UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---- THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16741
COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 94-1667468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5300 Town and Country Blvd., Suite 500, Frisco, Texas 75244
(Address of principal executive offices including zip code)
(972) 668-8800
(Registrant's telephone number and area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.50 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
(Title of class) (Name of exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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. [ X ]
As of February 28, 2000, there were 25,375,197 shares of common stock
outstanding.
As of February 28, 2000, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $92,850,000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement for the 2000 annual meeting of stockholders - Part III
<PAGE>
COMSTOCK RESOURCES, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 1999
CONTENTS
Page
Part I
Items 1 and 2. Business and Properties ..................................... 6
Item 3. Legal Proceedings ............................................21
Item 4. Submission of Matters to a Vote of Security Holders ..........21
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................22
Item 6. Selected Financial Data ......................................23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....28
Item 8. Financial Statements .........................................29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................30
Part III
Item 10. Directors and Executive Officers of the Registrant............30
Item 11. Executive Compensation .......................................30
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................30
Item 13. Certain Relationships and Related Transactions ...............30
Part IV
Item 14. Exhibits and Reports on Form 8-K .............................31
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FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All statements other than statements of
historical facts included in this report, including without limitation,
statements under "Business and Properties" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding budgeted
capital expenditures, increases in oil and natural gas production, the Company's
financial position, oil and natural gas reserve estimates, business strategy and
other plans and objectives for future operations, are forward-looking
statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. There are numerous uncertainties
inherent in estimating quantities of proved oil and natural gas reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond our control. Reserve engineering is a subjective
process of estimating underground accumulations of oil and natural gas that
cannot be precisely measured. Furthermore, the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates made by different engineers
often vary from one another. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revisions of such
estimate and such revision, if significant, would change the schedule of any
further production and development drilling. Accordingly, reserve estimates are
generally different from the quantities of oil and gas that are ultimately
recovered. Should one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, our actual results and plans for 2000
and beyond could differ materially from those expressed in forward-looking
statements. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by such factors.
DEFINITIONS
The following are abbreviations and definitions of terms commonly used in the
oil and gas industry and this report. Natural gas equivalents and crude oil
equivalents are determined using the ratio of six Mcf to one barrel.
"API" means American Petroleum Institute.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means one billion cubic feet of natural gas.
"Bcfe" means one billion cubic feet of natural gas equivalent.
"Btu" means British thermal unit, which is the quantity of heat required to
raise the temperature of one pound of water from 58.5 to 59.5 degrees
Fahrenheit.
"Cash Margin per Mcfe" means the equivalent price per Mcfe less oil and gas
operating expenses per Mcfe and general and administrative expenses per Mcfe.
"Completion" means the installation of permanent equipment for the
production of oil or gas.
"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
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"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" 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 natural
gas reserves not classified as proved, to find a new productive reservoir in a
field previously found to be productive of oil or natural gas in another
reservoir or to extend a known reservoir.
"Gross" when used with respect to acres or wells, production or reserves
refers to the total acres or wells in which the Company or other specified
person has a working interest.
"MBbls" means one thousand barrels of oil.
"MMBbls" means one million barrels of oil.
"Mcf" means one thousand cubic feet of natural gas.
"Mcfe" means thousand cubic feet of natural gas equivalent.
"MMcf" means one million cubic feet of natural gas.
"MMcfe" means one million cubic feet of natural gas equivalent.
"Net" when used with respect to acres or wells, refers to gross acres of
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.
"Oil" means crude oil or condensate.
"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.
"Present Value of Proved Reserves" means the present value of estimated
future revenues to be generated from the production of proved reserves
calculated in accordance with the Securities and Exchange Commission guidelines,
net of estimated production and future development costs, using prices and costs
as of the date of estimation without future escalation, 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%.
"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.
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"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate 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 natural gas liquids, 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 natural gas liquids, that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids, 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 recompletion. 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.
"Reserve life" means the calculation derived by dividing year-end reserves
by total production in that year.
"Reserve replacement" means the calculation derived by dividing additions
to reserves from acquisitions, extensions, discoveries and revisions of previous
estimates in a year by total production in that year.
"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.
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"3-D seismic" means an advanced technology method of detecting
accumulations of hydrocarbons identified by the collection and measurement of
the intensity and timing of sound waves transmitted into the earth as they
reflect back to the surface.
"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. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"Workover" means operations on a producing well to restore or increase
production.
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ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Comstock Resources, Inc. together with its subsidiaries (the "Company" or
"Comstock") is an independent energy company engaged in the acquisition,
development, production and exploration of oil and natural gas properties. The
Company's oil and natural gas reserve base is entirely concentrated in the Gulf
of Mexico, Southeast Texas and East Texas/North Louisiana regions. The Company's
reserve base is 69% natural gas and 72% proved developed on a Bcfe basis as of
December 31, 1999. The estimated proved oil and natural gas reserves are 374.9
Bcfe with an estimated Present Value of Proved Reserves of $515.1 million as of
December 31, 1999 and the Company operates 72% of the Present Value of Proved
Reserves of its properties. For the year ended December 31, 1999, the Company's
total revenues and EBITDA were $92.1 million and $66.0 million, respectively.
The Company's proved reserves at December 31, 1999 and its 1999 average
daily production are summarized below:
<TABLE>
<CAPTION>
Reserves at December 31, 1999 1999 Daily Production
---------------------------------------- -------------------------------------------
% of % of
Oil Gas Total Total Net Oil Net Gas Total Total
-------- ------ ------ ------- -------- -------- ------- ------
(MMBbls) (Bcf) (Bcfe) (MBbls/d) (Mmcfe/d) (MMcfe/d)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gulf of Mexico............. 15.0 55.8 146.0 39.0% 4.4 14.9 41.1 40.9%
Southeast Texas............ 3.7 94.2 116.6 31.1 1.2 26.1 33.6 33.5
East Texas/North Louisiana. .8 107.7 111.8 29.8 0.2 24.1 25.2 25.1
Other...................... -- .4 .5 .1 -- .3 .5 .5
------ ------ ------ ------ ------- ------ ------ ------
Total.................. 19.5 258.1 374.9 100.0% 5.8 65.4 100.4 100.0%
====== ====== ====== ====== ======= ====== ====== ======
</TABLE>
Company Strengths
Quality Properties. Comstock's operations are located in three
geographically concentrated areas, the Gulf of Mexico, Southeast Texas and East
Texas/North Louisiana regions, which account for approximately 39%, 31% and 30%
of its proved reserves, respectively. The Company has high price realizations
relative to benchmark prices for natural gas and crude oil production. The
Company also has favorable operating costs which gives it attractive cash
margins. Finally, Comstock's properties have an average reserve life of
approximately 10.2 years and have extensive development and exploration
potential.
High Price Realizations. The majority of the Company's wells are located in
areas which can access attractive natural gas and crude oil markets. In
addition, the Company's natural gas production has a relatively high Btu content
(approximately 1,100 Btu) and its crude oil production has a favorable API
gravity (approximately 40 degrees). Due to these factors, Comstock has
relatively high price realizations compared to benchmark prices. In 1999 the
Company's average natural gas price, before considering hedging activity, was
$2.46 per Mcf, which represented a $0.17 premium to the average 1999 NYMEX
monthly settlement price. Also in 1999, the Company's average crude oil price
was $17.35 per barrel, which represented a $0.79 per barrel premium to the
average 1999 monthly West Texas intermediate crude oil price posted by Koch
Industries, Inc.
Efficient Operator. Comstock operates 72% of its Present Value of Proved
Reserves as of December 31, 1999. This allows the Company to control operating
costs, the timing and plans for future development, the level of drilling and
lifting costs and the marketing of production. The Company's combined lease
operating and general and administrative expenses per Mcfe of $0.72 in 1999 was
relatively low due to several factors. First, the Company has favorable
production rates per well in its Gulf of Mexico and Southeast Texas wells due to
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the geology of the regions. Second, in the East Texas/North Louisiana region,
Comstock's production was 96% natural gas in 1999. Natural gas wells typically
have lower costs per unit than oil producing wells. Finally, because the Company
focuses on a few number of properties and has relatively low corporate overhead,
its general and administrative expenses are generally lower than those of its
peers.
Favorable Cash Margins. As a result of its quality properties, higher price
realizations and efficient operations, Comstock has favorable cash margins.
Consequently, the Company's oil and natural gas reserves have a higher value per
Mcfe than reserves that generate lower cash margins.
Successful Acquisitions. The Company has historically grown through
acquisitions. Since 1991, Comstock has added 488.9 Bcfe of proved oil and
natural gas reserves from 22 acquisitions at an average cost of $0.85 per Mcfe.
The Company's application of strict economic and reserve risk criteria enables
it to successfully evaluate and integrate acquisitions.
Successful Exploration and Development Program. In 1999, Comstock continued
to focus on the exploitation and development of its properties through
development drilling, recompletions and workovers with expenditures of $20.5
million. Overall, the Company drilled 17 development wells (10.0 net) with an
88% success rate. The Company also had a successful exploratory drilling program
in 1999, spending a total of $8.1 million to drill 11 wells (2.4 net) with a 64%
success rate. All of the Company's exploration activities were focused in its
Gulf of Mexico region in 1999.
Business Strategy
Exploit Existing Reserves. Comstock seeks to maximize the value of its
properties by increasing production and recoverable reserves through active
workover, recompletion and exploitation activities. The Company utilizes
advanced industry technology, including 3-D seismic data, improved logging
tools, and formation stimulation techniques. During 1999, the Company spent
approximately $11.5 million to drill 17 development wells (10.0 net), of which
15 wells (9.2 net) were successful, representing a success rate of 88%. In
addition, the Company spent approximately $4.5 million for recompletion and
workover activity during 1999 and $4.5 million for new production facilities.
For 2000, the Company has budgeted $40.0 million for development drilling and
for workover and recompletion activity.
Pursue Exploration Opportunities. Comstock conducts exploration activities
to find additional reserves on its undeveloped acreage and in its core operating
areas. In 1999, the Company spent approximately $8.1 million to drill 11
exploratory wells (2.4 net), of which seven (1.5 net) were successful,
representing a success rate of 64%. The Company has budgeted $20.0 million in
2000 for exploration activities which will be focused in its Southeast Texas and
Gulf of Mexico regions.
Maintain Low Cost Structure. The Company seeks to increase cash flow by
carefully controlling operating costs and general and administrative expenses.
Comstock targets acquisitions that possess, among other characteristics, low per
unit operating costs. Comstock's average oil and gas operating costs per Mcfe
were $0.65 in 1999. In addition, the Company has been able to grow its reserves
and production substantially over the past five years with minimal increase to
general and administrative expenses. As a result, general and administrative
expenses per Mcfe have decreased from $0.11 in 1995 to $0.07 in 1999.
Acquire High Quality Properties at Attractive Costs. Comstock has a
successful track record of increasing its oil and natural gas reserves through
opportunistic acquisitions. Since 1991, the Company has added 488.9 Bcfe of
proved oil and natural gas reserves from 22 acquisitions at a total cost of
$416.4 million, or $0.85 per Mcfe. The acquisitions were acquired at an average
63% of their Present Value of Proved Reserves in the year the acquisitions were
completed. The Company applies strict economic and reserve risk criteria in
evaluating acquisitions. The Company targets properties in its core operating
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areas with established production and low operating costs that also have
potential opportunities to increase production and reserves through exploration
and exploitation activities.
Maintain Flexible Capital Expenditure Budget. The timing of most of the
Company's capital expenditures is discretionary with no material long-term
capital expenditure commitments. Consequently, the Company has a significant
degree of flexibility to adjust the level of such expenditures according to
market conditions. Comstock anticipates spending approximately $60.0 million on
development and exploration projects in 2000. The Company intends to use
operating cash flow to fund its drilling expenditures in 2000 and to utilize any
excess cash flow to reduce amounts outstanding under the bank credit facility or
to make oil and gas property acquisitions. Comstock may also make property
acquisitions in 2000 that would require additional sources of funding, which may
include borrowings under its bank credit facility or sales of equity or debt
securities.
Primary Operating Areas
The Company's activities are concentrated in three primary operating areas:
Gulf of Mexico, Southeast Texas and East Texas/North Louisiana. The following
table summarizes the Company's estimated proved oil and natural gas reserves by
field as of December 31, 1999.
<TABLE>
<CAPTION>
Net Oil Net Gas Present Value of
(MBbls) (MMcf) MMcfe Proved Reserves Percentage
--------- --------- --------- ---------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gulf of Mexico
Ship Shoal..................... 7,844 23,479 70,541 $139,387
Main Pass...................... 3,473 5,162 26,001 49,936
South Timbalier/ South Pelto... 2,077 6,794 19,257 41,839
Bay Marchand................... 545 3,263 6,533 9,630
East White Point............... 838 3,423 8,450 7,451
West Cameron................... -- 5,252 5,252 6,338
El Campo....................... 185 2,842 3,954 3,916
Eugene Island.................. -- 2,658 2,658 3,692
Other.......................... 72 2,880 3,310 3,824
------ ------- ------- --------
15,034 55,753 145,956 266,013 51.6%
------ ------- ------- --------
Southeast Texas
Double A Wells................. 3,660 92,345 114,303 146,478
Redmond Creek.................. 84 1,813 2,316 2,781
------ ------- ------- --------
3,744 94,158 116,619 149,259 29.0%
------ ------- ------- --------
East Texas/ North Louisiana
Beckville....................... 115 30,024 30,715 27,201
Logansport...................... 42 18,357 18,608 16,584
Waskom.......................... 219 13,647 14,962 9,361
Hico-Knowles.................... 38 4,798 5,023 7,191
Box Church...................... 1 9,297 9,304 7,116
Blocker......................... 40 9,841 10,083 6,704
Lisbon.......................... 54 4,345 4,666 6,135
Longwood........................ 68 5,125 5,535 4,810
Ada............................. 4 3,297 3,319 4,519
Sugar Creek..................... 50 2,389 2,688 3,674
Other........................... 41 6,658 6,909 5,910
------ ------- ------- --------
672 107,778 111,812 99,205 19.3%
------ ------- ------- --------
Other Areas....................... 17 432 535 582 .1%
------ ------- ------- -------- -----
Total ......................... 19,467 258,121 374,922 $515,059 100.0%
====== ======= ======= ======== =====
</TABLE>
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Gulf of Mexico
The Company's largest operating region includes properties located offshore
of Louisiana in state and federal waters of the Gulf of Mexico and in fields
along the Texas and Louisiana Gulf Coast. The Company owns interests in 114
producing wells (53.7 net) in 13 field areas, the largest of which are the Ship
Shoal area (Ship Shoal Blocks 66, 67, 68, 69 and South Pelto Block 1), the Main
Pass area (Main Pass Blocks 21, 25 and 41), Bay Marchand Blocks 4 and 5 and the
South Timbalier/South Pelto area (South Timbalier Blocks 11, 16, 34, 50 and
South Pelto Blocks 5 and 15). The Company has 146.0 Bcfe of oil and natural gas
reserves in the Gulf of Mexico region with a Present Value of Proved Reserves of
$266.0 million as of December 31, 1999. The Company operates 34 of the wells
(32.9 net) that it owns in this region. Production from the region averaged 14.9
MMcf of natural gas per day and 4,358 barrels of oil per day during 1999. The
Company spent $11.8 million in this region in 1999 drilling three development
wells (1.6 net) and drilling 11 exploratory wells (2.4 net). Comstock also spent
$4.4 million to install production facilities and $1.8 million for recompletions
and workovers in the Gulf of Mexico region in 1999. In 2000, the Company plans
to spend $27.0 million for development and exploration activities in this
region.
Ship Shoal
The Ship Shoal area is located in Louisiana state waters and in federal
waters, offshore of Terrebonne Parish and near the state/federal waters
boundary. The Company owns a 99% to 100% working interest and operates these
properties except for its properties in Ship Shoal Block 69 in which Comstock
has a 25% working interest. In the Ship Shoal area, oil and natural gas are
produced from numerous Miocene sands occurring at depths from 5,800 to 13,500
feet, and in water depths from 10 to 40 feet. The Company's Ship Shoal area has
estimated proved reserves of 70.5 Bcfe (19% of total proved reserves) with a
Present Value of Proved Reserves of $139.4 million as of December 31, 1999. The
Company owns interests in 36 wells in the Ship Shoal area which averaged 9.1
MMcf of natural gas per day and 3,509 barrels of oil per day during 1999. In
1999 the Company drilled one successful development well (1.0 net) in the Ship
Shoal area and plans to spend $5.4 million to drill four development wells (1.2
net) in 2000.
Main Pass
Main Pass Blocks 21 and 25 are located in Louisiana state waters, offshore
of Plaquemines Parish in water with a depth of approximately 12 feet. The
Company's wells in this area produce from multiple Miocene sands at depths that
range from 4,400 to 7,700 feet. The Company is the operator and owns interests
in 11 wells at Main Pass Block 21 and 25. The average production attributable to
the Company's interest was approximately .6 Mmcf of natural gas and 564 barrels
of oil per day. The Company purchased a non-operated working interest of 8.2% in
eight wells in November 1999 at Main Pass Block 41. Main Pass Block 41 is
located offshore Louisiana in Federal waters with an average depth of 50 feet.
The wells produced at an average net rate of 4.3 Mmcf net to the Company's
interest during November and December of 1999 from completions in various
Miocene sands ranging in depth from 3,850 to 9,200 feet. Proved reserves for the
total Main Pass area were 26.0 Bcfe (7% of total reserves at December 31, 1999).
Comstock drilled two wells (.7 net) at Main Pass 41 in 1999 and has budgeted
$4.8 million to drill six wells (2.3 net) in the Main Pass area in 2000.
South Timbalier/South Pelto
The Company owns working interests ranging from 25% to 33% in Louisiana
state waters and in federal waters in the South Timbalier/South Pelto area
located offshore of Terrebonne and Lafourche Parishes in water depths ranging
from 20 to 60 feet. Oil and natural gas are produced from numerous sands of
Pliocene to Upper Miocene age, at depths ranging from 2,000 to 12,000 feet. The
Company has drilled four successful wells in the area and also acquired a 33%
working interest in seven producing wells as well as production facilities in
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this area in 1998. The Company has estimated proved net reserves totaling 19.3
Bcfe (5% of total proved reserves) in this area as of December 31, 1999. In
2000, the Company plans to spend approximately $7.0 million to drill ten
exploratory wells (2.7 net) in the South Timbalier/South Pelto area.
Bay Marchand
The Company owns a 22.5% working interest in Louisiana state leases in the
Bay Marchand area, located offshore of Lafourche Parish in 12 feet of water. The
Company has drilled four successful wells and has estimated proved net reserves
totaling 6.5 Bcfe (2% of total proved reserves) at Bay Marchand as of December
31, 1999. The properties are located on the west flank of the Bay Marchand salt
dome in a highly prolific oil and natural gas producing region. Producing zones
in this area are Upper to Middle Miocene in age, highly porous and permeable and
occur at depths ranging from 9,000 to 14,500 feet.
Southeast Texas
Approximately 31% (116.6 Bcfe) of the Company's proved reserves are located
in Southeast Texas where the Company owns interests in 35 producing wells (13.9
net) and operates 26 (11.3 net) of these wells. Reserves in Southeast Texas
represent 29% of the Company's Present Value of Proved Reserves as of December
31, 1999. Net daily production rates from the area averaged 26.1 MMcf of natural
gas and 1,244 barrels of oil during 1999.
Double A Wells
Substantially all of the reserves in this region are in the Double A Wells
field area in Polk County, Texas. The Double A Wells field is the Company's
largest field area with total estimated proved reserves of 114.3 Bcfe (31% of
total proved reserves) which have a Present Value of Proved Reserves of $146.5
million as of December 31, 1999. The Company acquired interests in the Double A
Wells field in May 1996. Net daily production from the 31 producing wells at
Double A Well field averaged 1,183 barrels of oil and 25.4 MMcf of natural gas
during 1999. These wells typically produce from the Woodbine formation at an
average depth of 14,300 feet. During 1999, the Company began a redevelopment
program in this field based on the interpretation of 3-D seismic data acquired
on 25,600 acres. In 1999, Comstock drilled five development wells (3.0 net) in
this field. Four of the wells (2.2 net) were successful. The Company has
budgeted $24.0 million to drill 13 development and exploratory wells (8.1 net)
in the Double A Wells field in 2000 to continue the successful program started
in 1999.
East Texas/North Louisiana
Approximately 30% (111.8 Bcfe) of the Company's proved reserves are located
in East Texas and North Louisiana where the Company owns interests in 350
producing wells (196.6 net) in 21 field areas and operates 242 of these wells
(175.3 net). The largest of the Company's field areas in this region are the
Beckville, Logansport, Waskom, Hico-Knowles and Box Church fields. Reserves in
the region represented 19% of the Company's Present Value of Proved Reserves as
of December 31, 1999. Production from this region averaged 24.1 MMcf of natural
gas per day and 192 barrels of oil per day during 1999. Most of the reserves in
this area produce from the Cretaceous aged Travis Peak/Hosston formation and the
Jurassic aged Cotton Valley formation. The total thickness of these formations
range from 2,000 to 4,000 feet of sand and shale sequences in the East Texas
Basin and the North Louisiana Salt Basin, at depths ranging from 6,000 to 10,500
feet. In 1999 the Company spent $3.1 million drilling nine wells (5.5 net) and
$1.9 million on workovers and recompletions in this region. Comstock has
budgeted approximately $9.0 million in 2000 for this region to drill 12
development wells (7.4 net) and for recompletions.
10
<PAGE>
Beckville
The Company's properties in the Beckville field, located in Panola County,
Texas, represented approximately 8% (30.7 Bcfe) of the Company's proved reserves
as of December 31, 1999. The Company operates 54 wells in this field and owns
interests in five additional wells. During 1999, the production attributable to
the Company's interest from this field averaged 4.8 MMcf of natural gas and 21
barrels of oil per day. The Beckville field produces from the Cotton Valley
formation at depths ranging from 9,000 to 10,000 feet. The Company drilled two
wells (1.5 net) in 1999 at Beckville and plans to spend approximately $2.6
million to drill four development wells (2.7 net) in this field in 2000.
Logansport
The Logansport field produces from multiple pay zones in the Hosston
formation at an average depth of 8,000 feet and is located in DeSoto Parish,
Louisiana. The Company's proved reserves of 18.6 Bcfe in the Logansport field
represented approximately 5% of the Company's proved reserves as of December 31,
1999. The Company operates 54 wells in this field and owns interests in 32
additional wells. During 1999, net daily production attributable to the
Company's interest averaged 5.7 MMcf of natural gas and 20 barrels of oil. The
Company drilled one well (.2 net) during 1999 and has budgeted $0.8 million to
drill one development well (.9 net) in this field in 2000.
Waskom
The Waskom field, located in Harrison and Panola Counties in Texas,
represented approximately 4% (15.0 Bcfe) of the Company's proved reserves as of
December 31, 1999. The Company operates 40 wells in this field and owns
interests in 31 additional wells. During 1999, net daily production attributable
to the Company's interest averaged 2.0 MMcf of natural gas and 28 barrels of
oil. The Waskom field produces from the Cotton Valley formation at depths
ranging from 9,000 to 10,000 feet.
Hico-Knowles
The Hico-Knowles field produces from multiple pay zones in the Hosston
formation at an average depth of 7,100 feet and is located in Lincoln Parish,
Louisiana. The Company's proved reserves of 5.0 Bcfe in the Hico-Knowles field
represented approximately 1% of the Company's proved reserves as of December 31,
1999. The Company operates nine wells in this field and owns interests in six
additional wells. During 1999, net daily production attributable to the
Company's interest averaged 1.1 MMcf of natural gas and 12 barrels of oil. The
Company drilled four wells (2.5 net) in this field during 1999 and has budgeted
$0.2 million to drill one development well (.5 net) in this field in 2000.
Box Church
The Company's properties in the Box Church field, located in Limestone
County, Texas, represented approximately 3% (9.3 Bcfe) of the Company's proved
reserves as of December 31, 1999. The Company operates eight wells in this
field. During 1999, net daily production attributable to the Company's interest
from this field averaged 1.9 MMcf of natural gas and 4 barrels of oil. The Box
Church field produces from the Cotton Valley formation at depths ranging from
10,200 to 10,500 feet. The Company drilled one well (.9 net) at Box Church in
1999 and plans to spend approximately $1.7 million to drill two development
wells (1.8 net) in this field in 2000.
11
<PAGE>
Acquisition Activities
Acquisition Strategy
The Company has concentrated its acquisition activity in the Gulf of
Mexico, Southeast Texas and East Texas/North Louisiana regions. Using a strategy
that capitalizes on management's knowledge of and experience in these regions,
the Company seeks to selectively pursue acquisition opportunities where the
Company can evaluate the assets to be acquired in detail prior to completion of
the transaction. The Company evaluates a large number of prospective properties
according to certain internal criteria, including established production and the
properties' future development and exploration potential, low operating costs
and the ability for the Company to obtain operating control.
Major Property Acquisitions
As a result of its acquisitions, the Company has added 488.9 Bcfe of proved
oil and natural gas reserves since 1991.
The Company's largest acquisitions are the following:
Bois d' Arc Acquisition. In December 1997, the Company acquired working
interests in certain producing offshore Louisiana oil and gas properties as well
as interests in undeveloped offshore oil and natural gas leases for
approximately $200.9 million from Bois d' Arc Resources and certain of its
affiliates and working interest partners. The Company acquired interests in 43
wells (29.6 net) and eight separate production complexes located in the Gulf of
Mexico offshore of Plaquemines and Terrebonne Parishes, Louisiana. The
acquisition included interests in the Louisiana state and federal offshore areas
of Main Pass Blocks 21 and 25, Ship Shoal Blocks 66, 67, 68 and 69 and South
Pelto Block 1. The net proved reserves acquired were estimated at 14.3 MMBbls of
oil and 29.4 Bcf of natural gas.
Black Stone Acquisition. In May 1996, the Company acquired 100% of the
capital stock of Black Stone Oil Company and interests in producing and
undeveloped oil and gas properties located in Southeast Texas for $100.4
million. The Company acquired interests in 19 wells (7.7 net) that are located
in the Double A Wells field in Polk County, Texas and became the operator of
most of the wells in the field. The net proved reserves acquired were estimated
at 5.9 MMBbls of oil and 100.4 Bcf of natural gas.
Sonat Acquisition. In July 1995, the Company purchased interests in certain
producing oil and gas properties located in East Texas and North Louisiana from
Sonat Inc. for $48.1 million. The Company acquired interests in 319 producing
wells (188.0 net). The acquisition included interests in the Beckville,
Logansport, Waskom, and Hico-Knowles fields. The net proved reserves acquired
were estimated at 0.8 MMBbls of oil and 104.7 Bcf of natural gas.
12
<PAGE>
Oil and Natural Gas Reserves
The following table sets forth the estimated proved oil and natural gas
reserves of the Company and the Present Value of Proved Reserves as of December
31, 1999:
Present
Value of
Proved
Oil Gas Total Reserves
(MBbls) (Mmcf) (Mmcfe) (000's)
------ ------- ------- --------
Proved Developed Producing....... 9,013 134,164 188,242 $280,695
Proved Developed Non-producing... 5,366 49,960 82,153 114,185
Proved Undeveloped............... 5,088 73,997 104,527 120,179
------ ------- ------- --------
Total Proved............... 19,467 258,121 374,922 $515,059
====== ======= ======= ========
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their values, including many factors beyond the control of the
producer. The reserve data set forth above represents estimates only. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in an exact manner. The accuracy of
any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers may vary. In addition, estimates of reserves are subject
to revision based on the results of drilling, testing and production subsequent
to the date of such estimate. Accordingly, reserve estimates are often different
from the quantities of oil and gas reserves that are ultimately recovered.
In general, the volume of production from oil and natural gas properties
declines as reserves are depleted. Except to the extent the Company acquires
properties containing proved reserves or conducts successful exploration and
development activities, the proved reserves of the Company will decline as
reserves are produced. The Company's future oil and natural gas production is,
therefore, highly dependent upon its level of success in acquiring or finding
additional reserves.
The market price for the Company's oil production on December 31, 1999,
after basis adjustments, was $24.56 per barrel as compared to $10.55 per barrel
on December 31, 1998. The market price received for the Company's natural gas
production on December 31, 1999, after basis adjustments, was $2.51 per Mcf as
compared to $2.21 per Mcf on December 31, 1998.
13
<PAGE>
Drilling Activity Summary
During the three-year period ended December 31, 1999, the Company drilled
development and exploratory wells as set forth in the table below.
Year Ended December 31,
--------------------------------------------------
1997 1998 1999
------------- ------------- -------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
Development Wells:
Oil................... 2 .6 -- -- 1 .4
Gas................... 31 16.1 25 14.7 14 8.8
Dry................... 7 2.3 5 3.5 2 .8
----- ----- ----- ----- ----- -----
40 19.0 30 18.2 17 10.0
----- ----- ----- ----- ----- -----
Exploratory Wells:
Oil................... 1 .3 6 2.3 2 .6
Gas................... 4 1.3 2 2.0 5 .9
Dry................... 4 1.6 6 2.9 4 .9
----- ----- ----- ----- ----- -----
9 3.2 14 7.2 11 2.4
----- ----- ----- ----- ----- -----
Total Wells........ 49 22.2 44 25.4 28 12.4
===== ===== ===== ===== ===== =====
In January and February 2000, the Company has drilled seven development
wells (2.6 net), all of which were successful and one successful exploratory
well (0.3 net). As of February 28, 2000, the Company was in the process of
drilling one exploratory well (1.0 net) and one development well (0.4 net).
Producing Well Summary
The following table sets forth the gross and net producing oil and natural
gas wells in which the Company owned an interest at December 31, 1999.
Oil Gas
--------------- ---------------
Gross Net Gross Net
----- ----- ----- -----
Texas......................... 32 16.6 216 120.6
Louisiana..................... 11 6.3 184 88.7
Offshore Gulf of Mexico....... 37 24.1 41 17.4
Mississippi................... 1 .1 1 .2
----- ----- ----- -----
Total Wells......... 81 47.1 442 226.9
===== ===== ===== =====
The Company operates 310 of the 523 producing wells presented in the above
table.
14
<PAGE>
Acreage
The following table summarizes the Company's developed and undeveloped
leasehold acreage at December 31, 1999. Excluded is acreage in which the
Company's interest is limited to royalty or similar interests.
Developed Undeveloped
------------------ ------------------
Gross Net Gross Net
------- ------- ------- -------
Texas .............................. 163,431 117,644 38,148 18,262
Louisiana .......................... 77,792 57,109 6,794 862
State and Federal Offshore ......... 35,906 14,925 1,764 745
Mississippi ........................ 1,360 210 -- --
------- ------- ------- -------
Total Wells .............. 278,489 189,888 46,706 19,869
======= ======= ======= =======
Title to the Company's oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the oil and gas industry, liens incident to operating
agreements and for current taxes not yet due and other minor encumbrances. All
of the Company's oil and natural gas properties are pledged as collateral under
the Company's bank credit facility. As is customary in the oil and gas industry,
the Company is generally able to retain its ownership interest in undeveloped
acreage by production of existing wells, by drilling activity which establishes
commercial reserves sufficient to maintain the lease or by payment of delay
rentals.
Markets and Customers
The market for oil and natural gas produced by the Company depends on
factors beyond its control, including the extent of domestic production and
imports of oil and natural gas, the proximity and capacity of natural gas
pipelines and other transportation facilities, demand for oil and natural gas,
the marketing of competitive fuels and the effects of state and federal
regulation. The oil and gas industry also competes with other industries in
supplying the energy and fuel requirements of industrial, commercial and
individual consumers.
Substantially all of the Company's natural gas production is sold either on
the spot natural gas market on a month-to-month basis at prevailing spot market
prices or under long-term contracts based on current spot market gas prices. A
portion of the natural gas production from the Company's Double A Wells field is
sold under a long-term contract to Houston Pipeline Company, a subsidiary of
Enron Corporation ("HPL"). The agreement with HPL expires on October 31, 2000
with pricing based on a percentage of spot gas prices for natural gas delivered
to the Houston Ship Channel. Total gas sales in 1999 to HPL accounted for
approximately 20% of the Company's 1999 oil and gas sales.
All of the Company's oil production is sold at the well site at prices tied
to the spot oil markets. The Company sells its oil production from the Ship
Shoal and Main Pass offshore properties and, beginning on July 1, 1999, from its
Double A Wells field to Gulfmark Energy, Inc. Sales to Gulfmark Energy, Inc.
accounted for 33% of the Company's 1999 oil and gas sales.
15
<PAGE>
Competition
The oil and gas industry is highly competitive. Competitors include major
oil companies, other independent energy companies, and individual producers and
operators, many of which have financial resources, personnel and facilities
substantially greater than those of the Company. The Company faces intense
competition for the acquisition of oil and natural gas properties.
Regulation
The Company's operations are regulated by certain federal and state
agencies. In particular, oil and natural gas production and related operations
are or have been subject to price controls, taxes and other laws relating to the
oil and natural gas industry. The Company cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings, whether
additional laws and regulations will be adopted, or the effect such changes may
have on its business or financial condition.
Sales of natural gas by the Company are not regulated and are made at
market prices. However, the Federal Energy Regulatory Commission ("FERC")
regulates interstate and certain intrastate 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. Since the mid- 1980s, 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
sales, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in issuing
the orders was to increase competition within all phases of the natural gas
industry. 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.
Sales of oil and natural gas liquids by the Company are not regulated and
are made at market prices. The price the Company receives from the sale of these
products is affected by the cost of transporting the products to market.
The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal, state and local agencies. Failure to comply with such rules 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. Because such rules and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such laws.
The states of Texas and Louisiana require permits for drilling operations,
drilling bonds and the filing of reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. These
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum rates of production from oil and gas
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.
The Company is required to comply with various federal and state
regulations regarding plugging and abandonment of oil and natural gas wells. The
Company provides reserves for the estimated costs of plugging and abandoning its
wells, to the extent such costs exceed the estimated salvage value of the wells,
on a unit of production basis.
16
<PAGE>
Environmental
Various federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, health and safety, affect the Company's
operations and costs. These laws and regulations sometimes require governmental
authorization before conducting certain activities, limit or prohibit other
activities because of protected areas or species, create the possibility of
substantial liabilities for pollution related to Company operations or
properties and provide penalties for noncompliance. In particular, the Company's
drilling and production operations, its activities in connection with storage
and transportation of crude oil and other liquid hydrocarbons and its use of
facilities for treating, processing or otherwise handling hydrocarbons and
related exploration and production wastes are subject to stringent environmental
regulation. As with the industry in general, compliance with existing and
anticipated regulations increases the Company's overall cost of business. While
these regulations affect the Company's capital expenditures and earnings, the
Company believes that such regulations do not affect its competitive position in
the industry because its competitors are similarly affected by environmental
regulatory programs. Environmental regulations have historically been subject to
frequent change and, therefore, the Company cannot predict with certainty the
future costs or other future impacts of environmental regulations on its future
operations. A discharge of hydrocarbons or hazardous substances into the
environment could subject the Company to substantial expense, including the cost
to comply with applicable regulations that require a response to the discharge,
such as containment or cleanup, claims by neighboring landowners or other third
parties for personal injury, property damage or their response costs and
penalties assessed, or other claims sought, by regulatory agencies for response
cost or for natural resource damages.
The following are examples of some environmental laws that potentially
impact the Company and its operations.
Water. The Oil Pollution Act ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 ("FWPCA") and
other statutes as they pertain to the prevention of and response to major oil
spills. The OPA subjects owners of facilities to strict, joint and potentially
unlimited liability for removal costs and certain other consequences of an oil
spill along shorelines or that enters navigable waters. In the event of an oil
spill into such waters, substantial liabilities could be imposed upon the
Company. Recent regulations developed under OPA require companies that own
offshore facilities, including the Company, to demonstrate oil spill financial
responsibility for removal costs and damage caused by oil discharge. States in
which the Company operates have also enacted similar laws. Regulations are
currently being developed under the OPA and similar state laws that may also
impose additional regulatory burdens on the Company.
The FWPCA imposes restrictions and strict controls regarding the discharge
of produced waters, other oil and gas wastes, any form of pollutant, and, in
some instances, storm water runoff, into waters of the United States. The FWPCA
provides for civil, criminal and administrative penalties for any unauthorized
discharges and, along with the OPA, imposes substantial potential liability for
the costs of removal, remediation or damages resulting from an unauthorized
discharge. State laws for the control of water pollution also provide civil,
criminal and administrative penalties and liabilities in the case of an
unauthorized discharge into state waters. The cost of compliance with the OPA
and the FWPCA have not historically been material to the Company's operations,
but there can be no assurance that changes in federal, state or local water
pollution control programs will not materially adversely affect the Company in
the future. Although no assurances can be given, the Company believes that
compliance with existing permits and compliance with foreseeable new permit
requirements will not have a material adverse effect on the Company's financial
condition or results of operations.
17
<PAGE>
Air Emissions. The Federal Clean Air Act and comparable state programs (the
"Clean Air Act") requires many industrial operations in the United States to
incur capital expenditures in order to meet air emissions control standards
developed by the United States Environmental Protection Agency ("EPA") and state
environmental agencies. Although no assurances can be given, the Company
believes that compliance with the Clean Air Act will not have a material adverse
effect on the Company's financial condition or results of operations.
Solid Waste. The Company generates non-hazardous solid wastes that are
subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes. The EPA and the states in which the
Company operates are considering the adoption of stricter disposal standards for
the type of non-hazardous wastes generated by the Company. RCRA also governs the
generation, management, and disposal of hazardous wastes. At present, the
Company is not required to comply with a substantial portion of the RCRA
requirements because the Company's operations generate minimal quantities of
hazardous wastes. However, it is possible that additional wastes, which could
include wastes currently generated during the Company's operations, could in the
future be designated as "hazardous wastes." Hazardous wastes are subject to more
rigorous and costly disposal and management requirements than are non-hazardous
wastes. Such changes in the regulations may result in additional capital
expenditures or operating expenses by the Company.
Superfund. The Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), also known as "Superfund", imposes liability, without
regard to fault or the legality of the original act, on certain classes of
persons in connection with the release of a "hazardous substance" into the
environment. These persons include the current owner or operator of any site
where a release historically occurred and companies that disposed or arranged
for the disposal of the hazardous substances found at the site. CERCLA also
authorizes the EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs they incur. In the course of its
ordinary operations, the Company may have managed substances that may fall
within CERCLA's definition of a "hazardous substance." Therefore, the Company
may be jointly and severally liable under CERCLA for all or part of the costs
required to clean up sites where the Company disposed of or arranged for the
disposal of these substances. This potential liability extends to properties
that the Company previously owned or operated, as well as to properties owned
and operated by others at which disposal of the Company's hazardous substances
occurred.
The Company may also fall into the category of the "current owner or
operator." The Company currently owns or leases numerous properties that for
many years have been used for the exploration and production of oil and gas.
Although the Company believes it has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other wastes may
have been disposed of or released by the Company on or under the properties
owned or leased by the Company. In addition, many of these properties have been
previously owned or operated by third parties who may have disposed of or
released hydrocarbons or other wastes at these properties. Under CERCLA and
analogous state laws, the Company could be subject to certain liabilities and
obligations, such as being required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
to clean up contaminated property (including contaminated groundwater) or to
perform remedial plugging operations to prevent future contamination.
Office and Operations Facilities
The Company's executive offices are located at 5300 Town and Country Blvd.,
Suite 500, Frisco, Texas 75034 and its telephone number is (972) 668-8800.
18
<PAGE>
The Company leases office space in Frisco, Texas covering 20,046 square
feet at a monthly rate of $35,081. The lease expires on May 31, 2006. The
Company also owns production offices and pipe yard facilities near Marshall and
Livingston, Texas and near Logansport, Louisiana.
Employees
As of December 31, 1999, the Company had 47 employees and utilized contract
employees for certain of its field operations. The Company considers its
employee relations to be satisfactory.
Directors, Executive Officers and Other Management
The following table sets forth certain information concerning the executive
officers and directors of the Company.
Name Age Position with Company
---- --- ---------------------
M. Jay Allison................ 44 President, Chief Executive Officer
and Chairman of the Board of Directors
Roland O. Burns............... 39 Senior Vice President, Chief Financial
Officer,Secretary, Treasurer and Director
Mack D. Good.................. 49 Vice President of Operations
Stephen E. Neukom............. 50 Vice President of Marketing
Richard G. Powers............. 45 Vice President of Land
Daniel K. Presley............. 39 Vice President of Accounting and Controller
Michael W. Taylor............. 46 Vice President of Corporate Development
Richard S. Hickok............. 74 Director
Franklin B. Leonard........... 72 Director
Cecil E. Martin, Jr........... 58 Director
David W. Sledge............... 43 Director
Executive Officers
M. Jay Allison has been a director of the Company since 1987, and President
and Chief Executive Officer of the Company since 1988. Mr. Allison was elected
Chairman of the Board of Directors in 1997. From 1987 to 1988, Mr. Allison
served as Vice President and Secretary of the Company. From 1981 to 1987, he was
a practicing oil and gas attorney with the firm of Lynch, Chappell & Alsup in
Midland, Texas. In 1983, Mr. Allison co-founded a private independent oil and
gas company, Midwood Petroleum, Inc., which was active in the acquisition and
development of oil and gas properties from 1983 to 1987. He received B.B.A.,
M.S. and J.D. degrees from Baylor University in 1978, 1980 and 1981,
respectively. Mr. Allison currently serves on the Board of Regents for Baylor
University.
Roland O. Burns has been Senior Vice President of the Company since 1994,
Chief Financial Officer and Treasurer since 1990 and Secretary since 1991. Mr.
Burns was elected as a director of the Company in June 1999. From 1982 to 1990,
Mr. Burns was employed by the public accounting firm, Arthur Andersen LLP.
During his tenure with Arthur Andersen LLP, Mr. Burns worked primarily in the
firm's oil and gas audit practice. Mr. Burns received B.A. and M.A. degrees from
the University of Mississippi in 1982 and is a Certified Public Accountant.
19
<PAGE>
Mack D. Good was appointed Vice President of Operations of the Company in
March 1999. From August 1997 until his promotion, Mr. Good served as the
Company's District Engineer for the East Texas/ North Louisiana region. From
1983 until 1997, Mr. Good was with Enserch Exploration, Inc. serving in various
operations management and engineering positions. Mr. Good received a B.S. of
Biology/Chemistry from Oklahoma State University in 1975 and a B.S. of Petroleum
Engineering from the University of Tulsa in 1983. He is a Registered
Professional Engineer in the State of Texas.
Stephen E. Neukom has been Vice President of Marketing of the Company since
December 1997 and has served as Manager of Crude Oil and Natural Gas Marketing
since December 1996. From October 1994 to 1996, Mr. Neukom served as Vice
President of Comstock Natural Gas, Inc., the Company's wholly owned gas
marketing subsidiary. Prior to joining the Company, Mr. Neukom was Senior Vice
President of Victoria Gas Corporation from 1987 to 1994. Mr. Neukom received a
B.B.A. degree from the University of Texas in 1972.
Richard G. Powers joined the Company as Land Manager in October 1994 and
has been Vice President of Land since December 1997. Mr. Powers has over 20
years experience as a petroleum landman. Prior to joining the Company, Mr.
Powers was employed for 10 years as Land Manager for Bridge Oil (U.S.A.), Inc.
and its predecessor Pinoak Petroleum, Inc. Mr. Powers received a B.B.A. degree
in 1976 from Texas Christian University.
Daniel K. Presley has been Vice President of Accounting since December 1997
and has been with the Company since December 1989 serving as Controller since
1991. Prior to joining the Company, Mr. Presley had six years of experience with
several independent oil and gas companies including AmBrit Energy, Inc. Prior
thereto, Mr. Presley spent two and one-half years with B.D.O. Seidman, a public
accounting firm. Mr. Presley has a B.B.A. from Texas A & M University.
Michael W. Taylor has been Vice President of Corporate Development since
December 1997 and has served the Company in various capacities since September
1994. Mr. Taylor has 26 years experience in the oil and gas business. For 15
years prior to joining the Company, he had been an independent oil and gas
producer and petroleum consultant. Before that time, he worked in various
engineering and executive capacities for a major oil company, a small
independent producer and an international oil and gas consulting company. Mr.
Taylor is a registered professional engineer in the state of Texas and he
received a B.S. degree in Petroleum Engineering from Texas A & M University in
1974.
Outside Directors
Richard S. Hickok has been a director of the Company since 1987. From 1948
to 1983, he was employed by the international accounting firm of Main Hurdman
where he retired as Chairman. From 1978 to 1980, Mr. Hickok served as a Trustee
of the Financial Accounting Foundation and has extensive involvement serving on
various committees of the American Institute of Certified Public Accountants.
Mr. Hickok holds a B.S. degree from the Wharton School of the University of
Pennsylvania.
Franklin B. Leonard has been a director of the Company since 1960. From
1961 to 1994, Mr. Leonard served as President of Crossley Surveys, Inc., a New
York based company which conducted statistical surveys. Mr. Leonard's family's
involvement in the Company spans four generations dating back to the 1880's when
Mr. Leonard's great grandfather was a significant shareholder of the Company.
Mr. Leonard holds a B.S. degree from Yale University.
20
<PAGE>
Cecil E. Martin, Jr. has been a director of the Company since 1988. From
1973 to 1991 he served as Chairman of a public accounting firm in Richmond,
Virginia. Mr. Martin also serves as a director for CareerShop.com. Mr. Martin
holds a B.B.A. degree from Old Dominion University and is a Certified Public
Accountant.
David W. Sledge was elected to the Board of Directors of the Company in
1996. Mr. Sledge served as President of Gene Sledge Drilling Corporation, a
privately held contract drilling company based in Midland, Texas until its sale
in October 1996. Mr. Sledge served Gene Sledge Drilling Corporation in various
capacities from 1979 to 1996. Mr. Sledge is a past director of the International
Association of Drilling Contractors and is a past chairman of the Permian Basin
chapter of this association. He received a B.B.A. degree from Baylor University
in 1979.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which management
believes will have a material adverse effect on the Company's consolidated
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1999.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed for trading on the New York Stock
Exchange under the symbol "CRK". The following table sets forth, on a per share
basis for the periods indicated, the high and low sales prices by calendar
quarter for the periods indicated as reported by the New York Stock Exchange.
High Low
------- -------
1998 - First Quarter............ $ 12.00 $ 8.75
Second Quarter........... 13.50 7.31
Third Quarter............ 8.13 5.25
Fourth Quarter........... 6.13 2.81
1999 - First Quarter............ $ 3.88 $ 2.19
Second Quarter........... 5.13 2.44
Third Quarter............ 5.88 3.38
Fourth Quarter........... 4.50 2.63
As of February 28, 2000, the Company had 25,375,197 shares of common stock
outstanding, which were held by 484 holders of record and approximately 8,000
beneficial owners who maintain their shares in "street name" accounts.
The Company has never paid cash dividends on its common stock. The Company
presently intends to retain any earnings for the operation and expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of dividends will depend upon
results of operations, capital requirements, the financial condition of the
Company and such other factors as the Board of Directors of the Company may deem
relevant. In addition, the Company is limited under its bank credit facility,
its 1999 Series A Preferred Stock Series and its indenture for its senior notes
due in 2007 from paying or declaring cash dividends.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The historical financial data presented in the table below as of and for
each of the years in the five-year period ended December 31, 1999 are derived
from the Consolidated Financial Statements of the Company. Significant
acquisitions of producing oil and gas properties affect the comparability of the
financial and operating data for the periods presented. The financial results
are not necessarily indicative of the Company's future operations or financial
results. The data presented below should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION> Year Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
($ in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Oil and gas sales ............................ $ 22,091 $ 68,915 $ 88,555 $ 92,961 $ 90,103
Gain on sales of property .................... 19 1,447 85 -- 130
Other income ................................. 264 593 704 274 1,911
-------- -------- -------- -------- --------
Total revenues ............................. 22,374 70,955 89,344 93,235 92,144
-------- -------- -------- -------- --------
Expenses:
Oil and gas operating (1) .................... 7,427 13,838 17,919 24,747 23,714
Exploration .................................. -- 436 2,810 8,301 1,832
Depreciation, depletion and amortization ..... 8,379 18,269 26,235 51,005 45,171
General and administrative, net .............. 1,301 2,239 2,668 1,617 2,399
Interest ..................................... 5,542 10,086 5,934 16,977 23,361
Impairment of oil and gas properties ......... 29,150 -- -- 17,000 --
-------- -------- -------- -------- --------
Total expenses ............................. 51,799 44,868 55,566 119,647 96,477
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes ......................... (29,425) 26,087 33,778 (26,412) (4,333)
Income tax benefit (expense).................. -- -- (11,622) 9,244 1,517
-------- -------- -------- -------- --------
Net income (loss) from continuing operations... (29,425) 26,087 22,156 (17,168) (2,816)
Preferred stock dividends .................... (1,908) (2,021) (410) -- (1,853)
-------- -------- -------- -------- --------
Net income (loss) from continuing operations
attributable to common stock ................ (31,333) 24,066 21,746 (17,168) (4,669)
Income from discontinued operations .......... 3,264 1,866 -- -- --
-------- -------- -------- -------- --------
Net income (loss) attributable to common stock. $(28,069) $ 25,932 $ 21,746 $(17,168) $ (4,669)
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic......................................... 12,546 15,449 24,186 24,275 24,601
======== ======== ======== ======== ========
Diluted....................................... 21,199 26,008
======== ========
Basic earnings per share:
Net income (loss)from continuing operations... $ (2.50) $ 1.56 $ 0.90 $ (0.71) $ (0.19)
Net income (loss)............................. (2.24) 1.68 0.90 (0.71) (0.19)
Diluted earnings per share:
Net income (loss) from continuing operations.. $ 1.23 $ 0.85
Net income (loss)............................. 1.32 0.85
Other Financial Data:
EBITDA(2)...................................... $ 13,646 $ 54,878 $ 68,757 $ 66,871 $ 66,031
Ratio of EBITDA to interest expense............ 2.5 5.4 11.3 3.5 2.8
As of December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- --------- -------- --------
Balance Sheet Data:
Cash and cash equivalents...................... $ 1,917 $ 16,162 $ 14,504 $ 5,176 $ 7,648
Property and equipment, net.................... 102,116 185,928 410,781 404,017 395,862
Total assets................................... 120,099 222,002 456,800 429,672 434,973
Total debt..................................... 71,811 80,108 260,000 278,104 254,131
Stockholders' equity........................... 30,128 118,216 124,594 109,663 137,174
</TABLE>
(1)Includes lease operating costs and production and ad valorem taxes.
(2)EBITDA means income (loss) from continuing operations before income taxes,
plus interest, depreciation, depletion and amortization, exploration expense
and impairment of oil and gas properties. EBITDA is a financial measure
commonly used in the Company's industry and should not be considered in
isolation or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table reflects certain summary operating data for the periods
presented
Year Ended December 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
Net Production Data:
Oil (Mbbls)....................... 1,343 2,571 2,128
Natural gas (Mmcf)................ 22,860 26,713 23,872
Natural gas equivalent (Mmcfe).... 30,919 42,141 36,642
Average Sales Price:
Oil (Mbbls) ....................... $ 19.47 $ 12.73 $ 17.35
Natural gas (Mmcf) ................ 2.73 2.25 2.23
Average equivalent price (per Mcfe) 2.87 2.21 2.47
Expenses ($ per Mcfe):
Oil and gas operating(1) .......... $ 0.58 0.59 0.65
General and administrative ........ 0.09 0.04 0.07
Depreciation, depletion and
amortization(2) ................ 0.84 $ 1.20 $ 1.20
Cash Margin ($ per Mcfe)(3) ........... $ 2.20 $ 1.58 $ 1.75
- --------------
(1) Includes lease operating costs and production and ad valorem taxes.
(2) Represents depreciation, depletion and amortization of oil and gas
properties only.
(3) Represents average equivalent price per Mcfe less oil and gas operating
expenses per Mcfe and general and administrative expenses per Mcfe.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The Company's oil and gas sales decreased $2.9 million (3%) in 1999, to
$90.1 million from $93.0 million in 1998 due to a decrease in oil and natural
gas production largely offset by higher oil prices in 1999. In 1999, the
Company's average oil price increased by 36% and its average gas price decreased
by 1%. The Company hedged 39% of its 1999 natural gas production at a fixed
price of $2.03 per Mcf. Without the impact of the hedge, the Company would have
realized $2.43 per Mcf in 1999. In 1999, the Company's oil production decreased
by 17% and natural gas production decreased by 11%. The production declines in
1999 were principally attributable to the significantly lower drilling activity
in the first half of 1999. The Company significantly increased its drilling
activity in the second half of 1999 and has continued to do so in 2000 and
anticipates that oil and gas production will increase in 2000.
Other income for the year ended December 31, 1999 increased $1.6 million to
$1.9 million from $274,000 for the year ended December 31, 1998. Included in
other income for 1999 is a $1.7 million insurance recovery received by the
Company on the Habenero prospect which was drilled in 1998 and was written off
in 1998 when the well was abandoned due to encountering numerous well control
problems.
Oil and gas operating expenses, including production taxes, decreased $1.0
million (4%) to $23.7 million in 1999 from $24.7 million in 1998. Oil and gas
operating expenses per equivalent Mcf produced increased $0.06 to $0.65 for the
year ended December 31, 1999 from $0.59 for the year ended 1998 due to the 13%
decrease in oil and natural gas production (on an equivalent Mcf basis) and the
fixed nature of most of the Company's lifting costs.
24
<PAGE>
In 1999, the Company had $1.8 million in exploration expense which
represents the write off of four offshore exploratory dry holes (.9 net).
Exploration expense for 1998 of $8.3 million relates to the write off of the six
dry holes (2.9 net) drilled in the Gulf of Mexico during 1998.
Depreciation, depletion and amortization ("DD&A") decreased $5.8 million
(11%) to $45.2 million in 1999 from $51.0 million in 1998 due to the 13%
decrease in oil and natural gas production. DD&A per equivalent Mcf produced was
$1.20 for the year ended December 31, 1999 which remained unchanged from 1998's
DD&A rate. Included in DD&A in 1999 is $538,000 relating to the amoritization of
costs associated with the issuance of the Company's senior notes in April 1999.
General and administrative expenses, which are reported net of overhead
reimbursements, increased $782,000 (48%) to $2.4 million in 1999 from $1.6
million in 1998. The increase relates to a $225,000 litigation settlement paid
in 1999, a decrease in drilling overhead reimbursements received by the Company
in 1999 due to the lower level of drilling in 1999 and higher personnel costs
incurred in 1999.
Interest expense increased $6.4 million (38%) to $23.4 million for the year
ended December 31, 1999 from $17.0 million for the year ended December 31, 1998.
The Company capitalized interest expense of $2.3 million in 1998 on its
unevaluated properties, while in 1999, no interest expense was capitalized. The
remaining increase is related to a higher average interest rate on the Company's
debt. The weighted average annual interest rate under the Company's bank credit
facility was 7.2% for 1999, the same as the weighted average rate in 1998. The
interest rate on the Company's senior notes issued to refinance $150.0 million
of amounts outstanding under the bank credit facility on April 29, 1999 (11.25%)
was significantly higher than the 7.2% rate charged under the bank credit
facility in 1998.
Due to the substantial drop in oil and gas prices during 1998, the Company
provided an impairment of $17.0 million in 1998 of its oil and gas properties.
No impairment was required in 1999.
The Company had a deferred tax benefit of $1.5 million for 1999, using an
estimated tax rate of 35%.
The Company reported a net loss of $4.7 million after preferred stock
dividends of $1.9 million for the year ended December 31, 1999, as compared to a
net loss of $17.2 million for year ended December 31, 1998. Net loss per share
for 1999 was $0.19 on weighted average shares outstanding of 24.6 million as
compared to net loss per share of $0.71 for 1998 on weighted average shares
outstanding of 24.3 million.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Oil and gas sales increased $4.4 million (5%) to $93.0 million in 1998 from
$88.6 million in 1997. The increase is attributable to a 17% increase in natural
gas production and a 92% increase in oil production, offset by 18% lower
realized natural gas prices and 35% lower realized oil prices. The increase in
production is attributable to the $200.9 million acquisition of offshore
producing properties completed in December 1997.
Other income in 1998 decreased $430,000 (61%) to $274,000 from $704,000 for
1997. This decrease is attributable to a lower level of short-term cash deposits
outstanding as well as the termination of management fee income previously
received by the Company.
Oil and gas operating costs in 1998 increased $6.8 million (38%) to $24.7
million from $17.9 million in 1997 due to the 36% increase in oil and gas
production (on an equivalent Mcf basis). Oil and gas operating expenses per
equivalent Mcf produced increased $0.01 to $0.59 in 1998 from $0.58 in 1997.
25
<PAGE>
Exploration expense for 1998 was $8.3 million which relates to the
write-off of the six unsuccessful exploratory wells, as compared to $2.8 million
in 1997.
DD&A increased $24.8 million (94%) to $51.0 million from $26.2 million in
1997. The increase is due to a 36% increase in oil and natural gas production
and to higher costs per unit of amortization. DD&A per equivalent Mcf increased
by $0.36 to $1.20 in 1998 from $0.84 in 1997. The increases in the DD&A rate
relate to the higher costs of the offshore properties acquired in late 1997.
General and administrative expenses, which are reported net of overhead
reimbursements, decreased $1.1 million (39%) to $1.6 million in 1997. The
decrease is attributable to an increase in overhead reimbursements received by
the Company in 1998 which was greater than the increase in the Company's
overhead costs before reimbursements.
Interest expense in 1998 increased $11.0 million (186%) to $17.0 million in
1998 from $5.9 million in 1997. The increase is related to a higher level of
outstanding advances under the Company's bank credit facility due to the $200.9
million acquisition completed in December 1997 as well as a higher average
interest rate on the Company's bank credit facility. The weighted average annual
interest rate under the Company's bank credit facility increased to 7.2% in 1998
as compared to 6.6% in 1997. The increase in the rate was attributable to a
higher utilization of the borrowing base under the bank credit facility after
the December 1997 acquisition.
Due to the substantial drop in oil and gas prices during 1998, the Company
provided an impairment of $17.0 million in 1998 of its oil and gas properties.
The Company had a deferred tax benefit of $9.2 million for 1998, using an
estimated tax rate of 35%.
The net loss for the year ended December 31, 1998 was $17.2 million, as
compared to net income of $21.7 million, in 1997. Net loss per share for 1998
was $0.71 on weighted average shares outstanding of 24.3 million as compared to
net income per share of $0.85 for 1997 on diluted weighted average shares
outstanding of 26.0 million.
Liquidity and Capital Resources
Funding for the Company's activities has historically been provided by
operating cash flow, debt and equity financings and asset dispositions. In 1999,
the Company's net cash flow provided by operating activities totaled $42.8
million before changes to other working capital accounts. On April 29, 1999, the
Company completed the sale of $150.0 million in aggregate principal amount of 11
1/4% Senior Notes due in 2007 (the "Notes"). Concurrently with the sale of the
Notes, the Company also issued 3,000,000 shares of its preferred stock in a
private placement for $30.0 million. After transaction related costs, the sale
of the Notes and the preferred stock generated proceeds of $172.8 million. The
other primary funding source in 1999 was borrowings under the Company's
revolving bank credit facility of $10.0 million.
The Company's primary needs for capital, in addition to funding of ongoing
operations, relate to the acquisition, development and exploration of oil and
gas properties and the repayment of debt. In 1999, the Company incurred capital
expenditures of $36.0 million primarily for development, exploration and
acquisition activities and reduced amounts outstanding under its bank credit
facility by $184.0 million.
26
<PAGE>
The Company's annual capital expenditure activity is summarized as follows:
Year Ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
Acquisitions of oil and
gas properties ........... $220,054 $ 2,453 $ 4,458
Other leasehold costs .......... 2,304 3,622 2,258
Workovers and recompletions .... 2,517 10,198 4,472
Offshore production facilities.. -- -- 4,462
Development drilling ........... 22,765 20,361 11,521
Exploratory drilling ........... 6,043 30,423 8,126
Other .......................... 1,160 330 684
-------- -------- --------
Total ...................... $254,843 $ 67,387 $ 35,981
======== ======== ========
The timing of most of the Company's capital expenditures is discretionary
with no material long-term capital expenditure commitments. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. The Company spent $33.6 million, $64.6
million and $30.8 million on development and exploration activities in 1997,
1998 and 1999, respectively. The Company currently anticipates spending
approximately $60.0 million on development and exploration projects in 2000. The
Company intends to primarily use internally generated cash flow to fund capital
expenditures other than significant acquisitions.
The Company spent $220.1 million, $2.5 million and $4.5 million on
acquisition activities in 1997, 1998 and 1999, respectively. The Company does
not have a specific acquisition budget for 2000 as a result of the
unpredictability of the timing and size of forthcoming acquisition activities.
The Company intends to use borrowings under its bank credit facility, or other
debt or equity financings to the extent available, to finance significant
acquisitions. The availability and attractiveness of these sources of financing
will depend upon a number of factors, some of which will relate to the financial
condition and performance of the Company, and some of which will be beyond the
Company's control, such as prevailing interest rates, oil and gas prices and
other market conditions.
The Company has a bank credit facility consisting of a $175.0 million
revolving credit commitment provided by a syndicate of banks for which Bank One,
NA serves as administrative agent. Indebtedness under the bank credit facility
is secured by substantially all of the Company's assets and is subject to
borrowing base availability which is generally redetermined semiannually based
on the banks' estimates of the future net cash flows of the Company's oil and
gas properties. The borrowing base under the bank credit facility is $175.0
million. Such borrowing base may be affected from time to time by the
performance of the Company's oil and gas properties and changes in oil and gas
prices. The determination of the Company's borrowing base is at the sole
discretion of the administrative agent and the bank group. The revolving credit
line under the bank credit facility bears interest at the option of the Company,
based on the utilization of the borrowing base, at either (i) LIBOR plus 1.25%
to 2.0% or (ii) the "corporate base rate" plus 0.25% to 1.0%. The Company incurs
a commitment fee, based on the utilization of the borrowing base, of 0.25% to
0.5% per annum on the unused portion of the borrowing base. The revolving credit
line matures on December 9, 2002 or such earlier date as the Company may elect.
The bank credit facility contains covenants which, among other things, restrict
the payment of cash dividends, limit the amount of consolidated debt, and limit
the Company's ability to make certain loans and investments. Significant
financial covenants include the maintenance of a current ratio, as defined, (1.0
to 1.0), maintenance of tangible net worth ($105.0 million), and maintenance of
an interest coverage ratio (2.5 to 1.0).
The Company believes that cash flow from operations and available
borrowings under the Company's bank credit facility will be sufficient to fund
its operations and future growth as contemplated under its current business
27
<PAGE>
plan. However, if the Company's plans or assumptions change or if its
assumptions prove to be inaccurate, the Company may be required to seek
additional capital. Management cannot be assured that the Company will be able
to obtain such capital or, if such capital is available, that the Company will
be able to obtain it on acceptable terms.
Year 2000
"Year 2000," or the ability of computer systems to process dates with years
beyond 1999, affects almost all companies and organizations. Computer systems
that were not Year 2000 compliant by January 1, 2000 may cause an adverse effect
to companies and organizations that rely upon those systems. The Company
assessed and corrected computer systems that were unable to properly process
dates beyond 1999. The Company's significant financial information systems are
outsourced and the Company is relying on assurances from the providers that they
are Year 2000 compliant. The Company's costs related to Year 2000 have not been
significant. The Company has not experienced any significant problems or delays
related to Year 2000 subsequent to January 1, 2000. In addition, the Company
does not expect any future material effects to arise from Year 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company's operations are impacted by fluctuations in crude oil and
natural gas commodity prices and interest rates. The following discussion is
intended to identify the nature of these market risks, describe the Company's
strategy for managing such risks, and to quantify the potential affect of market
volatility on the Company's financial condition and results of operations.
Oil and Natural Gas Prices
The Company's financial condition, results of operation, and capital
resources are highly dependent upon the prevailing market prices of, and demand
for, oil and natural gas. These commodity prices are subject to wide
fluctuations and market uncertainties due to a variety of factors that are
beyond the control of the Company. These factors include the level of global
demand for petroleum, foreign supply of oil and gas, the establishment of and
compliance with production quotas by oil-exporting countries, weather
conditions, the price and availability of alternative fuels, and overall
economic conditions, both foreign and domestic. It is impossible to predict
future oil and natural gas prices with any degree of certainty. Sustained
weakness in oil and natural gas prices may adversely affect the Company's
financial condition and results of operations, and may also reduce the amount of
net oil and gas reserves that the Company can produce economically. Any
reduction in oil and natural gas reserves, including reductions due to price
fluctuations, can have an adverse affect on the Company's ability to obtain
capital for its exploration and development activities. Similarly, any
improvements in oil and natural gas prices can have a favorable impact on the
Company's financial condition, results of operations and capital resources.
Based on the Company's oil and natural gas production in 1999, before taking
into account any hedging transactions, a $1.00 change in the price per barrel of
oil would result in a change in the Company's cash flow for such period of
approximately $2.0 million and a $0.10 change in the price per Mcf of natural
gas would result in a change in the Company's cash flow of approximately $2.2
million.
The Company periodically has utilized hedging transactions with respect to
a portion of its oil and natural gas production to mitigate its exposure to
price fluctuations. While the use of these hedging arrangements limits the
downside risk of price declines, such use may also limit any benefits which may
be derived from price increases. The Company has primarily used price swaps,
whereby monthly settlements are based on differences between the prices
specified in the instruments and the settlement prices of certain futures
contracts quoted on the NYMEX or certain other indices. Generally, when the
applicable settlement price is less than the price specified in the contract,
the Company receives a settlement from the counterparty based on the difference.
28
<PAGE>
Similarly, when the applicable settlement price is higher than the specified
price, the Company pays the counterparty based on the difference. In February
1999, the Company entered into natural gas price swaps covering 9.3 Bcf of its
natural gas production for March 1999 to October 1999 at 1.2 Bcf per month at a
fixed price of $2.03 per Mcf (after basis adjustment). As a result of the
natural gas price swaps in place, the Company realized a loss of $4.9 million in
1999. As of December 31, 1999, the Company had no open derivative financial
instruments held for price risk management.
Interest Rates
At December 31, 1999, the Company had long-term debt of $254.0 million, of
this amount, $150.0 million bears interest at a fixed rate of 11.25%. The
remaining outstanding long-term debt of $104.0 million is under the Company's
bank credit facility which is subject to floating market rates of interest.
Borrowings under the bank credit facility bear interest at a fluctuating rate
that is linked to LIBOR or the corporate base rate, at the Company's option. Any
increases in these interest rates can have an adverse impact on the Company's
results of operations and cash flow. The Company has entered into interest rate
swap agreements to hedge the impact of interest rate changes on a large portion
of its floating rate debt. As of December 31, 1999, the Company has interest
rate swaps with a notional amount of $100.0 million which fixed the LIBOR rate
at an average rate of 5.0% through September 2000. As a result of the interest
rate swaps in place, the Company realized a gain of $169,000 in 1999. The fair
value of the Company's open interest rate swap contracts as of December 31, 1999
was an asset of $860,000.
Federal Taxation
At December 31, 1999, the Company had federal income tax net operating loss
("NOL") carryforwards of approximately $42.8 million. The NOL carryforwards
expire from 2009 through 2019. The value of these carryforwards depends on the
ability of the Company to generate federal taxable income and to utilize the
carryforwards to reduce such income.
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Financial Statements for Comstock Resources, Inc. and
Subsidiaries are included on pages F-1 to F-20 of this report.
The financial statements have been prepared by the management of the
Company in conformity with generally accepted accounting principles. Management
is responsible for the fairness and reliability of the financial statements and
other financial data included in this report. In the preparation of the
financial statements, it is necessary to make informed estimates and judgments
based on currently available information on the effects of certain events and
transactions.
The Company maintains accounting and other controls which management
believes provide reasonable assurance that financial records are reliable,
assets are safeguarded, and that transactions are properly recorded in
accordance with management's authorizations. However, limitations exist in any
system of internal control based upon the recognition that the cost of the
system should not exceed benefits derived.
The Company's independent public accountants, Arthur Andersen LLP, are
engaged to audit the financial statements of the Company and to express an
opinion thereon. Their audit is conducted in accordance with generally accepted
auditing standards to enable them to report whether the financial statements
present fairly, in all material respects, the financial position and results of
operations of the Company in accordance with generally accepted accounting
principles.
29
<PAGE>
The Audit Committee of the Board of Directors of the Company, composed of
three directors who are not employees, meets periodically with the independent
public accountants and management. The independent public accountants have full
and free access to the Audit Committee to meet, with and without management
being present, to discuss the results of their audits and the quality of
financial reporting.
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 is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1999.
30
<PAGE>
PART IV
ITEM EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
The following exhibits are included on pages E-1 to E-51 of this report.
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
3.1(a) Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
3.1(b) Certificate of Amendment to the Restated Articles of Incorporation
dated July 1, 1997 (incorporated herein by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-3, dated October 25, 1996).
4.2(a) Rights Agreement dated as of December 10, 1990, by and between the
Company and Society National Bank, as Rights Agent (incorporated
herein by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A, dated December 14, 1990).
4.2(b) First Amendment to the Rights Agreement, by and between the Company
and Society National Bank (successor to Ameritrust Texas, N.A.), as
Rights Agent, dated January 7, 1994 (incorporated herein by reference
to Exhibit 3.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
4.2(c) Second Amendment to the Rights Agreement, by and between the Company
and Bank One, Texas N.A. (successor to Society National Bank), as
Rights Agent, dated April 1, 1995 (incorporated by reference to
Exhibit 4.7 to the Company's Annual Report on Form 10-K for the ended
December 31, 1995).
4.2(d) Third Amendment to the Rights Agreement, by and between the Company
and Bank One, Texas N.A. (successor to Society National Bank), as
Rights Agent, dated April 1, 1995 (incorporated by reference to
Exhibit 4.8 to the Company's Annual Report on Form 10-K for the ended
December 31, 1995).
4.2(e) Fourth Amendment to the Rights Agreement, by and between the Company
and Bank One, Texas N.A. (successor to Society National Bank), as
Rights Agent, dated April 1, 1995 (incorporated by reference to
Exhibit 4.9 to the Company's Annual Report on Form 10-K for the ended
December 31, 1995).
4.2(f) Fifth Amendment to the Rights Agreement between the Company and
American Stock Transfer & Trust Company as Rights Agent dated April
29, 1999 (incorporated herein by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated April 29, 1999).
31
<PAGE>
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
4.3 Certificate of Voting Powers, Designations, Preferences, and Relative,
Participating, Optional or Other Special Rights of the Series A 1999
Convertible Preferred Stock and Series B 1999 Non-Convertible
Preferred Stock (incorporated herein by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K dated April 29, 1999).
4.4 Stock Purchase Agreement dated April 29, 1999 between the Company and
certain purchasers (incorporated herein by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 29, 1999).
4.5 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock dated December 6, 1990 (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-3, dated October 25, 1996).
4.6 Indenture dated as April 29, 1999 between the Company and U.S. Trust
Company of Texas, N.A., Trustee for the $150,000,000 11 1/4% Senior
Notes due 2007 (incorporated herein by reference to Exhibit 10.5 to
the Company's Current Report on Form 8-K dated April 29, 1999).
10.1* Credit Agreement dated as of December 3, 1999, between the Company,
the Banks Party thereto and Bank One, NA, as Administrative Agent,
Toronto Dominion (Texas), Inc., as Syndication Agent and Paribas, as
Documentation Agent.
10.2# Employment Agreement dated June 23, 1999, by and between the Company
and M. Jay Allison (incorporated herein by reference to Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.3# Employment Agreement dated June 23, 1999, by and between the Company
and Roland O. Burns (incorporated herein by reference to Exhibit 10.5
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.4# Change in Control Employment Agreement dated May 15, 1997, by and
between the Company and M. Jay Allison (incorporated herein by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
10.5# Change in Control Employment Agreement dated May 15, 1997, by and
between the Company and Roland O. Burns (incorporated herein by
reference to Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
32
<PAGE>
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
10.6# Comstock Resources, Inc. 1999 Long-term Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999).
10.7# Form of Nonqualified Stock Option Agreement between the Company and
certain officers and directors of the Company (incorporated herein by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the year ended June 30, 1999).
10.8# Form of Restricted Stock Agreement between the Company and certain
officers of the Company (incorporated herein by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.9 Warrant Agreement dated December 9, 1997 by and between the Company
and Bois d' Arc Resources (incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.10 Joint Exploration Agreement dated December 8, 1997 by and between the
Company and Bois d' Arc Resources (incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.11 Office Lease Agreement dated August 12, 1997 between the Company and
Briar Center LLC (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
21* Subsidiaries of the Company.
23* Consent of Arthur Andersen LLP.
27* Financial Data Schedule for the twelve months ended
December 31, 1999.
* Filed herewith.
# Management contract or compensatory plan document.
Reports on Form 8-K:
There were no reports filed on Form 8-K filed subsequent to September 30,
1999 to the date of this report.
33
<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.
COMSTOCK RESOURCES, INC.
By:/s/M. JAY ALLISON
--------------------
M. Jay Allison
President and Chief Executive Officer
Date: February 28, 2000 (Principal 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.
/s/M. JAY ALLISON President, Chief Executive Officer February 28, 2000
- ----------------- and Chairman of the Board of
M. Jay Allison Directors(Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, February 28, 2000
- ------------------ Chief Financial Officer,
Roland O. Burns Secretary, Treasurer and Director
(Principal Financial and Accounting Officer)
/s/RICHARD S. HICKOK Director February 28, 2000
- --------------------
Richard S. Hickok
/s/FRANKLIN B. LEONARD Director February 28, 2000
- ----------------------
Franklin B. Leonard
/s/CECIL E. MARTIN, JR. Director February 28, 2000
- -----------------------
Cecil E. Martin, Jr.
/s/DAVID W. SLEDGE Director February 28, 2000
- ------------------
David W. Sledge
34
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
INDEX
Report of Independent Public Accountants.....................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999.................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.....................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999.....................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.....................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Comstock Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Comstock
Resources, Inc. (a Nevada corporation) and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally
accepted in the United States. 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 financial position of Comstock Resources, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 18, 2000
F-2
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1999
<TABLE>
<CAPTION>
ASSETS
December 31,
---------------------
1998 1999
--------- ---------
(In thousands)
<S> <C> <C>
Cash and Cash Equivalents .................................. $ 5,176 $ 7,648
Accounts Receivable:
Oil and gas sales ....................................... 13,355 18,200
Joint interest operations ............................... 4,506 5,415
Other Current Assets .................................... 1,457 909
--------- ---------
Total current assets ............................... 24,494 32,172
Property and Equipment:
Unevaluated oil and gas properties ...................... 436 2,231
Oil and gas properties, successful efforts method ....... 547,372 581,247
Other ................................................... 1,648 2,163
Accumulated depreciation, depletion and amortization .... (145,439) (189,779)
--------- ---------
Net property and equipment ......................... 404,017 395,862
Other Assets ............................................... 1,161 6,939
--------- ---------
$ 429,672 $ 434,973
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of Long-Term Debt .......................... $ 38,104 $ 131
Accounts Payable and Accrued Expenses ...................... 34,652 35,587
--------- ---------
Total current liabilities .......................... 72,756 35,718
Long-Term Debt, less current portion ....................... 240,000 254,000
Deferred Taxes Payable ..................................... 1,778 261
Reserve for Future Abandonment Costs ....................... 5,475 7,820
Stockholders' Equity:
Preferred stock--$10.00 par, 5,000,000 shares authorized,
3,000,000 shares outstanding at December 31, 1999 ..... -- 30,000
Common stock--$0.50 par, 50,000,000 shares authorized,
24,350,452 and 25,375,197 shares outstanding at
December 31, 1998 and 1999, respectively .............. 12,175 12,688
Additional paid-in capital .............................. 112,432 114,855
Retained earnings (deficit) ............................. (14,934) (19,603)
Deferred compensation-restricted stock grants ........... (10) (766)
--------- ---------
Total stockholders' equity ......................... 109,663 137,174
--------- ---------
$ 429,672 $ 434,973
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Oil and gas sales ....................... $ 88,555 $ 92,961 $ 90,103
Gain on sales of property ............... 85 -- 130
Other income ............................ 704 274 1,911
--------- --------- ---------
Total revenues ................. 89,344 93,235 92,144
--------- --------- ---------
Expenses:
Oil and gas operating ................... 17,919 24,747 23,714
Exploration ............................. 2,810 8,301 1,832
Depreciation, depletion and amortization 26,235 51,005 45,171
General and administrative, net ......... 2,668 1,617 2,399
Interest ................................ 5,934 16,977 23,361
Impairment of oil and gas properties .... -- 17,000 --
--------- --------- ---------
Total expenses ................. 55,566 119,647 96,477
--------- --------- ---------
Income (loss) before income taxes ............ 33,778 (26,412) (4,333)
Income tax benefit (expense) ................. (11,622) 9,244 1,517
--------- --------- ---------
Net income (loss) ............................ 22,156 (17,168) (2,816)
Preferred stock dividends .................... (410) -- (1,853)
--------- --------- ---------
Net income (loss) attributable to common stock $ 21,746 $ (17,168) $ (4,669)
========= ========= =========
Net income (loss) per share:
Basic........................... $ 0.90 $ (0.71) $ (0.19)
========= ========= =========
Diluted......................... $ 0.85
=========
Weighted average shares outstanding:
Basic........................... 24,186 24,275 24,601
========= ========= =========
Diluted......................... 26,008
=========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY For the Years Ended December 31, 1997,
1998 and 1999
<TABLE>
<CAPTION>
Deferred
Additional Retained Compensation
Preferred Common Paid-In Earning Restricted
Stock Stock Capital (Deficit) Stock Grants Total
--------- --------- ---------- --------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ..... $ 7,063 $ 12,051 $ 118,647 $ (19,512) $ (33) $ 118,216
Conversion of preferred stock... (7,063) 673 6,390 -- -- --
Issuance of common stock ....... -- 53 708 -- -- 761
Repurchase of common stock ..... -- (673) (15,472) -- -- (16,145)
Restricted stock grants ........ -- -- -- -- 16 16
Net income attributable to
common stock ................ -- -- -- 21,746 -- 21,746
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 ..... -- 12,104 110,273 2,234 (17) 124,594
--------- --------- --------- --------- --------- ---------
Issuance of common stock ....... -- 71 664 -- -- 735
Value of stock options issued
for exploration prospects -- -- 1,495 -- -- 1,495
Restricted stock grants ........ -- -- -- -- 7 7
Net loss attributable to
common stock ................ -- -- -- (17,168) -- (17,168)
--------- --------- --------- --------- --------- ---------
Balance at December, 1998 ........ -- 12,175 112,432 (14,934) (10) 109,663
--------- --------- --------- --------- --------- ---------
Issuance of preferred stock..... 30,000 -- -- -- -- 30,000
Issuance of common stock ....... -- 400 1,166 -- -- 1,566
Value of stock options issued
for exploration prospects.... -- -- 498 -- -- 498
Restricted stock grants ........ -- 113 759 -- (756) 116
Net loss attributable to
common stock ................ -- -- -- (4,669) -- (4,669)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1999 ..... $ 30,000 $ 12,688 $ 114,855 $ (19,603) $ (766) $ 137,174
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 22,156 $ (17,168) $ (2,816)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Compensation paid in common stock ..................... 129 269 247
Depreciation, depletion and amortization .............. 26,235 51,005 45,171
Impairment of oil and gas properties .................. -- 17,000 --
Deferred income taxes ................................. 11,363 (9,244) (1,517)
Exploration ........................................... 2,810 8,301 1,832
Gain on sales of property ............................. (85) -- (130)
--------- --------- ---------
Working capital provided by operations .............. 62,608 50,163 42,787
Decrease (increase) in accounts receivable .............. (11,744) 13,380 (5,754)
Decrease (increase) in other current assets ............. 2 (1,285) 548
Increase (decrease) in accounts payable and
accrued expenses ...................................... 33,411 (21,532) 935
--------- --------- ---------
Net cash provided by operating activities ........... 84,277 40,726 38,516
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties ....................... 5,079 -- 778
Capital expenditures and acquisitions ................... (254,843) (67,387) (35,981)
--------- --------- ---------
Net cash provided by operating activities ........... (249,764) (67,387) (35,203)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings .............................................. 295,000 23,238 10,378
Proceeds from senior notes offering ..................... -- -- 149,221
Debt issuance costs ..................................... -- (1,059) (5,671)
Principal payments on debt .............................. (115,108) (5,134) (184,351)
Proceeds from preferred stock offering .................. -- -- 30,000
Proceeds from common stock issuances .................... 507 288 296
Repurchase of common stock .............................. (16,145) -- --
Stock issuance costs .................................... (15) -- (714)
Dividends paid on preferred stock ....................... (410) -- --
--------- --------- ---------
Net cash provided by financing activities ............... 163,829 17,333 (841)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1,658) (9,328) 2,472
Cash and cash equivalents, beginning of year ........ 16,162 14,504 5,176
--------- --------- ---------
Cash and cash equivalents, end of year .............. $ 14,504 $ 5,176 $ 7,648
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Organization
Comstock Resources, Inc., a Nevada corporation (together with its
subsidiaries, the "Company"), was formed in 1919 as Comstock Tunnel and Drainage
Company. In 1987, the Company's name was changed to Comstock Resources, Inc. The
Company is primarily engaged in the acquisition, development, production and
exploration of oil and natural gas properties in the United States.
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
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.
Concentrations of Credit Risk
Although the Company's cash equivalents and accounts receivable are exposed
to credit loss, the Company does not believe such risk to be significant. Cash
equivalents are high-grade, short-term securities, placed with highly rated
financial institutions. Most of the Company's accounts receivable are from a
broad and diverse group of oil and gas companies and, accordingly, do not
represent a significant credit risk.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its oil
and gas operations. Under this method, costs of productive wells, development
dry holes and productive leases are capitalized and amortized on a
unit-of-production basis over the life of the remaining related oil and gas
reserves. Cost centers for amortization purposes are determined on a field area
basis. The estimated future costs of dismantlement, restoration and abandonment
are accrued as part of depreciation, depletion and amortization expense and
included in the accompanying Consolidated Balance Sheets as Reserve for Future
Abandonment Costs.
Oil and gas leasehold costs are capitalized. Unproved oil and gas
properties with significant acquisition costs are periodically assessed and any
impairment in value is charged to expense. The costs of unproved properties
which are determined to be productive are transferred to proved oil and gas
properties. Exploratory expenses, including geological and geophysical expenses
and delay rentals for unevaluated oil and gas properties, are charged to expense
as incurred. Exploratory drilling costs are initially capitalized as unproved
property but charged to expense if and when the well is determined not to have
found proved oil and gas reserves.
F-7
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In accordance with the Statement of Financial Accounting Standards 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of", the Company assesses 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 expected future cash flows. No impairment was required in 1997 or
1999. Due to the substantial drop in oil and gas prices during 1998, the Company
provided an impairment of $17.0 million in 1998.
Other Property and Equipment
Other property and equipment of the Company consists primarily of work
boats, a gas gathering system, computer equipment and furniture and fixtures
which are depreciated over estimated useful lives on a straight-line basis.
Other Assets
Other assets of the Company primarily consists of deferred costs associated
with issuance of the Company's 11 1/4% senior notes and borrowings under the
Company's bank credit facility. These costs are amortized over the lives of the
respective debt instruments on a straight-line basis.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences
of differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements using enacted tax rates.
Earnings Per Share
Basic and diluted earnings per share for 1997, 1998 and 1999 were
determined as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1997 1998 1999
------------------------ ------------------------ -------------------------
Income Per Income Per Income Per
(Loss) Shares Share (Loss) Shares Share (Loss) Shares Share
-------- ------- ------ -------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income (Loss) $ 22,156 24,186 $(17,168) 24,275 $ (2,816) 24,601
Less Preferred Stock
Dividends (410) -- -- -- (1,853) --
-------- ------- -------- ------- -------- -------
Net Income (Loss) Available
to Common Stockholders 21,746 24,186 $ 0.90 $(17,168) 24,275 $(0.71) $ (4,669) 24,601 $(0.19)
====== ======== ======= ====== ======== ======= ======
Diluted Earning Per Share:
Effect of Dilutive Securities:
Stock Options -- 967
Convertible Preferred Stock 410 855
-------- -------
Net Income Available to
Common Stockholders and
Assumed Conversions $ 22,156 26,008 $ 0.85
======== ======= ======
</TABLE>
F-8
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Statements of Cash Flows
For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
The following is a summary of all significant noncash investing and
financing activities and cash payments made for interest and income taxes:
Year Ended December 31,
-------------------------------
1997 1998 1999
------- ------- -------
Noncash activities -
Common stock issued for compensation ..... $ 113 $ 269 $ 131
Value of vested stock options under
exploration venture .................. -- 1,495 498
Common stock issued in payment of
preferred stock dividends ........... -- -- 1,853
Cash payments -
Interest payments ........................ 5,112 19,898 20,840
Income tax payments ...................... 270 -- --
Comprehensive Income
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
established reporting and disclosure requirements for comprehensive income and
its components within the financial statements. The Company had no comprehensive
income components as of December 31, 1997, 1998, 1999 and the three years ended
December 31, 1999; therefore, comprehensive income/ loss is the same as net
income/ loss for all periods presented.
Segment Reporting
In June 1997, the FASB issued Statement 131, "Disclosures About Segments of
an Enterprise and Related Information." The Company presently operates in one
business segment.
New Accounting Standard
In September 1998, the FASB issued Statement of Financial Accounting
Standards 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133") which has been amended by SFAS 137. The Statement establishes
accounting and reporting standards that are effective for fiscal years beginning
after June 15, 2000 which require that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
F-9
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company periodically uses derivatives to hedge floating interest rate
and natural gas price risks. Such derivatives are reported at cost, if any, and
gains and losses on such derivatives are reported when the hedged transaction
occurs. Accordingly, the Company's adoption of SFAS 133 will have an impact on
the reported financial position of the Company, and although such impact has not
been determined, it is currently not believed to be material. Adoption of SFAS
133 should have no significant impact on reported earnings, but could materially
affect comprehensive income.
(3) 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
acquisition, development and exploration activities:
Capitalized Costs
As of December 31,
--------------------------
1998 1999
--------- ---------
(In thousands)
Proved properties ............................ $ 547,372 $ 581,247
Unproved properties .......................... 436 2,231
Accumulated depreciation,
depletion and amortization ............. (145,152) (189,270)
--------- ---------
$ 402,656 $ 394,208
========= =========
Costs Incurred
For the Year Ended December 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
(In thousands)
Property acquisitions
Proved properties ................ $190,708 $ -- $ 4,458
Unproved properties .............. 31,650 6,075 2,258
Development costs ................. 25,282 30,559 20,455
Exploration costs ................. 6,043 30,423 8,126
-------- -------- --------
$253,683 $ 67,057 $ 35,297
======== ======== ========
F-10
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following presents the results of operations of oil and gas producing
activities:
For the Year Ended December 31,
--------------------------------
1997 1998 1999
-------- -------- --------
(In thousands)
Oil and gas sales .......................... $ 88,555 $ 92,961 $ 90,103
Production costs ........................... (17,919) (24,747) (23,714)
Exploration ................................ (2,810) (8,301) (1,832)
Deprecation, depletion and amortization .... (26,111) (50,738) (44,118)
Impairment of oil and gas properties ....... -- (17,000) --
-------- -------- --------
Operating income (loss) .................... 41,715 (7,825) 20,439
Income tax ................................. (14,353) 2,739 (7,154)
-------- -------- --------
Results of operations (excluding general
and administrative and interest expenses) $ 27,362 $ (5,086) $ 13,285
======== ======== ========
(4) Long-Term Debt
Long-term debt is comprised of the following:
As of December 31,
---------------------------
1998 1999
--------- ---------
(In thousands)
Revolving Bank Credit Facility ............. $ 278,000 $ 104,000
11 1/4% Senior Notes due 2007 .............. -- 150,000
Other ...................................... 104 131
--------- ---------
278,104 254,131
Less current portion ....................... (38,104) (131)
--------- ---------
$ 240,000 $ 254,000
========= =========
On April 29, 1999, the Company closed the sale of $150.0 million in
aggregate principal amount of 11 1/4% Senior Notes due in 2007 (the "Notes").
Interest on the Notes is payable semiannually on May 1 and November 1,
commencing on November 1, 1999. Proceeds from the sale of the Notes were used to
reduce amounts outstanding under the Company's bank credit facility. The Notes
are unsecured obligations of the Company and are guaranteed by all of the
Company's principal operating subsidiaries. The Company can redeem the Notes
beginning on May 1, 2004. The fair market value of the Notes as of December 31,
1999 was $153.0 million based on the market price of 102.0 of the face amount as
of the closing day of 1999.
The Company's bank credit facility consists of a $175.0 million revolving
credit commitment provided by a syndicate of banks for which Bank One, NA serves
as administrative agent. The borrowing base under the bank credit facility is
$175.0 million. Such borrowing base may be affected from time to time by the
performance of the Company's oil and gas properties and changes in oil and gas
prices. The determination of the Company's borrowing base is at the sole
discretion of the administrative agent and the bank group. The revolving credit
line under the bank credit facility bears interest at the option of the Company,
based on the utilization of the borrowing base, at either (i) LIBOR plus 1.25%
to 2.0%, or (ii) the "corporate base rate" plus 0.25% to 1.0%. The Company
incurs a commitment fee, based on the utilization of the borrowing base, of
F-11
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
0.25% to 0.5% per annum on the unused portion of the borrowing base. The
revolving credit line matures on December 9, 2002 or such earlier date as the
Company may elect. The bank credit facility contains covenants which, among
other things, restrict the payment of cash dividends, limit the amount of
consolidated debt, and limit the Company's ability to make certain loans and
investments. Significant financial covenants include the maintenance of a
current ratio, as defined, (1.0 to 1.0), maintenance of tangible net worth
($105.0 million), and maintenance of an interest coverage ratio (2.5 to 1.0).
The Company's bank credit facility is secured by the Company's oil and gas
properties.
(5) Lease Commitments
The Company rents office space under a noncancellable lease. Minimum future
payments under the lease are as follows:
(In thousands)
2000..................$421
2001.................. 421
2002.................. 421
2003.................. 421
2004.................. 456
(6) Stockholders' Equity
Preferred Stock
On April 29, 1999, the Company sold 3,000,000 shares of newly issued
convertible preferred stock with a $10 par value in a private placement for
$30.0 million. The preferred stock accrues dividends at an annual rate of 9%
which are payable quarterly in cash or in shares of the Company's common stock,
at the election of the Company. Shares of the preferred stock are convertible,
at the option of the holder, into shares of common stock of the Company. Based
on the initial conversion price of $4.00 per share of common stock, each share
of preferred stock is convertible into 2.5 shares of common stock. On May 1,
2005 and on each May 1, thereafter, so long as any shares of the preferred stock
are outstanding, the Company is obligated to redeem an amount of shares of
preferred stock equal to one-third of the shares of the preferred stock
outstanding on May 1, 2005 at $10.00 per share plus accrued and unpaid
dividends. The mandatory redemption price may be paid either in cash or in
shares of common stock, at the option of the Company. The Company has the option
to redeem the shares of preferred stock upon payment to the holders of the
preferred stock at a specified rate of return on the initial purchase. Upon a
change of control of the Company, the holders of the preferred stock have the
right to require the Company to purchase all or a portion of the preferred
stock.
Common Stock
Under a plan adopted by the Board of Directors, non-employee directors can
elect to receive shares of common stock valued at the then current market price
in payment of annual director and consulting fees. Under this plan, the Company
issued 9,256, 39,678 and 44,255 shares of common stock in 1997, 1998, 1999
respectively, in payment of fees aggregating $113,000, $263,000 and $130,000 for
1997, 1998 and 1999, respectively.
F-12
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company's outstanding preferred stock series provides that the Company
can issue common stock in lieu of cash for payment of quarterly dividends. The
Company issued 640,525 shares of common stock in 1999 in payment of dividends on
its preferred stock of $1.9 million.
On August 20, 1997, the Company repurchased 1,345,373 shares of common
stock held by former preferred stockholders at $12.00 per share for an aggregate
purchase price of $16.1 million.
Options and warrants to purchase common stock of the Company were exercised
for 98,100 shares, 102,000 shares and 115,000 shares in 1997, 1998 and 1999,
respectively. Such exercises yielded net proceeds to the Company of
approximately $507,000, $288,000 and $295,000 in 1997, 1998 and 1999,
respectively.
Stock Options and Warrants
On June 23, 1999, the Company's stockholders approved the 1999 Long-term
Incentive Plan for the Company's management including officers, directors and
managerial employees which replaced the Company's 1991 Long-term Incentive Plan.
The 1999 Long-term Incentive Plan together with the 1991 Long-term Incentive
Plan (the "Incentive Plans") authorize the grant of non-qualified stock options
and incentive stock options and the grant of restricted stock to key executives
of the Company. As of December 31, 1999, the Incentive Plans provide for future
awards of stock options or restricted stock grants of up to 211,130 shares of
common stock plus 1% of the outstanding shares of common stock each year
beginning January 1, 2000.
The following table summarizes stock option activity during 1997, 1998 and
1999 under the Incentive Plans:
Weighted
Number Average
of Shares Exercise Price Exercise Price
---------- --------------- --------------
Outstanding at December 31, 1996... 2,601,500 $2.00 to $11.00 $7.45
Granted......................... 667,000 $9.63 to $12.38 $12.00
Exercised....................... (50,000) $3.00 to $6.56 $5.33
---------
Outstanding at December 31, 1997... 3,218,500 $2.00 to $12.38 $8.43
Granted......................... 767,000 $3.44 to $11.94 $4.57
Exercised....................... (85,000) $2.00 to $2.50 $2.38
Forfeited....................... (10,000) $3.44 $3.44
---------
Outstanding at December 31, 1998... 3,890,500 $2.00 to $12.38 $7.81
---------
Granted......................... 1,010,000 $3.88 $3.88
Exercised....................... (115,000) $2.00 to $3.00 $2.57
Forfeited....................... (155,500) $3.00 to $12.38 $7.81
---------
Outstanding at December 31, 1999... 4,630,000 $2.00 to $12.38 $7.08
=========
Exercisable at December 31, 1999... 2,436,250 $2.00 to $12.38 $6.88
=========
F-13
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes information about the Incentive Plans stock
options outstanding at December 31, 1999:
Number of Weighted Average Number of
Shares Remaining Life Shares
Exercise Price Outstanding (Years) Exercisable
-------------- ------------ --------------- ------------
$2.00 401,000 1.3 396,000
$2.50 20,000 2.5 17,000
$3.00 80,000 0.6 80,000
$3.44 542,000 7.8 338,750
$3.88 1,010,000 8.3 40,000
$4.81 234,000 1.6 234,000
$6.56 235,000 2.1 235,000
$6.94 150,000 4.0 150,000
$9.63 90,000 2.6 90,000
$11.00 1,269,000 5.7 579,000
$11.94 40,000 3.9 40,000
$12.38 559,000 5.5 236,500
---------- -------- ----------
4,630,000 5.5 2,436,250
========== ======== ==========
The Company accounts for the stock options issued under the Incentive Plans
under APB Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with Statement
of Financial Accounting Standards 123 ("SFAS 123") "Accounting for Stock-Based
Compensation," the Company's net income attributable to common stock and
earnings per share from continuing operations would have been reduced to the
following pro forma amounts:
1997 1998 1999
-------- -------- --------
(In thousands, except per share amounts)
Net income: As Reported.. $21,746 $(17,168) $ (4,669)
Pro Forma.... 18,633 (20,651) (6,644)
Basic earnings per share: As Reported.. 0.90 (0.71) (0.19)
Pro Forma.... 0.77 (0.85) (0.27)
Diluted earnings per share: As Reported.. 0.85
Pro Forma.... 0.72
Because the SFAS 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 that to be expected in future years.
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 in 1997, 1998 and 1999, respectively: average
risk-free interest rates of 6.33, 5.30, and 5.65 percent; average expected lives
of 7.3, 8.2, and 8.8 years; average expected volatility factors of 51.9, 58.8
and 64.2; and no dividend yield. The estimated weighted average fair value of
options to purchase one share of common stock issued under the Company's
Incentive Plans was $7.45 in 1997, $2.98 in 1998 and $2.86 in 1999.
F-14
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On December 8, 1997, the Company awarded warrants to purchase up to
1,000,000 shares of the Company's common stock at $14.00 per share to Bois d'
Arc in connection with a five-year joint exploration venture. The warrants
become exercisable in increments of 50,000 shares upon the election by the
Company to complete a successful exploration well on a prospect generated by
Bois d' Arc under the joint exploration venture. Warrants which become
exercisable under the exploration venture expire on December 31, 2007. The fair
value of each warrant to purchase one share of common stock is estimated at the
date of grant at $9.97 using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 6.35 percent; expected life of
10.1 years; expected volatility factor of 51.9 percent; and no dividend yield.
Warrants to purchase 150,000 shares and 50,000 shares became vested in 1998 and
1999, respectively. The estimated value of the warrants which vested in 1998 and
1999 of $1.5 million and $498,000, respectively, was included as exploration
costs in each year.
Restricted Stock Grants
Under the Incentive Plans, officers and managerial employees of the Company
may be granted a right to receive shares of the Company's common stock without
cost to the employee. The shares vest over a specified period with credit given
for past service rendered to the Company. Restricted stock grants for 555,000
shares have been awarded under the Incentive Plans. As of December 31, 1999,
355,625 shares of such awards are vested. A provision for the restricted stock
grants is made ratably over the vesting period. Compensation expense recognized
for restricted stock grants for the years ended December 31, 1997, 1998 and 1999
was $15,000, $7,000 and $116,000, respectively.
(7) Significant Customers
The Company had sales to one purchaser of crude oil which accounted for
17%, 25% and 33% of the Company's oil and gas sales in 1997, 1998 and 1999,
respectively. In 1997 and 1999, the Company had one purchaser of natural gas
which accounted for 35% and 20%, respectively, of the Company's oil and gas
sales. In 1998 the Company had two purchasers of natural gas which accounted for
17% and 12% of the Company's oil and gas sales.
(8) Income Taxes
The tax effects of significant temporary differences representing the net
deferred tax liability at December 31, 1998 and 1999 were as follows:
1998 1999
-------- --------
(In thousands)
Net deferred tax assets (liabilities):
Property and equipment ...................... $(22,150) $(15,804)
Net operating loss carryforwards ............ 20,102 14,993
Other carryforwards ......................... 270 550
-------- --------
$ (1,778) $ (261)
======== ========
F-15
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following is an analysis of the consolidated income tax benefit
(expense):
1998 1999
------- -------
(In thousands)
Current................................. $ -- $ --
Deferred................................ 9,244 1,517
------- -------
$ 9,244 $ 1,517
======= =======
The difference between income taxes computed using the statutory rate of
35% and the Company's effective tax rate in 1998 and 1999 is as follows:
1998 1999
------- -------
(In thousands)
Income tax benefit (expense)
computed at federal statutory rate.... $ 9,244 $ 1,517
Other................................... -- --
------- -------
$ 9,244 $ 1,517
======= =======
The Company has net operating loss carryforwards of approximately $42.8
million as of December 31, 1999 for income tax reporting purposes which expire
in varying amounts from 2009 to 2019.
(9) Related Party Transactions
The Company served as general partner of Comstock DR-II Oil & Gas
Acquisition Limited Partnership ("Comstock DR-II") until December 29, 1997. In
1997, the Company received management fees from Comstock DR-II of $40,000.
(10) Risk Management
The Company's market risk exposures relate primarily to commodity prices
and interest rates. Therefore, the Company periodically uses commodity price
swaps to hedge the impact of natural gas price fluctuations and uses interest
rate swaps to hedge interest rates on floating rate debt. The Company does not
engage in activities using complex or highly leveraged instruments. These
instruments are generally put in place to limit risk of adverse natural gas
price or interest rate movements, however, these instruments usually limit
future gains from favorable natural gas prices or lower interest rates.
Recognition of realized gains or losses in the Consolidated Statements of
Operations are deferred until the underlying physical product is purchased or
sold. Unrealized gains or losses on derivative financial instruments are not
recorded. The cash flow impact of derivative and other financial instruments is
reflected as cash flows from operating activities in the Consolidated Statements
of Cash Flows.
F-16
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As a result of certain hedging transactions for natural gas the Company
realized the following gains and losses:
1997 1998 1999
------- ------- -------
(In thousands)
Realized Gains ................. $ -- $ 367 $ 248
Realized Losses ................ -- -- (5,178)
As of December 31, 1998 and 1999, the Company had no open derivative
financial instruments held for price risk management.
The Company periodically enters into interest rate swap agreements to hedge
the impact of interest rate changes on a portion of its long-term debt. Gains
and losses attributable to the swap agreements are accounted for as a hedge.
Gains from the swap agreements reduced interest expense by $59,000 in 1998 and
$169,000 in 1999. At December 31, 1999, the Company had swap agreements with a
notional amount of $100.0 million which fixed the Company LIBOR rate under its
bank credit facility at an average rate of 5.0%. The fair value of the interest
rate swaps as of December 31, 1999 was an asset of approximately $860,000.
(11) Supplementary Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
-------- --------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1998 -
Total revenues ............... $ 25,558 $ 24,894 $ 21,517 $ 21,266 $ 93,235
======== ======== ======== ======== ========
Net income (loss) attributable
to common stock .......... $ 570 $ (1,304) $ (3,387) $(13,047)(1) $(17,168)(1)
======== ======== ======== ======== ========
Net income (loss) per share:
Basic...................... $ 0.02 $ (0.05) $ (0.14) $ (0.54) $ (0.71)
======== ========== ========= ======== ========
Diluted.................... $ 0.02
========
1999 -
Total revenues ............... $ 19,634 $ 22,676 $ 22,974 $ 26,860 $ 92,144
======== ======== ======== ======== ========
Net income (loss) attributable
to common stock .......... $ (4,119) (1,384) (1,339) 2,173 $ (4,669)
======== ======== ======== ======== ========
Net income (loss) per share... $ (0.17) $ (0.06) $ (0.05) $ 0.09 $ (0.19)
======== ======== ======== ======== ========
</TABLE>
[FN]
- -----------------
(1) Includes impairment of oil and gas properties of $17 million.
</FN>
F-17
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(12) Oil and Gas Reserves Information (Unaudited)
The estimates of proved oil and gas reserves utilized in the preparation of
the financial statements were estimated by independent petroleum engineers in
accordance with guidelines established by the Securities and Exchange Commission
and the Financial Accounting Standards Board, which require that reserve reports
be prepared under existing economic and operating conditions with no provision
for price and cost escalation except by contractual agreement. All of the
Company's reserves are located onshore in or offshore to the continental United
States.
Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's independent
petroleum engineers' estimates of future net cash flows from the Company's
proved properties and the present value thereof are made using oil and natural
gas sales prices in effect as of the dates of such estimates and are held
constant throughout the life of the properties. Average prices used in
estimating the future net cash flows were as follows: $10.55 and $24.56 per
barrel of oil for 1998 and 1999, respectively, and $2.21 and $2.51 per Mcf of
natural gas for 1998 and 1999, respectively.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and gas reserve engineering must be recognized as
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way, and estimates of other engineers might
differ materially from those shown below. The accuracy of any reserve estimate
is a function of the quality of available data and engineering and geological
interpretation and judgment. Results of drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and gas that are
ultimately recovered. Reserve estimates are integral in management's analysis of
impairments of oil and gas properties and the calculation of depreciation,
depletion and amortization on those properties.
F-18
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following unaudited table sets forth proved oil and gas reserves at
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
Oil Gas Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MMcf) (MBbls) (MMcf)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves:
Beginning of year ............ 8,994 234,444 20,927 240,117 20,245 250,402
Revisions of previous
estimates ............... (1,202) (7,398) (3,284) 12,025 (1,695) (14,272)
Extensions and discoveries ... 263 5,566 5,173 24,973 3,029 39,534
Purchases of minerals in place 14,473 39,970 -- -- 16 6,329
Sales of minerals in place ... (258) (9,605) -- -- -- --
Production ................... (1,343) (22,860) (2,571) (26,713) (2,128) (23,872)
-------- -------- -------- -------- -------- --------
End of year .................. 20,927 240,117 20,245 250,402 19,467 258,121
======== ======== ======== ======== ======== ========
Proved Developed Reserves:
Beginning of year ............ 6,953 187,247 16,635 188,102 16,585 182,955
======== ======== ======== ======== ======== ========
End of year .................. 16,635 188,102 16,585 182,955 14,379 184,123
======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the standardized measure of discounted
future net cash flows relating to proved reserves at December 31, 1998 and 1999:
1998 1999
----------- -----------
(In thousands)
Cash Flows Relating to Proved Reserves:
Future Cash Flows ........................... $ 767,869 $ 1,124,796
Future Costs:
Production .............................. (212,558) (250,068)
Development ............................. (74,130) (80,519)
----------- -----------
Future Net Cash Flows Before Income Taxes ... 481,181 794,209
Future Income Taxes ......................... (30,221) (144,048)
----------- -----------
Future Net Cash Flows ....................... 450,960 650,161
10% Discount Factor ......................... (145,967) (181,448)
----------- -----------
Standardized Measure of Discounted Future
Net Cash Flows .............................. $ 304,993 $ 468,713
=========== ===========
F-19
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table sets forth the changes in the standardized measure of
discounted future net cash flows relating to proved reserves for the years ended
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Standardized Measure, Beginning of Year ............ $ 390,422 $ 418,276 $ 304,993
Net Change in Sales Price, Net of Production Costs (188,079) (146,742) 179,042
Development Costs Incurred During the Year Which
Were Previously Estimated .................. 10,740 20,361 5,303
Revisions of Quantity Estimates ............ (16,779) (7,391) (35,727)
Accretion of Discount ...................... 50,292 45,956 30,531
Changes in Future Development Costs ........ (3,919) (19,318) (437)
Changes in Timing and Other ................ (20,347) (39,805) (2,271)
Extensions and Discoveries ................. 6,233 60,906 91,911
Purchases of Reserves in Place ............. 205,583 -- 7,787
Sales of Reserves in Place ................. (16,450) -- --
Sales, Net of Production Costs ............. (70,636) (68,214) (66,389)
Net Changes in Income Taxes ................ 71,216 40,964 (46,030)
--------- --------- ---------
Standardized Measure, End of Year .................. $ 418,276 $ 304,993 $ 468,713
========= ========= =========
</TABLE>
F-20
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description Page
- ------- ------------------------------------------------------- -----
3.1(a) Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(b) Certificate of Amendment to the Restated Articles of
Incorporation dated July 1, 1997 (incorporated herein
by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1997).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-3, dated October 25, 1996).
4.2(a) Rights Agreement dated as of December 10, 1990, by and
between the Company and Society National Bank, as
Rights Agent (incorporated herein by reference to
Exhibit 1 to the Company's Registration Statement on
Form 8-A, dated December 14, 1990).
4.2(b) First Amendment to the Rights Agreement, by and between
the Company and Society National Bank (successor to
Ameritrust Texas, N.A.), as Rights Agent, dated January
7, 1994 (incorporated herein by reference to Exhibit
3.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
4.2(c) Second Amendment to the Rights Agreement, by and
between the Company and Bank One, Texas N.A. (successor
to Society National Bank), as Rights Agent, dated April
1, 1995 (incorporated by reference to Exhibit 4.7 to
the Company's Annual Report on Form 10-K for the ended
December 31, 1995).
4.2(d) Third Amendment to the Rights Agreement, by and between
the Company and Bank One, Texas N.A. (successor to
Society National Bank), as Rights Agent, dated April 1,
1995 (incorporated by reference to Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the ended
December 31, 1995).
4.2(e) Fourth Amendment to the Rights Agreement, by and
between the Company and Bank One, Texas N.A. (successor
to Society National Bank), as Rights Agent, dated April
1, 1995 (incorporated by reference to Exhibit 4.9 to
the Company's Annual Report on Form 10-K for the ended
December 31, 1995).
4.2(f) Fifth Amendment to the Rights Agreement between the
Company and American Stock Transfer & Trust Company as
Rights Agent dated April 29, 1999 (incorporated herein
by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K dated April 29, 1999).
E-1
<PAGE>
Exhibit
No. Description Page
- ------- ------------------------------------------------------- -----
4.3 Certificate of Voting Powers, Designations,
Preferences, and Relative, Participating, Optional or
Other Special Rights of the Series A 1999 Convertible
Preferred Stock and Series B 1999 Non-Convertible
Preferred Stock (incorporated herein by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 29, 1999).
4.4 Stock Purchase Agreement dated April 29, 1999 between
the Company and certain purchasers (incorporated herein
by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated April 29, 1999).
4.5 Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock dated
December 6, 1990 (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form
S-3, dated October 25, 1996).
4.6 Indenture dated as April 29, 1999 between the Company
and U.S. Trust Company of Texas, N.A., Trustee for the
$150,000,000 11 1/4% Senior Notes due 2007
(incorporated herein by reference to Exhibit 10.5 to
the Company's Current Report on Form 8-K dated April
29, 1999).
10.1* Credit Agreement dated as of December 3, 1999, between
the Company, the Banks Party thereto and Bank One, NA,
as Administrative Agent, Toronto Dominion (Texas),
Inc., as Syndication Agent and Paribas, as
Documentation Agent. E-4
10.2# Employment Agreement dated June 23, 1999, by and
between the Company and M. Jay Allison (incorporated
herein by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.3# Employment Agreement dated June 23, 1999, by and
between the Company and Roland O. Burns (incorporated
herein by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.4# Change in Control Employment Agreement dated May 15,
1997, by and between the Company and M. Jay Allison
(incorporated herein by reference to Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
10.5# Change in Control Employment Agreement dated May 15,
1997, by and between the Company and Roland O. Burns
(incorporated herein by reference to Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
E-2
<PAGE>
Exhibit
No. Description Page
- ------- ------------------------------------------------------- -----
10.6# Comstock Resources, Inc. 1999 Long-term Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
10.7# Form of Nonqualified Stock Option Agreement between the
Company and certain officers and directors of the
Company (incorporated herein by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the year ended June 30, 1999).
10.8# Form of Restricted Stock Agreement between the Company
and certain officers of the Company (incorporated
herein by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.9 Warrant Agreement dated December 9, 1997 by and between
the Company and Bois d' Arc Resources (incorporated
herein by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.10 Joint Exploration Agreement dated December 8, 1997 by
and between the Company and Bois d' Arc Resources
(incorporated herein by reference to Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.11 Office Lease Agreement dated August 12, 1997 between
the Company and Briar Center LLC (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
21* Subsidiaries of the Company. E-49
23* Consent of Arthur Andersen LLP. E-50
27* Financial Data Schedule for the twelve months ended
December 31, 1999. E-51
*Filed herewith.
# Management contract or compensatory plan document.
E-3
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of December 3, 1999
between
COMSTOCK RESOURCES, INC.,
COMSTOCK OIL & GAS, INC.,
COMSTOCK OIL & GAS - LOUISIANA, INC.,
COMSTOCK OFFSHORE, LLC,
and
THE BANKS PARTY HERETO,
BANK ONE, NA, AS ADMINISTRATIVE AGENT,
TORONTO DOMINION (TEXAS), INC., AS SYNDICATION AGENT
AND
PARIBAS, AS DOCUMENTATION AGENT
BANC ONE CAPITAL MARKETS, LEAD ARRANGER
E-4
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AGREEMENT, dated as of December 3, 1999, is among COMSTOCK RESOURCES,
INC. a Nevada corporation ("CRI"), COMSTOCK OIL & GAS, INC., a Nevada
corporation ("COG"), COMSTOCK OIL & GAS - LOUISIANA, INC., a Nevada corporation
("COGL"), COMSTOCK OFFSHORE, LLC, a Nevada limited liability company
("Offshore") (CRI, COG, COGL and Offshore may hereinafter collectively be
referred to as the "Borrowers"), the lenders party hereto from time to time
(collectively, the "Banks" and individually, a "Bank"), PARIBAS, as
documentation agent for the Banks (in such capacity, the "Documentation Agent"),
TORONTO DOMINION (TEXAS), INC., as syndication agent for the Banks (in such
capacity, the "Syndication Agent") and BANK ONE, NA, formerly known as THE FIRST
NATIONAL BANK OF CHICAGO, as administrative agent for the Banks (in such
capacity, the "Agent").
RECITALS
A. The Borrowers, the banks party thereto, Paribas, as documentation agent
for such banks, Toronto Dominion (Texas), Inc., as syndication agent for such
banks, and The First National Bank of Chicago, as agent for such banks, executed
an Amended and Restated Credit Agreement dated as of September 10, 1999 (the
"Existing Credit Agreement"), which amended and restated a Credit Agreement
dated as of April 29, 1999, which in turn amended and restated a Credit
Agreement dated as of December 23, 1998, which in turn amended and restated a
Credit Agreement September 24, 1998, which in turn amended and restated a Credit
Agreement dated December 9, 1997, which in turn amended and restated a Credit
Agreement dated as of August 13, 1996, which in turn amended and restated a
Credit Agreement dated as of May 1, 1996, which in turn amended and restated a
Credit Agreement dated as of July 31, 1995, which in turn amended and restated a
Credit Agreement dated as of September 30, 1994, as amended, and which in turn
amended and restated a Credit Agreement dated as of November 15, 1993, as
amended.
B. The Borrowers have requested that the Banks amend and restate the
Existing Credit Agreement as herein provided, replacing and refinancing the
indebtedness thereunder with a secured revolving credit facility terminating
December 9, 2002 providing for revolving credit loans in the aggregate principal
amount of up to $175,000,000 (subject to limitations imposed by a Borrowing
Base), including a $5,000,000 letter of credit subfacility participated in by
all the Banks, and the Banks are willing to establish such a credit facility in
favor of the Borrowers and amend and restate the Existing Credit Agreement on
the terms and conditions herein set forth.
AGREEMENT
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree that the Existing Credit Agreement shall be
amended and restated as follows:
SECTION 1. Definitions
1.1 Certain Definitions. As used herein, the following terms shall have the
following respective meanings:
"Advances" shall mean any Loan or any Letter of Credit Advance.
"Advance Date" shall mean each date for the making, continuation or
conversion of an Advance as specified in the notice delivered by the Borrowers,
or any of them, permitted by this Agreement.
"Affiliate", when used with respect to any Person shall mean any other
Person which, directly or indirectly, controls or is controlled by or is under
common control with such Person or any other Person which is owned 5% or more by
such Person or any Subsidiary or other Affiliate of such Person. For purposes of
this definition "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), with respect to any Person,
shall mean 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 otherwise.
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"Applicable Margin" shall mean, with respect to any Eurodollar Loan,
Floating Rate Loan and commitment fee payable under Section 4.3(a), as the case
may be, the applicable percentage set forth in the table below based upon a
fraction, expressed as a percentage, determined as of the last day of each
calendar month, the numerator of which is the daily average of the Advances
outstanding during such calendar month and the denominator of which is the daily
average of the Borrowing Base during such calendar month (the "Utilization
Percentage"):
Utilization Eurodollar Rate Commitment
Percentage Loan and Letter Floating Rate Fee under
"UP" of Credit Fee Loan Section 4.3(a)
------------- ------------- ------------- --------------
UP>=90% 2.00% 1.00% 0.50%
UP>=75% and <90% 1.75% 0.75% 0.375%
UP>=50% and <75% 1.50% 0.50% 0.375%
UP<50% 1.25% 0.25% 0.25%
The Utilization Percentage shall be determined by the Agent at the end of each
calendar month and shall remain in effect for the following calendar month of
CRI, and the Agent shall adjust the Applicable Margin upon such determination,
provided that the Agent shall also determine the Utilization Percentage promptly
after any public offering of common stock of CRI and adjust the Applicable
Margin upon such determination. Notwithstanding the above or anything else in
this Agreement, upon and during the continuance of any Event of Default, the
Applicable Margin shall be 1.875% with respect to any Eurodollar Loan, 0.875%
with respect to any Floating Rate Loan and 0.50% with respect to any commitment
fee payable under Section 4.3(a). As of the Effective Date, the Applicable
Margin shall be based on a UP>50% and <75%.
"Bank Obligations" shall mean all indebtedness, obligations and
liabilities, whether now or hereafter arising, of the Borrowers to the Agent or
any Bank pursuant to any of the Loan Documents.
"Bank One" shall mean Bank One, NA, (main office Chicago), formerly known
as The First National Bank of Chicago, a national banking association, as a Bank
under this Agreement.
"Borrowing Base" shall mean an amount determined in accordance with the
procedures described in Section 9.14, and based upon the Agent's and the Banks'
customary and standard practices in lending to oil and gas companies generally,
including without limitation their standard engineering criteria and oil and gas
lending criteria (and it is acknowledged and agreed that such customary and
standard practices, including without limitation such engineering criteria and
oil and gas lending criteria, shall be determined by the Agent and each Bank, as
the case may be, in their sole discretion, and such determination shall be
conclusive and binding).
"Borrowing Base Deficiency" is defined in Section 4.1(c).
"Business Day" shall mean (i) with respect to any borrowing, payment or
rate selection of Eurodollar Loans, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital Expenditures" shall mean, without duplication, any expenditures
for any purchase or other acquisition of any asset which would be classified as
a fixed or capital asset on a consolidated balance sheet of CRI and its
Subsidiaries prepared in accordance with GAAP.
"Capital Stock" shall mean (i) in the case of any corporation, all capital
stock and any securities exchangeable for or convertible into capital stock,
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including without limitation the Preferred Stock, (ii) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents of corporate stock (however designated) in or to
such association or entity, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distribution of
assets of, the issuing Person, and including, in all of the foregoing cases
described in clauses (i), (ii), (iii) or (iv), any warrants, rights or other
options to purchase or otherwise acquire any of the interests described in any
of the foregoing cases.
"Change in Control" shall mean (a) the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of more than 50% of the outstanding shares of voting stock
of CRI, (b) COG, COGL, Offshore or any other present or future Borrower (other
than CRI) or Subsidiary shall cease to be a wholly-owned Subsidiary, directly or
indirectly, of CRI or (c) the Board of Directors of CRI shall not consist of a
majority of the Continuing Directors of CRI.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations thereunder.
"Collateral" shall have the meaning ascribed thereto in Section 5.1(a)
hereof.
"Commitments" shall mean, with respect to each Bank, the commitment of such
Bank to make Loans and assume a risk participation in Letter of Credit Advances
pursuant to Sections 2.1(a) and (b), in amounts not exceeding in aggregate
principal amount outstanding at any time the lesser of (i) the respective stated
Commitment amount for such Bank set forth next to the name of such Bank on the
signature pages hereof or established pursuant to Section 10.6, as the case may
be, as such amount may be reduced from time to time or (ii) the Pro Rata Share
of such Bank of the Elected Borrowing Limit in effect from time to time.
"Consent and Amendment of Security Documents" shall mean the consent and
amendment of security documents entered into by the Borrowers and the Agent
pursuant to this Agreement in substantially the form of Exhibit A, as amended or
modified from time to time.
"Consolidated" or "consolidated" shall mean, when used with reference to
any financial term in this Agreement, the aggregate for two or more Persons of
the amount signified by such term for all such Persons determined on a
consolidated basis and in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period, total interest
and related expense (including, without limitation, that portion of any
capitalized lease obligation attributable to interest expense in conformity with
GAAP, amortization of debt discount, all capitalized interest, the interest
portion of any deferred payment obligations, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers
acceptance financing, the net costs and net payments under any interest rate
hedging, cap or similar agreement or arrangement, prepayment charges, agency
fees, administrative fees, commitment fees and capitalized transaction costs
allocated to interest expense) and all dividends, payments or other
distributions in respect to any class of Capital Stock or any dividend, payment
or distribution in connection with the redemption, repurchase, defeasance,
conversion, retirement or other acquisition, directly or indirectly, of any
shares of Capital Stock (excluding any of the foregoing paid solely in shares of
common stock of CRI) paid, payable or accrued during such period, without
duplication for any period, with respect to all outstanding Indebtedness of CRI
and its Subsidiaries and all Capital Stock of CRI, all as determined for CRI and
its Subsidiaries on a consolidated basis for such period in accordance with
GAAP.
"Consolidated Net Income" shall mean, for any period, the net income of CRI
and its Subsidiaries for such period, determined in accordance with GAAP.
"Contingent Liabilities" of any Person shall mean, as of any date, all
obligations of such Person or of others for which such Person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such Person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business and
indemnifications typical and customary in the ordinary course of such Person's
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oil and gas business in connection with operating agreements and other
agreements executed in the ordinary course of such Person's oil and gas
business), including without limitation all reimbursement obligations of such
Person in respect of any letters of credit, surety bonds or similar obligations
and all obligations of such Person to advance funds to, or to purchase assets,
property or services from, any other Person in order to maintain the financial
condition of such other Person.
"Continuing Directors" of any Person shall mean the directors of such
Person on the Effective Date and each other director of such Person if such
other director's nomination for election to the Board of Directors of such
Person is recommended by a majority of the then Continuing Directors of such
Board of Directors or the holders of the Preferred Stock or of shares issued in
conversion or redemption of the Preferred Stock.
"Current Assets" and "Current Liabilities" shall mean all assets or
liabilities of CRI and its Subsidiaries, on a consolidated basis respectively,
which should be classified as current assets and current liabilities in
accordance with GAAP; provided that the calculation of Current Assets shall not
include receivables of the Borrowers owing by any Affiliate in excess of 120
days or subject to any dispute or offset or otherwise unacceptable, advances by
the Borrowers to any Affiliate or any asset classified as a Current Asset solely
because it is held for sale, and Current Liabilities shall not include the
current maturities of any Indebtedness of any Borrower for borrowed money which
by its terms has a final maturity more than one year from the date of any
calculation of Current Liabilities.
"Default" shall mean any Event of Default or any event or condition which
might become an Event of Default with notice or lapse of time or both.
"Disqualified Stock" shall mean any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"EBITDA" shall mean, for any period, the Consolidated Net Income for such
period taken as a single accounting period, plus, to the extent deducted in
determining such Consolidated Net Income, all depreciation, amortization and
depletion expense, and other non cash charges, Consolidated Interest Expense and
income taxes, provided that in determining Consolidated Net Income as used in
this definition the following shall be excluded, without duplication: (a) the
income of any Person accrued prior to the date such Person is merged into or
consolidated with a Borrower or such Person's assets are acquired by a Borrower,
(b) the proceeds of any insurance policy, (c) gains or losses from the sale,
exchange, transfer or other disposition of property or assets of any Borrower or
any of their Subsidiaries and related tax effects in accordance with GAAP and
(d) any extraordinary or non-recurring gains of any Borrower or any of their
Subsidiaries, and related tax effects in accordance with GAAP.
"Effective Date" shall mean the effective date specified in the final
paragraph of this Agreement.
"Environmental Laws" at any date shall mean all provisions of law, statute,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards promulgated by the government of the United States of
America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning the protection of, or regulating the discharge of substances into,
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with any successor statute thereto and the
regulations thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which (i) together with the Borrowers or any Subsidiary, would be
treated as a single employer under Section 414(b) or (c) of the Code or (ii) for
purposes of liability under Section 412(C)(11) of the Code, the lien created
under Section 412(n) of the Code or for a tax imposed for failure to meet
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minimum funding standards under Section 4971 of the Code, a member of the same
affiliated service group (within the meaning of Section 401(m) of the Code) as
the Borrowers or any Subsidiary, or any other trade or business described in
clause (i) above.
"Elected Borrowing Limit" shall have the meaning ascribed thereto in
Section 9.14(d).
"Eurodollar Base Rate" shall mean, with respect to a Eurodollar Loan for
the relevant Eurodollar Interest Period, the rate determined by the Agent to be
the rate at which Bank One offers to place deposits in Dollars with first-class
banks in the London interbank market at approximately 11 a.m. (London time) two
Business Days prior to the first day of such Eurodollar Interest Period, in the
approximate amount of Bank One's relevant Eurodollar Loan and having a maturity
approximately equal to such Eurodollar Interest Period.
"Eurodollar Interest Period" or "Interest Period" shall mean, with respect
to a Eurodollar Loan, a period of one, two, three or six months commencing on a
Business Day selected by the Borrowers pursuant to this Agreement. Such
Eurodollar Interest Period shall end on the day which corresponds numerically to
such date one, two, three or six months thereafter, provided, however, that if
there is no such numerically corresponding day in such next, second, third or
sixth succeeding month, such Eurodollar Interest Period shall end on the last
Business Day of such next, second, third or sixth succeeding month. If a
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
calendar month, such Eurodollar Interest Period shall end on the immediately
preceding Business Day.
"Eurodollar Loan" shall mean a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" shall mean, with respect to a Eurodollar Loan for the
relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by
(b) one minus the Reserve Requirement (expressed as a decimal) applicable to
such Eurodollar Interest Period, plus (ii) the Applicable Margin.
"Event of Default" shall mean any of the events or conditions described in
Section 8.1.
"Federal Funds Rate" shall mean, for any day, an interest rate per annum
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 for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Floating Rate" shall mean the per annum rate equal to the sum of (a) with
respect to Loans and any other amounts owing hereunder, the Applicable Margin,
plus (b) the greater of (i) the per annum rate announced by the Agent from time
to time as its "corporate base rate", and (ii) the sum of one-half percent
(1/2%) per annum plus the Federal Funds Rate, such Floating Rate to change
simultaneously with any change in such "corporate base rate" or Federal Funds
Rate, as the case may be; all as conclusively determined in good faith by the
Agent, such sum to be rounded up, if necessary, to the nearest whole multiple of
1/16 of 1%.
"Floating Rate Loan" shall mean any Loan bearing interest at the Floating
Rate.
"GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with that reflected in the financial statements referred to in
Section 6.7 hereof.
"Hydrocarbons" shall mean oil, gas casinghead, gas, drip gasoline, natural
gas and condensates and all other liquid or gaseous hydrocarbons.
"Indebtedness" of any Person shall mean, as of any date, (a) all
obligations of such Person for borrowed money, (b) all obligations which are
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secured by any lien or encumbrance existing on property owned by such Person
whether or not the obligation secured thereby shall have been assumed by such
Person, other than those obligations which are incurred in the ordinary course
of business and are not required to be shown as a liability on a balance sheet
in accordance with GAAP, (c) all obligations as lessee under any lease which, in
accordance with GAAP, is or should be capitalized on the books of the lessee,
(d) the deferred purchase price for goods, property or services acquired by such
Person, and all obligations of such Person to purchase such goods, property or
services where payment therefor is required regardless of whether or not
delivery of such goods or property or the performance of such services is ever
made or tendered, other than unsecured trade payables incurred in the ordinary
course of business, (e) all obligations of such Person to advance funds to, or
to purchase property or services from, any other Person in order to maintain the
financial condition of such Person, (f) all obligations of such Person in
respect of any interest rate or currency swap, rate cap or other similar
transaction (valued in an amount equal to the highest termination payment, if
any, that would be payable by such Person upon termination for any reason on the
date of termination), and (g) all obligations of such Person or of others for
which such Person is contingently liable, as guarantor, surety or in any other
similar capacity, or in respect of which obligations such Person assures a
creditor against loss or agrees to take any action to prevent any such loss
(other than endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all reimbursement
obligations of such Person in respect of any letters of credit, surety bonds or
similar obligations and all obligations of such Person to advance funds to, or
to purchase assets, property or services from, any other Person in order to
maintain the condition, financial or otherwise, of such other Person.
"Indenture" shall mean the Indenture among CRI, any guarantors and trustee
party thereto, dated as of the date hereof, as amended or modified from time to
time, and relating to the Indenture Notes.
"Indenture Debt" shall mean all present and future Indebtedness and other
liabilities owing pursuant to the Indenture Notes or any other Indenture Debt
Document.
"Indenture Debt Documents" shall mean the Indenture, the Indenture Notes,
all guarantees and all other agreements and documents executed in connection
therewith at any time.
"Indenture Notes" shall mean the senior unsecured notes issued by CRI in
the aggregate principal amount of at least $150,000,000 due 2007 and issued
pursuant to the Indenture.
"Interest Payment Date" shall mean (a) with respect to each Eurodollar
Loan, the last day of each Eurodollar Interest Period with respect to such
Eurodollar Loan and, in the case of any Eurodollar Interest Period exceeding
three months, those days that occurred during such Eurodollar Interest Period at
intervals of three months after the first day of such Eurodollar Interest
Period, (b) in all other cases, the last Business Day of each month, commencing
with the first such day after the Effective Date, and (c) the Termination Date
with respect to Loans.
"Lending Installation" shall mean, with respect to a Bank or the Agent, any
office, branch, subsidiary or affiliate of such Bank or the Agent.
"Letter of Credit" shall mean a standby letter of credit having a stated
expiry date not later than twelve months after the date of issuance and not
later than the fifth Business Day before the Termination Date, issued by the
Agent on behalf of the Banks for the account of any Borrower under an
application and related documentation acceptable to the Agent requiring, among
other things, immediate reimbursement by the Borrowers to the Agent in respect
of all drafts or other demand for payment honored thereunder and all expenses
paid or incurred by the Agent relative thereto. Standby letters of credit which
are automatically renewed annually unless revoked shall be considered standby
letters of credit which have a stated expiry date not later than twelve months
after their date of issuance for purposes of this definition.
"Letter of Credit Advance" shall mean any issuance of a Letter of Credit
under Section 3.1 made pursuant to Section 2.1 in which each Bank acquires a
risk participation equal to its Pro Rata Share.
"Letter of Credit Documents" shall have the meaning ascribed thereto in
Section 3.3(b)(i).
"Lien" shall mean any pledge, assignment, hypothecation, mortgage, security
interest, deposit arrangement, option, conditional sale or title retaining
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contract, sale and leaseback transaction, financing statement filing, lessor's
or lessee's interest under any lease, subordination of any claim or right, or
any other type of lien, charge, encumbrance, preferential arrangement or other
claim or right.
"Loan" means any loan under Section 3.1 evidenced by the Notes and made
pursuant to Section 2.1(a).
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, the environmental certificate and any other agreement, instrument or
document executed at any time pursuant to, in connection with, or otherwise
relating to this Agreement.
"Material Adverse Effect" shall mean a material adverse effect on or change
in (a) the business, property (including without limitation the Collateral),
operations or condition, financial or otherwise, of the Borrowers on a
consolidated basis, (b) the ability of any Borrower to perform its obligations
under any Loan Document or (c) the validity or enforceability or the rights and
remedies of the Agent or any Bank under any Loan Document.
"Monthly Borrowing Base Reductions" is defined in Section 9.14.
"Mortgages" shall have the meaning ascribed thereto in Section 5.1.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"Note" shall mean any promissory note of the Borrowers evidencing the
Loans, in substantially the form annexed hereto as Exhibit B, as amended or
modified from time to time and together with any promissory note or notes issued
in exchange or replacement therefor.
"Oil and Gas Interests" shall mean all leasehold interests, mineral fee
interests, overriding royalty and royalty interests, net revenue and net working
interests and all other rights and interests relating to Hydrocarbons, including
without limitation any reserves thereof.
"Overdue Rate" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the Floating Rate, (b) in respect of principal of Eurodollar Loans, a rate
per annum that is equal to the sum of three percent (3%) per annum plus the per
annum rate in effect thereon until the end of the then current Eurodollar
Interest Period for such Loan and, thereafter, a rate per annum that is equal to
the sum of three percent (3%) per annum plus the Floating Rate, and (c) in
respect of other amounts payable by the Borrowers hereunder (other than
interest), a per annum rate that is equal to the sum of three percent (3%) per
annum plus the Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean the Liens permitted by Section 7.2(e) hereof.
"Person" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a government (foreign or domestic), and any
agency or political subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any Person, any employee benefit or
other plan (other than a Multiemployer Plan) maintained by such Person for its
employees and covered by Title IV of ERISA or to which Section 412 of the Code
applies.
"Preferred Stock" shall mean the 1,948,001 shares of Series A 1999
Convertible Preferred Stock, Par Value $10.00 (the "Series A Preferred"), and
1,051,999 shares of Series B 1999 Non-Convertible Preferred Stock, Par Value
$10.00 (the "Series B Preferred"), and including any Series B Preferred
converted into Series A Preferred and any stock appreciation rights issued in
connection with the Preferred Stock Documents.
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"Preferred Stock Documents" shall mean the Preferred Stock and the stock
purchase agreement and all other agreements and documents executed in connection
therewith at any time.
"Pro Rata Share" shall mean, as to obligations of the Banks, the loan
percentage set forth opposite its name on the signature pages hereof or
otherwise established pursuant to Section 10.6, and as to obligations owing to
the Banks, shall mean: (a) in the case of payments of principal and interest on
the Loans, an amount with respect to each Bank equal to the product of such
amount received multiplied by the ratio which the outstanding principal balance
of its Note bears to the outstanding principal balance of all Notes, and (b) in
the case of all other amounts payable hereunder (other than as otherwise noted
with respect to fees) and other amounts, an amount with respect to each Bank
equal to the product of such amount received multiplied by the ratio which the
Commitment of such Bank bears to the Commitments of all Banks.
"Proved Developed Reserves" shall mean all Oil and Gas Interests which, to
the satisfaction of the Agent, are estimated, with reasonable certainty, and as
demonstrated by geological and engineering data acceptable to the Agent, to be
economically recoverable from existing wells requiring no more than minor
workover operations from existing completion intervals open for production and
which are producing, and have proven reserves of, Hydrocarbons.
"Reportable Event" shall mean a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Required Banks" shall mean Banks holding not less than 66-2/3% of the
aggregate principal amount of the Advances then outstanding (or 66-2/3% of the
Commitments if no Advances are then outstanding).
"Reserve Requirement" means, with respect to a Eurodollar Interest Period,
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Security Agreements" shall have the meaning ascribed thereto in Section
5.1.
"Security Documents" shall have the meaning ascribed thereto in Section
5.1.
"Subsidiary" of any Person shall mean any other Person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such Person or by one or more of the other Subsidiaries of such
Person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of CRI.
"Swap Agreement" shall mean any interest rate or oil and gas commodity swap
agreement, interest cap or collar agreement or other financial agreement or
arrangement designed to protect the Borrowers against fluctuations in interest
rates or oil and gas prices.
"Tangible Net Worth" of any Person shall mean, as of any date, (a) the
amount of any capital stock or similar ownership liability plus (or minus in the
case of a deficit) the capital surplus and retained earnings of such Person and
the amount of any foreign currency translation adjustment account shown as a
capital account of such Person, less (b) the net book value of all items of the
following character which are included in the assets of such Person: (i)
goodwill, including without limitation, the excess of cost over book value of
any asset, (ii) organization or experimental expenses, (iii) unamortized debt
discount and expense, (iv) stock discount and expense, (v) patents, trademarks,
trade names and copyrights, (vi) treasury stock, (vii) deferred taxes and
deferred charges, (viii) franchises, licenses and permits, and (ix) all other
assets which are deemed intangible assets under GAAP; provided, that such
calculation of Tangible Net Worth under this definition shall not include
receivables of such Person which are owing by any Affiliate or advances by such
Person to any Affiliate.
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"Termination Date" shall mean the earlier to occur of (a) December 9, 2002
and (b) the date on which the Commitments shall be terminated pursuant to
Section 2.1(c) or 8.2.
"Total Liabilities" of any Person shall mean, as of any date, all
obligations which, in accordance with GAAP, are or should be classified as
liabilities on a balance sheet of such Person.
"Type" shall mean, with respect to any Advance, its nature as a Floating
Rate Loan, Eurodollar Loan or Letter of Credit Advance.
"Year 2000 Issues" shall mean anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations, and financial condition of the Borrowers.
1.2 Other Definitions; Rules of Construction. As used herein, the terms
"Agent", "Banks", "CRI", "COG", "COGL", "Borrowers" and "this Agreement" shall
have the respective meanings ascribed thereto in the introductory paragraph of
this Agreement. Such terms, together with the other terms defined in Section
1.1, shall include both the singular and the plural forms thereof and shall be
construed accordingly. All computations required hereunder and all financial
terms used herein shall be made or construed in accordance with GAAP unless such
principles are inconsistent with the express requirements of this Agreement.
SECTION 2. The Commitments.
2.1 Advances. (a) Each Bank agrees, for itself only, to lend and to relend,
and to participate in Letter of Credit Advances pursuant to Section 3.1, in each
case subject to the terms and conditions of this Agreement, to the Borrowers at
any time and from time to time from the Effective Date until the Termination
Date amounts equal to such Bank's Pro Rata Share of such aggregate Advances as
any Borrower may from time to time request, provided that no Advances may be
made if the aggregate outstanding amount of all Advances to all Borrowers would
exceed the lesser of the Commitments or the Borrowing Base; provided, however,
that the aggregate principal amount of Letters of Credit outstanding at any time
shall not exceed $5,000,000. Each Loan made hereunder shall be evidenced by the
Notes, which shall mature and bear interest as set forth in Section 4 hereof and
in such Notes. On the Effective Date, the Borrowers shall issue and deliver to
each Bank a Note in the principal amount of such Bank's Commitment for the
period beginning on the Effective Date. Each Loan which is a Floating Rate Loan
shall be in a minimum amount of $500,000 and in integral multiples of $100,000
and each Loan which is a Eurodollar Loan shall be in a minimum amount of
$1,000,000 and in integral multiples of $1,000,000. No more than ten Eurodollar
Interest Periods shall be permitted to exist at any one time. Subject to the
terms and conditions of this Agreement, the Borrowers may borrow, prepay
pursuant to Section 4.1(b) and reborrow under this Section 2.1(a).
(b) For purposes of this Agreement, a Letter of Credit Advance (i)
shall be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in Section 3.3 and (ii) shall be deemed outstanding at all times on and before
such stated expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn, and thereafter until
all related reimbursement obligations have been paid pursuant to Section 3.3. As
provided in Section 3.3, upon each payment made by the Agent in respect of any
draft or other demand for payment under any Letter of Credit, the amount of any
Letter of Credit Advance outstanding immediately prior to such payment shall be
automatically reduced by the amount of each Loan deemed advanced in respect of
the related reimbursement obligation of the Borrowers.
(c) The Borrowers shall have the right to terminate or reduce the
Commitments at any time and from time to time, provided that (i) the Borrowers
shall give notice of such termination or reduction to the Agent specifying the
amount and effective date thereof, (ii) each partial reduction of the
Commitments shall be in a minimum amount of $1,000,000 and in integral multiples
of $1,000,000 and shall reduce the Commitments of all of the Banks
proportionally in accordance with the respective Commitment amounts of each such
Bank, (iii) no such termination or reduction, either in whole or part and
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including without limitation any termination, shall be permitted with respect to
any portion of the Commitments as to which a request for Advances is then
pending, and (iv) the Commitments may not be terminated if any Advances are then
outstanding and may not be reduced below the principal amount of Advances then
outstanding. The Commitments or any portion thereof so terminated or reduced may
not be reinstated. Any Borrower may request Advances without the consent of any
other Borrower, and each Borrower consents to and approves any Advances
requested by any other Borrower. The Advances hereunder replace the revolving
credit loans and letters of credit outstanding pursuant to Section 2.1(a) of the
Existing Credit Agreement and provide additional credit as described above.
(d) This Agreement amends and restates the Existing Credit Agreement,
and all Advances and Letters of Credit outstanding under the Existing Credit
Agreement shall constitute Advances and Letters of Credit under this Agreement
and all fees and other obligations accrued under the Existing Credit Agreement
will continue to accrue and be paid under this Agreement. As stated in the Notes
and the Consent and Amendment to Security Documents, the Advances and other
obligations pursuant hereto are issued in exchange and replacement for the
Advances and other obligations under an Existing Credit Agreement, shall not be
a novation or satisfaction thereof and shall be entitled to the same collateral
with the same priority. The Lenders acknowledge and agree that such transfers of
rights and interests under the Loan Documents shall take place among the Lenders
as of the Effective Date to give effect to Commitments set forth on the
signature pages hereof.
SECTION 3. The Advances.
3.1 Disbursement of Advances. (a) Borrowers shall give notice to the Agent
of each requested Advance in substantially the form of Exhibit C hereto, which
notice given shall be received by the Agent not later than 10:00 a.m. (Chicago
time), (i) three Business Days prior to the date such Advance is requested to be
made if such Advance is to be made as a Eurodollar Loan, (ii) one Business Day
prior to the date such Advance is requested to be made if such Advance is to be
made as a Floating Rate Loan and (iii) three Business Days prior to the date
such Advance is to be made if such Advance is to be made as a Letter of Credit
Advance. Each such notice given shall be irrevocable and binding on the
Borrowers, any such notice must specify the Advance Date, which shall be a
Business Day, the aggregate amount of such Advance, the Type of Advance
selected, in the case of any Eurodollar Loan, the Eurodollar Interest Period
applicable thereto, and in the case of any Letter of Credit Advance such other
information and documents with respect thereto as may be required by the Agent.
The Agent shall provide notice of such requested Advance to each Bank on the
same Business Day such notice is received from the Borrowers. Subject to the
terms and conditions of this Agreement, the Agent shall, on the date any Letter
of Credit Advance is requested to be made, issue the related Letter of Credit on
behalf of the Banks for the account of the designated Borrower. Notwithstanding
anything herein to the contrary, the Agent may decline to issue any requested
Letter of Credit on the basis that the beneficiary, the purpose of issuance or
the terms or the conditions of drawing are illegal or contrary to a policy of
the Agent.
(b) Floating Rate Loans shall continue as Floating Rate Loans unless
and until such Floating Rate Loans are converted into Eurodollar Loans. Each
Eurodollar Loan of any Type shall continue as a Eurodollar Loan of such Type
until the end of the then applicable Interest Period therefor, at which time
such Eurodollar Loan shall be automatically converted into a Floating Rate Loan
unless the Borrower shall have given the Agent a Conversion/Continuation Notice
requesting that, at the end of such Interest Period, such Eurodollar Loan either
continue as a Eurodollar Loan for the same or another Interest Period or be
converted into a Loan of another Type. Subject to the terms of Section 2.1, the
Borrower may elect from time to time to convert all or any part of a Loan of any
Type into any other Type or Types of a Loan; provided that any conversion of any
Eurodollar Loan shall be made on, and only on, the last day of the Interest
Period applicable thereto. The Borrowers shall give the Agent irrevocable notice
(a "Conversion/Continuation Notice") of each conversion of a Loan or
continuation of a Eurodollar Loan not later than 10:00 a.m. (Chicago time) at
least one Business Day, in the case of a conversion into a Floating Rate Loan,
or three Business Days, in the case of a conversion into or continuation of a
Eurodollar Loan, prior to the date of the requested conversion or continuation,
specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation,
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(ii) the aggregate amount and Type of the Loan which is to be
converted or continued, and
(iii) the amount and Type(s) of Loan(s) into which such Loan is
to be converted or continued and, in the case of a conversion into or
continuation of a Eurodollar Loan, the duration of the Interest Period
applicable thereto.
(c) Subject to the terms and conditions of this Agreement, the
proceeds of such requested Loan shall be made available to the Borrowers by
depositing the proceeds thereof, in immediately available funds, on the Advance
Date for such Loan in an account maintained and designated by the Borrowers at
the principal office of the Agent. Each Bank, on the Advance Date of each such
Loan shall make its Pro Rata Share of such Loan available in immediately
available funds at the principal office of the Agent for disbursement to the
Borrowers. Unless the Agent shall have received notice from any Bank prior to
the date of any requested Loan under this Section 3.1 that such Bank will not
make available to the Agent such Bank's Pro Rata Share, the Agent may assume
that such Bank has made such share available to the Agent on the Advance Date of
such Loan in accordance with this Section 3.1(b). If and to the extent such Bank
shall not have so made such Pro Rata Share available to the Agent, the Agent may
(but shall not be obligated to) make such amount available to the Borrowers on
the relevant Advance Date, and such Bank agrees to pay to the Agent forthwith on
demand such amount together with interest thereon, for each day from the date
such amount is made available to the Borrowers by the Agent until the date such
amount is paid to the Agent, at the Federal Funds Rate. If such Bank shall pay
to the Agent such amount, such amount so paid shall constitute a Loan by such
Bank as a part of such borrowing for purposes of this Agreement. The failure of
any Bank to make its Pro Rata Share of any such Loan available to the Agent
shall not relieve any other Bank of its obligations to make available its Pro
Rata Share of such Loan on the Advance Date of such Loan, but no Bank shall be
responsible for failure of any other Bank to make such Pro Rata Share available
to the Agent on the Advance Date of any such Loan.
(d) Each Bank may book its Loans at any Lending Installation selected
by such Bank and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation and the
Notes shall be deemed held by each Bank for the benefit of such Lending
Installation. Each Bank may, by written or telex notice to the Agent and the
Borrowers, designate a Lending Installation through which Loans will be made by
it and for whose account Loan payments are to be made.
(e) Nothing in this Agreement shall be construed to require or
authorize any Bank to issue any Letter of Credit, it being recognized that the
Agent has the sole obligation under this Agreement to issue Letters of Credit on
behalf of the Banks, and the Commitment of each Lender with respect to Letter of
Credit Advances is expressly conditioned upon the Agent's performance of such
obligations. Upon such issuance by the Agent, each Bank shall automatically and
unconditionally acquire a risk participation interest to the extent of its Pro
Rata Share in such Letter of Credit Advance based on its respective Commitment.
If the Agent shall honor a draft or other demand for payment presented or made
under any Letter of Credit, the Agent shall provide notice thereof to each Bank
on the date such draft or demand is honored unless the Borrowers shall have
satisfied their reimbursement obligation under Section 3.3 by payment to the
Agent on such date. Each Bank, not later than the Business Day after the Agent
shall have given the notice specified in the previous sentence, shall make its
Pro Rata Share of the amount paid by the Agent available in immediately
available funds at the principal office of the Agent for the account of the
Agent. If and to the extent such Bank shall not have made any required Pro Rata
Share amount available to the Agent or made its portion of Loan available
pursuant to Section 3.3(a)(i), such Bank and the Borrowers severally agree to
pay to the Agent forthwith on demand such amount together with interest thereon,
for each day from the date such amount was paid by the Agent until such amount
is so made available to the Agent at (i) the interest rate then applicable to
Floating Rate Loans for such day in the case of the Borrowers and (ii) the rate
per annum equal to the Federal Funds Rate for the first five days, and
thereafter at the interest rate applicable to Floating Rate Loans, in the case
of any Bank. If such Bank shall pay such amount to the Agent together with such
interest, such amount so paid shall constitute a Loan by such Bank as part of
the Loans disbursed in respect of the reimbursement obligation of the Borrowers
under Section 3.3 for purposes of this Agreement. The failure of any Bank to
make its Pro Rata Share of any such amount paid by the Agent available to the
Agent shall not relieve any other Bank of its obligation to make available its
Pro Rata Share of such amount, but no Bank shall be responsible for failure of
any other Bank to make such Pro Rata Share available to the Agent.
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3.2 Conditions of Advances. The Banks and the Agent shall not be obligated
to make any Advance hereunder at any time unless:
(a) On the Effective Date, which may not be after January 3, 2000
there shall have been delivered to each Bank the following documents, in form
and substance satisfactory to the Agent and the following additional conditions
shall have been satisfied:
(i) The favorable opinion of such counsel for the Borrowers as
shall be approved by the Required Banks, with respect to the matters as
requested by the Banks, all in form and substance satisfactory to the Required
Banks;
(ii) certified copies of such corporate documents of each
Borrower, including each Borrower's articles of incorporation, by-laws and a
good standing certificate, and such documents evidencing necessary corporate
action with respect to this Agreement, the Loans, the Notes and the Security
Documents, and certifying to the incumbency of, and attesting to the genuineness
of the signatures of, those officers authorized to act on behalf of each
Borrower, as the Banks shall request;
(iii) the Security Documents required as of the Effective Date
under Section 5.1 duly executed on behalf of the Borrowers, together with
evidence of the recordation, filing and other action in such jurisdictions as
the Banks may deem necessary or appropriate with respect to the Security
Documents and evidence of the first-priority of the Banks' liens and security
interests under the Security Documents, subject only to Permitted Liens,
including without limitation such additional mortgages, security agreements,
pledge agreements, other documents and opinions of counsel required by the Banks
and original stock certificates and assignments separate from certificate of
each Person whose stock is required to be pledged;
(iv) the Notes duly executed on behalf of the Borrowers, and it
is acknowledged and agreed that the Notes: (A) are issued in exchange and
replacement for the promissory notes issued pursuant to the Existing Credit
Agreement, (B) shall not be deemed a novation or to have satisfied such
promissory notes and (C) evidence the same indebtedness evidenced by such
promissory notes plus additional indebtedness;
(v) the Consent and Amendment of Security Documents duly executed
by the Borrowers;
(vi) Payment of such fees agreed to among the Borrowers and the
Agent;
(vii) the execution by the Borrowers of the Agent's standard
environmental certificate;
(viii) the Banks shall have determined that the Loans to be made
are equal to or less than the Borrowing Base;
(ix) copies of all agreements relating to any material
Indebtedness for borrowed money, any outstanding preferred stock, any joint
ventures or partnerships or any other material documents requested by the Banks;
(x) the originals of all promissory notes payable to any
Borrower, other than promissory notes in an aggregate amount less than
$1,000,000;
(xi) (A) The Borrowers shall deliver evidence satisfactory to the
Agent that the Borrowers have issued the Indenture Notes in a face amount of not
less than $150,000,000 in accordance with the Indenture Debt Documents and the
Preferred Stock in an amount of not less than $30,000,000 in accordance with the
Preferred Stock Documents and that all net proceeds (net of customary fees and
expenses in connection therewith) of each of the foregoing shall have been used
to prepay the advances and other liabilities under the Existing Credit
Agreement, (B) all Indenture Debt Documents and the Preferred Stock Documents
shall have been delivered to the Agent and the Banks and shall be in form and
substance satisfactory to the Agent and (C) all transactions contemplated
pursuant to the Indenture Debt Documents and the Preferred Stock Documents shall
have been completed; and
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(xii) such other agreements, documents, conditions and
certificates as reasonably requested by the Banks, including without limitation,
releases and terminations of all other Liens which are not permitted hereunder
and amendments of existing Security Documents, all in form and substance
satisfactory to the Banks.
(b) The aggregate outstanding principal amount of all Advances after
giving effect to the proposed Advance, does not exceed the lesser of the
Commitments or the Borrowing Base.
(c) On and as of the date of each such Advance, the representations
and warranties contained in Section 6 hereof shall be true and correct in all
material respects as if made on such date; provided, however, that for purposes
of this Section 3.2(c) the representations and warranties contained in Section
6.7 hereof shall be deemed made with respect to both the financial statements
referred to therein and the most recent financial statements delivered pursuant
to Section 7.1(d)(ii) and (iii).
(d) No Default or event or condition which could cause a Material
Adverse Effect has occurred and is continuing or will exist upon the
disbursement of such Advance.
Acceptance of the proceeds of any Advance hereunder by the Borrowers shall be
deemed to be a certification by the Borrowers at such time with respect to the
matters set forth in subparagraphs (b), (c) and (d) of this Section 3.2.
3.3 Letter of Credit Reimbursement Payments. (a)(i) The Borrowers agree to
pay to the Agent, on the day on which the Agent shall honor a draft or other
demand for payment presented or made under any Letter of Credit, an amount equal
to the amount paid by the Agent in respect of such draft or other demand under
such Letter of Credit and all expenses paid or incurred by the Agent relative
thereto. Unless the Borrowers shall have made such payment to the Agent on such
day, upon each such payment by the Agent, the Agent shall be deemed to have
disbursed to the Borrowers, and the Borrowers shall be deemed to have elected to
satisfy the reimbursement obligation by borrowing, a Loan bearing interest at
the Floating Rate for the account of the Banks in an amount equal to the amount
so paid by the Agent in respect of such draft or other demand under such Letter
of Credit. Such Loan shall be disbursed, and each Bank shall advance its Pro
Rata Share thereof, notwithstanding any failure to satisfy any conditions for
disbursement of any Loan set forth in Article III or any other condition and, to
the extent of the Loan so disbursed, the reimbursement obligation of the
Borrowers under this Section 3.3 shall be deemed satisfied; provided, however,
that such disbursement shall not be deemed to be a waiver of any Event of
Default or Default, if any.
(ii) If for any reason (including without limitation as a result
of the occurrence of an Event of Default pursuant to Section 6.1(h)), Floating
Rate Loans may not be made by the Banks as described in Section 3.3(a)(i), then
(A) the Borrowers agree that each reimbursement amount not paid pursuant to the
first sentence of Section 3.3(a)(i) shall bear interest, payable on demand by
the Agent, at the interest rate then applicable to Floating Rate Loans, and (B)
effective on the date each such Floating Rate Loan would otherwise have been
made, each Bank severally agrees that it shall unconditionally and irrevocably,
without regard to the occurrence of any Default or Event of Default, in lieu of
a deemed disbursement of Loans, to the extent of such Bank's Pro Rata Share,
purchase a participating interest in each reimbursement amount. Each Bank will
immediately transfer to the Agent, in same day funds, the amount of its
participation. Each Bank shall share in accordance with its Pro Rata Share
(calculated by reference to the Commitments) in any interest which accrues
thereon and in all repayments thereof. If and to the extent that any Bank shall
not have so made the amount of such participating interest available to the
Agent, such Bank and the Borrowers agree to pay to the Agent forthwith on demand
such amount together with interest thereon, for each day from the date of demand
by the Agent until the date such amount is paid to the Agent, at (x) in the case
of the Borrowers, the interest rate then applicable to Floating Rate Loans and
(y) in the case of such Bank, the Federal Funds Rate for the first five days,
and thereafter the interest rate applicable to Floating Rate Loans.
(b) The reimbursement obligations of the Borrowers under this Section
3.3 shall be absolute, unconditional and irrevocable and shall remain in full
force and effect until all obligations of the Borrowers to the Agent and the
Banks hereunder shall have been satisfied, and such obligations of the Borrowers
shall not be affected, modified or impaired upon the happening of any event,
including without limitation, any of the following, whether or not with notice
to, or the consent of, the Borrowers:
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(i) Any lack of validity or enforceability of any Letter of
Credit or any documentation relating to any Letter of Credit or to any
transaction related in any way to such Letter of Credit (the "Letter of Credit
Documents");
(ii) Any amendment, modification, waiver or consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents.
(iii) The existence of any claim, setoff, defense or other right
which the Borrowers may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the Agent or any Bank or any
other person or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any unrelated
transactions;
(iv) Any draft or other statement or document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under any Letter of
Credit against presentation of documents which do not comply with the terms of
the Letter of Credit, including failure of any documents to bear any reference
or adequate reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part of the
Agent or any Bank or any party to any of the Letter of Credit Documents to
enforce, assert or exercise any right, power or remedy conferred upon the Agent,
any Bank or any such party under this Agreement or any of the Letter of Credit
Documents, or any other acts or omissions on the part of the Agent, any Bank or
any such party; or
(vii) Any other event or circumstance that would, in the absence
of this clause, result in the release or discharge by operation of law or
otherwise the Borrowers from the performance or observance of any obligation,
covenant or agreement contained in this Section 3.3. No setoff, counterclaim,
reduction or diminution of any obligation or any defense of any kind or nature
which the Borrowers have or may have against the beneficiary of any Letter of
Credit shall be available hereunder to the Borrowers against the Agent or any
Bank. Nothing in this Section 3.3 shall limit the liability, if any, of the
Borrowers to the Banks pursuant to Section 10.5(b).
3.4. Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Bank, each Bank that is not incorporated under the laws of the United States
of America, or a state thereof, agrees that it will deliver to each of the
Borrowers and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Bank is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Bank
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrowers and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrowers or the Agent,
in each case certifying that such Bank is entitled to receive payments under
this Agreement and the Notes without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises the Borrowers
and the Agent that it is not capable of receiving payments without any deduction
or withholding of United States federal income tax.
SECTION 4. Payment and Prepayment; Fees; Change in Circumstances.
4.1 Principal Payments.
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(a) Unless earlier payment is required under this Agreement, the
Borrowers shall pay the entire outstanding principal amount of the Advances on
the Termination Date.
(b) The Borrowers may from time to time prepay all or a portion of the
Advances without premium or penalty, provided, however, that (i) the Borrowers
shall have given not less than one Business Day's prior written notice thereof
to the Agent, (ii) other than mandatory payments, each such prepayment, in the
case of prepayment of Floating Rate Loans, shall be in the minimum amount of
$500,000 and in integral multiples of $100,000 and, in the case of prepayment of
Eurodollar Loans, shall be in the minimum amount of $1,000,000 and in integral
multiples thereof, (iii) any prepayment of any Eurodollar Loan shall be
accompanied by any amount required pursuant to Section 4.10.
(c) If it should be determined by the Agent at any time and from time
to time that the principal amount of the Advances exceed the lesser of the then
Borrowing Base or the Commitments (such condition defined herein as a "Borrowing
Base Deficiency"), the Borrowers shall within thirty (30) days of written notice
to the Borrowers of such Borrowing Base Deficiency, in addition to all other
payments of principal and interest required to be paid on the Advances, prepay
upon demand and without premium or penalty the Advances in an amount by which,
in the determination of the Agent, such aggregate principal amount outstanding
exceeds the lesser of the then Borrowing Base or the Commitments, provided that
such prepayment shall be made first on the Loans and if the Loans are paid in
full and such excess still exists, the Borrowers shall provide cash collateral
for any outstanding Letters of Credit to the extent of such remaining excess.
(d) In addition to all other payments required hereunder, upon any
sale or other disposition of any assets when a Default exists, or if such sale
or other disposition would cause a Default or would cause a required prepayment
of, or offer to purchase, the Indenture Notes, the Borrowers shall prepay the
Advances by an amount equal to 100% of the net proceeds (net only of reasonable
and customary costs of such sale or other disposition) of such sale or
disposition, which prepayment is due upon receipt of such net proceeds.
(e) In addition to all other payments required hereunder, upon any
sale or other disposition of any assets when a Borrowing Base Deficiency exists,
or if such sale or other disposition would cause a Borrowing Base Deficiency,
the Borrower shall prepay the Advances by the amount of the Borrowing Base
Deficiency from the net proceeds (net only of any reasonable and customary costs
of such sale or other disposition) of such sale or disposition, which prepayment
is due upon receipt of such net proceeds.
Unless specified as a determination to be made by all Banks, all
determinations made pursuant to this Section 4.1 shall be made by the Agent or
the Required Banks, as the case may be, and shall be conclusively binding on the
parties absent manifest error.
4.2 Interest Payment. (a) The Borrowers shall pay interest to the Banks on
the unpaid principal amount of each Loan for the period commencing on the date
such Loan is made until such Loan is paid in full, on each Interest Payment Date
and at maturity (whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum: (i) during such periods
that such Loan is a Floating Rate Loan, the Floating Rate, and (ii) during such
periods that such Loan is a Eurodollar Loan, the Eurodollar Rate applicable to
such Loan for each related Eurodollar Interest Period.
(b) Notwithstanding the foregoing paragraph (a), the Borrowers hereby
agree, if requested by the Required Banks, to pay interest on demand at the
Overdue Rate on the outstanding principal amount of any Loan and any other
amount payable by the Borrowers hereunder (other than interest) upon and during
the continuance of any Default.
4.3 Fees. (a) The Borrowers agree to pay to the Agent, for the pro rata
account of the Banks in accordance with their Pro Rata Shares, a commitment fee
computed at the per annum rate equal to the Applicable Margin on the amount by
which the Borrowing Base exceeds the aggregate outstanding principal amount of
the Advances for the period from the Effective Date until the Termination Date.
Such fee shall be paid quarterly in arrears on the last Business Day of each
March, June, September and December and on the Termination Date.
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(b) The Borrowers agree (i) to pay to the Agent, for the benefit of
the Banks, a fee computed at the Applicable Margin on the maximum amount
available to be drawn under each Letter of Credit at the time such fee is to be
paid for the period from and including the date of issuance of such Letter of
Credit to and including the stated expiry date of such Letter of Credit, and
(ii) to pay an additional fee to the Agent for its own account computed at the
rate of 0.25% per annum on such maximum amount for such period. Such fees shall
be payable each month in advance, payable on the date of the issuance of any
Letter of Credit and each month thereafter. Such fees are nonrefundable and the
Borrowers shall not be entitled to any rebate of any portion thereof if such
Letter of Credit does not remain outstanding through the date for which such
fees have been paid. The Borrowers further agree to pay to the Agent, on demand,
such other customary administrative fees, charges and expenses of the Agent in
respect of the issuance, negotiation, acceptance, amendment, transfer and
payment of each Letter of Credit or otherwise payable pursuant to the
application and related documentation under which such Letter of Credit is
issued.
(c) The Borrowers agree to pay to the Agent, for the pro rata benefit
of the Banks, an upfront fee equal to 0.50% of the amount of the Commitment of
each Bank, payable on the Effective Date.
(d) The Borrowers agree to pay to the Agent agency and servicing fees
for its services under this Agreement in such amounts as it may from time to
time be agreed upon between the Borrowers and the Agent, which fee shall be
retained solely by the Agent.
4.4 Payment Method. All payments to be made by the Borrowers hereunder will
be made in Dollars and in immediately available funds to the Agent at its
address set forth in Section 10.2 not later than 11:00 a.m. Chicago time on the
date on which such payment shall become due. Payments received after 11:00 a.m.
Chicago time shall be deemed to be payments made prior to 11:00 a.m. Chicago
time on the next succeeding Business Day. At the time of making each such
payment, the Borrowers shall specify to the Agent that obligation of the
Borrowers hereunder to which such payment is to be applied, or, in the event
that the Borrowers fail to so specify or if an Event of Default shall have
occurred and be continuing, the Agent may apply such payments as it may
determine in its sole discretion. On the day such payments are received, the
Agent shall remit to the Banks their respective Pro Rata Shares of such
payments, in immediately available funds.
4.5 No Setoff or Deduction. All payments of principal of and interest on
the Advances and other amounts payable by the Borrowers hereunder shall be made
by the Borrowers without setoff or counterclaim, and free and clear of, and
without deduction or withholding for, or on account of, any present or future
taxes, levies, imposts, duties, fees, assessments, or other charges of whatever
nature, imposed by any governmental authority, or by any department, agency or
other political subdivision or taxing authority.
4.6 Payment on Non-Business Day; Payment Computations. Except as otherwise
provided in this Agreement to the contrary, whenever any installment of
principal of, or interest on, any Advances outstanding hereunder or any other
amount due hereunder, becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension. Computations of interest and other amounts due under this
Agreement shall be made on the basis of a year of 360 days for the actual number
of days elapsed, including the first day but excluding the last day of the
relevant period.
4.7. Yield Protection. If any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof, or the compliance of any Bank
therewith,
(i) subjects any Bank or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due from the Borrowers
(excluding federal taxation of the overall net income of any Bank or applicable
Lending Installation), or changes the basis of taxation of payments to any Bank
in respect of its Loans or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, any Bank
or any applicable Lending Installation (other than reserves and assessments
taken into account in determining the interest rate applicable to Eurodollar
Loans), or
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(iii) imposes any other condition the result of which is to
increase the cost to any Bank or any applicable Lending Installation of making,
funding or maintaining loans or reduces any amount receivable by any Bank or any
applicable Lending Installation in connection with loans, or requires any Bank
or any applicable Lending Installation to make any payment calculated by
reference to the amount of loans held or interest received by it, by an amount
deemed material by such Bank,
then, within 30 days of demand by such Bank, the Borrowers shall pay such Bank
that portion of such increased expense incurred or reduction in an amount
received which such Bank determines is attributable to making, funding and
maintaining its Loans and its Commitment.
4.8. Changes in Capital Adequacy Regulations. If a Bank determines the
amount of capital required or expected to be maintained by such Bank, any
Lending Installation of such Bank or any corporation controlling such Bank is
increased as a result of a Change, then, within 15 days of demand by such Bank,
the Borrowers shall pay such Bank the amount necessary to compensate for any
shortfall in the rate of return on the portion of such increased capital which
such Bank determines is attributable to this Agreement, its Advances or its
Commitment (after taking into account such Bank's policies as to capital
adequacy). "Change" means (i) any change after the date of this Agreement in the
Risk-Based Capital Guidelines or (ii) any adoption of or change in any other
law, governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement which affects the amount of capital required or expected
to be maintained by any Bank or any Lending Installation or any corporation
controlling any Bank. "Risk-Based Capital Guidelines" means (i) the risk-based
capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
4.9. Availability of Types of Advances. If any Bank determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Banks determine that (i) deposits of
a type and maturity appropriate to match fund Eurodollar Loans are not available
or (ii) the interest rate applicable to a Type of Advance does not accurately
reflect the cost of making or maintaining such Advance, then the Agent shall
suspend the availability of the affected Type of Advance and require any
Eurodollar Loans of the affected Type to be repaid.
4.10. Funding Indemnification. If any payment of a Eurodollar Loan occurs
on a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a Eurodollar Loan is not
made on the date specified by the Borrowers for any reason other than default by
the Banks, the Borrowers will indemnify each Bank for any loss or cost incurred
by it resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the Eurodollar
Loan.
4.11. Bank Statements; Survival of Indemnity. To the extent reasonably
possible, each Bank shall designate an alternate Lending Installation with
respect to its Eurodollar Loans to reduce any liability of the Borrowers to such
Bank under Sections 4.7 and 4.8 or to avoid the unavailability of a Type of
Advance under Section 4.9, so long as such designation is not disadvantageous to
such Bank. Each Bank shall deliver a written statement of such Bank to the
Borrowers (with a copy to the Agent) as to the amount due, if any, under
Sections 4.7, 4.8 or 4.10. Such written statement shall set forth in reasonable
detail the calculations upon which such Bank determined such amount and shall be
final, conclusive and binding on the Borrowers in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though each Bank funded its Eurodollar
Loan through the purchase of a deposit of the type and maturity corresponding to
the deposit used as a reference in determining the Eurodollar Rate applicable to
such Loan, whether in fact that is the case or not. Unless otherwise provided
herein, the amount specified in the written statement of any Bank shall be
payable on demand after receipt by the Borrowers of such written statement. The
obligations of the Borrowers under Sections 4.7, 4.8 and
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4.10 shall survive payment of the Bank Obligations and termination of this
Agreement.
SECTION 5. Security
5.1 Security Documents. To secure all indebtedness, obligations and
liabilities under this Agreement, the Notes, the Security Documents, the
Advances, any Swap Agreements among any Borrower and any Lender and to secure
all other Indebtedness and obligations of the Borrowers to the Agent and the
Banks pursuant thereto, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, the Borrowers shall:
(a) Execute and deliver to the Agent, promptly upon the request of the
Agent or the Required Banks, such indentures of mortgage, deeds of trust,
security agreements, financing statements and assignment of production and other
agreements, including without limitation any amendments to any such documents
previously executed and delivered in favor of the Agent or any Bank (as amended
or modified from time to time, the "Mortgages" and together with the Security
Agreements, and all agreements and documents described in this Section 5.1(a) or
in 5.1(b) or 5.2 and all other agreements and documents securing any of the Bank
Obligations at any time or otherwise executed by any Borrower with or in favor
of the Agent and the Banks, and including without limitation the Letter of
Credit Documents, as amended or modified from time to time, the "Security
Documents"), in form and substance satisfactory to the Required Banks, granting
the Agent, for the benefit of the Banks, a first-priority, perfected and
enforceable lien and security interest, subject only to the Permitted Liens, in
the following (collectively, with all other assets described in Section 5.1(b),
the "Collateral"): all oil, gas and mineral properties and all other assets of
the Borrowers as requested at any time by the Required Banks, including without
limitation all leasehold and royalty interests and all other rights in
connection therewith, and all interests in machinery, equipment, materials,
improvements, hereditaments, appurtenances and other property, real, Personal
and/or mixed, now or hereafter a part of or obtained in or used in connection
with such properties and all interests in and to any and all oil, gas and other
minerals now in storage or now or hereafter located in, under, on or produced
from, such properties and an assignment of production from such properties to
the Agent;
(b) Execute and deliver to the Agent, on or before the Effective Date,
such security agreements, pledge agreements, financing statements and other
agreements, including without limitation the Consent and Amendment of Security
Documents confirming the continuing effectiveness of Security Documents
previously executed and delivered to the Agent or any Bank (as amended or
modified from time to time, the "Security Agreements"), in form and substance
satisfactory to the Required Banks, granting to the Agent, for the benefit of
the Banks, a first-priority, perfected and enforceable lien and security
interest, subject only to the Permitted Liens, in all other assets, whether
real, personal or mixed, and whether now owned or hereafter existing and
wherever located, of the Borrowers.
5.2 Additional Security Documents. If at any time requested by the Agent or
the Required Banks, the Borrowers shall execute and deliver such additional
documents, and shall take such other action, as the Agent or the Required Banks
may reasonably consider necessary or proper to evidence or perfect the liens and
security interests described in Section 5.1 hereof.
SECTION 6. Representations and Warranties.
Each of the Borrowers represents and warrants that:
6.1 Corporate Existence and Power. It is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to do business and in good standing in each
additional jurisdiction where failure to so qualify would have a Material
Adverse Effect. It has all requisite corporate power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted,
and to execute and deliver this Agreement, the Notes and the Security Documents
and to engage in the transactions contemplated by this Agreement, the Notes and
the Security Documents.
6.2 Corporate Authority. The execution, delivery and performance by it of
this Agreement, the Notes and the Security Documents are within its corporate
powers, have been duly authorized by all necessary corporate action and are not
in contravention of any law, rule or regulation, or any judgment, decree, writ,
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injunction, order or award of any arbitrator, court or governmental authority,
or of the terms of its charter or by-laws, or of any contract or undertaking to
which it is a party or by which it or its property may be bound or affected.
6.3 Binding Effect. This Agreement is, and the Notes and the Security
Documents to which it is a party when delivered hereunder will be, legal, valid
and binding obligations of each Borrower, enforceable against each in accordance
with their respective terms.
6.4 Subsidiaries. All Subsidiaries of CRI are duly organized, validly
existing and in good standing under the laws of their jurisdictions of
organization and are duly qualified to do business in each jurisdiction where
failure to so qualify would have a Material Adverse Effect. All outstanding
shares of Capital Stock of each class of each Subsidiary of CRI have been and
will be validly issued and are and will be fully paid and nonassessable and are
and will be owned, beneficially and of record, by CRI, free and clear of any
Liens. Schedule 6.4 is a complete list of all Subsidiaries of CRI. COG is and
will remain a wholly owned subsidiary of CRI and COGL is and will remain a
wholly owned subsidiary of COG, and Offshore is and will remain a wholly owned
subsidiary of COGL.
6.5 Liens. The properties of each Borrower and each Subsidiary of any
Borrower (including without limitation the Collateral) are not subject to any
Lien except Permitted Liens.
6.6 Litigation. There is no action, suit or proceeding pending or, to the
best of its knowledge, threatened against or affecting it before or by any
court, governmental authority, or arbitrator which would be reasonably likely to
result in, either individually or collectively, a Material Adverse Effect and,
to the best of the Borrowers' knowledge, there is no basis for any such action,
suit or proceeding.
6.7 Financial Condition. The consolidated balance sheet of CRI and its
Subsidiaries and the consolidated statements of income and cash flow of CRI and
its Subsidiaries for the fiscal year ended December 31, 1998 and reported on by
Arthur Andersen, LLP, copies of which have been furnished to the Banks, fairly
present, and the financial statements of CRI and its Subsidiaries to be
delivered pursuant to Section 7.1(d) will fairly present, the consolidated
financial position of CRI and its Subsidiaries as of the respective dates
thereof, and the consolidated results of operations of CRI and its Subsidiaries
for the respective periods indicated, all in accordance with generally accepted
accounting principles consistently applied. There has been no event or
development which has had or would be reasonably likely to have a Material
Adverse Effect since December 31, 1998. There is no material Contingent
Liability of CRI or any of its Subsidiaries that is not reflected in such
financial statements or in the notes thereto.
6.8 Use of Advances. The Advances will be used for working capital and
general corporate purposes. No Borrower extends or maintains, in the ordinary
course of business, credit for the purpose, whether immediate, incidental, or
ultimate, of buying or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System), and no part of the
proceeds of each Advance will be used for the purpose, whether immediate,
incidental, or ultimate, of buying or carrying any such margin stock or
maintaining or extending credit to others for such purpose. After applying the
proceeds of the Advances, such margin stock will not constitute more than 25% of
the value of the assets that are subject to any provisions of this Agreement or
any Security Document that may cause the Advances to be secured, directly or
indirectly by margin stock.
6.9 Security Documents. The Security Documents create a valid and
enforceable first-priority lien on and perfected security interest in all right,
title and interest of each Borrower in and to the Collateral described therein,
securing all amounts intended to be secured thereby (including without
limitation all principal of and interest on the Notes) subject only to the
Permitted Liens. The respective net revenue interests of each Borrower in and to
the Oil and Gas Interests as set forth in the Security Documents are true and
correct and accurately reflect the interests to which each Borrower is legally
entitled, subject only to the Permitted Liens.
6.10 Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental Person or entity, including without limitation any creditor or
stockholder of it, is required on the part of it in connection with the
execution, delivery and performance of this Agreement, the Notes, the Security
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Documents or the transactions contemplated hereby or as a condition to the
legality, validity or enforceability of this Agreement, the Notes or any of the
Security Documents.
6.11 Taxes. It has filed all tax returns (federal, state and local)
required to be filed and has paid all taxes shown thereon to be due, including
interest and penalties, or has established adequate financial reserves on its
books and records for payment thereof, except where the failure to do so would
not have a Material Adverse Effect.
6.12 Title to Properties. It has good and defensible title to, and a valid
indefeasible ownership interest in, all of its properties and assets (including,
without limitation, the Collateral subject to the Security Documents) free and
clear of any Lien except the Permitted Liens, and it is the owner of all the
Collateral described in the Security Documents to which it is a party. All wells
on any of the mortgaged premises have been drilled, operated, shut-in, abandoned
or suspended in accordance with good oil and gas field practices and in
compliance with all applicable laws, permits, statutes, orders, licenses, rules
and regulations. All leases with respect to any Oil and Gas Interests owned by
any Borrower are in good standing and are in full force and effect, all
royalties, rents, taxes, assessments and other payments thereunder or with
respect thereto have been properly and timely paid and all conditions necessary
to keep such leases in full force have been fully performed, including without
limitation any condition to maintain continuous production or other activity
with respect thereto. The Borrowers have delivered to the Agent title opinions
satisfactory to the Agent and the Agent's counsel with respect to at least 80%
of the value of the assets included in the Borrowing Base.
6.13 ERISA. CRI and its Subsidiaries and their Plans are in compliance in
all material respects with those provisions of ERISA and of the Code which are
applicable with respect to any Plan. No prohibited transaction (as defined in
Section 406 of ERISA and Section 9975 of the Code) and no reportable event (as
defined in ERISA) has occurred with respect to any Plan. Neither CRI, any of its
Subsidiaries nor any of its ERISA Affiliates is an employer with respect to any
multiemployer plan (as defined in Section 4001(a)(3) of ERISA). CRI, its
Subsidiaries and the ERISA Affiliates have met the minimum funding requirements
under ERISA and the Code with respect to each of the respective Plans, if any,
and have not incurred any liability to the PBGC or any Plan. There is no
unfunded benefit liability with respect to any Plan.
6.14 Environmental and Safety Matters. It is in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
relating to safety and industrial hygiene or to the environmental condition,
including without limitation all Environmental Laws in jurisdictions in which it
owns any interest in or operates, a well, a facility or site, or arranges for
disposal or treatment of hazardous substances, solid waste, or other wastes,
accepts for transporting any hazardous substances, solid waste, or other wastes,
or holds any interest in real property or otherwise, except where any such
noncompliance would not have a Material Adverse Effect. No demand, claim,
notice, suit, suit in equity, action, administrative action, investigation or
inquiry whether brought by any governmental authority, private Person or entity
or otherwise, arising under, relating to or in connection with any Environmental
Laws is pending or, to the best of any Borrower's knowledge, threatened against
it, any real property in which it holds or has held an interest or any past or
present operation of it. It (a) does not know of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic substances, radioactive materials, hazardous wastes or
related materials into the environment, (b) has not received any notice of any
toxic substances, radioactive materials, hazardous waste or related materials
in, or upon any of its properties in violation of any Environmental Laws, and
(c) does not know of any basis for any such investigation, notice or violation.
No material release, threatened release or disposal of hazardous waste, solid
waste or other wastes is occurring or has occurred on, under or to any real
property in which it holds any interest or performs any of its operations, in
violation of any Environmental Law which would have a Material Adverse Effect.
6.15 Direct Benefit. The initial Advances hereunder and all additional
Advances are for the direct benefit of each of the Borrowers, and the initial
Advances hereunder are used to refinance and replace indebtedness owing,
directly or indirectly, by the Borrowers to the Banks under the Existing Credit
Agreement. The Borrowers are engaged as an integrated group in the business of
oil and gas exploration and related fields, and any benefits to any Borrower is
a benefit to all of them, both directly or indirectly, inasmuch as the
successful operation and condition of the Borrowers is dependent upon the
continued successful performance of the functions of the integrated group as a
whole.
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6.16 Solvency. Each of the following is true for each Borrower and the
Borrowers on a consolidated basis: (a) the fair saleable value of its property
is (i) greater than the total amount of its liabilities (including contingent
liabilities), and (ii) greater than the amount that would be required to pay its
probable aggregate liability on its then existing debts as they become absolute
and matured; (b) its property is not unreasonable in relation to its business or
any contemplated or undertaken transaction; and (c) it does not intend to incur,
or believe that it will incur, debts beyond its ability to pay such debts as
they become due.
6.17 Disclosure. This Agreement and all other documents, certificates,
reports or statements or other information furnished to any Bank or the Agent in
writing by or on behalf of any Borrower in connection with the negotiation or
administration of this Agreement or any transactions contemplated hereby when
read together do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to any Borrower which has
caused, or which likely would in the future in the reasonable judgment of the
Borrowers cause, a Material Adverse Effect (except for any economic conditions
which affect generally the industry in which the Borrowers and their
Subsidiaries conduct business), which has not been set forth in this Agreement
or in the other documents, certificates, statements, reports and other
information furnished in writing to the Banks by or on behalf of any Borrower in
connection with the transactions contemplated hereby.
6.18 Indenture Debt Documents and Preferred Stock Documents. All
representations and warranties of the Borrowers contained in any Indenture Debt
Document or Preferred Stock Document are true and correct in all material
respects. CRI has issued the Indenture Notes in the face amount of at least
$150,000,000 on or prior to the Effective Date and all Indenture Debt Documents
have been delivered to the Agent and the Banks prior to the Effective Date. CRI
has issued the Preferred Stock in the amount of $30,000,000 on or prior to the
Effective Date and all Preferred Stock Documents have been delivered to the
Agent and the Banks prior to the Effective Date. There is no event of default or
event or condition which could become an event of default with notice or lapse
of time or both, under the Indenture Debt Documents or Preferred Stock Documents
and each of the Indenture Debt Documents and the Preferred Stock Documents is in
full force and effect.
6.19 Year 2000. The Borrowers have made a full and complete assessment of
the Year 2000 Issues. Based on such assessment, the Borrowers do not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
SECTION 7. Covenants.
7.1 Affirmative Covenants. Each Borrower covenants and agrees that, until
the payment in full of the principal of and accrued interest on the Notes, the
expiration of this Agreement and all Letters of Credit and the payment and
performance of all other obligations of the Borrowers under this Agreement, the
Notes and the Security Documents, unless the Required Banks shall otherwise
consent in writing, each of the Borrowers shall:
(a) Preservation of Corporate Existence, Etc. Preserve and maintain
its corporate existence, rights and privileges and its material licenses,
franchises and permits, and qualify and remain qualified as a validly existing
corporation in good standing in each jurisdiction in which such qualification is
necessary under applicable law.
(b) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
give rise to Liens upon such properties or any portion thereof, except to the
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extent that payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings and with respect to which adequate
financial reserves have been established on its books and records.
(c) Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of its business and keep
such property in good repair, working order and condition and from time to time
make, or cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar businesses;
comply with all applicable permits, statutes, laws, orders, licenses, rules and
regulations relating to the Oil and Gas Interests owned by it, unless any non
compliance would not cause a Material Adverse Effect, and ensure that all wells
and other properties operated by it, either in its own name or as a partner, are
operated in accordance with prudent oil and gas field practices; comply with all
of its duties and obligations under, and take all actions to maintain,
consistent with prudent oil and gas practices, all leases and other rights in
full force and effect; and, in addition to that insurance required under the
Security Documents, maintain in full force and effect insurance with responsible
and reputable insurance companies or associations in such amounts, on such terms
and covering such risks, including fire and other risks insured against by
extended coverage, as is usually carried by companies engaged in similar
businesses and owning similar properties similarly situated and maintain in full
force and effect public liability insurance, insurance against claims for
personal injury or death or property damage occurring in connection with any of
its activities or any of any properties owned, occupied or controlled by it, in
such amount as it shall reasonably deem necessary, and maintain such other
insurance as may be required by law or as may be reasonably requested by the
Banks for purposes of assuring compliance with this Section 7.1(c).
(d) Reporting Requirements. Furnish to each Bank, in form and
substance satisfactory to the Required Banks, the following:
(i) Promptly and in any event within three calendar days after
becoming aware of the occurrence of (A) any Default, (B) the commencement of any
material litigation against, by or affecting the Borrowers and, upon request by
any Bank, any material developments therein, or (C) any development in the
business or affairs of the Borrowers which has resulted in, or which is likely
in the reasonable judgment of the Borrowers to result in (including without
limitation the entering into of any material contract and/or undertaking by the
Borrowers) a Material Adverse Effect or (D) any "reportable event" (as defined
in ERISA) under, or the institution of steps by the Borrowers or any Subsidiary
to withdraw from, or the institution of any steps to terminate, any Plan, a
statement of the chief financial officer of the Borrowers setting forth details
of such Default or such event or condition or such litigation and the action
which CRI or any Subsidiary has taken and proposes to take with respect thereto;
(ii) As soon as available and in any event within 45 days after
the end of each fiscal quarter of CRI, the consolidated balance sheets of CRI
and its Subsidiaries as of the end of such quarter, and the related consolidated
statements of income and cash flow for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by an appropriate officer of
the Borrowers as having been prepared in accordance with generally accepted
accounting principles, together with a certificate of an appropriate officer of
the Borrowers with a computation in reasonable detail calculating the covenants
contained in Sections 7.2(a), (b), (c), (i) and (j);
(iii) As soon as available and in any event within 120 days after
the end of each fiscal year, a copy of the consolidated balance sheet of CRI and
its Subsidiaries for such fiscal year and related statements of income and cash
flow with a customary audit report thereon by Arthur Andersen LLP or other
independent certified public accountants selected by CRI and acceptable to the
Banks, without qualifications unacceptable to the Banks, together with a
certificate of such accountants stating that they have reviewed this Agreement
and stating further that in making their review in accordance with generally
accepted accounting principles nothing came to their attention that made them
believe that any Default exists, or if their examination has disclosed the
existence of any Default, specifying the nature, period of existence and status
thereof, together with a certificate of an appropriate officer of the Borrowers
with a computation in reasonable detail calculating the covenants contained in
Sections 7.2(a), (b), (c), (i) and (j) hereof;
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(iv) Upon the request of the Required Banks or the Agent, a
schedule of all oil, gas, and other mineral production attributable to all
material Oil and Gas Interests of the Borrowers, and in any event all such Oil
and Gas Interests included in the Borrowing Base;
(v) Promptly, all title or other information received after the
Effective Date by any Borrower which discloses any material defect in the title
to any material asset included in the Borrowing Base;
(vi) As soon as practicable and in any event within 30 days after
the sending or filing thereof, copies of all such financial statements and
reports as it shall send to its security holders and of all final prospectuses
under the Securities Act of 1933 (other than Form S-8), reports on Forms 10-Q,
10- K and 8-K and all similar regular and periodic reports filed by it (i) with
any federal department, bureau, commission or agency from time to time having
jurisdiction with respect to the sale of securities or (ii) with any securities
exchange;
(vii) (A) As soon as available and in any event within 90 days
after each January 1, commencing with January 1, 1999, an annual reserve report
as of each such January 1 with respect to all Hydrocarbon reserves of the
Borrowers prepared by an independent engineering firm of recognized standing
acceptable to the Required Banks in accordance with accepted industry practices
and otherwise acceptable and in form and substance satisfactory to the Required
Banks, and including without limitation all assets included in the Borrowing
Base, and (B) within 90 days after each July 1 thereafter, a reserve report as
of such July 1, with respect to all Hydrocarbon reserves of the Borrowers
prepared by the Borrowers in accordance with accepted industry practices and
otherwise acceptable and in form and substance satisfactory to the Required
Banks, and including without limitation all assets included in the Borrowing
Base;
(viii) On or within 30 days after the request of the Agent or the
Required Banks, in connection with a redetermination of the Borrowing Base
permitted under Section 9.14 an updated reserve report with respect to all
Hydrocarbon reserves of the Borrowers prepared by an independent engineering
firm of recognized standing acceptable to the Required Banks in accordance with
accepted industry practices and otherwise acceptable and in form and substance
satisfactory to the Required Banks, and including without limitation all assets
included in the Borrowing Base;
(ix) Promptly, any management letter from the auditors for any
Borrower and all other information respecting the business, properties or the
condition or operations, financial or otherwise, including, without limitation,
geological and engineering data of any Borrower and any title work with respect
to any Oil and Gas Interests of any Borrower as any Bank may from time to time
reasonably request;
(x) At all times after the date ninety (90) days after the
Effective Date, if requested by the Required Banks, title opinions and other
opinions of counsel, in each case in form and substance acceptable to the
Required Banks, with respect to at least eighty (80%) percent of the value of
the assets included in the Borrowing Base; and
(xi) The Borrowers will advise the Agent of any reasonably
anticipated Material Adverse Effect as a result of Year 2000 Issues and will
take all actions reasonably necessary to assure that the Year 2000 Issues will
not have a Material Adverse Effect.
(e) Access to Records, Books, Etc. At any reasonable time and
from time to time, permit any Bank or any agents or representatives thereof, at
the Borrowers' own expense, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Borrowers, and
to discuss the affairs, finances and accounts of the Borrowers with their
respective officers and employees. Without limiting the foregoing, the Borrowers
agree that at any reasonable time and from time to time, the Borrowers will
permit any Bank or any agents or representatives thereof to inspect, at the
office of the Borrowers listed on its signature page hereto, all opinions with
respect to title and other material work received by the Borrowers with respect
to any asset included in the Borrowing Base.
7.2 Negative Covenants. Until payment in full of the principal of and
accrued interest on the Notes, the expiration of this Agreement and all Letters
of Credit and the payment and performance of all other obligations of the
Borrowers and each Guarantor under this Agreement, the Notes and the Security
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Documents, each Borrower agrees that, unless the Required Banks shall otherwise
consent in writing, none of them shall:
(a) Current Ratio. Permit or suffer the ratio of (i) the sum of
Current Assets plus the unused availability under the revolving credit facility
established by Section 2.1(a) to (ii) Current Liabilities to be less than 1.0 to
1.0 at any time.
(b) Tangible Net Worth. Permit or suffer Consolidated Tangible Net
Worth of CRI and its Subsidiaries, at any time, to be less than the sum of (i)
$105,000,000, plus (ii) 50% of Consolidated Net Income for each fiscal year,
commencing with the fiscal year ending December 31, 1998, and to be added as of
the last day of such fiscal quarter and each such fiscal year, provided that if
such Consolidated Net Income is negative in such fiscal quarter or in any fiscal
year, the amount added pursuant to this clause (ii) shall be zero and shall not
reduce the amount added pursuant to this clause (ii) for any other fiscal year,
plus (iii) 75% of the net cash proceeds of any equity offering or other sale of
Capital Stock of CRI or any of its Subsidiaries, other than net cash proceeds in
an aggregate amount per fiscal year not to exceed $2,500,000 received by CRI in
connection with the exercising of stock options.
(c) Interest Coverage Ratio. Permit or suffer, as of the last day of
any fiscal quarter of CRI, the ratio of (i) EBITDA, as calculated for the four
fiscal quarters then ending, to (ii) Consolidated Interest Expense, as
calculated for the four fiscal quarters then ending, to be less than 2.5 to 1.0.
(d) Indebtedness. Create, incur, assume, guaranty or in any manner
become liable in respect of, or suffer to exist, any Indebtedness other than:
(i) The Advances;
(ii) Other Indebtedness in aggregate outstanding amount not to
exceed $5,000,000;
(iii) Unsecured insurance premium financing incurred in the
ordinary course of business;
(iv) Indebtedness pursuant to any Swap Agreement with any Bank,
any Person with an investment grade debt rating acceptable to the Agent and any
other Person acceptable to the Agent;
(v) Indenture Debt, including the related guarantees thereunder,
pursuant to the Indenture Debt Documents, provided that the aggregate principal
amount of such Indenture Debt shall not exceed the amount of the Indenture Debt
outstanding as of its original issuance; and
(vi) Indebtedness permitted pursuant to Section 7.2(i).
(e) Liens. Create, incur or suffer to exist, any Lien to exist on any
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, other than:
(i) Liens for taxes not delinquent or for taxes being contested
in good faith by appropriate proceedings and as to which adequate financial
reserves have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not material in the
aggregate, and which would not have a Material Adverse Effect and which
constitute (A) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good faith deposits in
connection with bids, tenders, contracts or leases to which any Borrower is a
party for a purpose other than borrowing money or obtaining credit, including
rent security deposits, (C) liens imposed by law, such as those of carriers,
warehousemen, operators and mechanics, if payment of the obligation secured
thereby is not yet due, (D) Liens securing taxes, assessments or other
governmental charges or levies not yet subject to penalties for nonpayment, and
(E) pledges or deposits to secure public or statutory obligations of any
Borrower, or surety, customs or appeal bonds to which such Borrower is a party;
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(iii) Liens created pursuant to the Security Documents and Liens
expressly permitted by the Security Documents, including without limitation
liens securing any reimbursement and other obligations pursuant to any Letters
of Credit issued by any Bank for the account of any Borrower, and it is
acknowledged and agreed that, without limiting the indebtedness secured by the
Security Documents, each Security Document secures all reimbursement and other
obligations incurred at any time by any Borrower pursuant to any Letter of
Credit issued by any Bank for the account of any Borrower;
(iv) Liens securing Indebtedness permitted pursuant to Section
7.2(d)(iii) created to secure payment of a portion of the purchase price of, or
existing at the time of acquisition of, any tangible fixed asset acquired by any
Borrower if the outstanding principal amount of the Indebtedness secured by such
Lien does not at any time exceed the purchase price paid by such Borrower for
such assets, provided that such Lien does not encumber any other asset at any
time owned by such Borrower.
(f) Merger; Acquisitions; Etc. Purchase or otherwise acquire, whether
in one or a series of transactions, unless the Required Banks shall otherwise
consent in writing, all or any substantial portion of the business assets,
rights, revenues or property, real, personal or mixed, tangible or intangible,
of any Person, or all or any substantial portion of the Capital Stock of or
other ownership interest in any other Person, nor merge or consolidate or
amalgamate with any other Person or take any other action having a similar
effect, unless in each of the foregoing cases, each of the following conditions
is satisfied: (i) no Default or Event of Default exists either before or after
such acquisition, merger, consolidation, amalgamation or other action having a
similar effect, (ii) if such transaction is a merger, consolidation,
amalgamation or other action having a similar effect, a Borrower is the
surviving entity and (iii) in the case of any take-over bid or offer to acquire
all or substantially all of the outstanding voting or equity securities of a
corporation or an acquisition of all or substantially all of the assets of any
Person, the board of directors of the target corporation or management of the
target Person(if the target is not a corporation) has recommended acceptance of
such bid or offer.
(g) Disposition of Assets; Etc. Without the prior written consent of
the Required Banks, sell, lease, license, transfer, assign or otherwise dispose
of any Collateral or any of its other business, assets, rights, revenues or
property, real, personal or mixed, tangible or intangible, whether in one or a
series of transactions, other than (i) inventory sold in the ordinary course of
business upon customary credit terms, and (ii) if no Default has occurred and is
continuing or would be caused thereby, other sales of assets in aggregate amount
not to exceed $15,000,000 in any twelve-month period, provided that in
connection with any such sales in excess of $500,000 in aggregate amount since
the date of the most recent redetermination of the Borrowing Base all the net
proceeds (net only of reasonable and customary fees actually incurred in
connection with such sales and of taxes paid or reasonably estimated to be
payable as a result thereof), will simultaneously reduce the Borrowing Base by a
like amount.
(h) Nature of Business. Make any substantial change in the nature of
its business from that engaged in on the date of this Agreement or engage in any
other businesses other than those in which it is engaged on the date of this
Agreement.
(i) Investments and Advances. Purchase or otherwise acquire any
Capital Stock of or other ownership interest in, or debt securities of or other
evidences of Indebtedness of, any other Person; nor make any loan or advance of
any of its funds or property or make any other extension of credit to, or make
any investment or acquire any interest whatsoever in, any other Person, except
(i) loans and advances to officers of the Borrowers, provided that the aggregate
amount of all such loans and advances does not exceed $25,000, (ii) loans and
advances among the Borrowers or any Subsidiary of any Borrower guaranteeing all
indebtedness, obligations and liabilities of the Borrowers to the Banks and the
Agent pursuant to a guaranty and other agreements satisfactory to the Agent, and
(iii) other loans and advances, provided that the aggregate amount of all such
loans and advances, together with Indebtedness allowed under Section
7.2(d)(iii), shall not exceed $5,000,000.
(j) Dividends. With respect to CRI only, make, pay, declare or
authorize any dividend, payment or other distribution in respect of any class of
its Capital Stock or any dividend, payment or distribution in connection with
the redemption, repurchase, defeasance, conversion, retirement or other
acquisition, directly or indirectly, of any shares of its Capital Stock (all of
the foregoing defined herein as "Restricted Payments"), except (i) Restricted
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Payments payable solely in shares of common stock of CRI and (ii) payments in
cash of the accrued fixed dividends on the Preferred Stock at a rate not to
exceed 9.0% per annum, provided that both before and after giving effect to such
payment (on a pro forma basis acceptable to the Agent) no Default or Event of
Default shall have occurred and be continuing and all representations and
warranties contained in Section 6 hereof shall be true and correct in all
material respects as if made at the time of such payment. Additionally, other
than the Preferred Stock, CRI will not issue any Disqualified Stock.
(k) Transactions with Affiliates. Enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Borrowers' business and upon fair and
reasonable terms no less favorable to such Borrower than would be obtained in a
comparable arms-length transaction with a Person other than an Affiliate and
except the loans and advances described in Section 7.2(i).
(l) Additional Covenants. If at any time any Borrower shall enter
into or be a party to any instrument or agreement, including all such
instruments or agreements in existence as of the date hereof and all such
instruments or agreements entered into after the date hereof, relating to or
amending any terms or conditions applicable to any of its Indebtedness which
includes covenants, terms, conditions or defaults not substantially provided for
in this Agreement or more favorable to the lender or lenders thereunder than
those provided for in this Agreement, then the Borrowers shall promptly so
advise the Agent and the Banks. Thereupon, if the Agent shall request, upon
notice to the Borrowers, the Agent and the Banks shall enter into an amendment
to this Agreement or an additional agreement (as the Agent may request),
providing for substantially the same covenants, terms, conditions and defaults
as those provided for in such instrument or agreement to the extent required and
as may be selected by the Agent. In addition to the foregoing, any covenants,
terms, conditions or defaults in any existing agreements or other documents
evidencing or relating to any Indebtedness of any Borrower (including without
limitation the Indenture Debt Documents) not substantially provided for in this
Agreement or more favorable to the holders of such Indebtedness, are hereby
incorporated by reference into this Agreement to the same extent as if set forth
fully herein, and no subsequent amendment, waiver or modification thereof shall
affect any such covenants, terms, conditions or defaults as incorporated herein.
(m) Financial Contracts. Enter into any Swap Agreement (or any
other agreement, device or arrangement providing for payments relating to
fluctuations of interest rates, exchange rates or commodity prices) for purposes
of financial speculation or otherwise not in the ordinary course of business of
the Borrowers, and any Swap Agreement with respect to fluctuations in interest
rates shall be entered into by the Borrowers only with respect to Indebtedness
for borrowed money of the Borrowers.
(n) Payments and Modification of Indenture Debt. Make, or permit
any Subsidiary to make, any optional payment, defeasance (whether a covenant
defeasance, legal defeasance or other defeasance), prepayment or redemption of
any of its or any of its Subsidiaries' Indenture Debt or amend or modify, or
consent or agree to any amendment or modification of, any Indenture Debt
Document, or enter into any agreement or arrangement providing for any
defeasance of any kind of any of its Indenture Debt.
SECTION 8. Default
8.1 Events of Default. The occurrence of any one of the following events or
conditions shall be deemed an "Event of Default" hereunder unless waived by the
Required Banks pursuant to Section 10.1:
(a) Any Borrower shall fail to pay within 2 Business Days of when due
any principal of or interest on the Notes (whether pursuant to Section 4.1 or
otherwise), any fees or any other amount payable hereunder or under any Security
Document; or
(b) Any representation or warranty made by any Borrower in Section 6
hereof, in any Security Document or in any other document or certificate
furnished by or on behalf of any Borrower in connection with this Agreement,
shall prove to have been incorrect in any material respect when made; or
(c) (i) Any Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 7.1(b), 7.1(c) (other than the
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agreement to maintain continuous insurance coverage) or 7.1(d) hereof or in any
Security Document, any other Loan Document or any other agreement among the
Borrowers, the Banks and the Agent, or any of them, and such failure shall
remain unremedied for 30 calendar days after the earlier of the date notice
thereof shall have been given to Borrowers by the Agent or any Bank or any
Borrower knows of such failure, or (ii) any Borrower shall fail to perform or
observe any other term, covenant, or agreement contained in this Agreement; or
(d) Any Borrower shall fail to pay any part of the principal of, the
premium, if any, or the interest on, or any other payment of money due under any
of its Indebtedness (other than Indebtedness hereunder), beyond any period of
grace provided with respect thereto, which individually or together with other
such Indebtedness as to which any such failure exists has an aggregate
outstanding principal amount in excess of $10,000,000; or if any Borrower fails
to perform or observe any other term, covenant or agreement contained in any
agreement, document or instrument evidencing or securing any such Indebtedness,
or under which any such Indebtedness was issued or created, beyond any period of
grace, if any, provided with respect thereto if the effect of such failure is
either (i) to cause, or permit the holders of such Indebtedness (or a trustee on
behalf of such holders) to cause, any payment in respect of such Indebtedness to
become due prior to its due date or (ii) to permit the holders of such
Indebtedness (or a trustee on behalf of such holder) to elect a majority of the
board of directors of any Borrower; or
(e) A judgment or order for the payment of money, which together with
other such judgments or orders exceeds the aggregate amount of $10,000,000,
shall be rendered against any Borrower and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order and such
judgment or order shall have remained unsatisfied and such proceedings shall
have remained unstayed for a period of 30 consecutive days, or (ii) for a period
of 30 consecutive days, such judgment or order shall have remained unsatisfied
and a stay of enforcement thereof, by reason of pending appeal or otherwise,
shall not have been in effect; or
(f) The occurrence or existence with respect to any Borrower or any
Guarantor or any of their ERISA Affiliates of any of the following: (i) any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any Reportable Event shall occur with respect
to any Plan, (iii) the filing under ERISA of a notice of intent to terminate any
Plan or the termination of any Plan, (iv) any event or circumstance exists which
might constitute grounds entitling the PBGC to institute proceedings under ERISA
for the termination of, or the appointment of a trustee to administer, any Plan,
or the institution of the PBGC of any such proceedings, or (v) complete or
partial withdrawal under ERISA from any Multiemployer Plan or the
reorganization, insolvency, or termination of any Multiemployer Plan, and in
each of the foregoing cases, such event or condition, together with all other
events or conditions, if any, could in the opinion of the Banks subject any
Borrower to any tax, penalty, or other liability to a Plan, the PBGC, or
otherwise (or any combination thereof); or
(g) Any Borrower shall generally not pay its debts as they become due,
or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors, or shall institute, or
there shall be instituted against any Borrower, any proceeding or case seeking
to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief or protection of debtors or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property, and, if such proceeding is
instituted against any Borrower and is being contested by such Borrower in good
faith by appropriate proceedings, such proceedings shall remain undismissed or
unstayed for a period of 30 days; or any Borrower shall take any action
(corporate or other) to authorize or further any of the actions described above
in this subsection; or
(h) Any event of default described in any Security Document shall have
occurred and be continuing, or any material provision of any Security Document
shall at any time for any reason cease to be valid and binding and enforceable
against any obligor thereunder, or the validity, binding effect or
enforceability thereof shall be contested or repudiated by any Person, or any
obligor, shall deny that it has any or further liability or obligation
thereunder, or any Security Document shall be terminated, invalidated or set
aside, or be declared ineffective or inoperative or in any way cease to give or
provide to the Agent and the Banks the benefits purported to be created thereby;
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(i) Any Change in Control shall occur; or
(j) or the occurrence of any "Change of Control", "Change in Control"
or similar term as defined in the Indenture or the Preferred Stock Documents.
8.2 Remedies.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Agent may, and upon being directed to do so by the Required Banks,
shall, by notice to the Borrowers terminate the Commitments or declare the
outstanding principal of, and accrued interest on, the Notes and all other
amounts due under this Agreement and all other Loan Documents, to be immediately
due and payable, or demand immediate delivery of cash collateral, and the
Borrowers agree to deliver such cash collateral upon such demand, in an amount
equal to the maximum amount that may be available to be drawn at any time prior
to the stated expiry of all outstanding Letters of Credit, or all of the above,
whereupon the Commitments shall terminate forthwith and all such amounts shall
become immediately due and payable, or both, as the case may be, provided that
in the case of any event or condition described in Section 8.1(g), the
Commitments shall automatically terminate forthwith and all such amounts shall
automatically become immediately due and payable without notice; in each case
without demand, presentment, protest, diligence, notice of dishonor or other
formality, all of which are hereby expressly waived.
(b) Upon the occurrence and during the continuance of such Event of
Default, the Agent may, and upon being directed to do so by the Required Banks,
shall, in addition to the remedies provided in Section 8.2(a), enforce its
rights either by suit in equity, or by action at law, or by other appropriate
proceedings, whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Agreement or in any then
outstanding Note or any Security Document or in aid of the exercise of any power
granted in this Agreement, any then outstanding Notes or any Security Document,
and may enforce the payment of any then outstanding Notes and any of the other
rights of the Agent and the Banks in any other agreement or available at law or
in equity.
(c) Upon the occurrence and during the continuance of any Event of
Default hereunder, each Bank may at any time and from time to time, without
notice to the Borrowers (any requirement for such notice being expressly waived
by the Borrowers) set off and apply against any and all of the obligations of
any Borrower now or hereafter existing under this Agreement, any of the Notes or
the Security Documents, 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 to or for the credit or the account of any Borrower and
any property of any Borrower from time to time in possession of such Bank,
irrespective of whether or not any Bank shall have made any demand hereunder and
although such obligations may be contingent and unmatured. The rights of the
Banks under this Section 8.2(c) are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Banks may
have.
8.3 Distribution of Proceeds. All proceeds of any realization on the
Collateral received by the Agent pursuant to the Security Documents or any
payments on any of the liabilities secured by the Security Documents received by
the Agent or any Bank upon and during the continuance of any Event of Default
shall be allocated and distributed as follows:
(a) First, to the payment of all costs and expenses, including without
limitation all attorneys' fees, of the Agent in connection with the enforcement
of the Security Documents and otherwise administering this Agreement;
(b) Second, to the payment of all costs, expenses and fees, including
without limitation, commitment fees and attorneys' fees, owing to the Banks
pursuant to the Bank Obligations on a pro rata basis in accordance with the Bank
Obligations consisting of fees, costs and expenses owing to the Banks under the
Bank Obligations for application to payment of such liabilities;
(c) Third, to the Banks on a pro rata basis in accordance with the
Bank Obligations consisting of interest and principal owing to the Banks under
the Bank Obligations, with any obligations owing to any Bank pursuant to any
Swap Agreement to which it is a party (whether pursuant to a termination thereof
or otherwise) and with any reimbursement obligations or other liabilities owing
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to any Bank pursuant to any Letter of Credit, for application to payment of such
liabilities;
(d) Fourth, to the payment of any and all other amounts owing to the
Banks on a pro rata basis in accordance with the total amount of such
Indebtedness owing to each of the Banks, for application to payment of such
liabilities; and
(e) Fifth, to the Borrowers or such other Person as may be legally
entitled thereto.
8.4 Letter of Credit Liabilities. For the purposes of payments and
distributions under Section 8.3, the full amount of Bank Obligations on account
of any Letter of Credit then outstanding but not drawn upon shall be deemed to
be then due and owing. Amounts distributable to any of the Banks on account of
such Bank Obligations under such Letter of Credit shall be deposited in a
separate interest bearing collateral account in the name of and under the
control of the Agent and held by the Agent first as security for such Letter of
Credit Bank Obligations and then as security for all other Bank Obligations and
the amount so deposited shall be applied to the Letter of Credit Bank
Obligations at such times and to the extent that such Letter of Credit Bank
Obligations become absolute liabilities. If and to the extent that the Letter of
Credit Bank Obligations fail to become absolute Bank Obligations because of the
expiration or termination of the underlying Letters of Credit without being
drawn upon, then such amounts shall be applied to the remaining Bank Obligations
in the order provided in Section 8.3. Each Borrower hereby grants to the Agent,
for the benefit of the Banks, a lien and security interest in all such funds
deposited in such separate interest bearing collateral account, as security for
all the Bank Obligations as set forth above. The Borrowers acknowledge and agree
that all reimbursement and other obligations and liabilities pursuant to any
Letters of Credit issued by the Agent for the account of any Borrower are
secured by all Collateral and the Security Documents.
SECTION 9. The Administrative Agent, the Syndication Agent and the Banks.
9.1 Appointment; Nature of Relationship. Bank One, NA is hereby appointed
by the Banks as the administrative agent hereunder and under each other Loan
Document, and each of the Banks irrevocably authorizes the Agent to act as the
contractual representative of such Bank with the rights and duties expressly set
forth herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this Section
9. Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Bank by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the representative of the Banks
with only those duties as are expressly set forth in this Agreement and the
other Loan Documents. In its capacity as the Banks' contractual representative,
the Agent (i) does not hereby assume any fiduciary duties to any of the Banks,
(ii) is a "representative" of the Banks within the meaning of Section 9-105 of
the Uniform Commercial Code and (iii) is acting as an independent contractor,
the rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Banks hereby agrees to
assert no claim against the Agent on any agency theory or any other theory of
liability for breach of fiduciary duty, all of which claims each Bank hereby
waives.
9.2 Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Banks, or any obligation to the Banks
to take any action thereunder except any action specifically provided by the
Loan Documents to be taken by the Agent.
9.3 General Immunity. Neither the Agent nor any of its directors, officers,
agents or employees shall be liable to the Borrowers, any Borrower, the Banks or
any Bank for any action taken or omitted to be taken by it or them hereunder or
under any other Loan Document or in connection herewith or therewith except for
its or their own gross negligence or willful misconduct.
9.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into, or verify (i) any statement, warranty or
representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Bank; (iii) the satisfaction of any condition specified in Section 3.2 or
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otherwise hereunder; (iv) the validity, enforceability, effectiveness,
sufficiency or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith; or (v) the value, sufficiency,
creation, perfection or priority of any interest in any collateral security. The
Agent shall have no duty to disclose to the Banks information that is not
required to be furnished by the Borrowers to the Agent at such time, but is
voluntarily furnished by the Borrowers to the Agent (either in its capacity as
Agent or in its individual capacity).
9.5 Action on Instructions of Banks. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder and under any other
Loan Document in accordance with written instructions signed by the Required
Banks, and such instructions and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks and on all holders of Notes. The
Banks hereby acknowledge that the Agent shall be under no duty to take any
discretionary action permitted to be taken by it pursuant to the provisions of
this Agreement or any other Loan Document unless it shall be requested in
writing to do so by the Required Banks. The Agent shall be fully justified in
failing or refusing to take any action hereunder and under any other Loan
Document unless it shall first be indemnified to its satisfaction by the Banks
pro rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
9.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Banks, except as to money or securities received by it or its authorized agents,
for the default or misconduct of any such agents or attorneys-in-fact selected
by it with reasonable care. The Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agency hereby created and its duties
hereunder and under any other Loan Document.
9.7 Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper Person or Persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
9.8 Agent's Reimbursement and Indemnification. The Banks agree to reimburse
and indemnify the Agent ratably in proportion to their respective Commitments
(or, if the Commitments have been terminated, in proportion to their Commitments
immediately prior to such termination) (i) for any amounts not reimbursed by the
Borrowers for which the Agent is entitled to reimbursement by the Borrowers
under the Loan Documents, (ii) for any other expenses incurred by the Agent on
behalf of the Banks, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of the Loan Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents, 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 Agent. The obligations of the Banks
under this Section 9.8 shall survive payment of the Bank Obligations and
termination of this Agreement.
9.9 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has received written notice from a Bank or a Borrower referring to this
Agreement describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give prompt notice thereof to the Banks.
9.10 Rights as a Bank. In the event the Agent is a Bank, the Agent shall
have the same rights and powers hereunder and under any other Loan Document as
any Bank and may exercise the same as though it were not the Agent, and the term
"Bank" or "Banks" shall, at any time when the Agent is a Bank, unless the
context otherwise indicates, include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, and generally engage in any kind
of trust, debt, equity or other transaction, in addition to those contemplated
by this Agreement or any other Loan Document, with any Borrower or any of their
respective Subsidiaries in which any Borrower or such Subsidiary is not
restricted hereby from engaging with any other Person. The Agent, in its
individual capacity, is not obligated to remain a Bank.
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9.11 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Borrowers and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Bank
also acknowledges that it will, independently and without reliance upon the
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 credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
9.12 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Banks and the Borrowers, such resignation to be effective
upon the appointment of a successor Agent or, if no successor Agent has been
appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Banks shall have
the right to appoint, on behalf of the Borrowers and the Banks, a successor
Agent. If no successor Agent shall have been so appointed by the Required Banks
within thirty days after the resigning Agent's giving notice of its intention to
resign, then the resigning Agent may appoint, on behalf of the Borrowers, and
the Banks, a successor Agent. If the Agent has resigned and no successor Agent
has been appointed, the Banks may perform all the duties of the Agent hereunder
and the Borrowers shall make all payments in respect of the Bank Obligations to
the applicable Bank and for all other purposes shall deal directly with the
Banks. No successor Agent shall be deemed to be appointed hereunder until such
successor Agent has accepted the appointment. Any such successor Agent shall be
a commercial bank having capital and retained earnings of at least $50,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning Agent. Upon the
effectiveness of the resignation of the Agent, the resigning Agent shall be
discharged from its duties and obligations hereunder and under the Loan
Documents. After the effectiveness of the resignation of an Agent, the
provisions of this Section 9 shall continue in effect for the benefit of such
Agent in respect of any actions taken or omitted to be taken by it while it was
acting as the Agent hereunder and under the other Loan Documents.
9.13 Pro Rata Sharing by Banks. Each Bank agrees with every other Bank
that, in the event that it shall receive and retain any payment on account of
the Borrower's obligations under this Agreement, the Notes or the Security
Documents in a greater proportion than that received by any other Bank, whether
such payment be voluntary, involuntary or by operation of law, by application of
set-off of any indebtedness or otherwise, then such Bank shall promptly purchase
a participation interest from the other Banks, without recourse, for cash and at
face value, ratably in accordance with its Pro Rata Share, in such an amount
that each Bank shall have received payment in respect of such obligations in
accordance with its Pro Rata Share; provided, that if any such purchase be made
by any Bank and if any such excess payment relating thereto or any part thereof
is thereafter recovered from such Bank, appropriate adjustment in the related
purchase from the other Banks shall be made by rescission and restoration of the
purchase price as to the portion of such excess payment so recovered. It is
further agreed that, to the extent there is then owing by the Borrowers to any
Bank indebtedness other than that evidenced by this Agreement, the Notes and the
Security Documents to which such Bank may apply any involuntary payments of
indebtedness by the Borrowers, including those resulting from exercise of rights
of set-off or similar rights, such Bank shall apply all such involuntary
payments first to obligations of the Borrowers to the Banks hereunder and under
the Notes and the Security Documents and then to such other indebtedness owed to
it by the Borrowers. In addition, it is further agreed that any and all proceeds
resulting from a sale or other disposition of any collateral which may be
hereafter granted for the benefit of the Banks to secure the obligations of the
Borrowers hereunder, shall be applied first to obligations of the Borrowers to
the Banks hereunder and under the Notes and the Security Documents, and then
ratably to any other indebtedness owed by the Borrowers to the Banks which is
secured by such collateral.
9.14 Determination of Borrowing Base, Etc. (a) As of the Effective Date,
the Borrowing Base shall be equal to $175,000,000 and scheduled monthly
reductions to the Borrowing Base shall be $0 (any monthly reductions in the
Borrowing Base redetermined at any time under this Section 9.14 are defined as
the "Monthly Borrowing Base Reductions").
(b) Any redetermination of the Borrowing Base and the Monthly
Borrowing Base Reductions shall be made by the Agent and submitted to the Banks.
Such redetermined Borrowing Base and Monthly Borrowing Base Reductions shall
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then be effective when approved by Banks holding not less than 75% of the
aggregate principal amount of the Advances then outstanding (or 75% of the
Commitments if no Advances are then outstanding). If any of such redetermined
Borrowing Base and Monthly Borrowing Base Reductions are not approved by Banks
holding not less than 75% of the aggregate principal amount of the Advances then
outstanding (or 75% of the Commitments if no Advances are then outstanding)
within ten (10) days after they are submitted to the Banks, each Bank shall
submit to the Agent, on or within ten (10) days after the Agent notifies the
Banks that such Banks have not approved any such redetermined Borrowing Base or
Monthly Borrowing Base Reductions, its determination of each of the foregoing
which was not so approved, and the redetermined amount of each of the foregoing
which was not so approved will be based on the weighted average of the
redetermined amount thereof of each Bank which properly submits such
redetermination to the Agent, weighted according to each Bank's Commitment.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, WITHOUT THE PRIOR WRITTEN
APPROVAL OF ALL THE BANKS, SUCH APPROVAL TO BE IN EACH BANK'S SOLE DISCRETION,
(1) THE BORROWING BASE MAY NOT BE GREATER THAN $175,000,000 AT ANY TIME, AND (2)
THE MONTHLY BORROWING BASE REDUCTIONS DETERMINED AT ANY TIME AND IN ACCORDANCE
WITH THE ABOVE PROCEDURE MAY NOT BE MODIFIED.
(c) The Borrowing Base and the Monthly Borrowing Base Reductions may
be redetermined from time to time as requested by the Required Banks, and will
be redetermined upon the request of the Borrowers (provided that the Borrowers
cannot request a redetermination of the Borrowing Base, or the Monthly Borrowing
Base Reductions more than once between the mandatory redeterminations
hereinafter provided for), and, in addition, at least twice each year as
follows: upon receipt of the reserve reports referred to in Section 7.1(d)(vii)
hereof (and in connection with such twice per year redeterminations of the
Borrowing Base and the Monthly Borrowing Base Reductions the Agent shall submit
the redetermined Borrowing Base and the Monthly Borrowing Base Reductions as
required under this Section 9.14 on or prior to 30 days after the receipt of
each (i) reserve report referred to in Section 7.1(d)(vii) (A) hereof and (ii)
reserve report referred to in Section 7.1(d)(vii)(B)). Each redetermination of
the Monthly Borrowing Base Reductions shall determine such reductions for each
of the six months following such determination. Except for the scheduled
redeterminations of the Borrowing Base and the Monthly Borrowing Base
Reductions, each Bank requesting a redetermination of the Borrowing Base and the
Monthly Borrowing Base Reductions agrees to give notice to the Agent and the
Borrowers of such request.
(d) Within five days after notification to Borrower of a Borrowing
Base redetermination pursuant to the provisions of this Section 9.14, the
Borrowers may notify Agent as to what portion of the Borrowing Base they desire
access (the "Elected Borrowing Limit"). Thereafter, the Borrowers may obtain
Advances which do not exceed in the aggregate the lesser of (i) the Commitments
or (ii) the Elected Borrowing Limit until the next Borrowing Base
redetermination, subject to the provisions of Section 9.14(b) and (c) above. If
no such notification is received by the Agent the Elected Borrowing Limit shall
be the Borrowing Base as so determined. Notwithstanding anything herein to the
contrary, the Elected Borrowing Limit may not exceed the lesser of (A) the
Borrowing Base or (B) the aggregate stated Commitment amounts for the Banks set
forth next to the names of the Banks on the signature pages hereof or
established pursuant to Section 10.6, as the case may be, as such amount may be
reduced from time to time. As of the Effective Date, the Elected Borrowing Limit
shall be equal to $175,000,000.
9.15 Syndication and Documentation Agent. Toronto Dominion (Texas), Inc.,
as Syndication Agent hereunder, and Paribas, as Documentation Agent hereunder,
shall have no duties or liabilities hereunder in such capacities.
SECTION 10. Miscellaneous.
10.1 Amendments; Etc. (a) This Agreement and any term or provision hereof
may be amended, waived or terminated by an instrument in writing executed by the
Borrowers and the Required Banks, and to the extent any rights or duties of the
Agent may be affected thereby, the Agent, provided, that, notwithstanding
anything in this Agreement to the contrary, except by an instrument in writing
executed by the Borrowers and all of the Banks, no such amendment, waiver or
termination shall authorize or permit the extension of the time or times of
payment of the principal of, or interest on, the Notes or the reduction in
principal amount thereof or the rate of interest thereon, or any fees payable
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hereunder, or increase or extend the aggregate Commitments or the respective
Commitments of any Bank, or change the percentage of Banks required for
approvals of the Borrowing Base as specified in Section 9.14, or release any
Borrower from any of its obligations hereunder or under any other Loan Document,
or release any material amount of the Collateral from the Liens granted pursuant
hereto or the Security Documents, or amend this Section 10.1.
(b) Any such amendment, waiver or termination shall be effective only
in the specific instance and for the specific purpose for which given.
(c) Notwithstanding anything herein to the contrary, any Bank that has
failed to fund any Advance or other amount required to be funded by such Bank
hereunder shall not be entitled to vote (whether to consent or to withhold its
consent) with respect to any amendment, modification, termination or waiver of
any provision of any Loan Document or a departure therefrom or any direction
from the Banks to the Agent and, for purposes of determining the Required Banks,
the Commitments and Advances of such Bank shall be disregarded.
10.2 Notices. (a) Except as otherwise provided in Section 10.2(c) hereof,
all notices, requests, consents and other communications hereunder shall be in
writing and shall be delivered or sent to the Borrowers, the Banks and the Agent
at the respective addresses for notices set forth on the signature pages hereof,
or to such other address as may be designated by the Borrowers, the Agent or any
Bank by notice to the other parties hereto. All notices shall be deemed to have
been given at the time of actual delivery thereof to such address, or if sent by
the Agent or any Bank to the Borrowers by certified or registered mail, postage
prepaid, to such address, on the fifth day after the date of mailing.
(b) Notices by the Borrowers to the Agent with respect to requests for
Advances pursuant to Section 3.1 and notices of prepayment pursuant to Section
4.1(c) shall be irrevocable and binding on the Borrowers.
(c) Any notice to be given by the Borrowers to the Agent pursuant to
Section 4.1(c) or Section 3.1 and any notice to be given by the Agent or any
Bank hereunder, may be given by telephone, by telex or by facsimile transmission
and must be immediately confirmed in writing in the manner provided in Section
10.2(a). Any such notice given by telephone, telex or facsimile transmission
shall be deemed effective upon receipt thereof by the party to whom such notice
is given.
10.3 Conduct No Waiver; Remedies Cumulative. No course of dealing on the
part of the Agent or the Banks, nor any delay or failure on the part of the
Agent or any Bank in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice the
Agent's or the Banks' rights and remedies hereunder; nor shall any single or
partial exercise thereof preclude any further exercise thereof or the exercise
of any other right, power or privilege. No right or remedy conferred upon or
reserved to the Agent or the Banks under this Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy given hereunder or now
or hereafter existing under any applicable law. Every right and remedy given by
this Agreement or by applicable law to the Agent or the Banks may be exercised
from time to time and as often as may be deemed expedient by them.
10.4 Reliance on and Survival of Various Provisions. All terms, covenants,
agreements, representations and warranties of the Borrowers made herein or in
any certificate or other document delivered pursuant hereto shall be deemed to
be material and to have been relied upon by the Banks, notwithstanding any
investigation heretofore or hereafter made by any Bank or on any Bank's behalf,
and those covenants and agreements of the Borrowers set forth in Section 10.5
hereof shall survive the repayment in full of the Advances and other obligations
of the Borrowers hereunder and under Security Documents and the termination of
the Commitments.
10.5 Expenses; Indemnification. (a) The Borrowers agree to pay and save the
Agent harmless from liability for the payment of the reasonable fees and
expenses of any counsel the Agent shall employ, in connection with the
preparation, execution and delivery of this Agreement, the Notes and the
Security Documents and the consummation of the transactions contemplated hereby
and in connection with any amendments, waivers or consents and other matters in
connection therewith, and all reasonable costs and expenses of the Agent and the
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Banks (including reasonable fees and expenses of counsel) in connection with any
enforcement of this Agreement, the Notes or the Security Documents.
(b) Each of the Borrowers hereby indemnifies and agrees to hold
harmless the Banks and the Agent, and their respective officers, directors,
employees and agents, from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever which the Banks
or the Agent or any such Person may incur or which may be claimed against any of
them by reason of or in connection with any Letter of Credit, and neither any
Bank nor the Agent or any of their respective officers, directors, employees or
agents shall be liable or responsible for: (i) the use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary in connection
therewith; (ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; (iii) payment by the
Agent to the beneficiary under any Letter of Credit against presentation of
documents which do not comply with the terms of any Letter of Credit, including
failure of any documents to bear any reference or adequate reference to such
Letter of Credit; (iv) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or (v) any other event or
circumstance whatsoever arising in connection with any Letter of Credit;
provided, however, that the Borrowers shall not be required to indemnify the
Agent and such other Persons, and the Agent shall be liable to the Borrowers to
the extent, but only to the extent, of any direct, as opposed to consequential
or incidental, damages suffered by any Borrower which were caused by (A) the
Agent's wrongful dishonor of any Letter of Credit after the presentation to it
by the beneficiary thereunder of a draft or other demand for payment and other
documentation strictly complying with the terms and conditions of such Letter of
Credit, or (B) the payment by the Agent to the beneficiary under any Letter of
Credit against presentation of documents which do not comply with the terms of
the Letter of Credit to the extent, but only to the extent, that such payment
constitutes gross negligence or wilful misconduct of the Agent. It is understood
that in making any payment under a Letter of Credit the Agent will rely on
documents presented to it under such Letter of Credit as to any and all matters
set forth therein without further investigation and regardless of any notice or
information to the contrary, and such reliance and payment against documents
presented under a Letter of Credit substantially complying with the terms
thereof shall not be deemed gross negligence or wilful misconduct of the Agent
in connection with such payment. It is further acknowledged and agreed that a
Borrower may have rights against the beneficiary or others in connection with
any Letter of Credit with respect to which the Agent is alleged to be liable and
it shall be a precondition of the assertion of any liability of the Agent under
this Section that such Borrower shall first have taken reasonable steps to
enforce remedies in respect of the alleged loss against such beneficiary and any
other parties obligated or liable in connection with such Letter of Credit and
any related transactions.
(c) In consideration of the execution and delivery of this Agreement
by each Bank and the extension of the Commitments, the Borrowers hereby
indemnify, exonerate and hold the Agent, each Bank and each of their respective
officers, directors, employees and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to:
(i) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Advance;
(ii) the entering into and performance of this Agreement and any
other agreement or instrument executed in connection herewith by any of the
Indemnified Parties (including any action brought by or on behalf of the
Borrowers as the result of any determination by the Required Banks not to fund
any Advance in compliance with this Agreement);
(iii) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrowers or any of their
Subsidiaries of any portion of the stock or assets of any Person, whether or not
the Agent or such Bank is party thereto;
(iv) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to any release
by the Borrowers or any of their Subsidiaries of any hazardous material or any
violations of Environmental Laws; or
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(v) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real property
owned or operated by the Borrowers or any Subsidiary thereof of any Hazardous
Material (including any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under any Environmental Law), regardless of
whether caused by, or within the control of, the Borrowers or such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the activities of the Indemnified
Party on the property of the Borrowers conducted subsequent to a foreclosure on
such property by the Banks or by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct or breach of this Agreement, and if and to
the extent that the foregoing undertaking may be unenforceable for any reason,
the Borrowers hereby agree to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The Borrowers shall be obligated to indemnify the Indemnified
Parties for all Indemnified Liabilities subject to and pursuant to the foregoing
provisions, regardless of whether the Borrowers or any of their Subsidiaries had
knowledge of the facts and circumstances giving rise to such Indemnified
Liability.
10.6 Successors and Assigns. (a) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provided that the Borrowers may not, without the prior consent of the
Banks, assign their rights or obligations hereunder or under the Notes and the
Banks shall not be obligated to make any Advance hereunder to any entity other
than the Borrowers.
(b) Any Bank may sell a participation interest to any financial
institution or institutions, and such financial institution or institutions may
further sell, a participation interest (undivided or divided) in, the Advances
and such Bank's rights and benefits under this Agreement, the Notes and the
Security Documents and to the extent of that participation, such participant or
participants shall have the same rights and benefits against the Borrowers under
Section 6.2(c) as it or they would have had if participation of such participant
or participants were the Bank making the Advances to the Borrowers hereunder,
provided, however, that (i) such Bank's obligations under this Agreement shall
remain unmodified and fully effective and enforceable against such Bank, (ii)
such Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Bank shall remain the holder of its
Note for all purposes of this Agreement, (iv) the Borrowers, the Agent and the
other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement, and (v)
such Bank shall not grant to its participant any rights to consent or withhold
consent to any action taken by such Bank or the Agent under this Agreement other
than action requiring the consent of all of the Banks hereunder. The Agent from
time to time in its sole discretion may appoint agents for the purpose of
servicing and administering this Agreement and the transactions contemplated
hereby and enforcing or exercising any rights or remedies of the Agent provided
under this Agreement, the Notes, or otherwise. In furtherance of such agency,
the Agent may from time to time direct that the Borrowers provide notices,
reports and other documents contemplated by this Agreement (or duplicates
thereof) to such agent. The Borrowers hereby consent to the appointment of such
agent and agree to provide all such notices, reports and other documents and to
otherwise deal with such agent acting on behalf of the Agent in the same manner
as would be required if dealing with the Agent itself.
(c) Each Bank may, with the prior consent of the Borrowers (which
consent shall not be unreasonably withheld and shall not be required upon the
occurrence and during the continuance of any Event of Default which is not cured
or waived within 30 days (or 0 days in the case of an Event of Default under
Section 8.1(g)) after the occurrence of such Event of Default or if such
assignment by such Bank is to an Affiliate of such Bank or to another Bank) and
the Agent, assign to one or more banks or other entities all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the Advances owing to it and the Note or Notes
and the Security Documents held by it); provided, however, that (i) each such
assignment shall be of a uniform, and not a varying, percentage of all rights
and obligations, (ii) except in the case of an assignment of all of a Bank's
rights and obligations under this Agreement, (A) the amount of the Commitment of
the assigning Bank being assigned pursuant to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $5,000,000, and in integral multiples of
$1,000,000 thereafter, or such lesser amount as the Borrowers and the Agent may
consent to and (B) after giving effect to each such assignment, the amount of
the Commitment of the assigning Bank shall in no event be less than $5,000,000,
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and (iii) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance in the form of Exhibit D hereto (an "Assignment and Acceptance"),
together with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and (y) the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all of
the remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto).
(d) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Borrowers or
the performance or observance by the Borrowers of any of their obligations under
this Agreement or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section 6.7 and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance on the Agent, such
assigning Bank 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 this Agreement; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of this Agreement are required to be performed by it as a Bank.
(e) The Agent shall maintain at its address designated on the
signature pages hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Advances 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 the
Borrowers, the Agent and the 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 the Borrowers or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee, together with any Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrowers. Within five Business Days after its receipt of such
notice, the Borrowers, at their own expense, shall execute and deliver to the
Agent in exchange for the surrendered Note or Notes a new Note to the order of
such assignee in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Bank has retained a
Commitment hereunder, a new Note to the order of the assigning Bank in an amount
equal to the Commitment retained by it hereunder. Such new Note or Notes shall
be in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
Exhibit B hereto.
(g) The Banks may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.6, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrowers, provided that such proposed assignee or
E-40
<PAGE>
participant has agreed to hold such information confidential under the terms
described in Section 10.20.
(h) Notwithstanding any other provisions set forth in this Agreement,
any Bank may at any time create a security interest in, or assign, all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System; provided that such creation of a security interest or
assignment shall not release such Bank from its obligations under this
Agreement.
10.7 Subsidiaries as Borrowers. In the event that CRI, COG, COGL or
Offshore shall create or acquire a Subsidiary, such Subsidiary shall execute a
joinder agreement in form and substance satisfactory to the Agent, together with
such Security Documents, other documents and opinions as the Agent may
reasonably require, and shall become a Borrower hereunder.
10.8 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
10.9 Table of Contents and Headings. The table of contents and the headings
of the various subdivisions hereof are for the convenience of reference only and
shall in no way modify any of the terms or provisions hereof.
10.10 Construction of Certain Provisions. All computations required
hereunder and all financial terms used herein shall be made or construed in
accordance with GAAP unless such principles are inconsistent with the express
requirements of this Agreement. If any provision of this Agreement refers to any
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person, whether or not expressly specified in such
provision.
10.11 Integration and Severability. This Agreement embodies the entire
agreement and understanding between the Borrowers and the Banks, and supersedes
all prior agreements and understandings, relating to the subject matter hereof.
In case any one or more of the obligations of the Borrowers under this
Agreement, the Notes or any Security Documents shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining obligations of the Borrowers shall not in any way be affected or
impaired thereby, and such invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of the
obligations of the Borrowers under this Agreement, the Notes or any Security
Documents in any other jurisdiction.
10.12 Interest Rate Limitation. Notwithstanding any provisions of this
Agreement, the Notes or any Security Documents, in no event shall the amount of
interest paid or agreed to be paid by the Borrowers exceed an amount computed at
the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement, the
Notes or any Security Documents at the time performance of such provision shall
be due, shall involve exceeding the interest rate limitation validly prescribed
by law which a court of competent jurisdiction may deem applicable hereto, then,
ipso facto, the obligations to be fulfilled shall be reduced to an amount
computed at the highest rate of interest permissible under applicable law, and
if for any reason whatsoever the Banks shall ever receive as interest an amount
which would be deemed unlawful under such applicable law such interest shall be
automatically applied to the payment of principal of the Advances outstanding
and other obligations of the Borrowers hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the
Borrowers if such principal has been paid in full. Anything herein to the
contrary notwithstanding, the obligations of the Borrowers under this Agreement
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt of any such payment by the Banks would be
contrary to provisions of law applicable to the Banks which limits the maximum
rate of interest which may be charged or collected by the Banks.
10.13 Counterparts. This Agreement may be executed in any number of
E-41
<PAGE>
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.14 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Event of Default or any event or condition which with
notice or lapse of time, or both, could become such an Event of Default if such
action is taken or such condition exists.
10.15 Consent to Jurisdiction. Notwithstanding the place where any
liability originates or arises, or is to be repaid, any suit, action or
proceeding arising out of or relating to this Agreement, any Security Documents,
or the Notes may be instituted in any court of competent jurisdiction in the
State of Illinois, each Borrower hereby irrevocably waives any objection which
it may have or hereafter has to the laying of such venue of any such suit,
action or proceeding and any claim that any such suit, action or proceeding has
been brought in an inconvenient forum, and each Borrower hereby irrevocably
submits its Person and property to the jurisdiction of any such court in any
such suit, action or proceedings. Nothing in this Section 10.15 shall affect the
right of the Bank to bring proceedings against the Borrowers or any of their
property in the courts of any other court of competent jurisdiction.
10.16 JURY TRIAL WAIVER. THE AGENT, THE BANKS AND EACH BORROWER, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE NOTES,
THE SECURITY DOCUMENTS, OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE NOTES OR THE SECURITY DOCUMENTS
OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF ANY OF THEM. NEITHER THE AGENT, THE BANKS NOR ANY BORROWER SHALL SEEK
TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY
TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR
HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED
IN ANY RESPECT OR RELINQUISHED BY EITHER THE AGENT AND THE BANKS OR THE
BORROWERS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
10.17 Joint and Several Obligations; Contribution Rights; Savings Clause.
(a) Notwithstanding anything to the contrary set forth herein or in any Note or
in any other Loan Document, the obligations of the Borrowers hereunder and under
the Notes and the other Loan Documents are joint and several.
(b) If any Borrower makes a payment in respect of the Bank
Obligations, it shall have the rights of contribution set forth below against
the other Borrowers; provided that such Borrower shall not exercise its right of
contribution until all the Bank Obligations shall have been finally paid in full
in cash. If any Borrower makes a payment in respect of the Bank Obligations that
is smaller in proportion to its Payment Share (as hereinafter defined) than such
payments made by the other Borrowers are in proportion to the amounts of their
respective Payment Shares, the Borrower making such proportionately smaller
payment shall, when permitted by the preceding sentence, pay to the other
Borrowers an amount such that the net payments made by the Borrower in respect
of the Bank Obligations shall be shared among the Borrowers pro rata in
proportion to their respective Payment Shares. If any Borrower receives any
payment that is greater in proportion to the amount of its Payment Shares than
the payments received by the other Borrowers are in proportion to the amounts of
their respective Payment Shares, the Borrower receiving such proportionately
greater payment shall, when permitted by the second preceding sentence, pay to
the other Borrowers an amount such that the payments received by the Borrowers
shall be shared among the Borrowers pro rata in proportion to their respective
Payment Shares. Notwithstanding anything to the contrary contained in this
paragraph or in this Agreement, no liability or obligation of any Borrower that
shall accrue pursuant to this paragraph shall be paid nor shall it be deemed
owed pursuant to this paragraph until all of the Bank Obligations shall be
finally paid in full in cash.
For purposes hereof, the "Payment Share" of each Borrower shall be the sum
of (a) the aggregate proceeds of the Bank Obligations received by such Borrower
E-42
<PAGE>
plus (b) the product of (i) the aggregate Bank Obligations remaining unpaid on
the date such Bank Obligations become due and payable in full, whether by stated
maturity, acceleration, or otherwise (the "Determination Date") reduced by the
amount of such Bank Obligations attributed to all or such Borrowers pursuant to
clause (a) above, times (ii) a fraction, the numerator of which is such
Borrower's net worth on the effective date of this Agreement (determined as of
the end of the immediately preceding fiscal reporting period of such Borrower),
and the denominator of which is the aggregate net worth of all Borrowers on such
effective date.
(c) It is the intent of each Borrower, the Agent and the Banks that
each Borrower's maximum Bank Obligations shall be in, but not in excess of:
(i) in a case or proceeding commenced by or against such Borrower
under the Bankruptcy Code on or within one year from the date on which any of
the Bank Obligations are incurred, the maximum amount that would not otherwise
cause the Bank Obligations (or any other obligations of such Borrower to the
Agent and the Banks) to be avoidable or unenforceable against such Borrower
under (A) Section 548 of the Bankruptcy Code or (B) any state fraudulent
transfer or fraudulent conveyance act or statute applied in such case or
proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against such
Borrower under the Bankruptcy Code subsequent to one year from the date on which
any of the Bank Obligations are incurred, the maximum amount that would not
otherwise cause the Bank Obligations (or any other obligations of such Borrower
to the Agent and the Banks) to be avoidable or unenforceable against such
Borrower under any state fraudulent transfer or fraudulent conveyance act or
statute applied in any such case or proceeding by virtue of Section 544 of the
Bankruptcy Code; or
(iii) in a case or proceeding commenced by or against such
Borrower under any law, statute or regulation other than the Bankruptcy Code
(including, without limitation, any other bankruptcy, reorganization,
arrangement, moratorium, readjustment of debt, dissolution, liquidation or
similar debtor relief laws), the maximum amount that would not otherwise cause
the Bank Obligations (or any other obligations of such Borrower to the Agent and
the Banks) to be avoidable or unenforceable against such Borrower under such
law, statute or regulation including, without limitation, any state fraudulent
transfer or fraudulent conveyance act or statute applied in any such case or
proceeding.
(d) The Borrowers acknowledge and agree that they have requested that
the Banks make credit available to the Borrowers with each Borrower expecting to
derive benefit, directly and indirectly, from the Advances and other credit
extended by the Banks to the Borrowers.
10.18 Consents to Renewals, Modifications and Other Actions and Events.
This Agreement and all of the obligations of the Borrowers hereunder shall
remain in full force and effect without regard to and shall not be released,
affected or impaired by: (a) any amendment, assignment, transfer, modification
of or addition or supplement to the Bank Obligations, this Agreement, any Note
or any other Loan Document; (b) any extension, indulgence, increase in the Bank
Obligations or other action or inaction in respect of any of the Loan Documents
or otherwise with respect to the Bank Obligations, or any acceptance of security
for, or guaranties of, any of the Bank Obligations or Loan Documents, or any
surrender, release, exchange, impairment or alteration of any such security or
guaranties including without limitation the failing to perfect a security
interest in any such security or abstaining from taking advantage or of
realizing upon any guaranties or upon any security interest in any such
security; (c) any default by any Borrower under, or any lack of due execution,
invalidity or unenforceability of, or any irregularity or other defect in, any
of the Loan Documents; (d) any waiver by the Banks or any other Person of any
required performance or otherwise of any condition precedent or waiver of any
requirement imposed by any of the Loan Documents, any guaranties or otherwise
with respect to the Bank Obligations; (e) any exercise or non-exercise of any
right, remedy, power or privilege in respect of this Agreement or any of the
other Loan Documents; (f) any sale, lease, transfer or other disposition of the
assets of any Borrower or any consolidation or merger of any Borrower with or
into any other Person, corporation, or entity, or any transfer or other
disposition by any Borrower or any other holder of any shares of Capital Stock
of any Borrower; (g) any bankruptcy, insolvency, reorganization or similar
proceedings involving or affecting any Borrower; (h) the release or discharge of
any Borrower from the performance or observance of any agreement, covenant, term
or condition under any of the Bank Obligations or contained in any of the Loan
Documents by operation of law; or (i) any other cause whether similar or
E-43
<PAGE>
dissimilar to the foregoing which, in the absence of this provision, would
release, affect or impair the obligations, covenants, agreements and duties of
any Borrower hereunder, including without limitation any act or omission by the
Agent, or the Bank or any other any Person which increases the scope of such
Borrower's risk; and in each case described in this paragraph whether or not any
Borrower shall have notice or knowledge of any of the foregoing, each of which
is specifically waived by each Borrower. Each Borrower warrants to the Agent and
the Banks that it has adequate means to obtain from each other Borrower on a
continuing basis information concerning the financial condition and other
matters with respect to the Borrowers and that it is not relying on the Agent or
the Banks to provide such information either now or in the future.
10.19 Waivers, Etc. Each Borrower unconditionally waives: (a) notice of any
of the matters referred to in Section 10.18 above; (b) all notices which may be
required by statute, rule or law or otherwise to preserve any rights of the
Agent or the Banks including, without limitation, presentment to and demand of
payment or performance from the other Borrowers and protect for non-payment or
dishonor; (c) any right to the exercise by the Agent or the Banks of any right,
remedy, power or privilege in connection with any of the Loan Documents; (d) any
requirement that the Agent or the Banks in the event of any default by any
Borrower, first make demand upon or seek to enforce remedies against, such
Borrower or any other Borrower before demanding payment under or seeking to
enforce this Agreement against any other Borrower; (f) any right to notice of
the disposition of any security which the Agent or the Banks may hold from any
Borrower or otherwise and any right to object to the commercial reasonableness
of the disposition of any such security; and (g) all errors and omissions in
connection with the Agent's or any Bank's administration of any of the Bank
Obligations, any of the Loan Documents, or any other act or omission of the
Agent or any Bank which changes the scope of the Borrower's risk, except as a
result of the gross negligence or willful misconduct of the Agent or any Bank.
The obligations of each Borrower hereunder shall be complete and binding
forthwith upon the execution of this Agreement and subject to no condition
whatsoever, precedent or otherwise, and notice of acceptance hereof or action in
reliance hereon shall not be required.
10.20 Confidentiality. The Banks and the Agent shall hold all confidential
information obtained pursuant to the requirements of this Agreement which has
been identified as such by any Borrower in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to its examiners, affiliates, outside auditors, counsel and other
professional advisors in connection with this Agreement or as reasonably
required by any bona fide transferee or participant in connection with the
contemplated transfer of any Note or participation therein or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process. Without limiting the foregoing, it is expressly understood that
such confidential information shall not include information which, at the time
of disclosure is in the public domain or, which after disclosure, becomes part
of the public domain or information which any Bank or the Agent had obtained
prior to the time of disclosure and identification by any Borrower under this
Section 10.20, or information received by any Bank or the Agent from a third
party. Nothing in this Section 10.20 or otherwise shall prohibit any Bank or the
Agent from disclosing any confidential information to the other Banks or the
Agent or render any of them liable in connection with any such disclosure.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written, which
shall be the Effective Date of this Agreement.
Address for Notices:
COMSTOCK RESOURCES, INC.
5300 Town and Country Blvd. By: /s/M. JAY ALLISON
---------------------
Frisco, Texas 75034 M. Jay Allison, its chairman, president
Attention: M. Jay Allison and chief executive officer
Telephone: (972) 668-8800
Telecopy: (972) 668-8812
Address for Notices
COMSTOCK OIL & GAS, INC.
5300 Town and Country Blvd. By:/s/ M. JAY ALLISON
---------------------
Frisco, Texas 75034 M. Jay Allison, its chairman, president
Attention: M. Jay Allison and chief executive officer
Telephone: (972) 668-8800
Telecopy: (972) 668-8812
COMSTOCK OIL & GAS, LOUISIANA, INC.
5300 Town and Country Blvd. By:/s/ M. JAY ALLISON
---------------------
Frisco, Texas 75034 M. Jay Allison, its chairman, president
Attention: M. Jay Allison and chief executive officer
Telephone: (972) 668-8800
Telecopy: (972) 668-8812
COMSTOCK OFFSHORE, LLC
5300 Town and Country Blvd. By:/s/ M. JAY ALLISON
---------------------
Frisco, Texas 75034 M. Jay Allison, its chairman, president
Attention: M. Jay Allison and chief executive officer
Telephone: (972) 668-8800
Telecopy: (972) 668-8812
One Bank One Plaza BANK ONE, NA (Main Office Chicago)
Suite 0362 as a Bank and as Agent
Chicago, Illinois 60670
Attention: Carl Skoog By:/s/ THOMAS E. BOTH
---------------------
Telephone No: (312) 732-6886
Facsimile No: (312) 732-3055 Its: Authorized Agent
Commitment Amount: $30,000,000
Pro Rata Share: 17.14%
E-45
<PAGE>
909 Fannin Street, Ste. 1700 TORONTO DOMINION (TEXAS), INC.
Houston, Texas 77010 as a Bank and as Syndication Agent
Attention: Martin Snyder
Telephone No: (713) 653-8211
Facsimile No: (713) 652-2647 By:/s/ DEBBIE A. GREENE
-----------------------
Commitment Amount: $25,000,000 Its: Vice President
Pro Rata Share: 14.29%
Lending Office for Floating Rate Loans
909 Fannin, Suite 1700
Houston, Texas 77010
Lending Office for Eurodollar Loans
909 Fannin, Suite 1700
Houston, Texas 77010
1200 Smith Street, Ste. 3100 PARIBAS
Houston, Texas 77002
Attention: Mike Fiuzat By:/s/ BART SCHOUEST
--------------------
Telephone No: (713) 659-4811
Facsimile No: (713) 659-6915 Its: Group Vice President
Commitment Amount: $23,000,000
Pro Rata Share: 13.14%
By:/s/ MIKE FIUZAT
------------------
Its: Managing Director
Commitment Amount: $20,000,000 MEESPIERSON CAPITAL CORP.
Pro Rata Share: 11.43%
By:/s/ KAREL LOUMAN
-------------------
Its: Vice President
By:/s/ DEIRDRE SANBORN
----------------------
Its: Vice President
Address for Operational Notices:
MeesPierson Capital Corp.
100 Crescent Court, Suite 1777
Dallas, Texas 75201
Attn: Yolanda Dittmar
Telephone: (214) 953-9301
Telefax: (214) 754-5981
ADDRESSES FOR OTHER NOTICES:
MeesPierson Capital Corp.
100 Crescent Court, Suite 1777
Dallas, Texas 75201
Attn: Chris Parada
Telephone: (214) 953-9303
Telefax: (214) 754-5982
E-46
<PAGE>
11 West 42nd Street, 7th Floor CHRISTIANIA BANK OG KREDITKASSE, ASA
New York, New York 10036
Attention: Steve Phillips By:/s/ WILLIAM S. PHILLIPS
--------------------------
Telephone No: (212) 827-4836
Facsimile No: (212) 827-4888 Its: First Vice President
Commitment Amount: $15,000,000
Pro Rata Share: 8.57% By: /s/ PETER M. DODGE
----------------------
Its: Senior Vice President
1000 Louisiana Street, Suite 5360 CREDIT LYONNAIS NEW YORK BRANCH
Houston, Texas 77002
Attention: Christine Smith Byerley
Telephone No. (713) 751-0500
Facsimile No: (713) 751-0307 By:/s/ PHILLIP SOUSTRA
----------------------
Commitment Amount: $15,000,000
Pro Rata Share: 8,57% Its: Senior Vice President
Address: GENERAL ELECTRIC CAPITAL
CORPORATION
120 Long Ridge Road
Stamford, CT. 06927
Attention: Michael DePriest
Telephone No. (203) 357-4391
Facsimile No: (203) 357-4218 By:/s/ JANE S. REICHLE
----------------------
Commitment Amount: $15,000,000
Pro Rata Share: 8.57% Its: Manager - Operations
565 Fifth Avenue BANK OF SCOTLAND
New York, NY 10017
Attention: Annie Glynn
Telephone No. (212) 450-0871
Facsimile No: (212) 557-9460 By:/s/ ANNIE GLYNN
------------------
Commitment Amount: $13,000,000
Pro Rata Share: 7.43% Its: Senior Vice President
Address: NATEXIS BANQUE-BFCE
333 Clay Street, Suite 4340
Houston, TX 77002
Attention: Tim Polvado
Telephone No. (713) 759-9401
Facsimile No: (713) 759-9908 By:/s/ DONOVAN C. BROUSSARD
---------------------------
Commitment Amount: $10,000,000
Pro Rata Share: 5.71% Its: Vice President
By:/s/ TIMOTHY L POLVADO
------------------------
Its: Vice President and Group Manager
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<PAGE>
2121 San Jacinto, Ste. 1850 NATIONAL BANK OF CANADA
Dallas, Texas 75201
Attention: Doug Clark By:/s/ LARRY L. SEARS
---------------------
Telephone No: (214) 871-1265
Facsimile No: (214) 871-2015 Its: Vice President
Commitment Amount: $9,000,000
Pro Rata Share: 5.14% By:/s/ DOUG CLARK
-----------------
Its: Vice President
Lending Office for Floating Rate Loans
125 West 55th Street, 23rd Floor
New York, New York 10019
Lending Office for Eurodollar Loans
125 West 55th Street, 23rd Floor
New York, New York 10019
E-48
<TABLE>
EXHIBIT 21
<CAPTION>
SUBSIDIARIES OF COMSTOCK RESOURCES, INC.
Name State of Business Name
Incorporation
- -------------------------------------- --------------- ------------------------------------
<S> <C> <C>
Comstock Oil & Gas, Inc. Nevada Comstock Oil & Gas, Inc.
Comstock Oil & Gas - Louisiana, Inc.(1) Nevada Comstock Oil & Gas - Louisiana, Inc.
Comstock Management Corporation Nevada Comstock Management Corporation
Comstock Offshore, LLC (2) Nevada Comstock Offshore, LLC
<FN>
(1) Subsidiary of Comstock Oil & Gas, Inc.
(2) Subsidiary of Comstock Oil & Gas - Louisiana, Inc.
</FN>
</TABLE>
E-49
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Comstock Resources, Inc.'s previously
filed registration statements (numbers 33-88962, 333-13675 and 333-20981).
ARTHUR ANDERSEN LLP
E-50
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the Consolidated
Financial Statements of Comstock Resources, Inc. and Subsidiaries for the year
ended December 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,648
<SECURITIES> 0
<RECEIVABLES> 23,615
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,172
<PP&E> 585,641
<DEPRECIATION> (189,779)
<TOTAL-ASSETS> 434,973
<CURRENT-LIABILITIES> 35,718
<BONDS> 254,000
30,000
0
<COMMON> 12,688
<OTHER-SE> 94,486
<TOTAL-LIABILITY-AND-EQUITY> 434,973
<SALES> 90,103
<TOTAL-REVENUES> 92,144
<CGS> 0
<TOTAL-COSTS> 70,717
<OTHER-EXPENSES> 2,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,361
<INCOME-PRETAX> (4,333)
<INCOME-TAX> (1,517)
<INCOME-CONTINUING> (2,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,816)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
