton, Independent Petroleum Engineers.
(23.3)* Consent of Gilbert Lausten Jung Associates Ltd., Independent
Petroleum Engineers.
(27)* Financial Data Schedule.
______________
+ Represent management compensatory plans or agreements.
* Filed herewith.
<PAGE>
EXHIBIT 4.13
CREDIT AGREEMENT
among
THE WISER OIL COMPANY,
as Borrower,
NATIONSBANK OF TEXAS, N.A.,
as Agent
and
The Financial Institutions Listed on the
Signature Pages Hereto, as Banks
$150,000,000
dated
December 23, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
TERMS DEFINED
SECTION 1.1. Definitions................................................ -1-
SECTION 1.2. Accounting Terms and Determinations........................ -16-
SECTION 1.3. Petroleum Terms............................................ -17-
ARTICLE II
THE CREDIT
SECTION 2.1. Commitments................................................ -17-
SECTION 2.2. Method of Borrowing (including Refunding Borrowings)....... -20-
SECTION 2.3. Method of Obtaining Letters of Credit...................... -20-
SECTION 2.4. Notes...................................................... -21-
SECTION 2.5. Refunding of Eurodollar Advances........................... -21-
SECTION 2.6. Interest Rates............................................. -21-
SECTION 2.7. Mandatory Termination of Commitments....................... -22-
SECTION 2.8. Voluntary Reduction of Commitments........................ -22-
SECTION 2.9. Commitment Fee............................................. -22-
SECTION 2.10. Agency Fee................................................. -22-
ARTICLE III
BORROWING BASE
SECTION 3.1. Reserve Report; Proposed Borrowing Base.................... -22-
SECTION 3.2. Determination of Borrowing Base............................ -23-
SECTION 3.3. Borrowing Base Deficiency.................................. -23-
SECTION 3.4. Initial Borrowing Base..................................... -23-
SECTION 3.5. Procedure for Determining Borrowing Base................... -24-
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1. Delivery and Endorsement of Notes.......................... -24-
SECTION 4.2. General Provisions as to Payments.......................... -24-
SECTION 4.3. Computation of Interest.................................... -25-
SECTION 4.4. Overdue Principal and Interest............................. -25-
SECTION 4.5. Limitation on Number of Eurodollar Advances................ -25-
-i-
<PAGE>
ARTICLE V
CHANGE IN CIRCUMSTANCES
SECTION 5.1. Increased Cost and Reduced Return.......................... -25-
SECTION 5.2. Limitation on Types of Advances............................ -26-
SECTION 5.3. Illegality................................................. -27-
SECTION 5.4. Treatment of Advances...................................... -27-
SECTION 5.5. Compensation............................................... -27-
SECTION 5.6 Taxes...................................................... -28-
SECTION 5.7. Discretion of Banks as to Manner of Funding................ -29-
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Initial Borrowing and Participation in
Letter of Credit Exposure.................................. -29-
SECTION 6.2. Conditions to Each Borrowing and Participation in Letter of
Credit Exposure............................................ -31-
SECTION 6.3. Materiality of Conditions.................................. -32-
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Existence and Power........................................ -32-
SECTION 7.2. Necessary Authorization; Contravention..................... -32-
SECTION 7.3. Binding Effect............................................. -33-
SECTION 7.4. Financial Information...................................... -33-
SECTION 7.5. Litigation................................................. -33-
SECTION 7.6. ERISA...................................................... -33-
SECTION 7.7. Taxes and Filing of Tax Returns............................ -34-
SECTION 7.8. Ownership of Properties Generally.......................... -34-
SECTION 7.9. Mineral Interests.......................................... -34-
SECTION 7.10. Material Agreements........................................ -35-
SECTION 7.11. Licenses, Permits, Etc..................................... -35-
SECTION 7.12. Compliance with Law........................................ -35-
SECTION 7.13. Full Disclosure............................................ -35-
SECTION 7.14. Corporate Structure........................................ -35-
SECTION 7.15. Environmental Matters...................................... -36-
SECTION 7.16. Burdensome Obligations..................................... -36-
SECTION 7.17. Fiscal Year................................................ -36-
SECTION 7.18. No Default................................................. -36-
SECTION 7.19. Government Regulation...................................... -36-
SECTION 7.20. Insider.................................................... -37-
SECTION 7.21. Gas Balancing Agreements and Advance Payment Contracts..... -37-
SECTION 7.22. Existing Credit Agreement.................................. -37-
-ii-
<PAGE>
ARTICLE VIII
AFFIRMATIVE COVENANTS
SECTION 8.1. Information................................................ -37-
SECTION 8.2. Business of Borrower....................................... -39-
SECTION 8.3. Maintenance of Existence................................... -39-
SECTION 8.4. Right of Inspection........................................ -39-
SECTION 8.5. Maintenance of Insurance................................... -39-
SECTION 8.6. Payment of Taxes and Claims................................ -40-
SECTION 8.7. Compliance with Laws and Documents......................... -40-
SECTION 8.8. Operation of Properties and Equipment...................... -40-
SECTION 8.9. Environmental Law Compliance............................... -40-
SECTION 8.10. ERISA Reporting Requirements............................... -41-
SECTION 8.11. Additional Documents....................................... -42-
SECTION 8.12. Subsidiary Guarantees...................................... -42-
ARTICLE IX
NEGATIVE COVENANTS
SECTION 9.1. Incurrence of Debt......................................... -42-
SECTION 9.2. Restrictions on Distributions.............................. -42-
SECTION 9.3. Negative Pledge............................................ -43-
SECTION 9.4. Consolidations, Mergers.................................... -43-
SECTION 9.5. Asset Dispositions......................................... -43-
SECTION 9.6. Use of Proceeds........................................... -43-
SECTION 9.7. Investments................................................ -43-
SECTION 9.8. Transactions with Affiliates............................... -43-
SECTION 9.9. ERISA...................................................... -43-
SECTION 9.10. Hedge Transactions......................................... -44-
SECTION 9.11. Fiscal Year................................................ -44-
SECTION 9.12. Capital Stock of Subsidiaries.............................. -44-
ARTICLE X
FINANCIAL COVENANTS
SECTION 10.1. Current Ratio of Borrower.................................. -45-
SECTION 10.2. Ratio of Consolidated Funded Debt to Consolidated
Total Capital of Borrower.................................. -45-
SECTION 10.3. Consolidated Interest Coverage Ratio....................... -45-
ARTICLE XI
DEFAULTS
SECTION 11.1. Events of Default.......................................... -45-
-iii-
<PAGE>
ARTICLE XII
AGENT
SECTION 12.1. Appointment, Powers, and Immunities........................ -47-
SECTION 12.2. Reliance by Agent.......................................... -47-
SECTION 12.3. Defaults................................................... -48-
SECTION 12.4. Rights as Bank............................................. -48-
SECTION 12.5. Indemnification............................................ -48-
SECTION 12.6. Non-Reliance on Agent and Other Banks...................... -49-
SECTION 12.7. Resignation of Agent....................................... -49-
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices.................................................... -49-
SECTION 13.2. No Waivers................................................. -49-
SECTION 13.3. Expenses; Indemnification.................................. -50-
SECTION 13.4. Right of Set-off; Adjustments.............................. -51-
SECTION 13.5. Amendments and Waivers..................................... -51-
SECTION 13.6. Survival................................................... -51-
SECTION 13.7. Limitation on Interest..................................... -52-
SECTION 13.8. Invalid Provisions......................................... -52-
SECTION 13.9. Waiver of Consumer Credit Laws............................. -52-
SECTION 13.10. Assignments and Participations............................. -52-
SECTION 13.11. TEXAS LAW.................................................. -54-
SECTION 13.12. Consent to Jurisdiction; Waiver of Immunities.............. -54-
SECTION 13.13. Counterparts; Effectiveness................................ -54-
SECTION 13.14. No Third Party Beneficiaries............................... -54-
SECTION 13.15. COMPLETE AGREEMENT......................................... -54-
SECTION 13.16. WAIVER OF JURY TRIAL....................................... -55-
SECTION 13.17. Confidentiality............................................ -55-
EXHIBIT A NOTICE OF BORROWING
EXHIBIT B REQUEST FOR LETTER OF CREDIT
EXHIBIT C PROMISSORY NOTE
EXHIBIT D THE WISER OIL COMPANY FINANCIAL OFFICER'S CERTIFICATE
EXHIBIT E ASSIGNMENT AND ACCEPTANCE AGREEMENT
EXHIBIT F SUBORDINATE NOTES INDENTURE
SCHEDULE 1 LITIGATION
SCHEDULE 2 CORPORATE STRUCTURE
SCHEDULE 3 EXISTING LETTERS OF CREDIT
-iv-
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of the 23rd day
---------
of December, 1997, among THE WISER OIL COMPANY, a Delaware corporation
("Borrower"), NATIONSBANK OF TEXAS, N.A., as Agent ("Agent"), and the financial
- ---------- -----
institutions listed on the signature pages hereto as Banks (individually a
"Bank" and collectively "Banks").
---- -----
W I T N E S S E T H:
-------------------
WHEREAS, Borrower has requested that Banks provide Borrower with a
revolving credit facility; and
WHEREAS, Banks are willing to provide such credit facility upon the terms
and subject to the conditions hereinafter set forth; and
WHEREAS, pursuant to Article XII of this Agreement, NationsBank of Texas,
-----------
N.A. has been appointed Agent for Banks hereunder.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Agent and Banks agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. Definitions. The following terms, as used herein, have the
-----------
following meanings:
"Adjusted Consolidated Current Liabilities" means, for any Person at any
time, the Consolidated Current Liabilities of such Person and its Consolidated
Subsidiaries at such time, excluding, however, any portion of the Long Term Debt
of such Person and its Consolidated Subsidiaries outstanding at such time which
would otherwise be classified as a current liability on a consolidated balance
sheet of such Person as of such time, prepared in accordance with GAAP.
Notwithstanding the foregoing, no portion of the principal balance of the Loan
shall be considered Adjusted Consolidated Current Liabilities.
"Adjusted Eurodollar Rate" means, for any Eurodollar Advance for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by Agent to be equal to the quotient
obtained by dividing (a) the Eurodollar Rate for such Eurodollar Advance for
such Interest Period by (b) 1.00 minus the Reserve Requirement for such
Eurodollar Advance for such Interest Period.
"Advance" means an advance by a Bank of proceeds of the Loan. Each Advance
shall either (a) bear interest at the Base Rate (in which case such Advance is a
Base Rate Advance), or (b) bear interest for a specified Interest Period at a
rate determined with reference to the Adjusted Eurodollar Rate (in which case
such Advance is a Eurodollar Advance). Advances may be made up in whole or in
part of (i) new
-1-
<PAGE>
advances of funds by a Bank to Borrower, or (ii) Refunding Advances. "Advances"
means any of such Advances, collectively.
"Advance Payment Contract" means any contract whereby Borrower or any of
its Subsidiaries either (a) receives or becomes entitled to receive (either
directly or indirectly) any payment (an "Advance Payment") to be applied toward
---------------
payment of the purchase price of hydrocarbons produced or to be produced from
Mineral Interests owned by Borrower or any of its Subsidiaries and which Advance
Payment is paid or to be paid in advance of actual delivery of such production
to or for the account of the purchaser regardless of such production, or (b)
grants an option or right of refusal to the purchaser to take delivery of such
production in lieu of payment, and, in either of the foregoing instances, the
Advance Payment is, or is to be, applied as payment in full for such production
when sold and delivered or is, or is to be, applied as payment for a portion
only of the purchase price thereof or of a percentage or share of such
production; provided that, inclusion of the standard "take or pay" provision in
-------- ----
any gas sales or purchase contract or any other similar contract shall not, in
and of itself, constitute such contract as an Advance Payment Contract for the
purposes hereof.
"Affiliate" means, as to any Person, any Subsidiary of such Person, or any
other Person which, directly or indirectly, controls, is controlled by, or is
under common control with, such Person and, with respect to Borrower or any of
its Subsidiaries, means, any director or executive officer of Borrower or any of
its Subsidiaries and any Person who holds ten percent (10%) or more of the
voting stock of Borrower. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or partnership interests, or by contract or
otherwise.
"Agent" means NationsBank of Texas, N.A. in its capacity as agent for Banks
hereunder or any successor thereto.
"Agreement" means this Agreement, as the same may be further modified,
amended or supplemented pursuant to Section 13.5.
------------
"Applicable Environmental Law" means any Law affecting any real or personal
property owned, operated or leased by Borrower or any Subsidiary of Borrower or
any other operation of Borrower or any Subsidiary of Borrower in any way
pertaining to the environment, including, without limitation, (a) the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986 (as
amended from time to time, herein referred to as "CERCLA"), (b) the Resource
------
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Recovery Act of 1976, as amended by the Solid Waste
Disposal Act of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, herein referred to as "RCRA"), (c) the Safe Drinking
----
Water Act, as amended, (d) the Toxic Substances Control Act, as amended, (e) the
Clean Air Act, as amended, and (f) any federal, state or municipal Laws,
ordinances or regulations which may now or hereafter require removal of asbestos
or other hazardous wastes or impose any liability related to asbestos or other
hazardous wastes. The terms "hazardous substance", "petroleum", "release" and
------------------- --------- -------
"threatened release" have the meanings specified in CERCLA, and the terms "solid
- ------------------- -----
waste" and "disposal" (or "disposed") have the meanings specified in RCRA;
- ----- -------- --------
provided,
- --------
-2-
<PAGE>
however, in the event either CERCLA or RCRA is amended so as to broaden the
- -------
meaning of any term defined thereby, such broader meaning shall apply subsequent
to the effective date of such amendment with respect to all provisions of this
Agreement; and provided further that, to the extent the Laws of the state in
-------- ------- ----
which any real or personal property owned, operated or leased by Borrower or any
Subsidiary of Borrower is located establish a meaning for "hazardous substance",
"petroleum", "release", "solid waste" or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply in so far
as such broader meaning is applicable to the real or personal property owned,
operated or leased by Borrower or any Subsidiary of Borrower and located in such
state.
"Applicable Lending Office" means, for each Bank and for each Type of
Advance, the Domestic Lending Office or Eurodollar Lending Office of such Bank
(or of an Affiliate of such Bank) designated for such Type of Advance set forth
on the signature pages hereto or such other office of such Bank (or an Affiliate
of such Bank) as such Bank may from time to time specify to Agent and Borrower
by written notice in accordance with the terms hereof as the office by which its
Advances of such Type are to be made and maintained.
"Applicable Margin" means, for any day, the percentage determined pursuant
to the table below based on the ratio of (a) Outstanding Credit on such date, to
(b) the Borrowing Base in effect on such date:
- ---------------------------------------------------------------------
Ratio of Outstanding Credit Applicable Margin
to Borrowing Base
- ---------------------------------------------------------------------
Base Rate Advance Eurodollar Advance
- ---------------------------------------------------------------------
less than .5 to 1 0% .625%
- ---------------------------------------------------------------------
p .5 to 1 less than .75 to 1 0% .875%
- ---------------------------------------------------------------------
p .75 to 1 .375% 1.25%
- ---------------------------------------------------------------------
"Approved Petroleum Engineer" means DeGolyer and MacNaughton or any other
reputable firm of independent petroleum engineers as shall be selected by
Borrower and approved by Majority Banks; provided, however, that with respect to
-------- -------
any Reserve Reports other than those required to be prepared as of January 1 of
each year, Borrower's in-house staff shall also be deemed an Approved Petroleum
Engineer.
"Assignment and Acceptance Agreement" has the meaning given such term in
Section 13.10(a).
- ----------------
"Authorized Officer" means, as to any Person, its Chairman, its Chief
Executive Officer, its President, its Chief Financial Officer, any of its Vice
Presidents, its Treasurer, its corporate Secretary and, solely with respect to
any certificate to be delivered pursuant to Section 6.1, any of its Assistant
-----------
Secretaries.
"Average Projected Daily Production" means for Borrower and its
Consolidated Subsidiaries for any calendar year and with respect to a particular
type of hydrocarbons (gas or oil), the quotient obtained by dividing (a) the
projected production of hydrocarbons of such type by Borrower and its
Consolidated Subsidiaries for such calendar year from Proved Producing Mineral
Interests, determined as of the commencement of such year by Borrower in good
faith and which is consistent with the production forecast
-3-
<PAGE>
for such year reflected in the Reserve Report prepared as of January 1 of such
year and delivered to Banks pursuant to Section 3.1, by (b) 365.
-----------
"Bank" means any bank listed on the signature pages hereof as having a
Commitment and its successors and assigns, and "Banks" shall mean all of such
Banks.
"Base Rate" means, for any day, the rate per annum equal to the higher of
(a) the Federal Funds Rate for such day plus one-half of one percent (.5%), or
(b) the Prime Rate for such day. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Rate shall be effective automatically and
without notice to Borrower or any Bank on the effective date of such change in
the Prime Rate or Federal Funds Rate.
"Base Rate Advance" means an Advance bearing interest with reference to the
Base Rate.
"Base Rate Borrowing" means any Borrowing of Base Rate Advances.
"Borrower" means The Wiser Oil Company, a Delaware corporation.
"Borrowing" means a borrowing hereunder consisting of Advances of the same
Type and Interest Period.
"Borrowing Base" has the meaning set forth in Section 3.2 hereof.
-----------
"Borrowing Base Deficiency" means, as of any day, the amount, if any, by
which the aggregate Outstanding Credit exceeds the Borrowing Base in effect on
such day.
"Canadian Dollar" means the lawful currency of Canada.
"Canadian Limit" means the greater of $5,000,000 in U.S. Dollars and
$5,000,000 in Canadian Dollars.
"Change of Control" means that any Person or group (as defined in section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) shall become the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934) of more than forty percent (40%) of the total voting power of all classes
of capital stock then outstanding of Borrower entitled to vote in elections of
directors of Borrower.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment" means, with respect to each Bank, the commitment of such Bank
to lend its Commitment Percentage of the Loan. The amount of each Bank's
Commitment is the amount set forth opposite the name of such Bank on the
signature pages hereto, as such amount is reduced from time to time in
accordance with the provisions hereof.
-4-
<PAGE>
"Commitment Fee Percentage" means, for any day, the percentage determined
pursuant to the table below based on the ratio of (a) Outstanding Credit on such
day, to (b) the Borrowing Base in effect on such day:
Ratio of Outstanding
Credit to Borrowing Base Commitment Fee Percentage
- -----------------------------------------------------
less than .75 to 1 .25%
- -----------------------------------------------------
p .75 to 1 .375%
- -----------------------------------------------------
"Commitment Percentage" means, with respect to each Bank, the percentage
determined by dividing its Commitment by the Total Commitment.
"Consolidated Current Assets" means, for any Person at any time,
consolidated current assets of such Person and its Consolidated Subsidiaries at
such time.
"Consolidated Current Liabilities" means, for any Person at any time, the
consolidated current liabilities of such Person and its Consolidated
Subsidiaries at such time. Notwithstanding the foregoing, no portion of the
principal balance of the Loan shall be considered Consolidated Current
Liabilities.
"Consolidated Funded Debt" means, for any Person at any time, the
consolidated Debt of such Person and its Consolidated Subsidiaries at such time.
"Consolidated Net Income" means, for any Person for any period,
consolidated net earnings (after income Taxes) of such Person and its
Consolidated Subsidiaries for such period, determined in accordance with GAAP.
"Consolidated Senior Funded Debt" means, at any time, the remainder of (a)
Consolidated Funded Debt, minus (b) the principal outstanding under the
Subordinate Notes.
"Consolidated Subsidiary" or "Consolidated Subsidiaries" means, for any
Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial statements.
"Consolidated Total Capital" means, for any Person as of any time, the sum
of such Person's (a) consolidated liabilities at such time, plus (b)
consolidated shareholder's equity at such time, in each case as such amounts
would be reflected on a consolidated balance sheet of such Person as of such
time prepared in accordance with GAAP.
"Continue", "Continuation", and "Continued" shall refer to the continuation
pursuant to Article V hereof of a Eurodollar Advance from one Interest Period
---------
to the next Interest Period.
"Conversion Date" means April 1, 1999.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Article V hereof of one Type of Advance into another Type of
---------
Advance.
-5-
<PAGE>
"Debt" means, for any Person at any time, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all other indebtedness (including capitalized lease obligations, other than
usual and customary oil and gas leases) of such Person on which interest charges
are customarily paid or accrued, (d) all Guarantees by such Person, (e) the
unfunded or unreimbursed portion of all letters of credit issued for the account
of such Person, (f) any amount owed by such Person representing the deferred
purchase price of property or services other than accounts payable incurred in
the ordinary course of business and in accordance with customary trade terms,
(g) all obligations of such Person secured by a Lien (other than Liens described
in clauses (c), (d), (e), (f) and (g) of the definition of Permitted
Encumbrances, securing obligations which are not delinquent (except to the
extent permitted by Section 8.6)) on any property or asset owned by such Person,
-----------
regardless of whether the obligation secured thereby shall have been assumed by
that Person or is non-recourse to the credit of that Person, and (h) all
liability of such Person as a general partner of a partnership for obligations
of such partnership of the nature described in (a) through (g) preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice, lapse of time or both would, unless
cured or waived, become an Event of Default.
"Determination Date" means each March 31 and September 30 commencing March
31, 1998.
"Distribution" by any Person, means (a) with respect to any stock issued by
such Person or any partnership, limited liability company or other equity
interest of such Person, the retirement, redemption, purchase, or other
acquisition for value of any such stock, limited liability company, partnership
or other equity interest, (b) the declaration or payment of any dividend or
other distribution on or with respect to any stock or any limited liability
company, partnership or other equity interest of any Person, and (c) any other
payment by such Person with respect to such stock or limited liability company,
partnership or other equity interest.
"Dollar Equivalent" means, with respect to an amount denominated in
Canadian Dollars, the amount of U.S. Dollars required to purchase the relevant
stated amount of Canadian Dollars on the date of determination. For purposes of
this Agreement, the Dollar Equivalent amount of any Debt or other obligation of
Borrower or any of its Subsidiaries which is denominated in Canadian Dollars
shall be determined based on the Exchange Rate in effect on the date as of which
the amount of such Debt is being stated or determined as the case may be.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which national banks in Dallas, Texas, are authorized by Law to close.
"Domestic Lending Office" means, as to each Bank, its office located at its
address set forth on the signature pages hereof (or identified on the signature
pages hereof as its Domestic Lending Office) or such other office as such Bank
may hereafter designate as its Domestic Lending Office by notice to Borrower and
Agent.
"Eligible Assignee" means (i) a Bank, (ii) an Affiliate of a Bank, and
(iii) any other Person approved by Agent and, unless an Event of Default has
occurred and is continuing at the time any
-6-
<PAGE>
assignment is effected in accordance with Section 13.10, Borrower, such approval
-------------
not to be unreasonably withheld or delayed by Borrower and such approval to be
deemed given by Borrower if no objection is received by the assigning Bank and
Agent from Borrower within five (5) Domestic Business Days after notice of such
proposed assignment has been provided by the assigning Bank to Borrower;
provided, however, that neither Borrower nor an Affiliate of Borrower shall
- -------- -------
qualify as an Eligible Assignee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and regulations promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business under common
control with Borrower as determined under section 414(b), (c), (m) or (o) of the
Code.
"ERISA Event" means, with respect to Borrower and any ERISA Affiliate, (a)
a "reportable event" as defined in section 4043 of ERISA (other than a
reportable event not subject to the provision for thirty (30) days notice to the
PBGC under regulations issued under section 4043 of ERISA), (b) the withdrawal
of Borrower or any ERISA Affiliate from a Plan during a plan year in which it
was a "substantial employer" as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan under section 4041(c) of ERISA,
(d) the institution of proceedings to terminate a Plan by the PBGC, (e) the
failure to make required contributions which could result in the imposition of a
lien under section 412 of the Code or section 302 of ERISA, or (f) any other
event or condition which might reasonably be expected to constitute grounds
under section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the imposition of any liability under Title
IV of ERISA other than PBGC premiums due but not delinquent under Section 4007
of ERISA.
"Eurodollar Advance" means an Advance bearing interest with reference to
the Adjusted Eurodollar Rate. Each Eurodollar Advance having a different
Interest Period shall be deemed to be a separate Eurodollar Advance.
"Eurodollar Borrowing" means any Borrowing of Eurodollar Advances.
"Eurodollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
deposits of U.S. Dollars) in London.
"Eurodollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth on the signature pages hereof (or
identified on the signature pages hereof as its Eurodollar Lending Office) or
such other office, branch or affiliate of such Bank as it may hereafter
designate as its Eurodollar Lending Office by notice to Borrower and Agent.
"Eurodollar Rate" means, for any Eurodollar Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in U.S. Dollars at approximately
11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period. If for
any reason such rate is not available, the term "Eurodollar Rate" shall mean,
for any Eurodollar Advance for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in U.S.
Dollars at approximately 11:00 a.m.
-7-
<PAGE>
(London time) two (2) Eurodollar Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
--------
however, if more than one rate is specified on Reuters Screen LIBO Page, the
- -------
applicable rate shall be the arithmetic mean of all such rates (rounded upwards,
if necessary, to the nearest 1/100 of 1%).
"Events of Default" has the meaning set forth in Section 11.1.
------------
"Exchange Rate" means the rate of exchange of U.S. Dollars with Canadian
Dollars as reported by the Federal Reserve Bank of New York in its 12 Noon
Midpoint - New York Interbank Market -Consensus Rate on the date the Exchange
Rate is to be determined (or on the immediately preceding Domestic Business Day
if the Exchange Rate is to be determined on a day which is not a Domestic
Business Day) for the spot purchase in the foreign exchange market of the
applicable amount of U.S. Dollars with Canadian Dollars, or if such report
ceases to be published, an equivalent exchange rate as selected by Agent.
"Exhibit" refers to an exhibit attached to this Agreement and incorporated
herein by reference, unless specifically provided otherwise.
"Existing Banks" means the Banks under and as defined in the Existing
Credit Agreement.
"Existing Borrowers" means the Borrowers under and as defined in the
Existing Credit Agreement.
"Existing Credit Agreement" means that certain Credit Agreement dated as of
June 23, 1994, by and among Existing Borrowers, Agent and Existing Banks, as
amended by that certain (i) First Amendment to Credit Agreement dated November
29, 1995, by and among Existing Borrowers, Agent and Existing Banks, and (ii)
letter agreement dated May 20, 1997, by and among Existing Borrowers, Agent and
Existing Banks.
"Existing Letters of Credit" means the letters of credit issued by
NationsBank of Texas, N.A. pursuant to the Existing Credit Agreement for the
account of Borrower and/or its Subsidiaries which are described on Schedule 3
----------
hereto.
"Existing Subsidiaries" means T.W.O.C., Inc., a Delaware corporation
("T.W.O.C."), The Wiser Marketing Company, a Delaware corporation ("Wiser
- ---------- -----
Marketing"), Wiser Oil Delaware, Inc., a Delaware corporation ("Wiser Oil
- --------- ---------
Delaware"), Le Chuza Energy Company, a Delaware corporation, Wiser Canada, Wiser
- --------
Delaware LLC, a Delaware limited liability company ("Wiser LLC") and Wiser
---------
Northern Ireland, Ltd., a Delaware corporation, which are the only subsidiaries
of Borrower on the date hereof.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day; provided, that, (a) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding
-8-
<PAGE>
Domestic Business Day, and (b) if no such rate is so published on such next
succeeding Domestic Business Day, the Federal Funds Rate for such day shall be
the average rate charged to Agent (in its individual capacity) on such day on
such transactions as determined by Agent.
"Financial Officer" of any Person means its Chief Financial Officer or its
Treasurer.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by the Financial
Accounting Standards Board or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the date hereof
so as to properly reflect the financial condition, and the results of operations
and changes in financial position, of Borrower and its Consolidated
Subsidiaries, except that any accounting principle or practice required to be
changed by the said Accounting Principles Board or Financial Accounting
Standards Board (or other appropriate board or committee of the said Boards) in
order to continue as a generally accepted accounting principle or practice may
be so changed.
"Gas Balancing Agreement" means any agreement or arrangement whereby
Borrower or any of its Subsidiaries or any other party having an interest in any
hydrocarbons to be produced from Mineral Interests in which Borrower or any of
its Subsidiaries have a right to take more than its proportionate share of
production therefrom.
"Governmental Authority" means any court or governmental department,
commission, board, bureau, agency, or instrumentality of the United States, or
any state, province, commonwealth, nation, territory, possession, county,
parish, or municipality, whether now or hereafter constituted or existing.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions, or other similar undertakings of support or
otherwise), or (b) entered into for the purpose of assuring in any other manner
the obligee of such Debt of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided that, the term
-------- ----
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
"Hedge Transaction" means a transaction pursuant to which Borrower or any
of its Subsidiaries hedge the price to be received by them for future production
of hydrocarbons, including price swap agreements under which Borrower or its
Subsidiaries agree to pay a price for a specified amount of hydrocarbons
determined by reference to a recognized market on a specified future date and
the contracting party agrees to pay Borrower or its Subsidiaries a fixed price
for the same or similar amount of hydrocarbons; provided, that, "Hedge
-------- ----
Transaction" shall not include the purchase by Borrower or any of its
Subsidiaries of any "floor" or similar transaction by means of which such Person
protects itself from declining prices for its production without fixing any
ceiling price for such production.
"Immaterial Mineral Interests" has the meaning set forth in Section 7.9.
-----------
"Initial Reserve Report" means that certain Appraisal Report prepared as of
January 1, 1997 by DeGolyer & MacNaughton containing an engineering analysis of
certain of the Mineral Interests owned by Borrower and Wiser Canada, as such
report has been supplemented by internally prepared engineering
-9-
<PAGE>
reports containing an analysis of certain of the Mineral Interests owned by
Borrower and acquired after January 1, 1997, copies of which such reports have
been provided to Banks.
"Initial Subsidiary Guarantors" means T.W.O.C., Wiser Marketing, Wiser Oil
Delaware, Wiser LLC, and Wiser Canada.
"Interest Period" means, with respect to each Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending one (1), two (2),
three (3) or six (6) months thereafter as Borrower may elect in the applicable
Notice of Borrowing; provided, that:
-------- ----
(i) any Interest Period which would otherwise end on a day which
is not a Eurodollar Business Day shall be extended to the next
succeeding Eurodollar Business Day unless such Eurodollar Business Day
falls in another calendar month, in which case such Interest Period
shall end on the next preceding Eurodollar Business Day;
(ii) any Interest Period which begins on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) below, end on the last
Eurodollar Business Day of a calendar month;
(iii) if any Interest Period includes a date on which any
payment of principal of the Loan which is comprised in part by such
Borrowing is required to be made hereunder, but does not end on such
date, then (A) the principal amount of each Eurodollar Advance
required to be repaid on such date shall have an Interest Period
ending on such date, and (B) the remainder of each such Eurodollar
Advance shall have an Interest Period determined as set forth above;
and
(iv) No Interest Period shall extend past the Termination Date.
"Investment" means, with respect to any Person, any loan, advance,
extension of credit, capital contribution to, investment in or purchase of the
stock or other securities of, or interests in, any other Person; provided, that,
-------- ----
"Investment" shall not include customer and trade accounts which are payable in
accordance with customary trade terms, and advances made in the ordinary course
of business to employees or under operating agreements, drilling contracts,
exploration agreements or similar agreements.
"Issuer" has the meaning set forth in Section 2.1(b).
--------------
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, province, commonwealth,
nation, territory, possession, county, township, parish, municipality or
Governmental Authority.
"Letter of Credit Exposure" of any Bank means such Bank's aggregate
participation in the unfunded portion and the funded but unreimbursed portion of
Letters of Credit outstanding at any time.
"Letters of Credit" means letters of credit issued for the account of
Borrower pursuant to Section 2.1(b).
--------------
-10-
<PAGE>
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, Borrower and its Subsidiaries shall be
deemed to own subject to a Lien any asset which is acquired or held subject to
the interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" means a reducing revolving loan in an amount up to $150,000,000 to
be made to Borrower pursuant to the Commitment of each Bank in accordance with
Section 2.1 hereof. Such Loan shall consist of Eurodollar Advances and Base
- -----------
Rate Advances as Borrower may elect pursuant to Sections 2.2 and 6.2 hereof.
------------ ---
"Loan Papers" means this Agreement, the Notes, each Subsidiary Guaranty and
all other certificates, documents, or instruments delivered in connection with
this Agreement, as the foregoing may be amended from time to time.
"Long Term Debt" means any Debt which matures more than one (1) year from
the date it is incurred or which has a maturity date which can be extended
solely at the option of the obligor to a date more than one (1) year from the
date of its incurrence.
"Majority Banks" means Banks holding greater than fifty percent (50%) of
the Total Commitment.
"Margin Regulations" means Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U.
"Material Adverse Change" means any circumstance or event that has had or
could reasonably be expected to have a Material Adverse Effect.
"Material Adverse Effect" means, with respect to a Person, a material
adverse effect on the business, financial condition, operations or assets of
such Person or any material adverse effect on such Person and its Subsidiaries
taken as a whole, and shall also mean, with respect to Borrower or any
Subsidiary Guarantor, a material adverse effect on Borrower's or such Subsidiary
Guarantor's ability to pay and perform their debts, liabilities and obligations,
generally, or to pay and perform the Obligations.
"Material Agreement" means any material written or oral agreement,
contract, commitment, or understanding to which a Person is a party, by which
such Person is directly or indirectly bound, or to which any assets of such
Person may be subject, which is not cancelable by such Person upon notice of
thirty (30) days or less without liability for further payment other than
nominal penalty.
"Maximum Borrowing Base" means the maximum Borrowing Base in effect under
this Agreement during the period commencing on the Conversion Date, and
continuing until the Termination Date. The Maximum Borrowing Base shall be
initially the amount of the Borrowing Base in effect on March 31, 1999;
provided, that, such amount shall reduce on June 30, 1999 and on the last day of
- -------- ----
each September, December, March and June thereafter until the Termination Date
by an amount equal to one twelfth (1/12) of the Borrowing Base in effect on
March 31, 1999.
-11-
<PAGE>
"Maximum Lawful Rate" means, for each Bank, the maximum rate (or, if the
context so permits or requires, an amount calculated at such rate) of interest
which, at the time in question would not cause the interest charged on the
portion of the Loan owed to such Bank at such time to exceed the maximum amount
which such Bank would be allowed to contract for, charge, take, reserve, or
receive under applicable Laws after taking into account, to the extent required
by applicable Laws, any and all relevant payments or charges under the Loan
Papers. To the extent the Laws of the State of Texas are applicable for
purposes of determining the "Maximum Lawful Rate," such term shall mean the
"interest rate ceiling" from time to time in effect under Chapter 1D of the
Texas Credit Title, Revised Civil Statutes of Texas, 1925, as amended,
substituted for or restated, or, if permitted by applicable Law and effective
upon the giving of the notices required by such Chapter 1D (or effective upon
any other date otherwise specified by applicable Law), the "quarterly ceiling"
or "annualized ceiling" from time to time in effect under such Chapter 1D,
whichever Agent (with the approval of Majority Banks) shall elect to substitute
for the "interest rate ceiling," and vice versa, each such substitution to have
---- -----
the effect provided in such Chapter 1D, and Agent (with the approval of Majority
Banks) shall be entitled to make such election from time to time and one or more
times and, without notice to Borrower, to leave any such substitute rate in
effect for subsequent periods in accordance with such Chapter 1D.
"Mineral Interests" means rights, estates, titles, and interests in and to
oil, gas, sulphur, or other mineral leases and any mineral interests, royalty
and overriding royalty interest, production payment, net profits interests,
mineral fee interests, and other rights therein, including, without limitation,
any reversionary or carried interests relating to the foregoing, together with
rights, titles, and interests created by or arising under the terms of any
unitization, communization, and pooling agreements or arrangements, and all
properties, rights and interests covered thereby, whether arising by contract,
by order, or by operation of Laws, which now or hereafter include all or any
part of the foregoing.
"NationsBank" means NationsBank of Texas, N.A., a national banking
association.
"Note" means a promissory note of Borrower, substantially in the form of
Exhibit C attached hereto, payable to the order of a Bank, in the amount of such
- ---------
Bank's Commitment, evidencing the obligation of Borrower to repay to such Bank
its Commitment Percentage of the Loan, and "Notes" means all of such Notes
collectively.
"Notice of Borrowing" has the meaning set forth in Section 2.2(a).
--------------
"Obligations" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, of
Borrower or any of its Subsidiaries to any Bank arising pursuant to this
Agreement, the Notes, the Letters of Credit, or the other Loan Papers, and all
interest accrued thereon and costs, expenses, and attorneys' fees incurred in
the enforcement or collection thereof, regardless of whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several.
"Outstanding Credit" means, on any date, the sum of (a) the aggregate
outstanding Letter of Credit Exposure on such date including the aggregate
Letter of Credit Exposure related to Letters of Credit to be issued on such
date, plus (b) the outstanding principal balance of the Loan on such date,
including the amount of any Borrowing to be made on such date.
-12-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Canadian Working Capital Facility" means one or more lines of
credit for senior indebtedness made available to Wiser Canada, which (a) are not
in the aggregate in excess of the Canadian Limit, (b) are unsecured, and (c) do
not otherwise violate this Agreement (including, without limitation, Section
-------
9.1). The Permitted Canadian Working Capital Facility may provide for any
interest rate, fees, amortization or maturity agreed to by Wiser Canada and its
Canadian lenders.
"Permitted Encumbrances" means with respect to any asset:
(a) Liens (if any) securing the Obligations;
(b) minor defects in title which do not secure the payment of money
and otherwise have no material adverse effect on the value or operation of any
material assets encumbered thereby, including, without limitation, easements,
rights-of-way, servitudes, permits, surface leases, restrictions and other
similar charges, encumbrances or title defects;
(c) Liens (other than Liens arising under ERISA) incurred or deposits
made in the ordinary course of business including, (i) mechanic's,
materialman's, warehouseman's, journeyman's, carrier's and other similar Liens,
(ii) in connection with worker's compensation, unemployment insurance and other
types of social security or retirement benefits, (iii) to secure the performance
of statutory or regulatory obligations, surety bonds, appeal bonds and
performance bonds, or (iv) arising under or securing, bids, tenders, leases
(other than capital leases), joint ownership agreements, operating agreements,
seismic agreements, exploration agreements, farmout agreements, drilling
agreements saltwater or other injection or disposal agreements, gas balancing
agreements, construction contracts, production sales contracts, processing
contracts, transportation contracts and similar agreements, in each case which
are customarily entered into in the ordinary course of the oil and gas
exploration and production business; provided, that no Lien or deposit described
in this clause (c) shall secure obligations which are delinquent (except to the
extent permitted by Section 8.6) or secure the borrowing of money, the obtaining
-----------
of advances of money on credit or the payment of the deferred (beyond normal
trade terms) purchase price of property;
(d) [INTENTIONALLY DELETED]
(e) Liens for Taxes, assessments or other governmental charges not
delinquent (except to the extent permitted by Section 8.6);
-----------
(f) any attachment or judgment Lien unless the judgment it secures
shall not, within thirty (30) days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within thirty (30) days after the expiration of any such stay;
(g) lease burdens payable to third parties which either (i) are
deducted in the calculation of discounted present value in the Reserve Reports,
including, without limitation, any royalty, overriding royalty, net profits
interest, production payment, carried interest or reversionary working
-13-
<PAGE>
interest which has been disclosed to Agent in writing, or (ii) burden properties
which are not included in the Reserve Reports;
(h) Liens (including capital leases) encumbering property of Borrower
securing Debt incurred to finance the purchase price of such property; provided,
--------
that (i) no such Lien shall encumber any property of Borrower other than the
- ----
property acquired with the proceeds of such Debt (and improvements and
accessions thereto), (ii) the Debt secured by any such Lien shall not exceed the
purchase price of the property purchased with the proceeds of such Debt
(including applicable excise Taxes and transaction costs), and (iii) the
aggregate amount of all such Debt outstanding at any time shall not exceed
$5,000,000; and
(i) Liens securing obligations under Hedge Transactions permitted
hereunder by and between any Bank and/or any Affiliate of any Bank, and Borrower
and/or any Subsidiary of Borrower; provided that such Liens shall only be
permitted to the extent the Obligations are secured on an equal and ratable
basis with the obligations under such Hedge Transactions.
"Permitted Investments" means (a) Permitted Short Term Investments (as
defined in the Subordinate Notes Indenture), (b) Investments by Borrower in any
Subsidiary Guarantor, (c) Investments by any Subsidiary Guarantor in any other
Subsidiary Guarantor, (d) Investments by Subsidiary Guarantors in Borrower, and
(e) other Investments by Borrower and its Subsidiaries which when made, together
with all other Investments made pursuant to this clause (e), do not exceed an
amount equal to $10,000,000 outstanding at any time.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a Governmental Authority.
"Plan" means an employee benefit plan within the meaning of section 3(3) of
ERISA, whether formal or informal and whether legally binding or not, under
which Borrower or an ERISA Affiliate has any current or future obligation or
liability or under which any present or former employee of Borrower or an ERISA
Affiliate, or such present or former employee's dependents or beneficiaries, has
any current or future right to benefits resulting from the present or former
employee's employment relationship with Borrower or an ERISA Affiliate.
"Prime Rate" means the per annum rate of interest established from time to
time by NationsBank as its prime rate, which rate may not be the lowest rate of
interest charged by NationsBank to its customers.
"Proved Mineral Interests" means Proved Producing Mineral Interests, Proved
Nonproducing Mineral Interests, and Proved Undeveloped Mineral Interests.
"Proved Nonproducing Mineral Interests" means all Mineral Interests which
constitute proved developed nonproducing reserves.
"Proved Producing Mineral Interests" means all Mineral Interests (including
all acreage subject to such Mineral Interests that may be perpetuated beyond the
primary term therefor) which constitute proved developed producing reserves.
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<PAGE>
"Proved Undeveloped Mineral Interests" means all Mineral Interests which
constitute proved undeveloped reserves.
"Refunding Advances" means Advances made simultaneously with the expiration
of an Interest Period to the extent such Advance is used for the purpose of
refinancing Advances which are subject to the then expiring Interest Period (or
Interest Periods). Refunding Advances can be Refunding Base Rate Advances or
Refunding Eurodollar Advances.
"Refunding Borrowing" means a Borrowing comprised of Refunding Advances of
the same Type and Interest Period.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Part 221, as in effect from time to time.
"Related Asset" means any gathering system, pipeline, processing plant or
similar asset owned by Borrower or any of its Subsidiaries which is used or
useful in the operation of the Mineral Interests owned by Borrower and its
Subsidiaries.
"Request for Letter of Credit" has the meaning set forth in Section 2.3(a).
--------------
"Reserve Report" means an unsuperseded engineering analysis of the Mineral
Interests owned by Borrower, in form and substance acceptable to Majority Banks,
prepared by an Approved Petroleum Engineer in accordance with customary and
prudent practices in the petroleum engineering industry. For purposes of Section
-------
7.9, until superceded, the Initial Reserve Report shall be considered a Reserve
- ---
Report.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the
effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by such member banks with respect to (i) any
category of liabilities which includes deposits by reference to which the
Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions
of credit or other assets which include Eurodollar Advances. The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective date
of any change in the Reserve Requirement.
"Schedule" means a "schedule" attached to this Agreement and incorporated
herein by reference, unless specifically indicated otherwise.
"Section" refers to a "section" or "subsection" of this Agreement unless
specifically indicated otherwise.
"Subordinate Notes" means Borrower's Senior Subordinated Notes due 2007 in
an aggregate amount of $125,000,000 issued pursuant to and governed by the
Subordinate Notes Indenture.
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<PAGE>
"Subordinate Notes Indenture" means an Indenture dated May 21, 1997,
entered into by and between Borrower and Texas Commerce Bank National
Association as Trustee, a copy of which is attached hereto as Exhibit F.
---------
"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so
on). Each of the Existing Subsidiaries is a "Subsidiary" of Borrower.
"Subsidiary Guarantors" means any Subsidiary of Borrower which has executed
and delivered a Subsidiary Guaranty which is in full force and effect.
"Subsidiary Guaranty" means a Guaranty in form and substance acceptable to
Agent to be executed by individual Subsidiaries of Borrower pursuant to Sections
--------
6.1(a)(ii) and 8.12 hereof, pursuant to which such Subsidiaries shall guaranty
- ---------- ----
payment and performance in full of the Obligations.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of any
nature whatsoever, from time to time or at any time imposed by Law or any
Governmental Authority. "Tax" means any one of the foregoing.
"Termination Date" means March 31, 2002.
"Total Commitment" means the aggregate of all Banks' Commitments.
"Type" shall mean any type of Advance (i.e., a Base Rate Advance or
Eurodollar Advance).
"Unused Availability" means, at any time, the remainder of (a) the
Borrowing Base at such time, minus (b) the Outstanding Credit at such time.
"U.S. Dollars" means the lawful currency of the United States of America.
"Wiser Canada" means The Wiser Oil Company of Canada, a Nova Scotia
unlimited liability company.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with GAAP,
applied on a basis consistent with the most recent audited consolidated
financial statements of Borrower and its Consolidated Subsidiaries delivered to
Banks, except for changes concurred in by Borrower's independent certified
public accountants and which are disclosed to Agent on the next date on which
financial statements are required to be delivered to Banks pursuant to Sections
--------
8.1(a) or (b); provided that, unless Majority Banks and Borrower shall otherwise
- ------ --- -------- ----
agree in writing, no such change shall modify or affect the manner in which
compliance with the covenants contained in Article X are computed
---------
-16-
<PAGE>
such that all such computations shall be conducted utilizing financial
information presented consistently with prior periods.
SECTION 1.3. Petroleum Terms. As used herein, the terms "proved
---------------
reserves," "proved developed reserves," "proved developed producing reserves,"
"proved developed nonproducing reserves," and "proved undeveloped reserves" have
the meaning given such terms from time to time and at the time in question by
the Society of Petroleum Engineers of the American Institute of Mining
Engineers.
SECTION 1.4. Money. Unless expressly stipulated otherwise, all references
-----
herein to "dollars", "money", "funds", "payments", "prepayments", or other
similar financial or monetary terms, are references to currency of the United
States of America.
ARTICLE II
THE CREDIT
SECTION 2.1. Commitments. (a) Each Bank severally agrees, subject to
-----------
Section 2.1(c) and the other terms and conditions set forth in this Agreement,
- --------------
to lend to Borrower from time to time until the Termination Date, amounts not to
exceed in the aggregate at any one time outstanding, the amount of its
Commitment reduced by its Letter of Credit Exposure. Each Borrowing under this
Section 2.1(a) shall be (i) in an aggregate principal amount of $1,000,000 or
- --------------
any larger amount (except that any Base Rate Borrowing may be in the amount of
the Unused Availability), and (ii) made from Banks ratably. Subject to the
foregoing limitations and the other provisions of this Agreement, Borrower may
borrow under this Section 2.1(a), repay amounts outstanding under the Loan and
--------------
request new Borrowings under this Section 2.1(a).
--------------
(b) Agent, or such Bank designated by Agent which (without obligation
to do so) consents to the same ("Issuer") will, from time to time until the
------
Termination Date, upon request by Borrower, issue Letters of Credit for the
account of Borrower so long as (i) the sum of (A) the total Letter of Credit
Exposure then existing, and (B) the amount of the requested Letter of Credit
does not exceed twenty percent (20%) of the Borrowing Base, and (ii) Borrower
would be entitled to a Borrowing under Section 2.1(a) in an amount greater than
--------------
or equal to the requested Letter of Credit. Not less than three (3) Domestic
Business Days prior to the requested date of issuance of any such Letter of
Credit, Borrower shall execute and deliver to Issuer, Issuer's customary letter
of credit application. Each Letter of Credit shall be in the minimum amount of
$5,000 and shall be in form and substance acceptable to Issuer. No Letter of
Credit shall have an expiration date later than the Termination Date. Upon the
date of issuance of a Letter of Credit, Issuer shall be deemed to have sold to
each other Bank, and each other Bank shall be deemed to have purchased from
Issuer, a participation in the related Letter of Credit and Letter of Credit
Exposure equal to such Bank's Commitment Percentage of such Letter of Credit and
Letter of Credit Exposure at such date. Issuer shall notify each Bank by
telephone, teletransmission or telex of each Letter of Credit issued pursuant to
the terms hereof. At the time of issuance of each Letter of Credit, Borrower
shall pay to Agent a fee equal to the sum of (i) $250, plus (ii) one percent
(1%) per annum (based upon the amount and term of such Letter of Credit). Agent
shall distribute (i) the $250, plus (ii) one-eighth (1/8th) of the one percent
(1%) fee paid on issuance of such Letter of Credit to the Issuer of such Letter
of Credit. The remaining portion of such fee shall be paid to Banks ratably.
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<PAGE>
Notwithstanding anything to the contrary contained herein, Borrower hereby
agrees to reimburse each Issuer immediately upon demand by such Issuer, and in
immediately available funds, for any payment or disbursement made by such Issuer
under any Letter of Credit issued by it. So long as no Default, Event of
Default or Borrowing Base Deficiency exists, Banks shall, upon Borrower's
request, fund a Base Rate Borrowing to cover Borrower's reimbursement
obligations described in this paragraph, notwithstanding that Borrower has not
otherwise satisfied any other conditions to such a Borrowing. Payment shall be
made by Borrower with interest on the amount so paid or disbursed by Issuer from
and including the date payment is made under any Letter of Credit to and
including the date of payment, at the lesser of (i) the Maximum Lawful Rate, or
(ii) the sum of (A) the Base Rate in effect from time to time plus (B) three
percent (3%) per annum. The obligations of Borrower under this paragraph will
continue until all Letters of Credit have expired and all reimbursement
obligations with respect thereto have been paid in full by Borrower and until
all other Obligations shall have been paid in full.
Borrower shall be obligated to reimburse each Issuer upon demand for all
amounts paid under Letters of Credit as set forth in the immediately preceding
paragraph hereof; provided, however, if Borrower for any reason fails to
-------- -------
reimburse such Issuer in full upon demand, Banks shall reimburse such Issuer in
accordance with each Banks' Commitment Percentage for amounts due and unpaid
from Borrower as set forth herein below; provided, however, that no such
-------- -------
reimbursement made by Banks shall discharge Borrower's obligations to reimburse
Issuer. All reimbursement amounts payable by any Bank under this Section 2.1(b)
--------------
shall include interest thereon at the Base Rate, from the date of the payment of
such amounts by any Issuer to the date of reimbursement by such Bank. No Bank
shall be liable for the performance or nonperformance of the obligations of any
other Bank under this paragraph. The reimbursement obligations of Banks under
this paragraph shall continue after the Termination Date and shall survive
termination of this Agreement and the other Loan Papers.
Upon the occurrence of any Event of Default, Borrower shall, on the next
succeeding Domestic Business Day, deposit with Agent such funds as Agent may
request, up to a maximum amount equal to the aggregate existing Letter of Credit
Exposure of all Banks. Any funds so deposited shall be held by Agent for the
ratable benefit of all Banks as security for the Loan, and Borrower will, in
connection therewith, execute and deliver such security agreements in form and
substance satisfactory to Agent which it may, in its discretion, require. As
drafts or demands for payment are presented under any Letter of Credit, Agent
shall apply such funds to satisfy such drafts or demands. When all Letters of
Credit have expired and the Obligations have been repaid in full (and no Bank
has any obligation to make further Advances or issue Letters of Credit
hereunder) or such Event of Default has been cured, Agent shall release to
Borrower any remaining funds deposited under this Section 2.1(b).
--------------
Whenever Borrower is required to make deposits under this Section 2.1(b)
--------------
and fails to do so on the day such deposit is due, Agent or any Bank may,
without notice to Borrower, make such deposit (whether by transfers from other
accounts maintained with any Bank or otherwise) using any funds then available
to any Bank of Borrower, any guarantor, or any other Person liable for all or
any part of the Obligations.
BORROWER SHALL INDEMNIFY AND HOLD EACH ISSUER, AGENT AND EACH BANK, AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, REPRESENTATIVES AND EMPLOYEES HARMLESS
FROM LOSS FOR ANY CLAIM, DEMAND OR LIABILITY WHICH MAY BE ASSERTED AGAINST ANY
OR SUCH INDEMNIFIED PARTY IN CONNECTION WITH
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<PAGE>
ACTIONS TAKEN UNDER LETTERS OF CREDIT OR IN CONNECTION THEREWITH (INCLUDING
LOSSES RESULTING FROM THE NEGLIGENCE OF SUCH INDEMNIFIED PARTY), AND SHALL PAY
EACH INDEMNIFIED PARTY FOR REASONABLE FEES OF ATTORNEYS AND LEGAL COSTS PAID OR
INCURRED BY EACH INDEMNIFIED PARTY IN CONNECTION WITH ANY MATTER RELATED TO
LETTERS OF CREDIT, EXCEPT FOR LOSSES AND LIABILITIES INCURRED AS A RESULT OF THE
GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY; IT BEING THE
INTENTION HEREBY THAT EACH SUCH INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR THE
CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE. IF BORROWER FOR ANY REASON FAILS TO
INDEMNIFY OR PAY SUCH INDEMNIFIED PARTY AS SET FORTH HEREIN IN FULL, BANKS SHALL
INDEMNIFY AND PAY SUCH INDEMNIFIED PARTY UPON DEMAND, IN ACCORDANCE WITH EACH
BANK'S COMMITMENT PERCENTAGE OF SUCH AMOUNTS DUE AND UNPAID FROM BORROWER. THE
PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.
Neither Agent nor any Issuer makes any representation or warranty, and
neither assumes any responsibility with respect to the validity, legality,
sufficiency or enforceability of any letter of credit application or any
document relative thereto or to the collectibility thereunder. Neither Agent
nor any Issuer assumes any responsibility for the financial condition of
Borrower or any Subsidiary of Borrower or for the performance of any obligation
of Borrower or any Subsidiary of Borrower. Agent and each Issuer may use its
discretion with respect to exercising or refraining from exercising any rights
which may be vested in it, or taking or refraining from taking any action which
it may be entitled to take or assert with respect to any Letter of Credit or any
letter of credit application. Furthermore, except as set forth herein, neither
Agent nor any Issuer shall be under any liability to any Bank, with respect to
anything Agent or any Issuer may do or refrain from doing in the exercise of its
judgment, the sole liability and responsibility of Agent and each Issuer to the
other Banks being to handle each Bank's share on as favorable a basis as Agent
or any Issuer handles its own share. Neither Agent nor any Issuer shall have
any duties or responsibilities except those expressly set forth in the Loan
Papers and those duties and liabilities shall be subject to the limitations and
qualifications set forth therein. FURTHERMORE, NEITHER AGENT, NOR ISSUER, NOR
ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, OR EMPLOYEES SHALL BE LIABLE FOR
ANY ACTION TAKEN OR OMITTED (WHETHER OR NOT SUCH ACTION TAKEN OR OMITTED IS
EXPRESSLY SET FORTH IN THIS SECTION 2.1(B)) UNDER OR IN CONNECTION WITH THIS
--------------
SECTION 2.1(B) OR UNDER ANY OTHER INSTRUMENT OR DOCUMENT IN CONNECTION WITH THIS
- --------------
SECTION 2.1(B), INCLUDING THEIR OWN NEGLIGENCE, EXCEPT FOR GROSS NEGLIGENCE OR
- --------------
WILLFUL MISCONDUCT. Neither Agent nor Issuer shall incur any liability to any
Bank, Borrower, any Subsidiary of Borrower or any Affiliate of any Bank,
Borrower or any Subsidiary of Borrower in acting upon any notice, document,
order, consent, certificate, warrant or other instrument reasonably believed by
Agent or Issuer to be genuine or authentic and to be signed by the proper party.
(c) No Bank will be obligated to lend to Borrower or incur Letter of
Credit Exposure, and Borrower shall not be entitled to borrow any amount or
obtain Letters of Credit hereunder in an amount which would cause the
Outstanding Credit to exceed the Borrowing Base then in effect under Article
-------
III. Nothing in this Section 2.1(c) shall be deemed to limit any Bank's
--------------
obligation to fund its Commitment Percentage of any Base Rate Borrowing made as
a result of the drawing under any Letter of Credit.
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<PAGE>
SECTION 2.2. Method of Borrowing (including Refunding Borrowings). (a)
----------------------------------------------------
Except as excused pursuant to Section 6.2 with respect to certain Refunding
-----------
Borrowings which are Base Rate Borrowings, Borrower shall give Agent notice (a
"Notice of Borrowing") prior to 12:00 noon (Dallas, Texas time) (i) at least
- --------------------
one (1) Domestic Business Day before the day of any requested Base Rate
Borrowing, and (ii) at least three (3) Eurodollar Business Days before the day
of any requested Eurodollar Borrowing. Each Notice of Borrowing shall be
substantially in the form of Exhibit A attached hereto, and shall specify:
---------
(i) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Base Rate Borrowing or a Eurodollar Business Day in
the case of a Eurodollar Borrowing;
(ii) the aggregate amount of such Borrowing; and
(iii) whether the Advances comprising such Borrowing are to be Base Rate
Advances or Eurodollar Advances.
(b) Upon receipt of a Notice of Borrowing, Agent shall promptly notify
each Bank of the contents thereof and of such Bank's ratable share of the
Borrowing requested therein, and such Notice of Borrowing shall not thereafter
be revocable by Borrower.
(c) Not later than 12:00 noon (Dallas, Texas time) on the date of each
Borrowing, each Bank shall make available its ratable share of such Borrowing
(except any portion thereof which is made up of Refunding Advances), in Federal
or other funds immediately available in Dallas, Texas to Agent at its address
referred to in Section 13.1. Notwithstanding the foregoing, if Borrower
------------
delivers to Agent a Notice of Borrowing prior to 10:00 a.m. (Dallas, Texas time)
on a Domestic Business Day requesting a Base Rate Borrowing on such day, each
Bank shall use its best efforts to make available to Agent its ratable share of
such Borrowing by 1:00 p.m. (Dallas, Texas time) on the same day. Unless Agent
determines that any applicable condition specified in Section 6.2 has not been
-----------
satisfied, Agent will make the funds so received from Banks available to
Borrower at Agent's aforesaid address.
SECTION 2.3. Method of Obtaining Letters of Credit. (a) Borrower shall
-------------------------------------
give Agent notice (a "Request for Letter of Credit") prior to 12:00 noon
----------------------------
(Dallas, Texas time) at least three (3) Domestic Business Days before the date
Borrower requests that a Letter of Credit be issued. Each Request for Letter of
Credit shall be substantially in the form of Exhibit B attached hereto and shall
---------
be accompanied by the executed, complete letter of credit application and
agreement referenced in Section 2.1(b).
--------------
(b) Upon receipt of a Request for Letter of Credit, Agent shall promptly
notify each Bank of the contents thereof and of the material provisions of the
related letter of credit application and agreement. Agent shall provide a copy
of the Request for Letter of Credit and the original counterpart of the letter
of credit application and agreement to the proposed Issuer.
(c) Provided that the proposed Issuer agrees to issue the requested Letter
of Credit, and provided further that Agent has not determined that a condition
to such issuance referred to in Section 6.2 has not been satisfied, not later
-----------
than 12:00 noon (Dallas, Texas time) on the date Borrower requests that such
Letter of Credit be issued, Issuer shall issue such Letter of Credit and deliver
the same to the beneficiary
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<PAGE>
thereof and shall promptly thereafter deliver the notice to each other Bank
referenced in Section 2.1(b) with respect to such Letter of Credit.
--------------
SECTION 2.4. Notes. Each Bank's Commitment Percentage of the Loan shall
-----
be evidenced by a single Note payable to the order of such Bank in an amount
equal to such Bank's Commitment.
SECTION 2.5. Refunding of Eurodollar Advances. Upon the expiration of
--------------------------------
each Interest Period, each Eurodollar Advance subject to such Interest Period
shall, subject to Sections 2.2 and 6.2, be refinanced pursuant to a Refunding
------------ ---
Borrowing; provided, that, no Refunding Borrowing shall be made with respect to
-------- ----
any Advance upon the expiration of the Interest Period applicable thereto which
is required to be repaid on such date pursuant to Section 3.3. The procedure
-----------
contemplated by this Section 2.5 for refinancing Advances on the expiration of
-----------
the Interest Period applicable thereto with Refunding Borrowings is solely for
the purpose of determining the interest rate applicable to Advances hereunder,
and no repayment or new advance of funds will be deemed to occur as a result of
the expiration of an Interest Period and the refinancing of the Advances subject
thereto with a Refunding Borrowing.
SECTION 2.6. Interest Rates. (a) Subject to Section 4.4, each Base Rate
-------------- -----------
Advance shall bear interest on the outstanding principal balance thereof at a
rate per annum equal to the sum of the Applicable Margin plus the Base Rate in
effect from day to day, each change in the Base Rate to be effective without
notice to Borrower on the effective date of each such change; provided that, in
-------- ----
no event shall the rate charged hereunder or under the Notes exceed the Maximum
Lawful Rate. Interest on each Base Rate Advance shall be payable each March 31,
June 30, September 30 and December 31 and on the Termination Date.
(b) Subject to Section 4.4, each Eurodollar Advance shall bear
-----------
interest on the outstanding principal amount thereof for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the Applicable
Margin plus the applicable Adjusted Eurodollar Rate; provided that, in no event
-------- ----
shall the rate charged hereunder or under the Notes exceed the Maximum Lawful
Rate. Interest on each Eurodollar Advance having an Interest Period of one (1),
two (2) or three (3) months shall be payable on the last day of the Interest
Period applicable thereto. Interest on each Eurodollar Advance having an
Interest Period of six (6) months shall be payable on the last day of the
Interest Period applicable thereto and on each June 30, September 30, December
31 and March 31 during such Interest Period.
(c) Agent shall determine each interest rate applicable to the Loan
(or any portion thereof) in accordance with the terms hereof. Agent shall
promptly notify Borrower and Banks by telex or cable or telecopy of each rate of
interest so determined, and its determination thereof shall be conclusive in the
absence of manifest error.
(d) Notwithstanding the foregoing, if at any time the rate of interest
calculated with reference to the Base Rate or the Eurodollar Rate hereunder (the
"Contract Rate") is limited to the Maximum Lawful Rate, any subsequent
-------------
reductions in the Contract Rate shall not reduce the rate of interest on the
Loan (or any portion thereof) below the Maximum Lawful Rate until the total
amount of interest accrued equals the amount of interest which would have
accrued if the Contract Rate had at all times been in effect. In the event that
at maturity (stated or by acceleration), or at final payment of any Note, the
total amount of interest paid or accrued on such Note is less than the amount of
interest which would have accrued if the Contract Rate had at all times been in
effect with respect thereto, then at such time, to the
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<PAGE>
extent such payment would not result in a violation of a Law, Borrower shall be
obligated to pay to the holder of such Note an amount equal to the difference
between (i) the lesser of (a) the amount of interest which would have accrued if
the Contract Rate had at all times been in effect, and (b) the amount of
interest which would have accrued if the Maximum Lawful Rate had at all times
been in effect, and (ii) the amount of interest actually paid on such Note.
SECTION 2.7. Mandatory Termination of Commitments. The Commitments shall
------------------------------------
terminate on the Termination Date, at which time the Loan (together with all
accrued interest thereon) shall be due and payable in full.
SECTION 2.8. Voluntary Reduction of Commitments. Borrower may, by
-----------------------------------
notice to Agent one (1) Domestic Business Day prior to the effective date of any
such reduction, reduce the Total Commitment (and thereby reduce the Commitment
of each Bank ratably) in amounts not less than $1,000,000 or any larger multiple
of $100,000. On the effective date of any such reduction, Borrower shall, to
the extent required as a result of such reduction, make a principal payment on
the Loan (together with accrued interest thereon) in an amount sufficient to
cause the principal balance of the Loan to be equal to or less than the Total
Commitment as thereby reduced. Notwithstanding the foregoing, Borrower shall
not be permitted to voluntarily reduce the Total Commitment to an amount less
than the aggregate Letter of Credit Exposure of all Banks.
SECTION 2.9. Commitment Fee. On the Termination Date and on the last day
--------------
of each June, September, December and March prior to the Termination Date,
commencing on March 31, 1998, Borrower shall pay to Agent for the ratable
benefit of each Bank, a commitment fee equal to the Commitment Fee Percentage in
effect from day to day (computed on the basis of actual days elapsed and as if
each calendar year consisted of 360 days) on the average daily Unused
Availability for the calendar quarter ending on such date.
SECTION 2.10. Agency Fee. Borrower shall pay to Agent such fees and
----------
other amounts as Borrower shall be required to pay to Agent from time to time
pursuant to any separate agreement between Borrower and Agent. Such fees and
other amounts shall be retained by Agent, and no Bank (other than Agent) shall
have any interest therein.
ARTICLE III
BORROWING BASE
SECTION 3.1. Reserve Report; Proposed Borrowing Base. As soon as
---------------------------------------
available and in any event by February 20 and August 20 of each year, Borrower
shall deliver to each Bank a Reserve Report prepared as of the immediately
preceding January 1 and July 1, respectively. Simultaneously with each delivery
of such Reserve Report, Borrower shall notify each Bank of the Borrowing Base
requested by Borrower to become effective on the next Determination Date.
SECTION 3.2. Determination of Borrowing Base. Based in part on the
-------------------------------
Reserve Reports delivered pursuant to Section 3.1, Banks shall determine the
-----------
Borrowing Base to become effective on the next succeeding Determination Date in
accordance with the procedure set forth in Section 3.5 hereof; provided,
--------
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<PAGE>
that, in no event shall the Borrowing Base (a) exceed the Borrowing Base
- ----
requested by Borrower pursuant to Section 3.1, or (b) exceed the Maximum
-----------
Borrowing Base at any time on or after the Conversion Date. Subject to the
foregoing and to Banks' consistent application of their respective standards for
similar credits (which may vary from Bank to Bank), the Borrowing Base shall be
determined by Banks in their sole discretion, but in accordance with the
procedures set forth in Section 3.5 hereof. Without limiting the discretion of
-----------
Banks in determining the Borrowing Base, Borrower acknowledges and agrees that,
subject as aforesaid, Banks (i) may make such assumptions regarding appropriate
existing and projected pricing for hydrocarbons as they deem appropriate in
their sole discretion, (ii) may make such assumptions regarding projected rates
and quantities of future production of hydrocarbons from the Mineral Interests
owned by Borrower and its Subsidiaries as they deem appropriate in their sole
discretion, (iii) may consider the projected cash requirements of Borrower and
its Subsidiaries, (iv) are not required to consider any asset other than Mineral
Interests, (v) will give no consideration to any asset owned by a Person other
than Borrower and Subsidiary Guarantors, and (vi) may make such other
assumptions, considerations and exclusions as Banks deem appropriate in the
exercise of their sole discretion. Agent shall notify Borrower of the Borrowing
Base to become effective on each Determination Date no later than 2:00 p.m.,
Dallas, Texas time on such Determination Date.
SECTION 3.3. Borrowing Base Deficiency. (a) If, on any Determination
-------------------------
Date, a Borrowing Base Deficiency exists as a result of a redetermination of the
Borrowing Base on such date, Borrower shall either (i) on or before the
thirtieth (30th) day following such Determination Date, make a prepayment of
principal on the Loan in an amount equal to the amount of such Borrowing Base
Deficiency, or (ii) make six (6) equal consecutive monthly prepayments of
principal on the Loan, each of which shall be in the amount of one sixth
(1/6th) of such Borrowing Base Deficiency. The first of such six (6)
prepayments shall be due on the thirtieth (30th) day following such
Determination Date, and each subsequent prepayment shall be due on the same day
of each month thereafter (or if there is no corresponding day of any subsequent
month, then on the last day of such month).
(b) If a Borrowing Base Deficiency occurs or an existing Borrowing Base
Deficiency increases as a result of any quarterly reduction of the Maximum
Borrowing Base, then, on the date of such quarterly reduction in the Maximum
Borrowing Base, Borrower shall make a prepayment of principal on the Loan in
the amount of such Borrowing Base Deficiency. For purposes of this Section
-------
3.3(b) and Section 3.3(a) above, if (i) a Determination Date is also the date of
- ------ --------------
any quarterly reduction in the Maximum Borrowing Base, and (ii) the Borrowing
Base in effect immediately prior to such Determination Date is higher than the
amount of the Maximum Borrowing Base as reduced on such Determination Date, then
the reduction in the Borrowing Base which becomes effective on such
Determination Date will be deemed to have resulted from the reduction in the
Maximum Borrowing Base to the extent of the difference between the Borrowing
Base in effect immediately prior to such Determination Date and the Maximum
Borrowing Base in effect as reduced on such Determination Date.
SECTION 3.4. Initial Borrowing Base. Notwithstanding anything to the
----------------------
contrary contained herein, the Borrowing Base shall be $80,000,000 for the
period commencing on the date hereof and continuing until the first
Determination Date after the Closing Date.
SECTION 3.5. Procedure for Determining Borrowing Base. Following
----------------------------------------
delivery of each Reserve Report required to be delivered to Banks pursuant to
Section 3.1, Banks shall attempt to mutually agree among themselves on the
- -----------
Borrowing Base to become effective on the next Determination Date. In the
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<PAGE>
event (a) such Borrowing Base represents an increase from the Borrowing Base in
effect prior to such Determination Date, such Borrowing Base shall be approved
by all Banks, and (b) such Borrowing Base represents a decrease in the Borrowing
Base in effect prior to such Determination Date, or a reaffirmation of such
prior Borrowing Base, such Borrowing Base shall be approved by Banks holding
seventy-five percent (75%) of the Total Commitment (whenever such decision is
reached).
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1. Delivery and Endorsement of Notes. Simultaneously with the
---------------------------------
execution of this Agreement, Agent shall deliver to each Bank the Notes payable
to such Bank referenced in Section 6.1(a). Each Bank may endorse (and prior to
--------------
any transfer of its Note shall endorse) on the schedules forming a part thereof
appropriate notations to evidence the date and amount of each Advance made by
it, the Interest Period applicable thereto, and the date and amount of each
payment of principal made by Borrower with respect thereto; provided that, the
-------- ----
failure by any Bank to so endorse any Note held by it shall not affect the
liability of the maker of such Note for the repayment of all amounts outstanding
under such Note together with interest thereon. Each Bank is hereby irrevocably
authorized by Borrower to endorse its Notes and to attach to and make a part of
any Note a continuation of any such schedule as required.
SECTION 4.2. General Provisions as to Payments. (a) Each payment of
---------------------------------
principal of, and interest on, the Loan and all fees payable hereunder shall be
paid not later than 12:00 noon (Dallas, Texas time) on the date when due, in
Federal or other immediately available funds to Agent at its address referred to
in Section 13.1.
------------
(b) Prior to the occurrence of an Event of Default, all principal
payments received by Banks shall be applied, first, to Advances with Interest
Periods ending on the date of such payment, then to Base Rate Advances, then to
Eurodollar Advances (as Borrower shall elect but in the absence of such
election, in such order as Agent shall elect), next maturing until such
principal payment is fully applied, with such adjustments in such order of
payment as Agent shall specify in order that each Bank receives its ratable
share of each such payment.
(c) After the occurrence of an Event of Default, all amounts collected
or received by Agent or any Bank shall be applied first to the payment of all
proper costs incurred by Agent in connection with the collection thereof
(including reasonable expenses and disbursements of Agent), second to the
payment of all proper costs incurred by Banks in connection with the collection
thereof (including reasonable expenses and disbursements of Banks, but only to
the extent Borrower is obligated therefor under the Loan Papers), third to the
reimbursement of any advances made by Banks to effect performance of any
unperformed covenants of Borrower under any of the Loan Papers, fourth to the
payment of any unpaid agency fees required pursuant to Section 2.10, fifth to
------------
the payment of any unpaid interest on the Loan or any unpaid fees required
pursuant to Sections 2.1(b) and 2.9, and sixth, to payment of the Loan in the
--------------- ---
manner provided in Section 4.2(b).
--------------
SECTION 4.3. Computation of Interest. Interest payable on the Loan
-----------------------
hereunder shall be computed based on the number of actual days elapsed assuming
that each calendar year consisted of 360
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<PAGE>
days. The annual rates of interest to which rates determined assuming a calendar
year of 360 days are equivalent, are the rates so determined multiplied by the
actual number of days in a period of one (1) year commencing on the first day of
the period for which such interest is payable and divided by 360.
SECTION 4.4. Overdue Principal and Interest. Any overdue principal of
------------------------------
and, to the extent permitted by Law, overdue interest on the Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of three percent (3%) plus the Base Rate.
SECTION 4.5. Limitation on Number of Eurodollar Advances. Unless
-------------------------------------------
otherwise agreed by Agent with the consent of Majority Banks, there may be no
more than six (6) Eurodollar Borrowings outstanding at any time in favor of each
Bank.
ARTICLE V
CHANGE IN CIRCUMSTANCES
SECTION 5.1. Increased Cost and Reduced Return.
---------------------------------
(a) If, after the date hereof, the adoption of any applicable Law, rule, or
regulation, or any change in any applicable Law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive adopted after the date hereof (whether or
not having the force of Law) of any such Governmental Authority, central bank,
or comparable agency:
(i) shall subject such Bank (or its Applicable Lending Office) to any
Tax, duty, or other charge with respect to any Eurodollar Advances, its
Note, or its obligation to make Eurodollar Advances, or change the basis of
taxation of any amounts payable to such Bank (or its Applicable Lending
Office) under this Agreement or its Note in respect of any Eurodollar
Advances (other than Taxes imposed on the overall net income of such Bank
by the jurisdiction in which such Bank has its principal office or such
Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, or similar requirement (other than the Reserve
Requirement utilized in the determination of the Adjusted Eurodollar Rate)
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities or commitments of, such Bank (or its Applicable
Lending Office), including the Commitment of such Bank hereunder; or
(iii) shall impose on such Bank (or its Applicable Lending Office) or
on the London interbank market any other condition affecting this Agreement
or its Note or any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Advances or to reduce any sum
-25-
<PAGE>
received or receivable by such Bank (or its Applicable Lending Office) under
this Agreement or its Note with respect to any Eurodollar Advances, then
Borrower shall pay to such Bank on demand such amount or amounts as will
compensate such Bank for such increased cost or reduction. If any Bank requests
compensation by Borrower under this Section 5.1(a), Borrower may, by notice to
--------------
such Bank (with a copy to Agent), suspend the obligation of such Bank to make or
Continue Advances of the Type with respect to which such compensation is
requested, or to Convert Advances of any other Type into Advances of such Type,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.4 shall be applicable); provided that
----------- --------
such suspension shall not affect the right of such Bank to receive the
compensation so requested.
(b) If, after the date hereof, any Bank shall have determined that the
adoption of any applicable Law, rule, or regulation regarding capital adequacy
or any change therein or in the interpretation or administration thereof by any
Governmental Authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive adopted
after the date hereof regarding capital adequacy (whether or not having the
force of Law) of any such Governmental Authority, central bank, or comparable
agency, has or would have the effect of reducing the rate of return on the
capital of such Bank or any corporation controlling such Bank as a consequence
of such Bank's obligations hereunder to a level below that which such Bank or
such corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank for such
reduction.
(c) Each Bank shall promptly notify Borrower and Agent of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Bank to compensation pursuant to this Section 5.1 and will designate a different
-----------
Applicable Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Bank, be
otherwise disadvantageous to it. Any Bank claiming compensation under this
Section 5.1 shall furnish to Borrower and Agent a statement setting forth the
- -----------
additional amount or amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.
SECTION 5.2. Limitation on Types of Advances. If on or prior to the
-------------------------------
first day of any Interest Period for any Eurodollar Advance:
(a) Agent determines (which determination shall be conclusive) that by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such Interest
Period; or
(b) Majority Banks determine (which determination shall be conclusive) and
notify Agent that the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to Banks of funding Eurodollar Advances for such Interest
Period;
then Agent shall give Borrower prompt notice thereof specifying the relevant
Type of Advances and the relevant amounts or periods, and so long as such
condition remains in effect, Banks shall be under no obligation to make
additional Advances of such Type, Continue Advances of such Type, or to Convert
Advances of any other Type into Advances of such Type and Borrower shall, on the
last day(s) of the then
-26-
<PAGE>
current Interest Period(s) for the outstanding Advances of the affected Type,
either prepay such Advances or Convert such Advances into another Type of
Advance in accordance with the terms of this Agreement.
SECTION 5.3. Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to make, maintain, or fund Eurodollar Advances hereunder, then
such Bank shall promptly notify Borrower thereof and such Bank's obligation to
make or Continue Eurodollar Advances and to Convert other Types of Advances into
Eurodollar Advances shall be suspended until such time as such Bank may again
make, maintain, and fund Eurodollar Advances (in which case the provisions of
Section 5.4 shall be applicable).
- -----------
SECTION 5.4. Treatment of Advances. If the obligation of any Bank to
---------------------
make a Eurodollar Advance or to Continue, or to Convert Advances of any other
Type into, Eurodollar Advances shall be suspended pursuant to Section 5.1 or 5.3
----------- ---
hereof, such Bank's Eurodollar Advances shall be automatically Converted into
Base Rate Advances on the last day(s) of the then current Interest Period(s) for
Eurodollar Advances (or, in the case of a Conversion required by Section 5.3
-----------
hereof, on such earlier date as such Bank may specify to Borrower with a copy to
Agent) and, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.1 or 5.3 hereof that gave rise to such
----------- ---
Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Advances have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Bank's Eurodollar Advances shall be applied instead to its Base
Rate Advances; and
(b) all Advances that would otherwise be made or Continued by such Bank as
Eurodollar Advances shall be made or Continued instead as Base Rate Advances,
and all Advances of such Bank that would otherwise be Converted into Eurodollar
Advances shall be Converted instead into (or shall remain as) Base Rate
Advances.
If such Bank gives notice to Borrower (with a copy to Agent) that the
circumstances specified in Section 5.1 or 5.3 hereof that gave rise to the
----------- ---
Conversion of such Bank's Eurodollar Advances pursuant to this Section 5.4 no
-----------
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Advances made by other Banks are
outstanding, such Bank's Base Rate Advances shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Advances to the extent necessary so that, after giving effect
thereto, all Advances held by Banks holding Eurodollar Advances are held pro
rata (as to principal amounts, Types, and Interest Periods) in accordance with
their respective Commitments.
SECTION 5.5. Compensation. Upon the request of any Bank, Borrower shall
------------
pay to such Bank such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost, or expense
incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Advance for any
reason (including, without limitation, the acceleration of the Loan pursuant to
Section 11.1) on a date other than the last day of the Interest Period for such
- ------------
Advance; or
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<PAGE>
(b) any failure by Borrower for any reason (including, without limitation,
the failure of any condition precedent specified in Article VI to be satisfied)
----------
to borrow, Convert, Continue, or prepay a Eurodollar Advance on the date for
such Borrowing, Conversion, Continuation, or prepayment specified in the
relevant Request for Borrowing, or notice of prepayment, Continuation, or
Conversion under this Agreement.
SECTION 5.6 Taxes. (a) Any and all payments by Borrower to or for the
-----
account of any Bank or Agent hereunder or under any other Loan Paper shall be
made free and clear of and without deduction for any and all present or future
Taxes, and all liabilities with respect thereto, excluding, in the case of each
---------
Bank and Agent, Taxes imposed on its income, and franchise Taxes imposed on it,
by the jurisdiction under the Laws of which such Bank (or its Applicable Lending
Office) or Agent (as the case may be) is organized or any political subdivision
thereof. If Borrower shall be required by Law to deduct any Taxes from or in
respect of any sum payable under this Agreement or any other Loan Paper to any
Bank or Agent, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 5.6) such Bank or Agent receives an amount equal
-----------
to the sum it would have received had no such deductions been made, (ii)
Borrower shall make such deductions, (iii) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable Law, and (iv) Borrower shall furnish to Agent, at its address
set forth on the signature pages hereto, evidence of payment thereof.
(b) In addition, Borrower agrees to pay any and all present or future stamp
or documentary Taxes and any other excise or property Taxes or charges or
similar levies which arise from any payment made under this Agreement or any
other Loan Paper or from the execution or delivery of, or otherwise with respect
to, this Agreement or any other Loan Paper (hereinafter referred to as "Other
-----
Taxes").
- -----
(c) Borrower agrees to indemnify each Bank and Agent for the full amount of
Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this Section
-------
5.6) paid by such Bank or Agent (as the case may be) and any liability
- ---
(including penalties, interest, and expenses) arising therefrom or with respect
thereto.
(d) Each Bank organized under the Laws of a jurisdiction outside the United
States, on or prior to the date of its execution and delivery of this Agreement
in the case of each Bank listed on the signature pages hereto and on or prior to
the date on which it becomes a Bank in the case of each other Bank, and from
time to time thereafter if requested in writing by Borrower or Agent (but only
so long as such Bank remains lawfully able to do so), shall provide Borrower and
Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Bank is entitled to benefits under an income Tax treaty to which the United
States is a party which reduces the rate of withholding Tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and (iii) any other
form or certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Code), certifying that such Bank
is entitled to an exemption from or a reduced rate of Tax on payments pursuant
to this Agreement or any of the other Loan Papers.
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<PAGE>
(e) For any period with respect to which a Bank has failed to provide
Borrower and Agent with the appropriate form pursuant to Section 5.6(d) (unless
--------------
such failure is due to a change in treaty, Law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Bank shall not be entitled to indemnification under Section 5.6(a) or
--------------
5.6(b) with respect to Taxes imposed by the United States; provided, however,
- ------ -------- -------
that should a Bank, which is otherwise exempt from or subject to a reduced rate
of withholding Tax, become subject to Taxes because of its failure to deliver a
form required hereunder, Borrower shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If Borrower is required to pay additional amounts to or for the account
of any Bank pursuant to this Section 5.6, then such Bank will agree to use
-----------
reasonable efforts to change the jurisdiction of its Applicable Lending Office
so as to eliminate or reduce any such additional payment which may thereafter
accrue if such change, in the judgment of such Bank, is not otherwise
disadvantageous to such Bank.
(g) Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to Agent evidence of such payment.
(h) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
-------
5.6 shall survive the termination of the Commitments and the payment in full of
- ---
the Notes.
SECTION 5.7. Discretion of Banks as to Manner of Funding.
-------------------------------------------
Notwithstanding any provisions of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of its
Advances in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if such
Bank had actually funded and maintained each Eurodollar Advance during the
Interest Period for such Eurodollar Advance through the purchase of deposits in
the London interbank market having a maturity corresponding to the last day of
such Interest Period and bearing an interest rate equal to the Eurodollar Rate
for such Interest Period.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Initial Borrowing and Participation in Letter
-----------------------------------------------------------
of Credit Exposure. The obligation of each Bank to make an Advance in
- ------------------
connection with the initial Borrowing under the Loan and to participate in
Letter of Credit Exposure hereunder is subject to the satisfaction of each of
the following conditions:
(a) Closing Deliveries. Agent shall have received each of the
------------------
following documents, instruments and agreements, each of which shall be in date,
form and substance and executed in such counterparts as shall be acceptable to
Agent:
(i) a Note payable to the order of each Bank in the amount such
Bank's Commitment, duly executed by Borrower;
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<PAGE>
(ii) a Subsidiary Guaranty, duly executed by each Initial Subsidiary
Guarantor;
(iii) copies of the certificate of incorporation, bylaws, partnership
agreement, regulations, operating agreements, certificate of limited partnership
or other comparable organizational documents of Borrower and each Initial
Subsidiary Guarantor, accompanied by a certificate of an Authorized Officer of
each such Person certifying that such copies are true and correct copies of such
documents and that such documents have not been amended, modified or revoked in
any respect and are in full force and effect as of the date of such certificate;
(iv) certain certificates and other documents issued by appropriate
Governmental Authorities of such jurisdictions as Agent has requested, relating
to the existence of Borrower and each Initial Subsidiary Guarantor and to the
effect that Borrower and each Initial Subsidiary Guarantor is in good standing
with respect to the payment of franchise and similar Taxes and is duly qualified
to transact business in such jurisdictions;
(v) a certificate of incumbency of all officers of Borrower and
each Initial Subsidiary Guarantor who will be authorized to execute or attest to
any Loan Paper, executed by an Authorized Officer of Borrower or such
Subsidiaries (as applicable);
(vi) copies of resolutions approving the Loan Papers and authorizing
the transactions contemplated by this Agreement and the other Loan Papers, duly
adopted by the Boards of Directors of Borrower and each Initial Subsidiary
Guarantor accompanied by certificates of an Authorized Officer of Borrower and
each Initial Subsidiary Guarantor, that such copies are true and correct copies
of resolutions duly adopted at meetings of or (if permitted by applicable Law
and, if required by such Law, by the Bylaws of Borrower and each Initial
Subsidiary Guarantor, [as applicable]) by the unanimous written consent of the
Boards of Directors of Borrower and each Initial Subsidiary Guarantor, and that
such resolutions have not been amended, modified, or revoked in any respect, and
are in full force and effect as of the date hereof;
(vii) an opinion of Thompson & Knight, P.C., counsel for Borrower and
each Initial Subsidiary Guarantor favorably opining as to the enforceability of
each of the Loan Papers and otherwise in form and substance satisfactory to
Agent;
(viii) a certificate signed by an Authorized Officer of Borrower
stating that (i) the representations and warranties contained in this Agreement
are true and correct in all material respects, (ii) no Default has occurred and
none is in existence, and (iii) all conditions set forth in Section 6.2 have
-----------
been satisfied; and
(ix) such other documents, instruments, agreements and actions as may
reasonably be required by Agent.
(b) Refinancing of Existing Credit Agreement. Borrower shall have
----------------------------------------
refinanced in full (or simultaneously with the initial Borrowing hereunder,
Borrower shall refinance in full with proceeds of a Borrowing under this
Agreement), (i) all Obligations accrued and outstanding under the Existing
Credit Agreement as of the Closing Date, including, without limitation, the
entire outstanding principal balance of the Loan made (and as defined)
thereunder, (ii) all accrued but unpaid interest in connection therewith,
-30-
<PAGE>
(iii) all accrued but unpaid commitment, borrowing base increase, letter of
credit, agency and other fees thereunder, and (iv) all amounts payable under
Section 5.1 of the Existing Credit Agreement as a result of the prepayment of
- -----------
the other Obligations thereunder. Contemporaneous with such refinancing, the
Existing Credit Agreement shall have been terminated and all obligations of
Borrower and its Subsidiaries thereunder shall have been paid and performed in
full.
(c) No Material Adverse Change. In the sole discretion of each Bank,
--------------------------
since June 30, 1997, no Material Adverse Change shall have occurred.
(d) No Legal Prohibition. The transactions contemplated by this
--------------------
Agreement and the other Loan Papers shall be permitted by applicable Law and
regulation and shall not subject Agent, any Bank, Borrower or any of its
Subsidiaries to any Material Adverse Change.
(e) No Litigation. No litigation, arbitration or similar proceeding
-------------
shall be pending which calls into question the validity or enforceability of
this Agreement or the other Loan Papers.
(f) Closing Fees. Borrower shall have paid all fees and other amounts
------------
then due pursuant to Section 2.10.
------------
(g) Designated Senior Indebtedness. Borrower shall have delivered
------------------------------
written notice to the Trustee under the Subordinate Notes Indenture, specifying
that Borrower has entered into this Agreement and that the Obligations
constitute "Designated Senior Indebtedness" as defined in such Indenture.
(h) Other Matters. All matters related to this Agreement, the other
-------------
Loan Papers, Borrower and its Subsidiaries shall be acceptable to Agent and each
Bank in their sole discretion, and Borrower shall have delivered to Agent and
each Bank such evidence as they shall request to substitute any matters related
to this Agreement, the other Loan Papers, Borrower and its Subsidiaries as Agent
or any Bank shall request.
SECTION 6.2. Conditions to Each Borrowing and Participation in Letter of
-----------------------------------------------------------
Credit Exposure. The obligation of each Bank to make an Advance on each
- ---------------
Borrowing and to participate in Letter of Credit Exposure hereunder is subject
to the further satisfaction of each of the following conditions:
(a) timely receipt by Agent of a Notice of Borrowing or a Request for
a Letter of Credit (as applicable);
(b) unless such Borrowing is a Refunding Borrowing comprised of Base
Rate Advances, immediately before and after giving effect to such Borrowing or
issuance of such Letter of Credit, no Default shall have occurred and be
continuing and the making of any Advance in connection with such Borrowing or
the issuance of the requested Letter of Credit (as applicable) shall not cause a
Default;
(c) unless such Borrowing is a Refunding Borrowing, the
representations and warranties of Borrower contained in this Agreement shall be
true and correct in all material respects, on and as of the date of such
Borrowing or issuance of such Letter of Credit (as applicable); and
-31-
<PAGE>
(d) the sum of the amount of the requested Borrowing or the amount of
the requested Letter of Credit plus the Outstanding Credit prior to giving
effect to such Borrowing and prior to issuance of such Letter of Credit shall
not exceed the Borrowing Base then in effect.
Each Borrowing and the issuance of each Letter of Credit hereunder shall
constitute a representation and warranty by Borrower on the date of such
Borrowing or issuance of such Letter of Credit as to the facts specified in
Sections 6.2(b) through (d). Notwithstanding the foregoing, each Bank and Agent
- --------------- ---
hereby agree that if, at the expiration of any Interest Period, Borrower has not
given Agent in a timely manner either (i) a Notice of Borrowing pursuant to
which Borrower has requested a Borrowing at least in an amount sufficient to
refinance in full the Advances maturing on the expiration of such Interest
Period, or (ii) notice of its intent to repay all Advances maturing on the
expiration of such Interest Period, Borrower will be deemed to have requested a
Refunding Borrowing which shall be a Base Rate Borrowing to be made on the
expiration of such Interest Period in an amount equal to the Advances then
maturing for the purpose of refinancing all such Advances, and in such
circumstances, Borrower will not be required to satisfy the conditions precedent
to such Base Rate Borrowing set forth in Section 2.2(a) and Section 6.2(a).
-------------- --------------
SECTION 6.3. Materiality of Conditions. Each condition precedent herein
-------------------------
is material to the transactions contemplated herein, and time is of the essence
in respect of each thereof.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and each Bank as follows:
SECTION 7.1. Existence and Power. Each of Borrower and its Subsidiaries
-------------------
(a) is duly incorporated or duly organized, as applicable, validly existing and
in good standing under the Laws of its respective jurisdiction of incorporation,
(b) has all power and all material governmental licenses, authorizations,
consents and approvals required to carry on its businesses as now conducted and
as proposed to be conducted, and (c) is duly qualified to transact business in
each jurisdiction where a failure to be so qualified could have a Material
Adverse Effect.
SECTION 7.2. Necessary Authorization; Contravention. The execution,
--------------------------------------
delivery and performance of this Agreement, the Notes and the other Loan Papers
by Borrower and each Subsidiary of Borrower are within Borrower's and each such
Subsidiary's corporate, partnership or limited liability company powers, when
executed will be duly authorized by all necessary partnership or limited
liability company action, require no action by or in respect of, or filing with,
any Governmental Authority and do not contravene, or constitute a default under,
any provision of applicable Law (including, without limitation, the Margin
Regulations) or of the certificates of incorporation, bylaws, partnership
agreement, operating agreement, regulations or comparable charter documents of
Borrower or any of its Subsidiaries or of any agreement, judgment, injunction,
order, decree or other instrument binding upon Borrower or any of its
Subsidiaries or result in the creation or imposition of any Lien on any asset of
Borrower or any of its Subsidiaries.
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<PAGE>
SECTION 7.3. Binding Effect. This Agreement constitutes a valid and
--------------
binding agreement of Borrower; the Notes and the other Loan Papers when executed
and delivered in accordance with this Agreement, will constitute valid and
binding obligations of Borrower and each of its Subsidiaries executing same; and
each Loan Paper is enforceable in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy, insolvency or similar Laws
affecting creditors rights generally, or by equitable principles of general
applicability.
SECTION 7.4. Financial Information. (a) The most recent annual audited
---------------------
consolidated balance sheet of Borrower and the related consolidated statements
of operations and cash flows for the fiscal year then ended, copies of which
have been delivered to each Bank, fairly present, in conformity with GAAP, the
consolidated financial position of Borrower as of the end of such fiscal year
and its consolidated results of operations and cash flows for such fiscal year.
(b) The most recent quarterly unaudited consolidated balance sheet of
Borrower delivered to Banks, and the related unaudited consolidated statements
of operations and cash flows for the portion of Borrower's fiscal year then
ended, fairly present, in conformity with GAAP applied on a basis consistent
with the financial statements referred to in Section 7.4(a), the consolidated
--------------
financial position of Borrower as of such date and its consolidated results of
operations and cash flows for such portion of Borrower's fiscal year.
(c) Except as disclosed in writing to Banks prior to the execution
and delivery of this Agreement, since the date of the most recent quarterly
consolidated balance sheet and consolidated statements of operations and cash
flow delivered to each Bank for Borrower, there has been no Material Adverse
Change.
SECTION 7.5. Litigation. Except for matters disclosed on Schedule 1
---------- ----------
attached hereto, there is no action, suit or proceeding pending against, or to
the knowledge of Borrower, threatened against or affecting Borrower or any of
its Subsidiaries before any Governmental Authority in which there is a
reasonable possibility of an adverse decision which would have a Material
Adverse Effect, or which is reasonably expected to draw into question the
validity of the Loan Papers in any material respect.
SECTION 7.6. ERISA. Neither Borrower nor any ERISA Affiliate maintains
-----
or contributes to any Plan other than those disclosed to Agent in writing. Each
Plan maintained by Borrower or any ERISA Affiliate is in compliance in all
material respects with the applicable provisions of ERISA, the Code and any
other applicable Federal or state Law, rule or regulation. No Plan of Borrower
or any ERISA Affiliate has been terminated under section 4041(c) of ERISA nor
has any "accumulated funding deficiency" (as defined in section 412(a) of the
Code) been incurred (without regard to any waiver granted under section 412 of
the Code), nor has any funding waiver from the Internal Revenue Service been
received or requested. Neither Borrower nor any ERISA Affiliate has failed to
make any contribution or pay any amount due or owing as required by the terms of
any Plan, or by section 412 of the Code or section 302 of ERISA. There are no
pending or, to the best of Borrower's knowledge, threatened claims, lawsuits or
actions (other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither Borrower nor any ERISA Affiliate has
knowledge of any threatened litigation or claims against, the assets of any Plan
or its related trust or against any fiduciary of a Plan with respect to the
operation of such Plan that are likely to result in liability of Borrower having
a Material Adverse Effect. Neither Borrower nor any ERISA Affiliate has
incurred any material withdrawal liability (and no event has
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<PAGE>
occurred which with the giving of notice under section 4219 of ERISA would
result in such liability) under section 4201 of ERISA as a result of a complete
or partial withdrawal (within the meaning of section 4203 or 4205 or ERISA) from
a multiemployer plan, or any material liability under section 4062 of ERISA to
the PBGC or to a trustee appointed under section 4042 of ERISA. Neither
Borrower, any ERISA Affiliate nor any organization to which Borrower or any
ERISA Affiliate is a successor or parent corporation within the meaning of
section 4069(b) of ERISA, has engaged in a transaction within the meaning of
section 4069(a) of ERISA. Each Plan that is intended to be "qualified" within
the meaning of section 401(a) of the Code is, and has been during the period
from its adoption to date, so qualified, both as to form and operation and all
necessary governmental approvals, including a favorable determination as to the
qualification under the Code of such Plan and each amendment thereto, have been
or will be timely obtained. Neither Borrower nor any ERISA Affiliate has engaged
in any prohibited transactions, within the meaning of section 406 of ERISA or
section 4975 of the Code, in connection with any Plan which would result in
liability of Borrower having a Material Adverse Effect. Neither Borrower nor any
ERISA Affiliate maintains, has established or has ever participated in a
multiple employer welfare benefit arrangement within the meaning of section
3(40)(A) of ERISA.
SECTION 7.7. Taxes and Filing of Tax Returns. Borrower and each of its
-------------------------------
Subsidiaries have filed all material Tax returns required to have been filed and
have paid all Taxes shown to be due and payable on such returns, including
interest and penalties, and all other Taxes which are payable by such party, to
the extent the same have become due and payable, other than Taxes with respect
to which a failure to pay would not have a Material Adverse Effect or which are
being contested in good faith as permitted by Section 8.6. All Tax liabilities
-----------
of each of Borrower and its Subsidiaries including, without limitation, any
proposed material Tax assessment against it or any of its Subsidiaries, are
adequately provided for. Except as hereinafter disclosed in writing to Banks,
no income Tax liability of Borrower or any of its Subsidiaries has been asserted
by the Internal Revenue Service for Taxes in excess of those already paid.
SECTION 7.8. Ownership of Properties Generally. Borrower and each of its
---------------------------------
Subsidiaries have good and indefeasible fee simple or leasehold title to all
material properties and assets purported to be owned by them, including, without
limitation, all assets reflected in the balance sheets referred to in Section
-------
7.4 (a) and (b) and all assets which are used by Borrower and its Subsidiaries
- -------- ---
in the operation of their respective businesses, and none of such properties or
assets is subject to any Lien other than Permitted Encumbrances.
SECTION 7.9. Mineral Interests. Borrower has good and indefeasible title
-----------------
to all Mineral Interests described in the Reserve Report other than Immaterial
Mineral Interests, free and clear of all Liens except Permitted Encumbrances.
With the exception of Immaterial Mineral Interests, all such Mineral Interests
are valid, subsisting, and in full force and effect, and all rentals, royalties,
and other amounts due and payable in respect thereof have been duly paid.
Except with respect to Immaterial Mineral Interests, but without regard to any
consent or non-consent provisions of any joint operating agreement covering any
of Borrower's Proved Mineral Interests, Borrower's share of (a) the costs for
each Proved Mineral Interest described in the Reserve Report is not greater than
the decimal fraction set forth in the Reserve Report, before and after payout,
as the case may be, and described therein by the respective designations
"working interests", "WI", "gross working interest", "GWI", or similar terms,
and (b) production from, allocated to, or attributed to each such Proved Mineral
Interest is not less than the decimal fraction set forth in the Reserve Report,
before and after payout, as the case may be, and described therein by the
designations net revenue interest, NRI, or similar terms. Except with respect
to Immaterial Mineral Interests, each well
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<PAGE>
drilled in respect of each Proved Producing Mineral Interest described in the
Reserve Report (y) is capable of, and is presently, producing hydrocarbons in
commercially profitable quantities, and Borrower is currently receiving payments
for its share of production, with no funds in respect of any thereof being
presently held in suspense, other than any such funds being held in suspense
pending delivery of appropriate division orders, and (z) has been drilled,
bottomed, completed, and operated in compliance with all applicable Laws and no
such well which is currently producing hydrocarbons is subject to any penalty in
production by reason of such well having produced in excess of its allowable
production. For purposes of this Section 7.9, "Immaterial Mineral Interests"
-----------
means Mineral Interests which, in the aggregate, do not represent more than five
percent (5%) of the discounted present value of all Mineral Interests as set
forth in the Reserve Report.
SECTION 7.10. Material Agreements. Borrower and each of its Subsidiaries
-------------------
have complied in all material respects with all obligations required to be
performed by them under all Material Agreements, except to the extent a failure
to comply could not reasonably be expected to have a Material Adverse Effect.
Borrower is not aware of any default by any other party to any Material
Agreement.
SECTION 7.11. Licenses, Permits, Etc. Borrower and each of its
----------------------
Subsidiaries possess such valid franchises, certificates of convenience and
necessity, operating rights, licenses, permits, consents, authorizations,
exemptions and orders of Governmental Authorities, as are necessary to carry on
their respective businesses as now conducted and as proposed to be conducted,
except to the extent a failure to obtain any such item would not have a Material
Adverse Effect.
SECTION 7.12. Compliance with Law. The business and operations of
-------------------
Borrower and its Subsidiaries have been and are being conducted in accordance
with all applicable Laws other than violations of Laws which do not (either
individually or collectively) have a Material Adverse Effect.
SECTION 7.13. Full Disclosure. All information heretofore furnished by
---------------
Borrower (or any other party on Borrower's behalf) to Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all such information hereafter furnished by Borrower or in its
behalf to Agent or any Bank will be, true, complete and accurate in every
material respect or (to the extent disclosed) based on reasonable estimates on
the date as of which such information is stated or certified. Borrower has
disclosed to Banks in writing any and all facts (other than facts of general
public knowledge) which might reasonably be expected to have a Material Adverse
Effect.
SECTION 7.14. Corporate Structure. Schedule 2 attached hereto contains a
------------------- ----------
complete and accurate (as of the date hereof) (a) list of all Subsidiaries of
Borrower, (b) description of the issued and outstanding capital stock of each
Subsidiary, (c) list of all the record owners of such capital stock or other
equity interests on the date hereof, and (d) list of each partnership or joint
venture in which Borrower or any Subsidiary of Borrower is a partner or joint
venturer; provided, that, Banks acknowledge that certain third party operators
-------- ----
of Mineral Interests owned jointly by Borrower and other Persons prepare
partnership Tax returns with respect to those properties and the joint ownership
interests; provided, further, that, Mineral Interests owned by Borrower
-------- ------- ----
representing no more than two percent (2%) of all Mineral Interests owned by
Borrower (based on the discounted present values set forth in the Reserve
Report) are subject to such reporting.
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<PAGE>
SECTION 7.15. Environmental Matters. No real or personal property owned
---------------------
or leased by Borrower or any Subsidiary of Borrower (including, without
limitation, Mineral Interests owned by Borrower and its Subsidiaries) and no
operations conducted thereon, and to Borrower's knowledge, no operations of any
prior owner, lessee or operator of any such properties, is or has been in
violation of any Applicable Environmental Law other than violations which
neither individually or in the aggregate will have a Material Adverse Effect.
Neither Borrower, any Subsidiary of Borrower, nor any such property or operation
is the subject of any existing, pending or, to Borrower's knowledge, threatened
action, suit, investigation, inquiry or proceeding with respect to Applicable
Environmental Laws which is reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect. All notices, permits, licenses, and similar
authorizations, required to be obtained or filed in connection with the
ownership or operation of each tract of real property and each item of personal
property owned, leased or operated by Borrower or any of its Subsidiaries,
including, without limitation, notices, licenses, permits and authorizations
required in connection with any past or present treatment, storage, disposal, or
release of hazardous substances, petroleum, or solid waste into the environment,
have been duly obtained or filed except to the extent the failure to obtain or
file such notices, licenses, permits and authorizations would not have a
Material Adverse Effect. To Borrower's knowledge, all hazardous substances
generated at each tract of real property and by each item of personal property
owned, leased or operated by Borrower or any of its Subsidiaries have been
transported, treated, and disposed of only by carriers maintaining valid permits
under all Applicable Environmental Laws. There has been no release or
threatened release of any quantity of any hazardous substances or petroleum on,
to or from any real or personal property owned, leased, or operated by Borrower
or any Subsidiary which was not in compliance with Applicable Environmental Laws
other than releases which would not, individually or in the aggregate, have a
Material Adverse Effect. Neither Borrower nor any Subsidiary of Borrower has any
contingent liability in connection with any release or threatened release of any
hazardous substance, petroleum, or solid waste into the environment which could
reasonably be expected to have a Material Adverse Effect.
SECTION 7.16. Burdensome Obligations. Neither Borrower, nor any
----------------------
Subsidiary of Borrower, nor any of their respective properties is subject to any
restriction under its certificate (or articles) of incorporation, bylaws or
similar charter document or under any agreement or instrument to which Borrower
or any Subsidiary of Borrower is a party or by which Borrower or any Subsidiary
of Borrower or any of their respective properties may be subject or bound, which
is so unusual or burdensome as to be likely in the foreseeable future to have a
Material Adverse Effect. Without limiting the foregoing, neither Borrower nor
any of its Subsidiaries is a party to or bound by any agreement or subject to
any order of any Governmental Authority which prohibits or restricts in any way
the right of any Subsidiary of Borrower to make Distributions to Borrower
SECTION 7.17. Fiscal Year. Borrower's fiscal year is January 1 through
-----------
December 31.
SECTION 7.18. No Default. Neither a Default nor an Event of Default has
----------
occurred or will exist after giving effect to the transactions contemplated by
this Agreement.
SECTION 7.19. Government Regulation. Neither Borrower nor any of its
---------------------
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act (as any of the
preceding acts have been amended), the Investment Company Act of 1940 or any
other Law which regulates the incurring by Borrower of Debt, including, but not
limited to, Laws
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<PAGE>
relating to common contract carriers or the sale of electricity, gas, stream,
water or other public utility services.
SECTION 7.20. Insider. Neither Borrower nor any of its Subsidiaries is,
-------
and no Person having "control" (as that term is defined in 12 U.S.C. Section
375(b) or regulations promulgated thereunder) of Borrower or any of its
Subsidiaries is an "executive officer", "director" or "shareholder" of any Bank
or any bank holding company of which any Bank is a Subsidiary or of any
Subsidiary of such bank holding company.
SECTION 7.21. Gas Balancing Agreements and Advance Payment Contracts. On
------------------------------------------------------
the date of this Agreement, (a) the net gas imbalances to Borrower and its
Subsidiaries (considered in the aggregate) under all Gas Balancing Agreements to
which Borrower or any of its Subsidiaries is a party or by which any Mineral
Interest owned by Borrower or any of its Subsidiaries is bound, are not
material, and (b) the aggregate amount of all Advance Payments received by
Borrower or any of its Subsidiaries under Advance Payment Contracts which have
not been satisfied by delivery of production is not material.
SECTION 7.22. Existing Credit Agreement. As of the date hereof (or
-------------------------
immediately after the refinancing of the Existing Credit Agreement with the
initial Borrowing hereunder), (a) there is no Debt outstanding under the
Existing Credit Agreement, (b) there are no fees, including, without limitation,
letter of credit fees, due or owing under or in connection with the Existing
Credit Agreement or with respect to any letters of credit issued in connection
therewith, and (c) the only letters of credit outstanding under and in
connection with the Existing Credit Agreement are the Existing Letters of
Credit, which are henceforth deemed to be Letters of Credit outstanding
hereunder.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Borrower agrees that, so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable under
any Note remains unpaid or any Letter of Credit remains outstanding:
SECTION 8.1. Information. Borrower will deliver, or cause to be
-----------
delivered, to each Bank:
(a) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year of Borrower, consolidated and
consolidating balance sheets of Borrower as of the end of such fiscal year and
the related consolidated and consolidating statements of income and changes in
financial position for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported by
Borrower in accordance with GAAP and audited by a firm of independent public
accountants of nationally recognized standing;
(b) (i) as soon as available and in any event within fifty (50) days
after the end of each of the first three (3) quarters of each fiscal year of
Borrower, consolidated and consolidating balance sheets of Borrower as of the
end of such quarter and the related consolidated and consolidating statements of
income and changes in financial position for such quarter and for the portion of
Borrower's fiscal year
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<PAGE>
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of
Borrower's previous fiscal year. All financial statements delivered pursuant to
this Section 8.1(b) shall be certified as to fairness of presentation, GAAP and
--------------
consistency by a Financial Officer of Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in Sections 8.1(a) and (b), a certificate of a Financial
--------------- ---
Officer of Borrower in the form of Exhibit D attached hereto, (i) setting forth
---------
in reasonable detail the calculations required to establish whether Borrower was
in compliance with the requirements of Article X on the date of such financial
---------
statements, (ii) stating whether there exists on the date of such certificate
any Default and, if any Default then exists, setting forth the details thereof
and the action which Borrower is taking or proposes to take with respect
thereto, and (iii) stating whether or not such financial statements fairly
reflect the business and financial condition of Borrower and its Subsidiaries as
of the date of such financial statements;
(d) promptly upon the mailing thereof to the stockholders of Borrower
generally, copies of all financial statements, reports and proxy statements so
mailed;
(e) promptly upon the filing thereof, copies of all final registration
statements, post effective amendments thereto and annual, quarterly or special
reports which Borrower shall have filed with the Securities and Exchange
Commission; provided, that, Borrower must deliver, or cause to be delivered, any
-------- ----
annual reports which Borrower shall have filed with the Securities and Exchange
Commission, within one hundred (100) days after the end of each fiscal year of
Borrower, and any quarterly reports which Borrower shall have filed with the
Securities and Exchange Commission, within fifty (50) days after the end of each
of the first three (3) quarters of each fiscal year of Borrower;
(f) promptly upon request therefor by Agent, such title opinions and
other information in Borrower's possession, control or direction regarding title
to the Mineral Interests owned by Borrower or its Subsidiaries as are
appropriate to determine the status thereof;
(g) promptly upon receipt of same, any notice or other information
received by Borrower or any Subsidiary of Borrower indicating any potential,
actual or alleged (i) non-compliance with or violation of the requirements of
any Applicable Environmental Law which might reasonably be expected to result in
liability to Borrower or any Subsidiary of Borrower for fines, clean up or any
other remediation obligations or any other liability in excess of $1,000,000 in
the aggregate; (ii) release or threatened release of any toxic or hazardous
waste, substance, or constituent, or other substance into the environment which
release would impose on Borrower or any Subsidiary of Borrower to pay cleanup
costs or to take remedial action under any Applicable Environmental Law which
might reasonably be expected to result in liability to Borrower or any
Subsidiary of Borrower for fines, clean up and other remediation obligations or
any other liability in excess of $1,000,000 in the aggregate; or (iii) the
existence of any Lien arising under any Applicable Environmental Law securing
any obligation to pay fines, clean up or other remediation costs or any other
liability in excess of $1,000,000 in the aggregate. Without limiting the
foregoing, Borrower shall provide to Agent, promptly upon request, copies of
all environmental consultants or engineers reports received by Borrower or any
Subsidiary of Borrower which reflect the existence of any circumstance or
condition which would require delivery of a notice or other information to Banks
pursuant to this Section 8.1(g);
--------------
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<PAGE>
(h) In the event any notification is provided by Borrower to any Bank
or Agent pursuant to Section 8.1(g) hereof or Agent or any Bank otherwise learns
--------------
of any event or condition under which any such notice would be required, then,
upon request of Majority Banks, Borrower shall, within ninety (90) days of such
request, cause to be furnished to each Bank a report by an environmental
consulting firm acceptable to Agent and Banks, stating that a review of such
event, condition or circumstance has been undertaken (the scope of which shall
be acceptable to Agent and Banks) and detailing the findings, conclusions, and
recommendations of such consultant. Borrower shall bear all expenses and costs
associated with such review and updates thereof, as well as all remediation or
curative action recommended by any such environmental consultant;
(i) promptly (but in all events within three (3) Domestic Business
Days) after any Authorized Officer becomes aware of the occurrence of any
Default, a certificate of an Authorized Officer setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
(j) promptly notify Banks of any Material Adverse Change; and
(k) from time to time such additional information regarding the
financial position or business of Borrower and its Subsidiaries as Agent, at the
request of any Bank, may reasonably request.
SECTION 8.2. Business of Borrower. The primary business of Borrower and
--------------------
its Subsidiaries on a consolidated basis is and will continue to be the
acquisition, exploration for, development, production, transportation,
processing and marketing of liquid or gaseous hydrocarbons and accompanying
elements.
SECTION 8.3. Maintenance of Existence. Borrower will maintain, and will
------------------------
cause each Subsidiary of Borrower to maintain, at all times (a) its existence in
its jurisdiction of incorporation or organization except to the extent any
Subsidiary ceases to be in existence as a result of a merger or consolidation
expressly permitted pursuant to Section 9.4, and (b) its good standing and
-----------
qualified to transact business in all jurisdictions where the failure to
maintain good standing or qualification to transact business could have a
Material Adverse Effect.
SECTION 8.4. Right of Inspection. Borrower will permit, and will cause
-------------------
each Subsidiary of Borrower to permit, any officer, employee or agent of Agent
or any Bank to visit and inspect any of the assets of Borrower and its
Subsidiaries, examine Borrower's and its Subsidiaries' books of record and
accounts, take copies and extracts therefrom, and discuss the affairs, finances
and accounts of Borrower and its Subsidiaries with Borrower's and its
Subsidiaries' officers, accountants and auditors, all at such reasonable times
and as often as Agent or any Bank may desire, all at the expense of Borrower;
provided, that, prior to the occurrence of an Event of Default, neither Agent
- -------- ----
nor any Bank will require Borrower or any of its Subsidiaries to incur any
unreasonable expense as a result of the exercise by Agent or any Bank of its
rights pursuant to this Section 8.4.
-----------
SECTION 8.5. Maintenance of Insurance. Borrower will maintain or cause
------------------------
to be maintained, and will cause each Subsidiary of Borrower to maintain or
cause to be maintained (and will use its reasonable efforts to cause all
operators of Mineral Interests owned by Borrower and any of its Subsidiaries to
maintain or cause to be maintained) at all times, insurance covering such risks
as are customarily carried by businesses similarly situated.
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<PAGE>
SECTION 8.6. Payment of Taxes and Claims. Borrower will pay, and will
---------------------------
cause each Subsidiary of Borrower to pay, (a) all Taxes imposed upon it or any
of its assets or with respect to any of its franchises, business, income or
profits before any material penalty or interest accrues thereon, and (b) all
material claims (including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and payable and which by
Law have or might become a Lien (other than a Permitted Encumbrance) on any of
its assets; provided, however, no payment of Taxes or claims shall be required
-------- -------
if (i) the amount, applicability or validity thereof is currently being
contested in good faith by appropriate action promptly initiated and diligently
conducted in accordance with good business practices and no material part of the
property or assets of Borrower or any of its Subsidiaries are subject to levy or
execution, (ii) Borrower as and to the extent required in accordance with GAAP,
shall have set aside on its books reserves (segregated to the extent required by
GAAP) deemed by it to be adequate with respect thereto, and (iii) to the extent
the amount of the contested Taxes or claims are in excess of $1,000,000 (in the
aggregate), Borrower has notified Agent of such circumstances, in detail
satisfactory to Agent.
SECTION 8.7. Compliance with Laws and Documents. Borrower will comply,
----------------------------------
and will cause each Subsidiary of Borrower to comply, with all Laws, their
respective certificates (or articles) of incorporation, bylaws and similar
charter documents and all Material Agreements to which Borrower or any of its
Subsidiaries is a party, if a violation, alone or when combined with all other
such violations, might reasonably be expected to have a Material Adverse Effect.
SECTION 8.8. Operation of Properties and Equipment. (a) Borrower will
-------------------------------------
maintain and operate, and will cause each Subsidiary of Borrower to maintain and
operate, their respective Mineral Interests in a good and workmanlike manner,
and observe and comply with all of the terms and provisions, express or implied,
of all oil and gas leases relating to such Mineral Interests so long as such
Mineral Interests are capable of producing hydrocarbons and accompanying
elements in paying quantities.
(b) Borrower will comply, and will cause each Subsidiary of Borrower
to comply, in all respects with all contracts and agreements applicable to or
relating to their respective Mineral Interests or the production and sale of
hydrocarbons and accompanying elements therefrom, except to the extent a failure
to so comply is not reasonably expected to have a Material Adverse Effect.
(c) Borrower will maintain, preserve and keep, and will cause each
Subsidiary of Borrower to maintain, preserve and keep, at all times, all
operating equipment used with respect to their respective Mineral Interests in
proper repair, working order and condition, and make all necessary or
appropriate repairs, renewals, replacements, additions and improvements thereto
so that the efficiency of such operating equipment shall at all times be
properly preserved and maintained; provided, that, no item of operating
-------- ----
equipment need be so repaired, renewed, replaced, added to or improved, if
Borrower shall in good faith determine that such action is not necessary or
desirable for the continued efficient and profitable operation of the business
of Borrower and its Subsidiaries.
SECTION 8.9. Environmental Law Compliance. Except to the extent a
----------------------------
failure to comply would not have a Material Adverse Effect, Borrower will
comply, and will cause each Subsidiary of Borrower to comply, with all
Applicable Environmental Laws, including, without limitation, (a) all licensing,
permitting, notification and similar requirements of Applicable Environmental
Laws, and (b) all provisions of all Applicable Environmental Laws regarding
storage, discharge, release, transportation, treatment and disposal of hazardous
substances, petroleum, solid waste or other contaminants. Borrower will
promptly
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pay and discharge when due, and will cause each Subsidiary of Borrower to
promptly pay and discharge when due, all debts, claims, liabilities and
obligations with respect to any clean-up or remediation measures necessary to
comply with Applicable Environmental Laws.
SECTION 8.10. ERISA Reporting Requirements. Borrower shall furnish or
----------------------------
cause to be furnished to Agent:
(a) Promptly and in any event (i) within thirty (30) days after Borrower or
any ERISA Affiliate knows or has reason to know that any ERISA Event described
in clause (a) of the definition of ERISA Event or any event described in section
4063(a) of ERISA with respect to any Plan of Borrower or any ERISA Affiliate has
occurred, and (ii) within ten (10) days after Borrower or any ERISA Affiliate
knows or has reason to know that any other ERISA Event with respect to any Plan
of Borrower or any ERISA Affiliate has occurred or a request for minimum funding
waiver under section 412 of the Code with respect to any Plan of Borrower or any
ERISA Affiliate has been made, a written notice describing such event and
describing what action is being taken or is proposed to be taken with respect
thereto, together with a copy of any notice of event that is given to the PBGC;
(b) Promptly and in any event within five (5) Domestic Business Days after
receipt thereof by Borrower or any ERISA Affiliate from the PBGC, copies of each
notice received by Borrower or any ERISA Affiliate of the PBGC's intention to
terminate any Plan or to have a trustee appointed to administer any Plan;
(c) Promptly and in any event within thirty (30) days after the receipt by
Borrower of a request therefor by a Bank, copies of any annual and other report
(including Schedule B thereto) with respect to a Plan filed by Borrower or any
ERISA Affiliate with the United States Department of Labor, the Internal Revenue
Service or the PBGC;
(d) Promptly, and in any event within ten (10) Domestic Business Days after
receipt thereof, a copy of any correspondence Borrower or any ERISA Affiliate
receives from the Plan Sponsor (as defined by section 4001(a)(10) of ERISA) of
any Plan asserting withdrawal liability pursuant to section 4219 or 4202 of
ERISA upon Borrower or any ERISA Affiliate, and a statement from a Financial
Officer of Borrower or such ERISA Affiliate setting forth details as to the
events giving rise to such withdrawal liability and the action which Borrower or
such ERISA Affiliate is taking or proposes to take with respect thereto;
(e) Notification within thirty (30) days of the effective date thereof of
any material increases in the benefits of any existing Plan which is not a
multiemployer plan (as defined in section 4001(a)(3) of ERISA), or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which Borrower or any ERISA Affiliate was not previously contributing;
(f) Notification within five (5) Domestic Business Days after Borrower or
any ERISA Affiliate knows or has reason to know that Borrower or any such ERISA
Affiliate has or intends to file a notice of intent to terminate any Plan under
a distress termination within the meaning of section 4041(c) of ERISA and a copy
of such notice; and
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(g) Promptly after receipt of written notice of commencement thereof,
notice of all (i) claims made by participants or beneficiaries with respect to
any Plan, and (ii) actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting Borrower or any ERISA Affiliate with respect to
any Plan, except those which, in the aggregate, if adversely determined could
not have a Material Adverse Effect on Borrower or any ERISA Affiliate.
SECTION 8.11. Additional Documents. Borrower will cure promptly, and
--------------------
will cause each Subsidiary of Borrower to cure promptly, any defects in the
creation and issuance of each Note, and the execution and delivery of this
Agreement and the other Loan Papers and, at Borrower's expense, Borrower shall
promptly and duly execute and deliver, and cause each Subsidiary of Borrower to
promptly execute and deliver, to each Bank, upon reasonable request, all such
other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of Borrower and each Subsidiary
of Borrower in this Agreement and the other Loan Papers as may be reasonably
necessary or appropriate in connection therewith.
SECTION 8.12. Subsidiary Guarantees. At any time at which any Subsidiary
---------------------
of Borrower is required to execute any Guarantee of the Subordinate Notes
pursuant to Section 4.13 of the Subordinate Notes Indenture, Borrower will (a)
------------
cause such Subsidiary to execute and deliver to Banks a Subsidiary Guaranty, and
(b) deliver to Agent such (i) resolutions of the board of directors of such
Subsidiary Guarantor, (ii) certificates of officers of such Subsidiary
Guarantor, (iii) certificates of Governmental Authorities, and (iv) opinions of
counsel, as Agent shall reasonably request to evidence the valid organization
and existence of such Guarantor and the due authorization, execution, delivery
and enforceability of such Subsidiary Guaranty and such other matters related to
such Subsidiary and Subsidiary Guaranty as Agent shall request.
ARTICLE IX
NEGATIVE COVENANTS
Borrower agrees that, so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable under
any Note remains unpaid or any Letter of Credit remains outstanding:
SECTION 9.1. Incurrence of Debt. Borrower will not incur, and Borrower
------------------
will not permit any Subsidiary of Borrower to incur, any Debt other than (a) the
Obligations, (b) Debt outstanding under the Subordinate Notes, (c) the Permitted
Canadian Working Capital Facility, and (d) other Debt (including but not
limited to capital leases) in the aggregate amount outstanding at any time not
to exceed $5,000,000.
SECTION 9.2. Restrictions on Distributions. Borrower will not directly
-----------------------------
or indirectly declare or make or incur any liability to make, and Borrower will
not permit any Subsidiary of Borrower to directly or indirectly declare or make,
or incur any liability to make, Distributions in any fiscal year in excess of
the greater of (i) 80% of Borrower's Consolidated Net Income for such fiscal
year, or (ii) $4,500,000. Notwithstanding the foregoing, any Subsidiary of
Borrower may make Distributions to Borrower, and to any other Subsidiary of
Borrower which is a Subsidiary Guarantor. Borrower will not enter into or
become subject to, and Borrower will not permit any Subsidiary of Borrower to
enter into or become subject to,
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any agreement or become subject to any order of any Governmental Authority which
prohibits or restricts in any way the right of any of Borrower's Subsidiaries to
make such Distributions.
SECTION 9.3. Negative Pledge. Borrower will not create, assume or suffer
---------------
to exist, and Borrower will not permit any Subsidiary of Borrower to create,
assume or suffer to exist, any Lien on any asset of Borrower or any of its
Subsidiaries other than Permitted Encumbrances. Borrower will not enter into or
become subject to, and Borrower will not permit any Subsidiary of Borrower to
enter into or become subject to, any agreement (other than this Agreement) that
prohibits or otherwise restricts the right of Borrower or any of its
Subsidiaries to create, assume or suffer to exist any Lien in favor of Agent or
any Bank on any of Borrower's or any of its Subsidiaries' assets.
SECTION 9.4. Consolidations, Mergers. Borrower will not consolidate or
-----------------------
merge with or into any Person, and Borrower will not permit any Subsidiary of
Borrower to consolidate or merge with or into any other Person; provided, that,
-------- ----
so long as no Default or Event of Default exists or will result (a) Borrower may
merge or consolidate with or into another Person so long as Borrower is the
surviving corporation, (b) any wholly owned Subsidiary of Borrower may merge,
consolidate, amalgamate or enter into a plan of arrangement with any other
Person so long as a wholly owned Subsidiary of Borrower is the surviving or
resulting corporation, and (c) any Subsidiary of Borrower which is not wholly
owned may merge with any other Person so long as the surviving corporation
remains a Subsidiary of Borrower after giving effect to such merger.
SECTION 9.5. Asset Dispositions. Borrower will not sell, lease, abandon
------------------
or otherwise transfer, and Borrower will not permit any Subsidiary of Borrower
to sell, lease, abandon or otherwise transfer, Mineral Interests or any Related
Assets during any fiscal year with an aggregate value greater than five percent
(5%) of the value of such Mineral Interests and/or Related Assets as shown on
the Reserve Report prepared as of the beginning of such fiscal year.
SECTION 9.6. Use of Proceeds. The proceeds of Borrowings will be used
----------------
for general business purposes. None of such proceeds (including, without
limitation, proceeds of Letters of Credit issued hereunder) will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, and none of such proceeds
will be used in violation of applicable Law (including, without limitation, the
Margin Regulations).
SECTION 9.7. Investments. Except for Permitted Investments, Borrower
-----------
will not make any Investment, and Borrower will not permit any Subsidiary of
Borrower to make any Investment.
SECTION 9.8. Transactions with Affiliates. Borrower will not engage, and
----------------------------
Borrower will not permit any Subsidiary of Borrower to engage, in any
transaction with an Affiliate (other than with Borrower or a Subsidiary of
Borrower) unless such transaction is at least as favorable to Borrower or such
Subsidiary as could reasonably be obtained in an arm's length transaction with
an unaffiliated Person in accordance with prevailing industry customs and
practices.
SECTION 9.9. ERISA. Borrower will not knowingly take action or fail to
-----
take action which would result in a material violation of ERISA, the Code or
other Laws applicable to the Plans maintained by it or any ERISA Affiliate.
Borrower shall not, without the prior written consent of Majority Banks,
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modify the term of, or the funding obligations under any existing Plan or
establish a new Plan which could, in any case, reasonably result in liability of
Borrower which could have a Material Adverse Effect.
SECTION 9.10. Hedge Transactions. Borrower will not enter into, and
------------------
Borrower will not permit any Subsidiary of Borrower to enter into (and neither
Borrower nor any of its Subsidiaries are currently parties to), Hedge
Transactions which cause the amount (including any notional amount) of
hydrocarbons of a particular type with respect to which a settlement payment is
calculated to exceed sixty-five percent (65%) of the product of (i) Borrower's
and its Subsidiaries' Average Projected Daily Production of hydrocarbons of such
type during the relevant calendar year, multiplied by (ii) the number of days in
the period from the immediately preceding date on which a settlement payment was
due (or the commencement of such Hedge Transaction if there is no prior
settlement payment date) to the date such settlement payment is due.
SECTION 9.11. Fiscal Year. Borrower shall not change its fiscal year.
-----------
SECTION 9.12. Capital Stock of Subsidiaries. Borrower will not, and will
-----------------------------
not permit any of its Subsidiaries to, sell, assign, transfer or convey all or
any part of the outstanding capital stock, partnership interests, limited
liability company interests or other equity interests in any Subsidiary
Guarantor to any Person other than Borrower or another Subsidiary Guarantor, and
Borrower will not permit any Subsidiary Guarantor to issue or sell or enter into
any agreement to issue or sell any of its capital stock, partnership interests,
limited liability company interests or other equity interest or any option,
warrant or other right to acquire its capital stock, partnership interests,
limited liability company interests or other equity interest to any Person other
than Borrower or another Subsidiary Guarantor.
SECTION 9.13. Covenants Regarding Subordinate Notes. Borrower will not,
-------------------------------------
and will not permit any of its Subsidiaries to (a) repay, redeem, repurchase or
create any defeasance trust for Debt outstanding under the Subordinate Notes
prior to their stated maturity, or (b) make any payment in respect of the
Subordinate Notes which is prohibited pursuant to the subordination provisions
applicable thereto. Notwithstanding the foregoing, Borrower will not be
prohibited, solely as a result of this Section 9.14, from (x) exchanging the
------------
Subordinate Notes for Borrower's common stock, (y) prepaying or redeeming the
Subordinate Notes with the proceeds of a substantially simultaneous issue of new
subordinate debt which (i) contains subordination provisions which are identical
to the subordination provisions applicable to the Subordinate Notes, (ii)
provides for no amortization of principal prior to maturity and provides for a
final maturity no earlier than the maturity of the Subordinate Notes, (iii)
bears interest at a rate (taking into account any original issue discount) no
higher than the rate applicable to the Subordinate Notes, and (iv) is otherwise
on terms not materially less favorable to Borrower and its Subsidiaries than the
terms of the Subordinate Notes, or (z) making other prepayments or redemptions
of the Subordinate Notes provided, that, (i) no Default exists at the time such
-------- ----
Subordinate Notes are called for redemption or prepayment or on the effective
date of such redemption or prepayment, (ii) Borrower gives Agent and each Bank
notice of any such proposed prepayments or redemption at least forty-five (45)
days prior to the date any notice is delivered to any holder of Subordinate
Notes (or the trustee under the Subordinate Notes Indenture) pursuant to which
such Subordinate Notes are called for redemption or prepayment, (iii) upon
receipt of such notice, Majority Banks shall be permitted to redetermine the
Borrowing Base in connection with and prior to delivery of any such call for
redemption or prepayment (in accordance with the procedures set forth in Article
-------
III hereof but in addition to any redetermination of the Borrowing Base
- ---
contemplated by Section 3.2), and (iv) no Borrowing Base Deficiency shall exist
-----------
after giving effect to such redetermination. The Obligations constitute
"Designated Senior Indebtedness" as such term is defined in the Subordinate
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Notes Indenture. Borrower shall not designate any other indebtedness as
Designated Senior Indebtedness. Borrower will not enter into any amendment or
modification of the Senior Notes Indenture.
ARTICLE X
FINANCIAL COVENANTS
Borrower agrees that, so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable under
any Note remains unpaid or any Letter of Credit remains outstanding:
SECTION 10.1. Current Ratio of Borrower. Borrower's ratio of
-------------------------
Consolidated Current Assets to Adjusted Consolidated Current Liabilities will
not be less than 1.0 to 1.0 at any time.
SECTION 10.2. Ratio of Consolidated Funded Debt to Consolidated Total
-------------------------------------------------------
Capital of Borrower. Borrower's Consolidated Funded Debt will not exceed sixty-
- -------------------
five percent (65%) of its Consolidated Total Capital at any time.
SECTION 10.3. Consolidated Interest Coverage Ratio. Borrower will not
------------------------------------
permit its Consolidated Interest Coverage Ratio (as defined in the Subordinate
Notes Indenture) to be less than 2.5 to 1 as of the end of any fiscal quarter.
ARTICLE XI
DEFAULTS
SECTION 11.1. Events of Default. If one or more of the following events
-----------------
(collectively "Events of Default" and individually an "Event of Default") shall
----------------- ----------------
have occurred and be continuing:
(a) Borrower shall fail to pay when due (i) any principal of or
interest on any Note with respect to which Borrower is the maker, or (ii) any
fees or any other amount payable by Borrower hereunder, and such failure shall
continue for a period of five (5) days;
(b) Borrower shall fail to observe or perform any covenant or
agreement contained in Sections 8.1(a), (b), (c) or (e), 8.10, Article IX or
------------------------- --- ---- ----------
Article X of this Agreement;
- ---------
(c) Borrower or any Subsidiary of Borrower shall fail to observe or
perform any covenant or agreement contained in this Agreement or the other Loan
Papers (other than those referenced in Sections 11.1(a) and (b)) and such
---------------- ---
failure continues for a period of thirty (30) days after written notice of such
failure has been given to Borrower by Agent;
(d) any representation, warranty, certification or statement made or
deemed to have been made by Borrower in this Agreement or by Borrower, any
Subsidiary of Borrower, or any other Person on behalf of Borrower or on behalf
of any Subsidiary of Borrower in any certificate, financial
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<PAGE>
statement or other document delivered pursuant to this Agreement shall prove to
have been incorrect in any material respect when made;
(e) Borrower or any Subsidiary Guarantor shall fail to make any
payment when due on any Debt of such Person in a principal amount equal to or
greater than $2,500,000 or any other event or condition shall occur which (i)
results in the acceleration of the maturity of any such Debt, or (ii) entitles
the holder of such Debt to accelerate the maturity thereof;
(f) Borrower or any Subsidiary Guarantor shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar Law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(g) an involuntary case or other proceeding shall be commenced against
Borrower or any Subsidiary Guarantor seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar Law now or hereafter in effect, or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against Borrower or any Subsidiary Guarantor
under the U.S. or Canadian federal bankruptcy Laws (including, without
limitation, the Bankruptcy and Insolvency Act (Canada), the Company's Creditors
Arrangement Act (Canada) or the Winding Up Act (Canada)) as now or hereafter in
effect;
(h) one (1) or more judgments or orders for the payment of money
aggregating in excess of $2,500,000 shall be rendered against Borrower or any
Subsidiary Guarantor and such judgment or order shall continue unsatisfied and
unstayed for thirty (30) days;
(i) with respect to any Plan of Borrower or any ERISA Affiliate: (i)
Borrower or any ERISA Affiliate shall incur any accumulated funding deficiency,
as defined in section 412 of the Code, in the aggregate in excess of $1,000,000,
or request a funding waiver from the Internal Revenue Service for contributions
to a Plan or Plans in the aggregate in excess of $1,000,000; (ii) Borrower or
any ERISA Affiliate shall incur any withdrawal liability in the aggregate in
excess of $1,000,000 as a result of a complete or partial withdrawal within the
meaning of section 4203 or 4205 of ERISA; (iii) any ERISA Event occurs with
respect to any Plan and the then current value of such Plan's benefit
liabilities exceeds the then current value of such Plan's assets available for
the payment of such benefit liabilities (determined on an ongoing Plan funding
basis and not on a PBGC termination basis) by more than $1,000,000 (or in the
case of an ERISA Event involving the withdrawal of a substantial employer, the
withdrawing employer's proportionate share of such excess exceeds such amount);
(iv) any event occurs with respect to any Plan or Plans pursuant to which
Borrower and/or any ERISA Affiliate incur a liability due and owing at the time
of such event, without existing funding therefor, for benefit payments under
such Plan or Plans in excess of $1,500,000; or (v) Borrower, any ERISA
Affiliate, or any other "party-in-interest" or "disqualified person", as such
terms are defined in section 3(14) of ERISA and section 4975(e)(2) of the
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Code, shall engage in transactions which in the aggregate would reasonably
result in a direct or indirect liability to Borrower or any ERISA Affiliate in
excess of $1,000,000 under section 409 or 502 of ERISA or section 4975 of the
Code; or
(j) a Change of Control;
then, and in every such event, Agent shall without presentment, notice or demand
(unless expressly provided for herein) of any kind (including, without
limitation, notice of intention to accelerate and acceleration), all of which
are hereby waived, (a) if requested by Majority Banks, terminate the Commitments
and they shall thereupon terminate, and (b) if requested by Majority Banks, take
such other actions as may be permitted by the Loan Papers including, declaring
the Notes (together with accrued interest thereon) to be, and the Notes shall
thereupon become, immediately due and payable; provided, that, in the case of
-------- ----
any of the Events of Default specified in Sections 11.1(f) or (g) with respect
---------------- ---
to Borrower, without any notice to Borrower or any other act by Agent or Banks,
the Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable.
ARTICLE XII
AGENT
SECTION 12.1. Appointment, Powers, and Immunities. Each Bank hereby
-----------------------------------
irrevocably appoints and authorizes Agent to act as its agent under this
Agreement and the other Loan Papers with such powers and discretion as are
specifically delegated to Agent by the terms of this Agreement and the other
Loan Papers, together with such other powers as are reasonably incidental
thereto. Agent (which term as used in this sentence and in Section 12.5 and the
------------
first sentence of Section 12.6 hereof shall include its Affiliates and its own
------------
and its Affiliates' officers, directors, employees, and agents): (a) shall not
have any duties or responsibilities except those expressly set forth in this
Agreement and shall not be a trustee or fiduciary for any Bank; (b) shall not be
responsible to Banks for any recital, statement, representation, or warranty
(whether written or oral) made in or in connection with any Loan Paper or any
certificate or other document referred to or provided for in, or received by any
of them under, any Loan Paper, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Loan Paper, or any other
document referred to or provided for therein or for any failure by Borrower, any
Subsidiary of Borrower or any other Person to perform any of its obligations
thereunder; (c) shall not be responsible for or have any duty to ascertain,
inquire into, or verify the performance or observance of any covenants or
agreements by Borrower or any Subsidiary of Borrower or the satisfaction of any
condition or to inspect the property (including the books and records) of
Borrower or any Subsidiary of Borrower or any of its Subsidiaries or Affiliates;
(d) shall not be required to initiate or conduct any litigation or collection
proceedings under any Loan Paper; and (e) shall not be responsible for any
action taken or omitted to be taken by it under or in connection with any Loan
Paper, except for its own gross negligence or willful misconduct. Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care.
SECTION 12.2. Reliance by Agent. Agent shall be entitled to rely upon any
-----------------
certification, notice, instrument, writing, or other communication (including,
without limitation, any thereof by telephone or
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telecopy) believed by it to be genuine and correct and to have been signed, sent
or made by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel for Borrower or any Subsidiary of
Borrower), independent accountants, and other experts selected by Agent. Agent
may deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until Agent receives and accepts an Assignment and Acceptance
Agreement executed in accordance with Section 13.10 hereof. As to any matters
-------------
not expressly provided for by this Agreement, Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of Majority Banks, and such instructions
shall be binding on Banks; provided, however, that Agent shall not be required
-------- -------
to take any action that exposes Agent to personal liability or that is contrary
to any Loan Paper or applicable Law or unless it shall first be indemnified to
its satisfaction by Banks against any and all liability and expense which may be
incurred by it by reason of taking any such action.
SECTION 12.3. Defaults. Agent shall not be deemed to have knowledge or
--------
notice of the occurrence of a Default or Event of Default unless Agent has
received written notice from a Bank or Borrower specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the event
that Agent receives such a notice of the occurrence of a Default or Event of
Default, Agent shall give prompt notice thereof to Banks. Agent shall (subject
to Section 12.2 hereof) take such action with respect to such Default or Event
------------
of Default as shall reasonably be directed by Majority Banks; provided that,
-------- ----
unless and until Agent shall have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interest of Banks.
SECTION 12.4. Rights as Bank. With respect to its Commitment and the
--------------
Advances made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as Agent,
and the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include Agent in its individual capacity. NationsBank (and any successor acting
as Agent) and its Affiliates may (without having to account therefor to any
Bank) accept deposits from, lend money to, make investments in, provide services
to, and generally engage in any kind of lending, trust, or other business with
Borrower or any of its Subsidiaries or Affiliates as if it were not acting as
Agent, and NationsBank (and any successor acting as Agent) and its Affiliates
may accept fees and other consideration from Borrower or any of its Subsidiaries
or Affiliates for services in connection with this Agreement or otherwise
without having to account for the same to Banks.
SECTION 12.5. Indemnification. Banks agree to indemnify Agent (to the
---------------
extent not reimbursed by Borrower or any Subsidiary of Borrower hereof, but
without limiting the obligations of Borrower or any Subsidiary of Borrower to so
reimburse) ratably in accordance with their respective Commitments, for any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including attorneys' fees), or disbursements of any kind
and nature whatsoever that may be imposed on, incurred by or asserted against
Agent (including by any Bank) in any way relating to or arising out of any Loan
Paper or the transactions contemplated thereby or any action taken or omitted by
Agent under any Loan Paper (including any of the foregoing arising from the
negligence of Agent); provided that no Bank shall be liable for any of the
--------
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the
foregoing, each Bank agrees to reimburse Agent promptly upon demand for its
ratable share of any costs or expenses payable by Borrower
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hereunder, to the extent that Agent is not promptly reimbursed for such costs
and expenses by Borrower. The agreements contained in this Section 12.5 shall
------------
survive payment and performance in full of the Obligations and all other amounts
payable under this Agreement.
SECTION 12.6. Non-Reliance on Agent and Other Banks. Each Bank agrees
-------------------------------------
that it has, independently and without reliance on Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of Borrower and its Subsidiaries and decision to enter into
this Agreement and that it will, independently and without reliance upon Agent
or any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under the Loan Papers. Except for notices, reports,
and other documents and information expressly required to be furnished to Banks
by Agent hereunder, Agent shall not have any duty or responsibility to provide
any Bank with any credit or other information concerning the affairs, financial
condition, or business of Borrower or any of its Subsidiaries or Affiliates that
may come into the possession of Agent or any of its Affiliates.
SECTION 12.7. Resignation of Agent. Agent may resign at any time by
--------------------
giving notice thereof to Banks and Borrower. Upon any such resignation,
Majority Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by Majority Banks and shall have
accepted such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of
Banks, appoint a successor Agent which shall be a commercial bank organized
under the Laws of the United States of America having combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article XII shall continue in effect for its
-----------
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including bank wire, telecopy or
similar writing) and shall be given to such party at its address or telecopy
number set forth on the signature pages hereof or such other address or telecopy
number as such party may hereafter specify for the purpose by notice to Agent
and Borrower. Each such notice, request or other communication shall be
effective (a) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 13.1 and the appropriate answerback is
------------
received or receipt is otherwise confirmed, (b) if given by mail, three (3)
Domestic Business Day after deposit in the mails with first class postage
prepaid, addressed as aforesaid, or (c) if given by any other means, when
delivered at the address specified in this Section 13.1; provided that, notices
------------ -------- ----
to Agent under Article II or VI shall not be effective until received.
---------- --
SECTION 13.2. No Waivers. No failure or delay by Agent or any Bank in
----------
exercising any right, power or privilege hereunder or under any Note or other
Loan Paper shall operate as a waiver thereof nor
-49-
<PAGE>
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by Law or in any of the other Loan Papers.
SECTION 13.3. Expenses; Indemnification. (a) Borrower agrees to pay on
-------------------------
demand all costs and expenses of Agent in connection with the syndication,
preparation, execution, delivery, modification, and amendment of this Agreement,
the other Loan Papers, and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees and expenses of counsel for
Agent (including the cost of internal counsel) with respect thereto and with
respect to advising Agent as to its rights and responsibilities under the Loan
Papers; provided that Agent agrees that in the case of the initial preparation
of the Loan Papers and the initial closing of the transactions contemplated
thereby, the costs and expenses Borrower is obligated to pay pursuant to this
sentence shall be limited to the fees referred to in Section 2.10 and the fees
------------
and expenses of counsel to Agent. Borrower further agrees to pay on demand all
costs and expenses of Agent and Banks, if any (including, without limitation,
reasonable attorneys' fees and expenses and the cost of internal counsel), in
connection with the enforcement (whether through negotiations, legal
proceedings, or otherwise) of the Loan Papers and the other documents to be
delivered hereunder.
(b) BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS AGENT AND EACH BANK AND
EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL
-----------------
CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR
AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN
CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION
WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR PREPARATION OF DEFENSE IN
CONNECTION THEREWITH) THE LOAN PAPERS, ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOAN (INCLUDING ANY
OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED PARTY), EXCEPT
TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, 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.
IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE
INDEMNITY IN THIS SECTION 13.3 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE
------------
WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY
BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR
ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND
WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. BORROWER
AGREES NOT TO ASSERT ANY CLAIM AGAINST AGENT, ANY BANK, ANY OF THEIR AFFILIATES,
OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS,
AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL,
OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN PAPERS, ANY
OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE
PROCEEDS OF THE LOAN.
-50-
<PAGE>
(c) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
-------
13.3 shall survive the payment in full of the Loan and all other amounts payable
- ----
under this Agreement.
SECTION 13.4. Right of Set-off; Adjustments. (a) Upon the occurrence and
-----------------------------
during the continuance of any Event of Default, each Bank (and each of its
Affiliates) is hereby authorized at any time and from time to time, to the
fullest extent permitted by Law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank (or any of its Affiliates) to
or for the credit or the account of Borrower against any and all of the
Obligations, irrespective of whether such Bank shall have made any demand under
this Agreement or Note held by such and although such obligations may be
unmatured. Each Bank agrees promptly to notify Borrower after any such set-off
and application made by such Bank; provided, however, that the failure to give
-------- -------
such notice shall not affect the validity of such set-off and application. The
rights of each Bank under this Section 13.4 are in addition to other rights and
------------
remedies (including, without limitation, other rights of set-off) that such Bank
may have.
(b) If any Bank (a "benefitted Bank") shall at any time receive any
---------------
payment of all or part of the Advances owing to it, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, or otherwise), in a greater proportion than any such payment to or
collateral received by any other Bank, if any, in respect of such other Bank's
Advances owing to it, or interest thereon, such benefitted Bank shall purchase
for cash from the other Banks a participating interest in such portion of each
such other Bank's Advances owing to it, or shall provide such other Banks with
the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Bank to share the excess payment or benefits
of such collateral or proceeds ratably with each Bank; provided, however, that
-------- -------
if all or any portion of such excess payment or benefits is thereafter recovered
from such benefitted Bank, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest. Borrower agrees that any Bank so purchasing a participation from a
Bank pursuant to this Section 13.4 may, to the fullest extent permitted by Law,
------------
exercise all of its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Person were the direct
creditor of Borrower in the amount of such participation.
SECTION 13.5. Amendments and Waivers. Any provision of this Agreement or
----------------------
any other Loan Paper may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by Borrower and Majority Banks (and, if
Article XII or the rights or duties of Agent are affected thereby, by Agent);
- -----------
provided that no such amendment or waiver shall, unless signed by each Bank
- --------
directly affected thereby, (i) increase the Commitments of Banks, (ii) reduce
the principal of or rate of interest on any Advance or any fees or other amounts
payable hereunder, (iii) postpone any date fixed for the payment of any
scheduled installment of principal of or interest on any Advance or any fees or
other amounts payable hereunder or for termination of any Commitment, (iv)
change the percentage of the Commitments or of the unpaid principal amount of
the Notes, or the number of Banks, which shall be required for Banks or any of
them to take any action under this Section 13.5 or any other provision of this
------------
Agreement, or (v) release any guarantor (including, without limitation, any
Subsidiary Guarantor) of the Obligations or all or substantially all of the
collateral securing the Obligations.
-51-
<PAGE>
SECTION 13.6. Survival. All representations, warranties and covenants
--------
made by Borrower or any Subsidiary of Borrower herein or in any certificate or
other instrument delivered by it or in its behalf under the Loan Papers shall be
considered to have been relied upon by Banks and shall survive the delivery to
Banks of such Loan Papers or the extension of the Loan (or any part thereof),
and the issuance of Letters of Credit regardless of any investigation made by or
on behalf of Banks. The provisions of Section 13.3 hereof shall survive payment
------------
in full of the Obligations and the termination of this Agreement.
SECTION 13.7. Limitation on Interest. Regardless of any provision
----------------------
contained in the Loan Papers, Banks shall never be entitled to receive, collect,
or apply, as interest on the Loan, any amount in excess of the Maximum Lawful
Rate, and in the event any Bank ever receives, collects or applies as interest
any such excess, such amount which would be deemed excessive interest shall be
deemed a partial prepayment of principal and treated hereunder as such; and if
the Loan is paid in full, any remaining excess shall promptly be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Lawful Rate, Borrower and Banks shall,
to the extent permitted under applicable Law, (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate and spread, in equal parts, the total amount of the interest throughout
the entire contemplated term of the Notes, so that the interest rate is the
Maximum Lawful Rate throughout the entire term of the Notes; provided, however,
-------- -------
that, if the unpaid principal balance thereof is paid and performed in full
- ----
prior to the end of the full contemplated term thereof, and if the interest
received for the actual appropriate period of existence thereof exceeds the
Maximum Lawful Rate, Banks shall refund to Borrower the amount of such excess
and, in such event, Banks shall not be subject to any penalties provided by any
Laws for contracting for, charging, taking, reserving or receiving interest in
excess of the Maximum Lawful Rate.
SECTION 13.8. Invalid Provisions. If any provision of the Loan Papers is
------------------
held to be illegal, invalid, or unenforceable under present or future Laws
effective during the term thereof, such provision shall be fully severable, the
Loan Papers shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of the Loan Papers a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 13.9. Waiver of Consumer Credit Laws. Pursuant to Article
------------------------------
15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as
amended, Borrower agrees that such Chapter 15 shall not govern or in any manner
apply to the Loan.
SECTION 13.10. Assignments and Participations. (a) Each Bank may assign
------------------------------
to one or more Eligible Assignees all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Advances, its Note and its Commitment); provided, however, that
-------- -------
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Bank or an
assignment of all of a Bank's rights and obligations under this Agreement, any
such partial assignment shall be in an amount at least equal to $10,000,000 or
an integral multiple of $100,000 in excess thereof;
-52-
<PAGE>
(iii) each such assignment by a Bank shall be of a constant, and not
varying, percentage of all of its rights and obligations under this Agreement
and its Note; and
(iv) the parties to such assignment shall execute and deliver to Agent
for its acceptance an Assignment and Acceptance Agreement (herein so called) in
the form of Exhibit E hereto, together with any Note subject to such assignment
---------
and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance
Agreement, the assignee thereunder shall be a party hereto and, to the extent of
such assignment, have the obligations, rights, and benefits of a Bank hereunder
and the assigning Bank shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section 13.10(a), the assignor,
----------------
Agent and Borrower shall make appropriate arrangements so that, if required, new
Notes are issued to the assignor and the assignee. If the assignee is not
incorporated under the Laws of the United States of America or a state thereof,
it shall deliver to Borrower and Agent certification as to exemption from
deduction or withholding of Taxes in accordance with Section 5.6(d).
--------------
(b) Agent shall maintain at its address set forth on the signature pages
hereto, a copy of each Assignment and Acceptance Agreement delivered to and
accepted by it and a register for the recordation of the names and addresses of
Banks and the Commitment of, and principal amount of the Loan owing to, each
Bank from time to time (the "Register"). The entries in the Register shall be
--------
conclusive and binding for all purposes, absent manifest error, and Borrower,
Agent and Banks may treat each Person whose name is recorded in the Register as
a Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by Borrower or any Bank at any reasonable time and from
time to time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance Agreement executed by
the parties thereto, together with any Note subject to such assignment and
payment of the processing fee, Agent shall, if such Assignment and Acceptance
Agreement has been completed and is in substantially the form of Exhibit E
---------
hereto, (i) accept such Assignment and Acceptance Agreement, (ii) record the
information contained therein in the Register, and (iii) give prompt notice
thereof to the parties thereto.
(d) Each Bank may sell participations to one or more Persons in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and its Advances); provided, however, that (i) such
-------- -------
Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) the participant shall be entitled to the benefit of
the yield protection provisions contained in Article V and the right of set-off
---------
contained in Section 13.4, and (iv) Borrower shall continue to deal solely and
------------
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement, and such Bank shall retain the sole right to enforce the
obligations of Borrower relating to its Advances and its Note and to approve any
amendment, modification, or waiver of any provision of this Agreement (other
than amendments, modifications, or waivers decreasing the amount of principal of
or the rate at which interest is payable on such Advances or Note, extending any
scheduled principal payment date or date fixed for the payment of interest on
such Advances or Note, or extending its Commitment).
-53-
<PAGE>
(e) Notwithstanding any other provision set forth in this Agreement, any
Bank may at any time assign and pledge all or any portion of its Advances and
its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank. No
such assignment shall release the assigning Bank from its obligations hereunder.
(f) Any Bank may furnish any information concerning Borrower or any of its
Subsidiaries in the possession of such Bank from time to time to assignees and
participants (including prospective assignees and participants), subject,
however, to the provisions of Section 13.17 hereof.
-------------
SECTION 13.11. TEXAS LAW. THIS AGREEMENT AND EACH NOTE AND THE OTHER
---------
LOAN PAPERS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS.
SECTION 13.12. Consent to Jurisdiction; Waiver of Immunities. (a)
----------------------------------------------
Borrower hereby irrevocably submits to the jurisdiction of any Texas State or
Federal court sitting in the Northern District of Texas over any action or
proceeding arising out of or relating to this Agreement or any other Loan
Papers, and Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such Texas State or
Federal court. As an alternative method of service, Borrower also irrevocably
consents to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to Borrower at its address specified in
Section 13.1. Borrower agrees that a final judgment on any such action or
- ------------
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit on the judgment or in any other manner provided by Law.
(b) Nothing in this Section 13.12 shall affect any right of Banks to
-------------
serve legal process in any other manner permitted by Law or affect the right of
any Bank to bring any action or proceeding against Borrower or its Subsidiaries
or their properties in the courts of any other jurisdictions.
(c) To the extent that Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Borrower hereby irrevocably waives such immunity in respect of its obligations
under this Agreement and the other Loan Papers.
SECTION 13.13. Counterparts; Effectiveness. This Agreement may be signed
---------------------------
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when Agent shall have received
counterparts hereof signed by all of the parties hereto or, in the case of any
Bank as to which an executed counterpart shall not have been received, Agent
shall have received telegraphic or other written confirmation from such Bank of
execution of a counterpart hereof by such Bank.
SECTION 13.14. No Third Party Beneficiaries. It is expressly intended
----------------------------
that there shall be no third party beneficiaries of the covenants, agreements,
representations or warranties herein contained other than transferees or
assignees of all or any part of any Bank's interest hereunder permitted pursuant
to Section 13.10(b).
----------------
-54-
<PAGE>
SECTION 13.15. COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
------------------
PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS, AGENT AND
BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANKS, AGENT AND BORROWER. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN BANKS, AGENT AND BORROWER.
SECTION 13.16. WAIVER OF JURY TRIAL. BORROWER AND EACH BANK HEREBY
--------------------
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND FOR
ANY COUNTERCLAIM THEREIN.
SECTION 13.17. Confidentiality. Agent and each Bank (each, a "Lending
--------------- -------
Party") agrees to keep confidential any information furnished or made available
- -----
to it by Borrower pursuant to this Agreement that is marked confidential;
provided that nothing herein shall prevent any Lending Party from disclosing
- --------
such information (a) to any other Lending Party or any Affiliate of any Lending
Party, or any officer, director, employee, agent, or advisor of any Lending
Party or Affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c) as
required by any Law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any regulatory agency
or authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending Party other than as a result of a disclosure by
any Lending Party prohibited by this Agreement, (g) in connection with any
litigation to which such Lending Party or any of its Affiliates may be a party,
(h) to the extent necessary in connection with the exercise of any remedy under
this Agreement or any other Loan Paper, and (i) subject to provisions
substantially similar to those contained in this Section 13.17, to any actual or
-------------
proposed participant or assignee.
-55-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers on the day and year first
above written.
BORROWER:
- --------
THE WISER OIL COMPANY,
a Delaware corporation
By:
--------------------------------------------
Lawrence J. Finn,
Vice President and Chief Financial Officer
8115 Preston Road
Suite 400
Dallas, Texas 75225
Attn: Lawrence J. Finn
Telecopy No.: (214) 373-3610
BANKS: COMMITMENTS:
- ----- -----------
NATIONSBANK OF TEXAS, N.A. Commitment:
----------
$90,000,000
By:
--------------------------------------------
Dale Wilson,
Vice President
Domestic Lending Office:
303 W. Wall Street
Midland, Texas 79701
Attn: Dale Wilson
Telecopy No.: (915) 685-2193
Eurodollar Lending Office:
901 Main Street, 64/th/ Floor
Dallas, Texas 75202
Attn: Dale Wilson
Telecopy No.: 214-508-1285
BANK OF MONTREAL Commitment:
----------
$60,000,000
-56-
<PAGE>
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
Domestic Lending Office:
700 Louisiana, Suite 4400
Houston, Texas 77002
Attn: Anne Marie Goodwin
Telecopy No.: (713) 223-4007
Eurodollar Lending Office:
700 Louisiana, Suite 4400
Houston, Texas 77002
Attn: Anne Marie Goodwin
Telecopy No.: (713) 223-4007
AGENT:
NATIONSBANK OF TEXAS, N.A.
By:
--------------------------
Dale Wilson,
Vice President
303 W. Wall Street
Midland, Texas 79701
Attn: Dale Wilson
Telecopy No.: (915) 685-2193
-57-
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
Reference is made to that certain Credit Agreement dated as of December 23,
1997, by and among The Wiser Oil Company, a Delaware corporation ("Borrower"),
--------
certain Banks named therein ("Banks") and NationsBank of Texas, N.A. as agent
-----
for Banks (in such capacity, "Agent") (as same may be from time to time amended,
-----
the "Credit Agreement"). Terms which are defined in the Credit Agreement and
----------------
which are used but not defined herein are used herein with the meanings given
them in the Credit Agreement.
1. Pursuant to the terms of the Credit Agreement, Borrower hereby
requests each Bank to fund such Bank's Commitment Percentage of a Borrowing to
Borrower (the "Proposed Borrowing").
------------------
2. In connection with the Proposed Borrowing, Borrower sets forth below
the information required by Section 2.2 of the Credit Agreement (complete the
applicable portions):
(a) The Type of Rate applicable to the Proposed Borrowing is (check
one):
p Adjusted Eurodollar Rate. The applicable Interest Period is
(check one):
p one (1) month
p two (2) months
p three (3) months
p six (6) months
p Base Rate;
(b) The Borrowing date of the Proposed Borrowing is
__________________, ______; and
(c) The amount of the Proposed Borrowing is $__________________.
Borrower will use the proceeds hereby requested in compliance with the
applicable provisions of the Credit Agreement.
3. Borrower and the officer of Borrower signing this instrument hereby
certify that:
(a) Such officer is the duly elected, qualified and acting officer of
Borrower as indicated below such officer's signature hereto;
(b) To the best knowledge of the undersigned, unless such Borrowing is
a Refunding Borrowing, the representations and warranties of Borrower set
forth in the Credit Agreement and the other Loan Papers delivered to Banks
are true and correct on and as of the date hereof, with the same effect as
though such representations and warranties had been made on and as of the
date hereof or, if such representations and warranties are expressly
limited to particular dates, as of such particular dates;
-1-
<PAGE>
(c) To the best knowledge of the undersigned, unless such Borrowing is
a Refunding Borrowing comprised of Base Rate Advances, there does not exist
on the date hereof any condition or event which constitutes a Default, nor
will any such Default exist upon Borrower's receipt and application of the
proceeds requested hereby;
(d) To the best knowledge of the undersigned, each of the conditions
precedent to making the Proposed Borrowing contained in the Credit
Agreement is satisfied in all material respects; and
(e) After the making of the Advances requested hereby, the Outstanding
Credit will not be in excess of the Borrowing Base on the date requested
for the making of such Advances.
IN WITNESS WHEREOF, this instrument is executed as of _____________, _____.
THE WISER OIL COMPANY,
a Delaware corporation
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
-2-
<PAGE>
EXHIBIT B
REQUEST FOR LETTER OF CREDIT
Reference is made to that certain Credit Agreement dated as of December 23,
1997 by and among The Wiser Oil Company, a Delaware corporation ("Borrower"),
--------
certain Banks named therein (the "Banks") and NationsBank of Texas, N.A. as
-----
agent for Banks (in such capacity, "Agent") (as same may be from time to time
-----
amended, the "Credit Agreement"). Terms which are defined in the Credit
----------------
Agreement and which are used but not defined herein are used herein with the
meanings given them in the Credit Agreement.
1. Pursuant to the terms of the Agreement, Borrower hereby requests
_________________ ("Issuer") to issue a Letter of Credit for the account of
------
Borrower as follows:
Requested Amount $________________
Requested Date of Issuance _________________
Requested Expiration Date _________________
Beneficiary _________________
Borrower will use the Letter of Credit solely for purposes permitted by the
Credit Agreement.
2. Borrower and the officer of Borrower signing this instrument hereby
certify that:
(a) Such officer is the duly elected, qualified and acting officer of
Borrower as indicated below such officer's signature hereto;
(b) To the best knowledge of the undersigned, the representations and
warranties of Borrower set forth in the Credit Agreement and the other Loan
Papers delivered to Banks are true and correct on and as of the date
hereof, with the same effect as though such representations and warranties
had been made on and as of the date hereof or, if such representations and
warranties are expressly limited to particular dates, as of such particular
dates. To the best knowledge of the undersigned, no Material Adverse
Change has occurred since the date of the last financial reports delivered
to Banks pursuant to Section 8.1 of the Credit Agreement;
-----------
(c) To the best knowledge of the undersigned, there does not exist on
the date hereof any condition or event which constitutes a Default, nor
will any such Default exist upon the issuance of the Letter of Credit
requested hereby.
(d) To the best knowledge of the undersigned, each of the conditions
precedent to the issuance of Letters of Credit contained in the Credit
Agreement is satisfied in all material respects; and
(e) After the issuance of the Letter of Credit requested hereby,
Borrower's Outstanding Credit will not be in excess of the Borrowing Base
on the date requested for the issuance of such Letter of Credit.
-1-
<PAGE>
IN WITNESS WHEREOF, this instrument is executed as of ________, ______.
THE WISER OIL COMPANY,
a Delaware corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-2-
<PAGE>
EXHIBIT C
PROMISSORY NOTE
$__________ Dallas, Texas December 23, 1997
FOR VALUED RECEIVED, the undersigned, The Wiser Oil Company, a Delaware
corporation ("Maker"), hereby promises to pay to the order of [Name of Bank]
----- ------------
("Payee"), at the offices of NationsBank of Texas, N.A., as Agent (herein so
- -------
called) for Payee and the other Banks hereinafter described, 901 Main St., 64th
Floor, Dallas, Texas 75202, Dallas County, Texas, the principal sum of
____________________________ ($______________), or so much thereof as may be
advanced and outstanding, together with interest, as hereinafter described.
This Note has been executed and delivered pursuant to, and is subject to
and governed by, the terms of that certain Credit Agreement (as hereafter
renewed, extended, amended, or supplemented, the "Agreement") dated as of
---------
December 23, 1997, among Maker, Agent, Payee, and the other Banks named therein
and is one of the "Notes" referred to therein. Unless otherwise defined herein
-----
or unless the context hereof otherwise requires, each term used herein with its
initial letter capitalized has the meaning given to such term in the Agreement.
Maker also promises to pay interest on the unpaid principal amount hereof
in like money at the offices of Agent above referenced from the date hereof at
the rates provided in the Agreement.
Accrued interest shall be due and payable at the times and in the amounts
set forth in Sections 2.6 and 4.2 of the Agreement. The principal balance of
------------ ---
the Loan evidenced by this Note shall be paid at the times and in the amounts
required by Sections 2.7, 2.8, 3.3 and 4.2 of the Agreement. The entire
---------------------- ---
outstanding principal balance hereof and all accrued but unpaid interest therein
shall be due and payable in full on the Termination Date.
Upon and subject to the terms and conditions of the Agreement, Maker shall
be entitled to prepay the principal of or interest on this Note from time to
time and at any time, in whole or in part without premium or penalty.
Upon the occurrence and during the continuance of an Event of Default, and
upon the conditions stated in the Agreement, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable (provided, that, upon the occurrence of certain
-------- ----
Events of Default, and upon the conditions stated in the Agreement, such
acceleration shall be automatic), without notice (except as otherwise required
by the Agreement), demand, or presentment, all of which are hereby waived, and
the holder hereof shall have the right to offset against this Note any sum or
sums owed by the holder hereof to Maker. All past-due principal of and, to the
extent permitted by Law, accrued interest on this Note shall, at the option of
the holder hereof, bear interest at the lesser of (a) the Maximum Lawful Rate,
and (b) the Base Rate plus three percent (3%) until paid.
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 2.6(a) or (b) of the Agreement (the "Contract Rate")
-------------- --- -------------
exceeds the Maximum Lawful Rate, the rate of interest hereunder shall be limited
to the Maximum Lawful Rate, but any subsequent reductions in the Contract
-1-
<PAGE>
Rate shall not reduce the rate of interest on this Note below the Maximum Lawful
Rate until the total amount of interest accrued equals the amount of interest
which would have accrued (including the amount of interest which would have
accrued prior to the payment or prepayment of any portion of this Note) if the
Contract Rate had at all times been in effect. In the event that at maturity
(stated or by acceleration), or at final payment of this Note, the total amount
of interest paid or accrued on this Note is less than the amount of interest
which would have accrued if the Contract Rate had at all times been in effect
with respect thereto, then at such time, to the extent such payment would not
result in a violation of Law, the Maker shall be obligated to pay to the holder
of this Note an amount equal to the difference between (a) the lesser of (i) the
amount of interest which would have accrued if the Contract Rate had at all
times been in effect, and (ii) the amount of interest which would have accrued
if the Maximum Lawful Rate had at all times been in effect, and (b) the amount
of interest actually paid or accrued on this Note.
THE WISER OIL COMPANY,
a Delaware corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-2-
<PAGE>
ADVANCES AND PAYMENT
TRANSACTIONS SCHEDULE
<TABLE>
<CAPTION>
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest Period Amount of Date of Initials of
Date of Type of Amount (if applicable) Principal Principal Person
Advance Advance of Payment Payment Making Notation
Advance
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE>
EXHIBIT D
THE WISER OIL COMPANY
FINANCIAL OFFICER'S CERTIFICATE
The undersigned, _________________ of The Wiser Oil Company, a Delaware
corporation ("Borrower"), hereby (a) delivers this Certificate pursuant to
--------
Section 8.1(c) of that certain Credit Agreement ("Credit Agreement") dated as of
- -------------- ----------------
December 23, 1997, by and among Borrower, NationsBank of Texas, N.A. as Agent
("Agent"), and the financial institutions listed on the signature pages thereto,
- -------
as Banks ("Banks"), and (b) certifies to Banks, with the knowledge and intent
-----
that Banks may, without any independent investigation, rely fully on the matters
herein in connection with the Credit Agreement, as follows:
1. Attached hereto as Exhibit A are the consolidated and consolidating
---------
financial statements of Borrower and its Subsidiaries as of and for the fiscal
p year p quarter (check one) ended _____________, ________.
2. As of the date of such financial statements, Borrower's ratio of
Consolidated Current Assets to Adjusted Consolidated Current Liabilities was
______ to 1.0, as evidenced by the following calculations:
Consolidated Current Assets (per Credit Agreement) $_______________
Consolidated Current Liabilities $_______________
Less: Long Term Debt ($________________)
----------------------------
Adjusted Consolidated Current Liabilities (per Credit Agreement)
$_______________
Consolidated Current Assets $_______________
- ------------------------------------------ = --------- = ---------
Adjusted Consolidated Current Liabilities $_______________ 1.0
3. As of the date of such financial statements, Borrower's Consolidated
Funded Debt was _____% of Borrower's Consolidated Total Capital, as evidenced by
the following calculations:
Consolidated Funded Debt $_______________
Consolidated Liabilities $________________
Plus: Consolidated Shareholders Equity ($________________)
-----------------------------
Consolidated Total Capital $________________
Consolidated Funded Debt $____
- --------------------------- = ----- = ----- ________________%
Consolidated Total Capital $____ 1.0
-1-
<PAGE>
4. For the period of four (4) fiscal quarters ending on the date of such
financial statements, Borrower's Consolidated Interest Coverage Ratio (as
defined in the Subordinate Notes Indenture) was _________ to 1.
5. Such financial statements have been prepared on a consistent basis in
accordance with GAAP (except as otherwise noted therein) and fairly present, on
a consolidated basis, the financial condition of Borrower and its Subsidiaries
as of the respective dates indicated therein and the results of operations for
the respective periods indicated therein.
6. As of the date of such financial statements, neither Borrower nor any
of its Subsidiaries had any liabilities or obligations (absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in such
financial statements which are, individually or in the aggregate, material to
the condition, financial or otherwise, or operations of Borrower and its
Subsidiaries on a consolidated basis as of that date, which are not reflected on
such financial statements.
7. Unless otherwise disclosed on Exhibit B attached hereto and
---------
incorporated herein by reference for all purposes, neither a Default nor an
Event of Default has occurred which is in existence on the date hereof;
provided, that, for any Default or Event of Default disclosed on Exhibit B
- -------- ---- ---------
attached hereto, Borrower is taking or proposes to take the action to cure such
Default or Event of Default set forth on Exhibit B.
---------
Unless otherwise defined herein, all capitalized terms used herein shall
have the meaning given such terms in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Financial
Officer's Certificate as of _______________________, ________.
THE WISER OIL COMPANY,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-2-
<PAGE>
Exhibit A
---------
Consolidated and Consolidating Financial Statements
(to be attached)
-3-
<PAGE>
Exhibit B
---------
Disclosure of Defaults/Curative Action
(to be attached if applicable)
-4-
<PAGE>
EXHIBIT E
ASSIGNMENT AND ACCEPTANCE AGREEMENT
Reference is made to the Credit Agreement dated as of December 23, 1997
(the "Credit Agreement") among The Wiser Oil Company, a Delaware corporation
----------------
("Borrower"), certain Banks as named and defined therein ("Banks") and
---------- -----
NationsBank of Texas, N.A., as agent for Banks ("Agent"). Terms defined in the
-----
Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Loan Papers as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Loan Papers. After giving
effect to such sale and assignment, the Assignee's Commitment and the amount of
the Advances owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Papers or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Papers or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of Borrower or any Subsidiary of
Borrower or the performance or observance by Borrower or any Subsidiary of
Borrower of any of its obligations under the Loan Papers or any other instrument
or document furnished pursuant thereto; and (iv) attaches the Note held by the
Assignor and requests that Agent exchange such Note for new Notes payable to the
order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto and to the Assignor in an amount equal to the
Commitment retained by the Assignor, if any, as specified on Schedule 1.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 8.1 thereof and such other documents and information as it has deemed
- -----------
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance Agreement; (ii) agrees that it will, independently and
without reliance upon Agent, the Assignor or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers and discretion under the Credit Agreement as are delegated to Agent by
the terms thereof, together with such powers and discretion as are reasonably
incidental thereto; (v) agrees that it will perform in accordance with their
terms all of the obligations that by the terms of the Credit Agreement are
required to be performed by it as a Bank; and (vi) attaches any U.S. Internal
Revenue Service or other forms required under Section 5.6(d) of the Credit
--------------
Agreement.
4. Following the execution of this Assignment and Acceptance Agreement,
it will be delivered to Agent for acceptance and recording by Agent. The
effective date for this Assignment and Acceptance
<PAGE>
Agreement (the "Effective Date") shall be the date of acceptance hereof by
----------------
Agent, unless otherwise specified on Schedule 1.
5. Upon such acceptance and recording by Agent, as of the Effective Date,
(i) the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance Agreement, have the rights and
obligations of a Bank thereunder, and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance Agreement, relinquish its rights and
be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by Agent, from and after the
Effective Date, Agent shall make all payments under the Credit Agreement and the
Notes in respect of the interest assigned hereby (including, without limitation,
all payments of principal, interest and commitment fees with respect thereto) to
the Assignee. The Assignor and Assignee shall make all appropriate adjustments
in payments under the Credit Agreement and the Notes for periods prior to the
Effective Date directly between themselves.
7. This Assignment and Acceptance Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas.
8. This Assignment and Acceptance Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of this Assignment and Acceptance Agreement by telecopier
shall be effective as delivery of a manually executed counterpart of this
Assignment and Acceptance Agreement.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to
this Assignment and Acceptance Agreement to be executed by their duly
Authorized Officers as of the date specified thereon.
<PAGE>
SCHEDULE 1
to
Assignment and Acceptance Agreement
Percentage interest assigned: ________%
Assignee's Commitment: $_______
Aggregate outstanding principal amount
of Loan assigned: $_______
Principal amount of Note payable to Assignee: $_______
Principal amount of Note payable to Assignor: $_______
Effective Date (if other than date
of acceptance by Agent): *_______, 199__
[NAME OF ASSIGNOR], as Assignor
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Dated: , 199___
[NAME OF ASSIGNEE], as Assignee
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Domestic Lending Office:
Eurodollar Lending Office:
* This date should be no earlier than five (5) Domestic Business Days after
the delivery of this Assignment and Acceptance Agreement to Agent.
-3-
<PAGE>
Accepted [and Approved] **
this ___ day of ___________, 199__
NATIONSBANK OF TEXAS, N.A., as Agent
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[Approved this ____ day
of ____________, 199___
THE WISER OIL COMPANY
By: ]**
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
**Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee".
-4-
<PAGE>
EXHIBIT F
SUBORDINATE NOTES INDENTURE
[To be attached]
-1-
<PAGE>
SCHEDULE 1
LEGAL PROCEEDINGS
1. Charles and Stanley Marcum v. The Wiser Oil Company, Clay Circuit Court,
---------------------------------------------------
Civil Action No. 94-CI-357.
2. Davidson v. The Wiser Oil Company, Leslie Circuit Court, Civil Action No.
---------------------------------
91-CI-176.
3. The Wiser Oil Company v. Sizemore, Clay Circuit Court, Civil Action No.
---------------------------------
82-CI-102.
4. The Wiser Oil Company v. Sizemore, Virgil, Knox Circuit Court, Civil
-----------------------------------------
Action No. 92-CI-281.
5. The Wiser Oil Company v. Sizemore, Leslie Circuit Court, Civil Action No.
---------------------------------
88-CI-063.
6. The Wiser Oil Company v. Indigo Oil, Inc. and Jeffrey Brown, 193/rd/
-----------------------------------------------------------
Judicial District.
7. Homer Matthew Smith v. The Wiser Oil Company, U.S. District Court Eastern
--------------------------------------------
District of Kentucky London Division, Civil Action No. 97-420.
<PAGE>
SCHEDULE 2
CORPORATE STRUCTURE
1. Borrower owns of record 100% of the issued and outstanding shares (975
shares) of the common stock of T.W.O.C., Inc., a Delaware corporation.
2. T.W.O.C. owns of record 100% of the issued and outstanding shares (1,000
shares) of the common stock of The Wiser Marketing Company, a Delaware
corporation.
3. Borrower owns of record 100% of the issued and outstanding shares (1,000
shares) of the common stock of Wiser Oil Delaware, Inc., a Delaware
corporation.
4. Borrower owns a ninety nine percent (99%) membership interest and Wiser
Oil Delaware, Inc. owns a one percent (1%) membership interest in Wiser
Delaware LLC, a Delaware limited liability company.
5. Wiser Delaware LLC owns of record ninety nine percent (99 shares) and
Wiser Oil Delaware, Inc. owns of record one percent (1 share) of the
issued and outstanding shares (100 shares) of common stock of The Wiser
Oil Company of Canada, a Nova Scotia unlimited liability company.
<PAGE>
SCHEDULE 3
LETTERS OF CREDIT OUTSTANDING
<TABLE>
<CAPTION>
L/C Number Issue Date Amount Beneficiary Maturity Date
- ------------ ---------- ---------- -------------------------- -------------
<S> <C> <C> <C> <C>
L916100 9/30/96 $10,000.00 Bureau of Land Management 10/22/98
L916110 9/30/96 $10,000.00 State Oil & Gas Comm. N.M. 10/18/98
L916120 9/30/96 $ 7,500.00 State of Tennessee 10/18/98
</TABLE>
<PAGE>
EXHIBIT 10.4a
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of August,
1994, by and between THE WISER OIL COMPANY OF CANADA, a Canadian corporation,
and ALLEN J. SIMUS is hereby amended in the following respects only:
FIRST: Section 1.02 of the Agreement is hereby amended by restatement in
-----
its entirety to read as follows:
1.02. Term. Subject to the terms and provisions of Article II hereof,
----
Employee's employment hereunder shall be extended and shall continue
through the close of business on March 31, 2000.
SECOND: Article I of the Agreement is hereby amended to add a new Section
------
1.05 to the end thereof to read as follows:
1.05. Certain Additional Payments by the Company. Anything in this
------------------------------------------
Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution by the Company to or for the benefit of
Employee (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) but determined without regard
to any additional payments required pursuant to this Section 1.05 (a
"Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest
or penalties are incurred by Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), then Employee shall be
entitled to receive an additional payment from the Company (a "Gross-Up
Payment") in an amount such that after payment by Employee of all taxes
(including any interest or penalties with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, Employee retains an amount of Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
THIRD: Section 2.05 of the Agreement is hereby amended by redesignating as
-----
subsection (b) the second subsection appearing therein designated as subsection
(a), redesignating as subsection (c) the subsection therein designated as
subsection (b), and restating subsection (a) thereof in its entirety to read as
follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason other than illness, disability or
death of
<PAGE>
Employee within twelve months following a Change of Control of the Company
or the Parent Company, Employee shall be paid, within 30 days following
such termination, an amount in cash equal to the sum of (i) Employee's Base
Salary at the time of his termination of employment multiplied by three,
(ii) the amount equal to the premium cost or other amount paid by the
Company during the one-year period preceding Employee's termination of
employment to provide Employee with (A) life, health and disability
insurance benefits, and (B) the use of an automobile for such year, and
(iii) the amount of the additional payment, if any, determined pursuant to
Section 1.05.
IN WITNESS WHEREOF, this Amendment has been executed this 20th day of May,
1997, to be effective as of April 1, 1997.
-------------------------------------
ALLEN J. SIMUS
THE WISER OIL COMPANY OF CANADA
By
----------------------------------
Title:
2
<PAGE>
EXHIBIT 10.5A
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of July,
1991, by and between THE WISER OIL COMPANY, a Delaware corporation, and ANDREW
J. SHOUP, JR. is hereby amended in the following respects only:
FIRST: Section 1.02 of the Agreement is hereby amended by restatement in
-----
its entirety to read as follows:
1.02. Term. Subject to the terms and provisions of Article II
----
hereof, Employee's employment hereunder shall be extended and shall
continue through the close of business on March 31, 2000.
SECOND: Section 1.04 of the Agreement is hereby amended by restatement in
------
its entirety to read as follows:
1.04. Additional Incentive Compensation. In addition to his Base
---------------------------------
Salary Employee shall be paid additional incentive compensation in such an
amount, and based upon the accomplishment of such performance objectives,
as may be determined by the Compensation Committee of the Board from time
to time.
THIRD: Section 1.08 of the Agreement is hereby amended by restating
-----
subsection (a) thereof in its entirety to read as follows:
(a) If Employee's employment with Wiser is terminated by Wiser or by
Employee for any reason other than illness, disability or death of Employee
within twelve months following a Change of Control of Wiser, Employee shall
be paid, within 30 days following such termination, an amount in cash equal
to the sum of (i) Employee's Base Salary at the time of his termination of
employment multiplied by three, (ii) the amount equal to the premium cost
or other amount paid by Wiser during the one-year period preceding
Employee's termination of employment to provide Employee with (A) life,
health and disability insurance benefits, and (B) the use of an automobile
for such year, and (iii) the amount of the additional payment, if any,
determined pursuant to Section 1.09.
FOURTH: Article I of the Agreement is hereby amended to add a new Section
------
1.09 to the end thereof to read as follows:
1.09. Certain Additional Payments by Wiser. Anything in this
------------------------------------
Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution by Wiser to or for the benefit of Employee
(whether paid or payable or distributed or
<PAGE>
distributable pursuant to the terms of this Agreement or otherwise) but
determined without regard to any additional payments required pursuant to
this Section 1.09 (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Employee with respect
to such excise tax (such excise tax, together with any such interest and
penalties, hereinafter collectively referred to as the "Excise Tax"), then
Employee shall be entitled to receive an additional payment from Wiser (a
"Gross-Up Payment") in an amount such that after payment by Employee of all
taxes (including any interest or penalties with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, Employee retains an amount of Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
IN WITNESS WHEREOF, this Amendment has been executed this 20th day of May,
1997, to be effective as of April 1, 1997.
-------------------------------------
ANDREW J. SHOUP, JR.
THE WISER OIL COMPANY
By
-------------------------------------
Title:
2
<PAGE>
EXHIBIT 10.8a
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of November,
1993, by and between THE WISER OIL COMPANY, a Delaware corporation, and LAWRENCE
J. FINN is hereby amended in the following respects only:
FIRST: Section 1.02 of the Agreement is hereby amended by restatement in
-----
its entirety to read as follows:
1.02. Term. Subject to the terms and provisions of Article II
----
hereof, Employee's employment hereunder shall be extended and shall
continue through the close of business on March 31, 2000.
SECOND: Section 1.05 of the Agreement is hereby amended by redesignating
------
as subsection (b) the second subsection appearing therein designated as
subsection (a), redesignating as subsection (c) the subsection therein
designated as subsection (b), and restating subsection (a) thereof in its
entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason other than illness, disability or
death of Employee within twelve months following a Change of Control of the
Company, Employee shall be paid, within 30 days following such termination,
an amount in cash equal to the sum of (i) Employee's Base Salary at the
time of his termination of employment multiplied by three, (ii) the amount
equal to the premium cost or other amount paid by the Company during the
one-year period preceding Employee's termination of employment to provide
Employee with (A) life, health and disability insurance benefits, and (B)
the use of an automobile for such year, and (iii) the amount of the
additional payment, if any, determined pursuant to Section 1.06.
THIRD: Article I of the Agreement is hereby amended to add a new Section
-----
1.06 to the end thereof to read as follows:
1.06. Certain Additional Payments by the Company. Anything in this
------------------------------------------
Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution by the Company to or for the benefit of
Employee (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) but determined without regard
to any additional payments required pursuant to this Section 1.06 (a
"Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest
or penalties are incurred by Employee with respect to such excise tax (such
<PAGE>
excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), then Employee shall be
entitled to receive an additional payment from the Company (a "Gross-Up
Payment") in an amount such that after payment by Employee of all taxes
(including any interest or penalties with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, Employee retains an amount of Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
IN WITNESS WHEREOF, this Amendment has been executed this 20th day of May,
1997, to be effective as of April 1, 1997.
--------------------------------------
LAWRENCE J. FINN
THE WISER OIL COMPANY
By
-----------------------------------
Title:
2
<PAGE>
EXHIBIT 10.9a
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the 24th day of January,
1994, by and between THE WISER OIL COMPANY, a Delaware corporation, and A. WAYNE
RITTER is hereby amended in the following respects only:
FIRST: Section 1.02 of the Agreement is hereby amended by restatement in
-----
its entirety to read as follows:
1.02. Term. Subject to the terms and provisions of Article II
----
hereof, Employee's employment hereunder shall be extended and shall
continue through the close of business on March 31, 2000.
SECOND: Section 1.05 of the Agreement is hereby amended by redesignating
------
as subsection (b) the second subsection appearing therein designated as
subsection (a), redesignating as subsection (c) the subsection therein
designated as subsection (b), and restating subsection (a) thereof in its
entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason other than illness, disability or
death of Employee within twelve months following a Change of Control of the
Company, Employee shall be paid, within 30 days following such termination,
an amount in cash equal to the sum of (i) Employee's Base Salary at the
time of his termination of employment multiplied by three, (ii) the amount
equal to the premium cost or other amount paid by the Company during the
one-year period preceding Employee's termination of employment to provide
Employee with (A) life, health and disability insurance benefits, and (B)
the use of an automobile for such year, and (iii) the amount of the
additional payment, if any, determined pursuant to Section 1.06.
THIRD: Article I of the Agreement is hereby amended to add a new Section
-----
1.06 to the end thereof to read as follows:
1.06. Certain Additional Payments by the Company. Anything in this
------------------------------------------
Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution by the Company to or for the benefit of
Employee (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) but determined without regard
to any additional payments required pursuant to this Section 1.06 (a
"Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest
or penalties are incurred by Employee with respect to such excise tax (such
<PAGE>
excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), then Employee shall be
entitled to receive an additional payment from the Company (a "Gross-Up
Payment") in an amount such that after payment by Employee of all taxes
(including any interest or penalties with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, Employee retains an amount of Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
IN WITNESS WHEREOF, this Amendment has been executed this 20th day of May,
1997, to be effective as of April 1, 1997.
------------------------------------
A. WAYNE RITTER
THE WISER OIL COMPANY
By
----------------------------------
Title:
2
<PAGE>
EXHIBIT 10.10a
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the 30th day of
September, 1996, by and between THE WISER OIL COMPANY, a Delaware corporation,
and KENT E. JOHNSON is hereby amended in the following respects only:
FIRST: Section 1.02 of the Agreement is hereby amended by restatement in
-----
its entirety to read as follows:
1.02. Term. Subject to the terms and provisions of Article II
----
hereof, Employee's employment hereunder shall be extended and shall
continue through the close of business on March 31, 2000.
SECOND: Section 1.05 of the Agreement is hereby amended by redesignating
------
as subsection (b) the second subsection appearing therein designated as
subsection (a), redesignating as subsection (c) the subsection therein
designated as subsection (b), and restating subsection (a) thereof in its
entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason other than illness, disability or
death of Employee within twelve months following a Change of Control of the
Company, Employee shall be paid, within 30 days following such termination,
an amount in cash equal to the sum of (i) Employee's Base Salary at the
time of his termination of employment multiplied by three, (ii) the amount
equal to the premium cost or other amount paid by the Company during the
one-year period preceding Employee's termination of employment to provide
Employee with (A) life, health and disability insurance benefits, and (B)
the use of an automobile for such year, and (iii) the amount of the
additional payment, if any, determined pursuant to Section 1.06.
THIRD: Article I of the Agreement is hereby amended to add a new Section
-----
1.06 to the end thereof to read as follows:
1.06. Certain Additional Payments by the Company. Anything in this
------------------------------------------
Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution by the Company to or for the benefit of
Employee (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) but determined without regard
to any additional payments required pursuant to this Section 1.06 (a
"Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest
or penalties are incurred by Employee with respect to such excise tax (such
<PAGE>
excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), then Employee shall be
entitled to receive an additional payment from the Company (a "Gross-Up
Payment") in an amount such that after payment by Employee of all taxes
(including any interest or penalties with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, Employee retains an amount of Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
IN WITNESS WHEREOF, this Amendment has been executed this 20th day of May,
1997, to be effective as of April 1, 1997.
-------------------------------------
KENT E. JOHNSON
THE WISER OIL COMPANY
By
------------------------------------
Title:
2
<PAGE>
EXHIBIT 10.12
THE WISER OIL COMPANY SAVINGS RESTORATION PLAN
----------------------------------------------
THIS PLAN, made and executed at Dallas, Texas, by THE WISER OIL COMPANY, a
Delaware corporation, is being established primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees of The Wiser Oil Company and its participating affiliates.
ARTICLE I.
DEFINITIONS
-----------
Section 1.1 Definitions. Unless the context clearly indicates otherwise,
-----------
when used in this Plan:
(a) "Account" means a Participant's Deferral Account or Matching Account,
as the context requires.
(b) "Affiliated Company" means any corporation or organization, other than
an Employer, which is a member of a controlled group of corporations (within the
meaning of section 414(b) of the Internal Revenue Code) or of an affiliated
service group (within the meaning of section 414(m) of the Internal Revenue
Code) with respect to which an Employer is also a member, and any other
incorporated or unincorporated trade or business which along with an Employer is
under common control (within the meaning of section 414(c) of the Internal
Revenue Code).
(c) "Committee" means the committee designated pursuant to Plan Section 2.1
to administer this Plan.
(d) "Company" means The Wiser Oil Company.
(e) "Covered Compensation" means Compensation within the meaning of the
Savings Plan, but determined (i) prior to any reduction thereof for deferrals
made pursuant to this Plan, and (ii) without regard to the maximum compensation
limitation imposed under the Savings Plan in order to comply with the
requirement of section 401(a)(17) of the Internal Revenue Code.
(f) "Deferral Account" means the account established and maintained on the
books of an Employer pursuant to Plan Section 3.2 to record a Participant's
interest under this Plan attributable to amounts credited to such Participant
pursuant to Plan Section 3.2(a).
(g) "Election Period" means the period prior to the beginning of a Plan
Year (or, with respect to the Plan's first Plan Year, the period prior to March
11, 1998) which is specified by the Committee for the making of deferral
elections for such year pursuant to Plan Section 3.1.
<PAGE>
(h) "Eligible Employee" means the President of the Company and any other
employee of an Employer (i) who has satisfied the service requirement necessary
to be eligible to make contributions to the Savings Plan, (ii) whose annual base
salary is at least $150,000, and (iii) who has been designated by the President
as an Eligible Employee for the purposes of this Plan.
(i) "Employer" includes the Company and any other incorporated or
unincorporated trade or business which may adopt both this Plan and the Savings
Plan.
(j) "Matching Account" means the account established and maintained on the
books of an Employer pursuant to Plan Section 3.2 to record a Participant's
interest under this Plan attributable to amounts credited to such Participant
pursuant to Plan Section 3.2(b).
(k) "Participant" means an Eligible Employee or former Eligible Employee
for whom an Account is being maintained under this Plan.
(l) "Plan" means The Wiser Oil Company Savings Restoration Plan as in
effect from time to time.
(m) "Plan Year" means the twelve-month period commencing January 1 (or,
with respect to the Plan's first Plan Year, the period commencing with the
effective date of this Plan) and ending the following December 31.
(n) "Savings Plan" means The Wiser Oil Company Savings Plan as in effect
from time to time.
ARTICLE II.
PLAN ADMINISTRATION
-------------------
Section 2.1 Committee. This Plan shall be administered by the Committee
---------
appointed to administer the Savings Plan on behalf of the Employers. The
Committee shall have discretionary and final authority to interpret and
implement the provisions of the Plan, including without limitation, authority to
determine eligibility for benefits under the Plan. The Committee shall act by a
majority of its members at the time in office and such action may be taken
either by a vote at a meeting or in writing without a meeting. The Committee
may adopt such rules and procedures for the administration of the Plan as are
consistent with the terms hereof and shall keep adequate records of its
proceedings and acts. Every interpretation, choice, determination or other
exercise by the Committee of any power or discretion given either expressly or
by implication to it shall be conclusive and binding upon all parties having or
claiming to have an interest under the Plan or otherwise directly or indirectly
affected by such action, without restriction, however, on the right of the
Committee to reconsider and redetermine such action. The Employers shall
-2-
<PAGE>
indemnify and hold harmless each member of the Committee and each director,
officer and employee of an Employer against any claim, cost, expense (including
attorneys' fees), judgment or liability (including any sum paid in settlement of
a claim with the approval of the Company) arising out of any act or omission to
act as a member of the Committee or any other act or omission to act relating to
this Plan, except in the case of such person's fraud or willful misconduct.
ARTICLE III.
DEFERRED COMPENSATION PROVISIONS
--------------------------------
Section 3.1 Deferral Election. During the Election Period for each Plan
-----------------
Year, an Eligible Employee may elect to have the payment of the following
amounts of his or her Covered Compensation for such year deferred for payment in
the manner and at the time specified in Plan Section 3.4:
(a) The amount of such Participant's elected pre-tax contribution to
the Savings Plan for a pay period which does not exceed 6% of his or her
Compensation (as defined in the Savings Plan) for such pay period and which
cannot be made to the Savings Plan because of (i) the maximum contribution
limitation imposed under the Savings Plan in order to comply with the
requirement of section 402(g) of the Internal Revenue Code, or (ii) a
contribution limitation imposed under the Savings Plan or by the Savings
Plan Committee in order to comply with the nondiscriminatory contribution
requirement of section 401(k) of the Internal Revenue Code.
(b) An amount up to 6% of the portion of such Participant's Covered
Compensation for such year which exceeds the maximum compensation
limitation imposed under the Savings Plan for such year in order to comply
with the requirement of section 401(a)(17) of the Internal Revenue Code.
The amount of Covered Compensation for a Plan Year a Participant elects to
defer pursuant to this Plan Section 3.1(b) shall be deferred in equal pay
period installments commencing when such Participant's Covered Compensation
for such year begins to exceed said limitation.
(c) An amount up to 9% of such Participant's Covered Compensation for
such year. The amount of Covered Compensation for a Plan Year a Participant
elects to defer pursuant to this Plan Section 3.1(c) shall be deferred in
equal pay period installments during such year.
All elections made pursuant to this Plan Section 3.1 shall be made in
writing on a form prescribed by and filed with the Committee and shall be
irrevocable.
Section 3.2 Participant Accounts. An Employer shall establish and
--------------------
maintain on its books a Deferral Account and a Matching Account for each
Eligible Employee employed by such
-3-
<PAGE>
Employer. Each such Account shall be designated by the name of the Participant
for whom established and shall be credited in accordance with the following
provisions:
(a) The amount of any Covered Compensation from an Employer for a Plan
Year that is deferred for a Participant pursuant to Plan Section 3.1 shall
be credited by such Employer to such Participant's Deferral Account as of
the last day of the month in which such amount would otherwise have been
paid to such Participant by such Employer.
(b) The amount of any Employer matching contribution that would have
been made by an Employer to the Savings Plan for a Participant for a pay
period if (i) the Covered Compensation deferred for such Participant for
such period pursuant to Plan Section 3.1 had been contributed to the
Savings Plan as a pre-tax contribution for such Participant for such
period, and (ii) the provisions of the Savings Plan were administered
without regard to the limitations referred to in Plan Section 3.1, shall be
credited to such Participant's Matching Account as of the last day of the
month in which such Employer matching contribution would have been made to
the Savings Plan for such Participant under such circumstances.
Section 3.3 Account Adjustments. Subject to such conditions, limitations
-------------------
and procedures as the Committee may prescribe from time to time for the
accounting purposes of this Plan, on the last day of each month (and at such
other times as the Committee may prescribe) the amount credited to each Account
maintained by an Employer for a Participant shall be adjusted to reflect the
investment results that would have resulted if the amount credited to such
Account as of the first day of such month had been invested throughout such
month in the Lifetime Fund investment option under the Savings Plan that
corresponds to such Participant's age on the last day of such month. The
Account adjustments made pursuant to this Plan Section 3.3 relate to fictional
investments made on a hypothetical basis solely for the accounting purposes of
this Plan, and shall not require any Employer to make any actual investment or
otherwise set aside or earmark any asset for the purposes of this Plan.
Section 3.4 Account Payments. If a Participant's employment with an
----------------
Employer or Affiliated Company terminates for any reason other than death or
transfer to employment with another Employer or Affiliated Company, the amount
then credited to each Account being maintained by an Employer for such
Participant shall be paid by such Employer to such Participant (or, in the event
of his or her subsequent death, to the beneficiary or beneficiaries designated
by such Participant pursuant to Plan Section 3.5) in a single lump sum in cash,
without interest, and charged against such Account no later than sixty days
after such termination of employment; provided, however, that if such
Participant is not fully vested in the amount credited to his or her employer
matching contribution account under the Savings Plan at the time of such
termination of employment, then the amount credited to such Participant's
Matching Account shall be reduced at the time of such termination of employment
to an amount equal to the amount then credited to said Matching Account
multiplied by the vested percentage applicable to such Participant's employer
matching contribution account under the Savings Plan as of the date of such
termination
-4-
<PAGE>
of employment. If a Participant's employment with an Employer
or Affiliated Company terminates by reason of death, the amount then credited to
each Account being maintained by an Employer for such Participant shall be paid
by such Employer to the beneficiary or beneficiaries designated by such
Participant pursuant to Plan Section 3.5 in a single lump sum in cash, without
interest, and charged against such Account no later than sixty days following
the date of such Participant's death.
Section 3.5 Designation of Beneficiaries. Any amount payable under this
----------------------------
Plan after the death of a Participant shall be paid when otherwise due hereunder
to the beneficiary or beneficiaries designated by such Participant. Such
designation of beneficiary or beneficiaries shall be made in writing on a form
prescribed by and filed with the Committee and shall remain in effect until
changed by such Participant by the filing of a new beneficiary designation form
with the Committee. If a Participant fails to so designate a beneficiary, or in
the event all of the designated beneficiaries are individuals who either
predecease the Participant or survive the Participant but die prior to receiving
the full amount payable under this Plan, any remaining amount payable under this
Plan shall be paid to such Participant's estate when otherwise due hereunder.
ARTICLE IV.
AMENDMENT AND TERMINATION
-------------------------
Section 4.1 Amendment and Termination. The Board of Directors of the
-------------------------
Company shall have the right and power at any time and from time to time to
amend this Plan, in whole or in part, on behalf of all Employers, and at any
time to terminate this Plan or any Employer's participation hereunder. Any
amendment to or termination of this Plan shall be made by or pursuant to a
resolution duly adopted by the Board of Directors of the Company, and shall be
evidenced by such resolution or by a written instrument executed by such person
as the Board of Directors of the Company shall authorize for such purpose. Any
provision of this Plan to the contrary notwithstanding, no amendment to or
termination of this Plan shall reduce the amounts actually credited to a
Participant's Accounts as of the date of such amendment or termination, or
further defer the dates for the payment of such amounts, without the consent of
the affected Participant.
ARTICLE V.
MISCELLANEOUS PROVISIONS
------------------------
Section 5.1 Nature of Plan and Rights. This Plan is unfunded and
-------------------------
maintained by the Employers primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees of
the Employers. The Accounts established and maintained under this Plan by an
Employer are for its accounting purposes only and shall not be
-5-
<PAGE>
deemed or construed to create a trust fund or security interest of any kind for
or to grant a property interest of any kind to any Participant, designated
beneficiary or estate. The amounts credited by an Employer to Accounts
maintained under this Plan are and for all purposes shall continue to be
unsecured and unfunded general liabilities of such Employer, and to the extent
that a Participant, designated beneficiary or estate acquires a right to receive
a payment from such Employer pursuant to this Plan, such right shall be no
greater than the right of any unsecured general creditor of such Employer.
Section 5.2 Spendthrift Provision. No Account balance or other right or
---------------------
interest under this Plan of a Participant, designated beneficiary or estate may
be assigned, transferred or alienated, in whole or in part, either directly or
by operation of law, and no such balance, right or interest shall be liable for
or subject to any debt, obligation or liability of such Participant, designated
beneficiary or estate.
Section 5.3 Employment Noncontractual. The establishment of this Plan
-------------------------
shall not enlarge or otherwise affect the terms of any Participant's employment
with an Employer, and such Employer may terminate the employment of such
Participant as freely and with the same effect as if this Plan had not been
established.
Section 5.4 Adoption by Other Employers. This Plan may be adopted by any
---------------------------
Employer participating in the Savings Plan, such adoption to be effective as of
the date specified by such Employer at the time of adoption.
Section 5.5 Claims Procedure. If any person (hereinafter called the
----------------
"Claimant") feels that he or she is being denied a benefit to which he or she is
entitled under this Plan, such Claimant may file a written claim for said
benefit with the Committee. Within sixty days following the receipt of such
claim the Committee shall determine and notify the Claimant as to whether he or
she is entitled to such benefit. Such notification shall be in writing and, if
denying the claim for benefit, shall set forth the specific reason or reasons
for the denial, make specific reference to the pertinent provisions of this
Plan, and advise the Claimant that he or she may, within sixty days following
the receipt of such notice, in writing request to appear before the Committee or
its designated representative for a hearing to review such denial. Any such
hearing shall be scheduled at the mutual convenience of the Committee or its
designated representative and the Claimant, and at any such hearing the Claimant
and/or his or her duly authorized representative may examine any relevant
documents and present evidence and arguments to support the granting of the
benefit being claimed. The final decision of the Committee with respect to the
claim being reviewed shall be made within sixty days following the hearing
thereon, and Committee shall in writing notify the Claimant of said final
decision, again specifying the reasons therefor and the pertinent provisions of
this Plan upon which said final decision is based. The final decision of the
Committee shall be conclusive and binding upon all parties having or claiming to
have an interest in the matter being reviewed.
-6-
<PAGE>
Section 5.6 Applicable Law. This Plan shall be governed and construed in
--------------
accordance with the internal laws (and not the principles relating to conflicts
of laws) of the State of Texas, except where superseded by federal law.
IN WITNESS WHEREOF, this Plan has been executed on this 24th day of
February, 1998, to be effective as of March 1, 1998.
THE WISER OIL COMPANY
By
-------------------------------------
Andrew J. Shoup, Jr.
President and Chief Executive Officer
-7-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE WISER OIL COMPANY
T.W.O.C., Inc.
The Wiser Oil Company of Canada
Wiser Delaware LLC
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statements on Form S-8 relating to the stock
incentive plans of The Wiser Oil Company (Nos. 33-44171, 33-62441, 33-44172,
333-22525 and 333-15083) of our report dated February 18, 1998 appearing on
page F-2 of this Annual Report on Form 10-K.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Dallas, Texas,
February 18, 1998
<PAGE>
EXHIBIT 23.2
[DEGOLYER AND MACNAUGHTON LETTERHEAD APPEARS HERE]
March 27, 1998
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Gentlemen:
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-44171, 33-62441, 33-44172, 333-22525, and 333-
15083) relating to the stock incentive plans of The Wiser Oil Company (the
Company) of our reserves estimates included in the Annual Report on Form 10-K
(the Annual Report) of the Company for the year ended December 31, 1997, and to
the references to our firm included in the Annual Report. Our estimates of the
oil, condensate, natural gas liquids (shown collectively as "Oil and NGL"), and
natural gas reserves of certain properties owned by the Company are contained in
our reports entitled "Appraisal Report as of December 31, 1997 on Certain
Properties owned by the Wiser Oil Company-Proved Reserves" and "Appraisal Report
as of December 31, 1997 on Certain Properties owned by Maljamar Wiser Inc."
Reserves estimates from our reports are included in the sections "Principal Oil
and Gas Properties," "Oil and Gas Reserves," and "Supplemental Financial
Information for the years ending December 31, 1997, 1996 and 1995
(unaudited)-Oil and Gas Reserves." Also included in the third section mentioned
above are reserves estimates from our "Appraisal Report as of December 31, 1994
on Proved and Probable Reserves of Certain Properties owned by the Wiser Oil
Company" and our "Appraisal Report as of December 31, 1995 on Certain Properties
owned by the Wiser Oil Company-Proved Reserves." In the sections "Summary
Reserve and Operating Data" and "Oil and Gas Reserves," estimates of reserves,
revenue, and discounted present worth set forth in our above mentioned reports
have been combined with estimates of reserves, revenue, and discounted present
worth prepared by another petroleum consultant. We are necessarily unable to
verify the accuracy of the reserves, revenue, and present worth values contained
in the Annual Report when our estimates have been combined with those of another
firm.
Very truly yours,
/S/ DEGOLYER AND MACNAUGHTON
DeGOLYER and MacNAUGHTON
<PAGE>
EXHIBIT 23.3
LETTER OF CONSENT
CONSENT OF PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference in the Registration Statements on Form S-8 relating to the stock
incentive plans of The Wiser Oil Company (the "Company"), (Nos. 33-44171, 33-
62441, 33-44172, 333-22525 and 333-15083), of certain data from our report
entitled "The Wiser Oil Company Canada Ltd. Reserve Appraisal and Economic
Evaluation effective January 1, 1998" with respect to the oil and gas reserves
of the Company, the future net revenues therefrom and present values
attributable to these reserves included in this Annual Report on Form 10-K, and
to all references to our firm included in this Annual Report.
Yours very truly,
GILBERT LAUSTSEN JUNG ASSOCIATES LTD.
/s/ Wayne W. Chow, P. Eng.
Vice-President
March 27, 1998
Calgary, Canada
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WISER
OIL COMPANY CONSOLIDATED FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,255
<SECURITIES> 0
<RECEIVABLES> 13,765
<ALLOWANCES> 0
<INVENTORY> 1,007
<CURRENT-ASSETS> 29,190
<PP&E> 352,054
<DEPRECIATION> 131,346
<TOTAL-ASSETS> 254,556
<CURRENT-LIABILITIES> 21,381
<BONDS> 124,304
0
0
<COMMON> 27,385
<OTHER-SE> 70,039
<TOTAL-LIABILITY-AND-EQUITY> 254,556
<SALES> 76,729
<TOTAL-REVENUES> 87,815
<CGS> 28,805
<TOTAL-COSTS> 74,387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,845
<INCOME-PRETAX> 3,583
<INCOME-TAX> 264
<INCOME-CONTINUING> 3,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,319
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
