FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission file number: 0-10156
Cairn Energy USA, Inc.
(Exact name of registrant as specified in its charter)
Delaware 23-2169839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 369-0316
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
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 or any
amendment to this Form 10-K. [_]
As of February 29, 1996, 17,557,821 shares of common stock of the
registrant were issued and outstanding. The aggregate market value of the voting
stock held by non-affiliates of the registrant as of February 29, 1996, was
$160.7 million, based upon the closing sales price of the registrant's common
stock on such date of $10.875 per share on the Nasdaq National Market as
reported by The Wall Street Journal. For purposes of this computation, all
executive officers, directors and 10% stockholders are deemed to be affiliates.
Such a determination should not be deemed an admission that such executive
officers, directors or 10% stockholders are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement in connection with the
Annual Meeting of Stockholders scheduled to be held May 22, 1996, to be filed
with the Commission pursuant to Regulation 14A, is incorporated by reference to
Part III of this report.
<PAGE>
CAIRN ENERGY USA, INC.
Index to Form 10-K
PART I....................................................................... 1
ITEMS 1 AND 2. BUSINESS AND PROPERTIES................................... 1
The Company.......................................................... 1
Business............................................................. 1
General.............................................................. 1
Principal Areas of Operations........................................ 2
Oil and Gas Reserves................................................. 2
Ryder Scott.......................................................... 3
1995 Exploration Activity............................................ 4
Offshore Properties.................................................. 4
Onshore Properties................................................... 6
1996 Exploration Activity............................................ 7
Sales of Properties.................................................. 7
Drilling Activities.................................................. 8
Productive Well Summary.............................................. 8
Volumes, Prices and Production Costs................................. 9
Development, Exploration and Acquisition Expenditures................ 9
Acreage.............................................................. 10
Markets.............................................................. 10
Competition.......................................................... 11
Regulation........................................................... 11
Operational Hazards and Insurance.................................... 13
Executive Officers of the Registrant................................. 13
Employees............................................................ 14
Title to Properties.................................................. 14
Offices.............................................................. 14
ITEM 3. LEGAL PROCEEDINGS............................................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 14
PART II...................................................................... 14
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 14
ITEM 6. SELECTED FINANCIAL DATA....................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ............ 16
General.............................................................. 16
Results of Operations................................................ 17
1995 Compared with 1994.............................................. 17
1994 Compared with 1993.............................................. 18
Capital Resources and Liquidity...................................... 18
Changes in Prices and Inflation...................................... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 20
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 20
PART III..................................................................... 21
ITEMS 10 through 13...................................................... 21
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS,
AND REPORTS ON FORM 8-K.................................... 49
GLOSSARY..................................................................... 52
SIGNATURES................................................................... 55
<PAGE>
See the Glossary included on page 52 for
definitions of certain oil and gas terms.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
The Company
The registrant, Cairn Energy USA, Inc., a Delaware corporation (the
"Company"), was incorporated on May 5, 1981 in Delaware as "Omni Exploration,
Inc." On September 29, 1992, Cairn Energy USA, Inc., an oil and gas exploration
and development company, merged with and into the registrant with the registrant
being the survivor (the "Merger"). Pursuant to the Merger, the registrant
changed its name to "Cairn Energy USA, Inc."
The Company's principal executive offices are located at 8235 Douglas
Avenue, Suite 1221, Dallas, Texas 75225 and its telephone number is (214)
369-0316.
Business
General
The Company explores for, develops and produces natural gas and oil
reserves, principally on the Outer Continental Shelf ("OCS") of the Gulf of
Mexico. The Company also has interests in properties in onshore areas,
principally in the Appalachian region. At January 1, 1996, the Company's proved
reserves, as reviewed by the Ryder Scott Company, independent petroleum
engineers ("Ryder Scott"), were estimated to be approximately 80.6 BCFE,
consisting of 66.9 Bcf of natural gas and 2.3 MMBbls of oil. At the same date,
the present value of estimated future net cash flows, before income taxes and
discounted at 10%, from the Company's estimated proved reserves ("Discounted
Present Value") was $116.4 million, with approximately 95% attributable to its
Gulf of Mexico proved reserves.
The Company's strategy is to expand its reserve base and production
principally through exploration and associated development drilling. The OCS of
the Gulf of Mexico is a well-established area of oil and gas production where
the Company's management and staff have both experience and expertise and where
the application of advances in 3-D and 2-D seismic and computer-aided
exploration technology is particularly suited. The Company participates mainly
on a non-operating basis, thereby minimizing staffing requirements and overhead
costs. As a non-operator, the Company generally preserves its rights through
operating and other agreements to influence and in many instances initiate
exploration and development projects in which it is participating. Exploration
and development activities are directed by a small, experienced technical team
which makes use of extensive in-house computer capabilities.
The Company identifies exploratory prospects by (i) integrating 3-D and
2-D seismic technology with information about surrounding geological features
and (ii) high-grading prospects that exhibit "bright spot" seismic anomalies by
using extensive computer-aided geophysical modeling and amplitude versus offset
analysis.
The Company generally limits exploration expenditures to amounts that
can be financed through cash flows from operations. The Company's Board of
Directors must expressly approve expenditures exceeding $1,500,000 for any
single well. The Company's strategy with respect to the development of its
proved reserves is to concentrate available resources on those prospects with
the greatest potential to add to the Company's cash flows from operations while
maintaining a diversity of development projects.
Principal Areas of Operations
All of the Company's properties are located in the United States,
mainly in the OCS of the Gulf of Mexico. The Company also has properties
onshore, principally in the Appalachian region.
The focus of the Company's current activity is in the Gulf of Mexico.
The Company's total daily production in 1995 averaged 28,500 Mcf of gas and
1,180 Bbls of oil, of which about 95% was from wells located in the Gulf of
Mexico. Of the Company's total proved reserves of 80.6 BCFE at January 1, 1996,
73.8 BCFE, or approximately 92%, were attributable to properties in the Gulf of
Mexico. The Company's total capital expenditures on oil and gas properties in
1995 were $33.2 million, virtually all of which were on properties in the Gulf
of Mexico.
1
<PAGE>
Oil and Gas Reserves
Ryder Scott reviewed as of January 1, 1996 a report prepared by the
Company of the net reserves attributable to the Company's oil and gas
properties. The Company used the results from the Ryder Scott reserve review
letter (the "Ryder Scott Reserve Review Letter") as the Company's reserves
estimates. The average prices used in the computations were $2.40 per Mcf for
gas and $18.27 per Bbl of oil. The results of the Ryder Scott Reserve Review
Letter conform to the definition of proved reserves required by the Securities
and Exchange Commission (the "Commission"), which assumes no change in economic
conditions will occur in the future.
The estimates as of January 1, 1996 of proved reserves, future net
revenues from proved reserves and the Discounted Present Value of estimated
future net revenues from such proved reserves set forth in this annual report
were prepared by the Company and reviewed by Ryder Scott. For purposes of
reviewing such estimates, Ryder Scott reviewed production data through December
1995 for properties representing 96% of the Company's estimated proved net gas
reserves and 99% of the Company's estimated proved net oil and condensate
reserves and through earlier dates for the balance of the Company's properties.
In order to calculate the proved reserve estimates as of January 1, 1996, the
Company and Ryder Scott assumed that production for each of the Company's
properties since the date of the last production data reviewed was in accordance
with the production decline curve previously established for such property.
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
reserve data set forth in this annual report represents only estimates.
Reservoir engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an exact
manner, and 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 often vary. In addition, results of
drilling, testing and production subsequent to the date of an estimate may
justify revision of such estimate. Accordingly, reserve estimates are often
different from the quantities of crude oil and natural gas that are ultimately
recovered. The meaningfulness of such estimates is highly dependent upon the
accuracy of the assumptions upon which they were based. In general, the volume
of production from oil and gas properties owned by the Company declines as
reserves are depleted. Except to the extent the Company conducts successful
exploration and development activities or acquires additional properties
containing proved reserves, or both, the proved reserves of the Company will
decline as reserves are produced.
In accordance with Commission guidelines, the estimates of the
Company's proved reserves and Discounted Present Value of revenues therefrom are
made using current lease and well operating costs estimated by the Company.
Lease operating expenses for wells owned by the Company were estimated using a
combination of fixed and variable-byvolume costs consistent with the Company's
experience in the areas of such wells. For purposes of calculating future net
revenues and the Discounted Present Value thereof, operating costs exclude
accounting and administrative overhead expenses attributable to the Company's
working interest in wells operated under joint operating agreements, but include
administrative costs associated with production offices. The Discounted Present
Value of proved reserves set forth herein should not be construed as the current
market value of the estimated proved oil and gas reserves attributable to the
Company's properties.
The following table sets forth certain information regarding the
Company's proved oil and gas reserves. The following information is based on the
Company's estimated reserves as of January 1, 1996 as reviewed by Ryder Scott.
2
<PAGE>
<TABLE>
<CAPTION>
Proved Reserves
--------------------------------------------------------------------------------
% of
Total
Natural Oil and Discounted Discounted
Gross Gas Condensate Total Present Present
Field Wells (MMcf) (MBbls) (MMCFE) Value Value
----- ----- ------- --------- ------- ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
OFFSHORE:
East Cameron Blocks 331/332........... 15 21,489 1,266 29,085 $45,783 39.3%
Galveston Blocks 343/363.............. 14 4,018 16 4,114 5,260 4.5
Ship Shoal Block 251.................. 2 1,693 24 1,837 3,287 2.8
Matagorda Block 710................... 4 5,570 14 5,654 5,647 4.9
Main Pass Blocks 301.................. 8 814 136 1,630 1,342 1.2
East Cameron Blocks 349/350/355/356... 1 3,051 599 6,645 8,880 7.6
Vermillion Block 203.................. 4 11,856 119 12,570 24,611 21.1
Main Pass Block 262................... 1 1,776 -- 1,776 1,959 1.7
Mustang Island Block 858.............. 3 7,365 98 7,953 10,801 9.3
Other offshore........................ 23 2,461 11 2,527 3,284 2.8
--- ----- ----- ------ ------- ----
Total offshore..................... 75 60,093 2,283 73,791 110,854 95.2
ONSHORE:
Appalachian region.................... 238 3,364 -- 3,364 3,459 3.0
Other onshore......................... 4 3,446 -- 3,446 2,089 1.8
Total onshore...................... 242 6,810 -- 6,810 5,548 4.8
--- ------ ------ ------ ------- -----
Total........................... 317 66,903 2,283 80,601 $116,402 100.0%
=== ====== ====== ====== ======= =====
</TABLE>
The following table sets forth certain information as of January 1,
1996 (based on the Company's estimated reserves as of January 1, 1996 as
reviewed by Ryder Scott) with respect to the Company's proved oil and gas
reserves and the Discounted Present Value of estimated future net revenues from
such reserves before income taxes as of the date indicated.
<TABLE>
<CAPTION>
Oil and
Natural Condensate Discounted
Gas (MMcf) (MBbls) Present Value
---------- ---------- --------------
(In thousands)
<S> <C> <C> <C>
Proved developed.................................. 52,996 1,293 $95,610
Proved undeveloped................................ 13,907 990 20,792
------ ----- --------
Total....................................... 66,903 2,283 $116,402
====== ===== ========
</TABLE>
Since January 1, 1995, the Company has not filed any estimates of
proved oil and gas reserves with any federal authority or agency other than with
the Commission.
Ryder Scott
Ryder Scott has delivered the Ryder Scott Reserve Review Letter
relating to the Company's oil and gas reserves. Ryder Scott is a nationally
recognized firm of petroleum engineers specializing in evaluations of oil and
gas reserves. No limitations were imposed by the Company upon Ryder Scott with
respect to the investigations made or procedures followed by Ryder Scott in
rendering such report, except that Ryder Scott was requested to review the
estimate of the Company's proved reserves in compliance with the definition of
proved reserves required by the Commission, which assumes no change in economic
conditions will occur in the future. For reviewing certain of the Company's oil
and gas reserves, Ryder Scott has been paid a fee of approximately $33,000.
1995 Exploration Activity
In 1995 the Company participated in the drilling of 13 exploration
wells in the OCS of the Gulf of Mexico.
On Vermilion Block 203, the Company participated in the drilling of
three exploration wells which targeted certain shallow formations on the block.
All three wells encountered productive sand intervals and were suspended pending
completion operations. Completion operations commenced in July 1995 and first
production was achieved from three wells on February 19, 1996. The Company owns
a 50% working interest in this block, which is operated by The Houston
Exploration Company ("Houston Exploration").
On Mustang Island Block 858, the Company participated in the drilling
of two exploration wells. Both wells and the original discovery well, which was
drilled in 1994, were successfully tested and all three wells have now been
completed. First production from the field is expected in March 1996. A test of
certain deeper sands in the first well drilled in 1995 flowed at a
non-commercial rate, and no further activity is planned targeting these deeper
horizons. The Company owns a 17.5% working interest in this block, which is
operated by Houston Exploration.
3
<PAGE>
On West Cameron Block 417, an unsuccessful well was drilled in January
1995. The Company owns a 40% working interest in this block, which is operated
by Enserch Exploration, Inc. ("Enserch"). On Ship Shoal Block 265 the operator,
Union Pacific Resources Company ("UPRC"), plugged and abandoned an exploratory
well drilled on that block. The Company owns a 25% working interest in Ship
Shoal Block 265. The Company participated in a successful exploratory well on
East Cameron Block 303 in February 1995, but an appraisal well drilled on the
block crossed a fault and was plugged and abandoned in April 1995 after failing
to encounter hydrocarbon-bearing sands. Further appraisal drilling may take
place during 1996. The Company owns a 33.3% working interest in Block 303, which
is operated by Seagull Energy Corp ("Seagull").
In May 1995 the Company participated in a successful exploration well
on its four-block area that comprises East Cameron Blocks 349/350/355/356. The
well, East Cameron 356 #1, was suspended after encountering hydrocarbonbearing
sands based on wireline log analysis. Further exploration activity is planned on
these blocks in 1996. The Company owns a 37.5% working interest in these blocks,
which are operated by Enserch.
An exploration well was drilled on Eugene Island Block 59 in April
1995. Although the well was plugged and abandoned, the Company is seeking to
clarify the prospectivity of the block with the aid of a new 3-D survey. The
Company owns a 25% working interest in this block, which is operated by Tana Oil
and Gas Corporation. An exploration well drilled on West Cameron Block 77 was
successful and commenced production in November 1995. The Company has a 2.625%
interest in the block, which is operated by BHP Petroleum (Americas) Inc.
In September 1995 the Company participated in an exploration well,
Galveston 343 #10, which tested certain deeper horizons on the block. The test
was not successful, and the well was plugged and abandoned. The Company owns a
12% working interest in the block which is operated by Seagull.
The Company, together with partners, bid on 18 blocks in the 1995 Gulf
of Mexico Central Area Lease Sale and was awarded an interest in 13 blocks. The
Company, in two cases with a partner, bid on 4 blocks in the 1995 Gulf of Mexico
Western Area Lease Sale and was awarded an interest in 3 blocks.
Offshore Properties
East Cameron Blocks 331/332. These blocks are located 98 miles offshore
Louisiana in 240 feet of water. The Company owns a 40% interest in the shallower
horizons of Block 331 and a 20% interest in the deeper horizons of both blocks.
The Company purchased an interest in these blocks in 1991 for $100,000, and in
1992 proposed the first exploratory well, which proved to be the discovery well
for the field. The field commenced production in October 1994, and a total of
nine wells have now been completed. During 1995, East Cameron Blocks 331/332
produced an average of 13.5 MMcf of gas per day and 851 Bbls of oil per day net
to the Company's interest, accounting for approximately 52% of the Company's
production for the period. Mechanical problems with the completions of two of
the wells in the field resulted in production from the blocks field being lower
than expected in the second half of 1995. A program of remedial work, which was
planned to take place in the fourth quarter of 1995 was postponed as the work
would have required an interruption of production during a period of high gas
prices. Work now planned for the blocks in 1996 includes the drilling of two
side-tracks on the wells with damaged completions and the drilling of three
exploration wells, one of which will also serve as a development well. In
addition, it is expected that an exploration well targeting an untested
structure on East Cameron Block 331 will be drilled later in the year. Despite
the production shortfall from these blocks, the year-end reserve report showed a
small upward revision in reserves after adjusting for production during the
year. At January 1, 1996, the Company's net proved reserves in East Cameron
Blocks 331/332 were 29.1 Bcfe with a Discounted Present Value of approximately
$45.8 million. Samedan Oil Company, a subsidiary of Noble Affiliates, is the
operator of East Cameron Blocks 331/332.
Vermilion Block 203. This block is located 56 miles offshore Louisiana in
100 feet of water. The block contains two separate geologic plays (shallow and
deep) on the flank of a piercement salt dome. Four wells, all of which
encountered hydrocarbons, have been drilled to shallow formations on the block.
Three of these four wells have now been completed and first production from this
block was achieved on February 19, 1996. Production is now approximately 8 MMcf
of gas per day net to the Company's interest. It is expected that exploration
wells to test two further structures in the shallow formation will be drilled
during 1996. An exploration well to test certain deeper formations on the block
was spud on November 28, 1995. The well encountered no reservoir sands below
15,000 feet and has been temporarily abandoned. The Company owns a 50% working
interest in this block, which is operated by the Houston Exploration.
4
<PAGE>
Mustang Island Block 858. This block is located 12 miles offshore Texas
in approximately 90 feet of water. When the Company acquired its interest in
this block in 1994, one successful exploration well had been drilled and
suspended on the block. In 1995 the Company participated in two further
successful exploration wells on the block. A test of certain deeper sands in one
well flowed at a non-commercial rate but the development of the shallower
horizons is well advanced. First production from the field is currently expected
in March 1996. An exploration well to target a separate structure on the block
may be drilled after a period of production history has been established from
the current field. The Company owns a 17.5% working interest in this block,
which is operated by Houston Exploration.
Matagorda Block 710. This block is located 28 miles offshore Texas in
150 feet of water. In September 1993, the Company participated in a successful
exploratory well on the block. Production commenced from two wells on the block
in December 1994. During 1995 this block produced an average of 2.5 MMcf of gas
per day net to the Company's interest. An exploration well drilled to a separate
target in 1994 was suspended for a possible sidetrack. The Company expects that
the sidetrack or, alternatively, a new exploration well to test this structure
will be drilled during 1996. The Company owns a 30% working interest in
Matagorda Block 710, which is operated by Murphy Exploration and Production
Company.
Main Pass Blocks 300/301. These blocks are located 22 miles offshore
Louisiana in 200 feet of water. In January 1993, a successful exploration well
was drilled on Main Pass Block 301. In December 1993, a second successful
exploration well was drilled into a different geological structure on Main Pass
Block 300. A platform was installed in early August 1994. Both discovery wells
and one additional well have been completed, and production commenced in October
1994. During 1995, this block produced an average of 236 MCF of gas per day and
115 Bbls of condensate per day net to the Company's interest. The Company owns a
15.3% working interest in Main Pass Blocks 300/301, which are operated by Walter
Oil & Gas Corporation.
Ship Shoal Block 251. This block is located 54 miles offshore Louisiana
in 160 feet of water. A successful exploratory well was drilled on the block and
was suspended in April 1994. One additional exploratory well was successfully
drilled to and completed in a separate fault block in November 1994. Production
commenced from this field on February 13, 1995 and average production during
1995 was 5.6 MMcf of gas per day and 171 Bbls of condensate per day net to the
Company's interest. The Company owns a 25% working interest in Ship Shoal Block
251, which is operated by Union Pacific Resources Company ("UPRC").
East Cameron Blocks 349/350/355/356. The East Cameron Blocks
349/350/355/356 prospect area is located 110 miles offshore Louisiana in 300
feet of water. The Company's interests in Blocks 349 and 355 were acquired in
the 1994 Gulf of Mexico Central Area Lease Sale while the Company's interest in
Block 356 was acquired in a property swap by the Company in 1994. The Company's
interest in Block 350 was acquired in the 1995 Gulf of Mexico Central Area Lease
Sale. In May 1995, the Company participated in a new field discovery on East
Cameron Block 356. The field is located 6 miles south of the Company's East
Cameron Block 331/332 complex and was identified on the Company's 3-D seismic,
which covers both areas. The discovery well, East Cameron 356 #1, was drilled to
a depth of 7,669 feet and encountered two hydrocarbon bearing Pleistocene sands
based on wireline log analysis. The well has been suspended pending completion
operations and delineation of further prospective structures on this four-block
complex. A well targeting a separate structure, East Cameron 356 #2, was spud on
December 25, 1995 but was plugged and abandoned in February 1996 after
encountering a low gas saturated sand. A third exploration well, East Cameron
350 #1, was spud on January 23, 1996. Based on wireline log analysis this well
has to date encountered approximately 200 net feet of oil and gas pay. The well
is currently still drilling but is expected to reach total depth in early March.
Further exploration activity is planned on these blocks in 1996. The Company
expects that plans for the development of the blocks will be determined in the
next two months. The Company owns a 37.5% working interest in all four blocks,
which are operated by Enserch.
Main Pass Block 262. This block, located 60 miles offshore Louisiana in
280 feet of water was acquired in the 1995 Gulf of Mexico Central Area Lease
Sale. The prospect was defined by a 3-D seismic survey and previous drilling
activity. A jacket structure was installed on the block in November 1995 and two
wells have now been completed for production. First production is expected from
the wells in March 1996. The Company owns a 33.3% working interest in Block 262,
which is operated by Canadian Occidental Petroleum Ltd.
5
<PAGE>
Galveston 343/363 Field. Galveston 343/363 field is located 13 miles
offshore Texas in 65 feet of water. The field is comprised of two adjacent
federal lease blocks operated by an affiliate of Seagull. Production began in
1990. Natural gas and condensate are produced from 14 well completions on Blocks
343 and 363, from sands at depths of 7,100 feet to 8,500 feet. The wells on
Block 343 produce through a four pile drilling and production platform. The well
on Block 363 produces through a separate satellite platform that is tied by
flowline to the Block 343 platform. Gas and condensate flow from Block 343 to
shore through a 16-inch pipeline. During 1995, the average daily production net
to the Company from this field was 3.5 MMcf of gas and 14 Bbls of oil. An
exploration well to target certain deeper formations on Block 343 was drilled
and plugged and abandoned in late September 1995. The Company owns a 12% working
interest in Block 343 and an 11.25% working interest in Block 363.
Other Offshore Properties. The Company currently holds interests in 45
additional lease blocks offshore Texas and Louisiana, of which 10 are producing
leases.
Onshore Properties
Appalachian Region Properties. The Company holds interests in 238 wells
producing natural gas primarily in Venango, Mercer and Crawford Counties in
Pennsylvania. These wells, operated by Lomak Petroleum, Inc., produce from
multiple completions in Silurian-aged Medina and other sands at depths of
approximately 5,500 feet to 6,000 feet. The Company's working interests in these
wells range from 4% to 100%, with an average of approximately 28%. The Company
also holds a 20% interest in the local field gathering system and the pipeline
that takes production from the wells in this area.
Other Onshore Properties. The Company holds minor working and royalty
interests in four additional wells in Texas and Oklahoma.
1996 Exploration Activity
In December 1995 the Company spud three exploration wells, all of which
were drilling at the year-end. In 1996 to date the Company has participated in a
further three exploration wells. In addition to these wells the Company plans to
participate in a further twelve to fifteen exploration wells during 1996.
On the four block area which comprises East Cameron Blocks
349/350/355/356, the Company participated in a successful exploration well, East
Cameron 356 #1, in May 1995. A well targeting a separate structure on East
Cameron Block 356 was spud on December 25, 1995 but was plugged and abandoned in
February 1996 after encountering a low gas saturation sand. A third exploration
well, East Cameron 350 #1, was spud on January 23, 1996. Based on wireline log
analysis this well has to date encountered a total of 200 net feet of oil and
gas pay in three of four targets. The well is currently still drilling but is
expected to reach total depth in early March.
On South Timbalier Block 249 an exploration well was spud in December
1995. Despite promising shows in South Timbalier 249 #1, a sidetrack found the
target sands wet. The Company operates and owns a 50% working interest in this
block.
An exploration well to test certain deeper sands on Vermilion Block 203
was spud on November 28, 1995. The Vermilion 203 #2 well encountered no
reservoir sands below 15,000 feet and has been temporarily abandoned. The
Company owns a 50% working interest in this block, which is operated by Houston
Exploration.
In January 1996 an exploration well was spud on Ship Shoal 251. This
well was plugged and abandoned in February. The Company owns a 25% interest in
Ship Shoal Block 251 which is operated by UPRC. Also in January 1996 an
exploration well was spud on Ship Shoal Block 261. This well is currently still
drilling but is expected to reach the target horizon by mid-March. The Company
owns a 25% interest in this block, which is also operated by UPRC.
The Company now has over 150,000 miles of 2-D seismic data covering the
central portion of offshore Louisiana and has 3-D data covering 74 blocks. All
of the Company's 2-D and 3-D data will be used for prospect generation for lease
sales and enhanced data coverage over the Company's existing leaseholds.
6
<PAGE>
Sales of Properties
In June 1995, the Company sold most of the properties which it owned in
Texas and Oklahoma for $1.77 million. At January 1, 1995, the properties had
reserves of approximately 123 MBbls of oil and 2.1 Bcf of gas and had a
Discounted Present Value of $2.03 million.
The Company has entered into an agreement to convey 35 wells located in
Venango, Mercer and Crawford Counties in Pennsylvania, effective October 1,
1995, to the operator, Lomak Petroleum, Inc. in exchange for the assumption of
the Company's plugging and abandonment obligations associated with these wells.
No assurance can be given that the agreement will be consummated.
Drilling Activities
The Company drilled, or participated in the drilling of, the following
numbers of total wells during the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------
1993 1994 1995
--------------------- -------------------- -------------------
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
Total Wells
Gas........................................ 5 0.61 9 1.85 8 2.58
Oil........................................ 8 1.20 1 .15 -- --
Dry........................................ 3 0.68 -- -- 5 1.35
-- ---- -- ---- --- ----
Total................................... 16 2.49 10 2.00 13 3.93
== ==== == ==== === ====
Development Wells
Gas........................................ 2 0.14 3 .61 -- --
Oil........................................ 1 0.01 -- -- -- --
Dry........................................ -- -- -- -- -- --
-- ---- -- ---- -- --
Total................................... 3 0.15 3 .61 -- --
== ==== == ==== == ==
Exploratory Wells
Gas........................................ 3 0.47 6 1.24 8 2.58
Oil........................................ 7 1.19 1 .15 -- --
Dry........................................ 3 0.68 -- -- 5 1.35
-- ---- -- ---- --- ----
Total................................... 13 2.34 7 1.39 13 3.93
== ==== == ==== === ====
</TABLE>
The information contained in the foregoing table should not be
considered indicative of future drilling performance, nor should it be assumed
that there is any necessary correlation between the number of productive wells
drilled and the amount of oil and gas that may ultimately be recovered by the
Company. From 1993 through 1995, the Company has drilled and completed 31 gross
(6.39 net) productive wells.
The Company owns no drilling rigs. All of the Company's drilling
activities are conducted by independent contractors on a day-rate basis or under
standard drilling contracts.
7
<PAGE>
Productive Well Summary
The following table sets forth certain information regarding the
Company's ownership as of December 31, 1995 of productive wells in the areas
indicated.
<TABLE>
<CAPTION>
Productive Wells
-----------------------------------------------------------------------------------------
Gas Oil Total
---------------------- ---------------------- ----------------------
Gross Net Gross Net Gross Net
----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Gulf of Mexico(1)................ 68 12.66 7 1.21 75 13.87
Appalachian region............... 238 65.93 -- -- 238 65.93
Other onshore.................... 4 1.39 -- -- 4 1.39
--- ----- ---- ---- --- -----
Total................... 310 79.98 7 1.21 317 81.19
=== ===== ==== ==== === =====
</TABLE>
- --------------------
(1) A majority of these wells have completions in multiple pay zones.
Volumes, Prices and Production Costs
The following table sets forth certain information regarding the
production volumes of, average sales prices received for, and average production
costs associated with, the Company's sales of oil and gas for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net Production:
Gas (MMcf)................................................................ 5,226 3,940 10,403
Oil (MBbls)............................................................... 116.1 100.1 430.8
Total (MMCFE).......................................................... 5,922 4,541 12,988
Average Sales Price:
Gas ($/Mcf)(1)............................................................ $ 2.18 $ 1.99 $1.70
Oil ($/Bbl)............................................................... $16.04 $14.35 $18.14
Average Production Cost:
($/MCFE)(2)............................................................... $ 0.65 $ 0.50 $0.24
</TABLE>
- --------------------
(1) Includes natural gas liquids.
(2) Includes direct lifting costs (labor, repairs and maintenance, materials
and supplies) and the administrative costs of production offices,
insurance and property and severance taxes.
Development, Exploration and Acquisition Expenditures
The following table sets forth certain information regarding the costs
incurred by the Company in its development, exploration and acquisition
activities during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Development Costs.......................................... $ 1,106 $11,683 $14,105
Exploration Costs.......................................... 8,987 9,872 19,057
Acquisition Costs:
Proved Properties....................................... -- 1,405 --
Unevaluated Properties.................................. -- 22,939 (3,900)*
-------- ------- --------
Total Capital Expenditures........................... $ 10,093 $45,899 $ 29,262
======== ======= ========
</TABLE>
* Represents an adjustment to the consideration paid for an acquisition in 1994.
8
<PAGE>
Acreage
The following table sets forth certain information regarding the
Company's developed and undeveloped leasehold acreage as of December 31, 1995.
Acreage in which the Company's interest is limited to royalty, overriding
royalty and similar interests is insignificant and, therefore, excluded.
<TABLE>
<CAPTION>
Developed Undeveloped Total
---------------------- ------------------------ -------------------------
Gross Net Gross Net Gross Net
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Gulf of Mexico..................... 92,376 15,524 188,639 68,925 281,015 84,449
Appalachian region................. 8,590 2,288 -- -- 8,590 2,288
Other onshore...................... 2,560 915 -- -- 2,560 915
------ ------ ------- ------ ------- ------
Total..................... 103,526 18,727 188,639 68,925 292,165 87,652
======= ====== ======= ====== ======= ======
</TABLE>
Markets
General. The revenues generated from the Company's oil and gas
operations are highly dependent upon the prices of and the demand for its oil
and gas production. The prices received by the Company for its oil and gas
production depend upon numerous factors beyond the Company's control. Future
decreases in the prices of oil and gas would have an adverse effect on the
Company's proved reserves, revenues, profitability and cash flow.
Gas Sales. The Company sells substantially all of its gas production on
the spot market. Generally, the Company's gas production is sold under
short-term contracts. Total sales of gas accounted for 80.9% and 68.2% of the
Company's revenues during 1994 and 1995, respectively. The weighted average
prices of the gas sold by the Company under the various month-to-month spot gas
contracts were $1.99 and $1.70 per Mcf of natural gas during 1994 and 1995,
respectively.
The following table lists purchasers of the Company's natural gas that
accounted for more than 10% of total revenues for the years indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1995
------ ------
<S> <C> <C>
Coastal Corporation -- 22%
Dow Hydrocarbons and
Resources, Inc. 21% --
Walter Oil and Gas Corporation 11% --
Mark Resources Corporation 11% --
Samedan Oil Corporation -- 12%
Amoco Production Co. 20% --
</TABLE>
Oil Sales. Generally, the Company's oil production is sold to various
purchasers under short-term arrangements at prices negotiated by third parties,
but at prices no less than such purchasers' posted prices for the respective
areas less standard deductions. Total sales of oil accounted for 14.8% and 30.1%
of the Company's revenues during 1994 and 1995, respectively. No single
purchaser of oil from the Company accounted for more than 10% of the Company's
revenues for 1994. Samedan Oil Corporation purchased oil production from the
Company in 1995 that amounted to 20% of the Company's total revenues. The
Company believes that the loss of a purchaser of its oil would not have a
material adverse effect on its results of operations due to the availability of
other purchasers for its oil.
9
<PAGE>
Competition
The exploration for and production of oil and natural gas is highly
competitive. In seeking to obtain desirable properties, leases and exploration
prospects, the Company faces competition from both major and independent oil and
natural gas companies, as well as from numerous individuals and drilling
programs. Extensive competition also exists in the market for natural gas
produced by the Company. Many of these competitors have financial and other
resources substantially in excess of those available to the Company and,
accordingly, may be better positioned to acquire and exploit prospects, hire
personnel and market production. In addition, many of the Company's larger
competitors may be better able to respond to factors that affect the demand for
oil and natural gas production such as changes in worldwide oil and natural gas
prices and levels of production, the cost and availability of alternative fuels
and the application of government regulations.
Regulation
Oil and Gas Production. The Company's oil and gas exploration,
production and related operations are subject to extensive rules and regulations
promulgated by federal and state 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
interpreted, the Company is unable to predict the future cost or impact of
complying with such laws.
All of the Company's offshore oil and gas leases are granted by the
federal government and are administered by the Mineral Management Service (the
"MMS"). Such leases require compliance with detailed federal regulations and
orders that regulate, among other matters, drilling and operations and the
calculation of royalty payments to the federal government. Ownership interests
in these leases are generally restricted to United States citizens and domestic
corporations. Assignments of these leases or interests therein are subject to
approval by the MMS.
The federal authorities, as well as many state authorities, require
permits for drilling operations, drilling bonds and reports concerning
operations and impose other requirements relating to the exploration and
production of oil and gas. Such states also have statutes or regulations
addressing conservation matters, including provisions for the unitization or
pooling of oil and gas properties, the establishment of maximum rates of
production from oil and gas wells and the regulation of spacing, plugging and
abandonment of such wells. The statutes and regulations of the federal
authorities, as well as many state authorities, limit the rates at which oil and
gas can be produced from the Company's properties.
Prior to January 1, 1993, the sale for resale of certain categories of
natural gas production was price regulated pursuant to the Natural Gas Act of
1938, the Natural Gas Policy Act of 1978 (the "NGPA") and the regulations
promulgated thereunder by the Federal Energy Regulatory Commission ("FERC").
However, under the Natural Gas Wellhead Decontrol Act of 1989, all price
controls of natural gas under the NGPA were phased out effective as of January
1, 1993.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that affect the economics of natural gas production,
transportation and sales. In addition, the FERC continues to promulgate
revisions to various aspects of the rules and regulations affecting those
segments of the natural gas industry that remain subject to the FERC's
jurisdiction. The stated purpose of many of these regulatory changes is to
promote competition among the various sectors of the gas industry. The ultimate
impact of the complex and overlapping rules and regulations issued by the FERC
since 1985 cannot be predicted. In addition, many aspects of these regulatory
developments have not become final but are still pending judicial and FERC final
decisions.
Environmental. The Company is subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas and impose substantial liabilities for pollution
resulting from the Company's operations. Moreover, the recent trend toward
stricter standards in
10
<PAGE>
environmental legislation and regulation is likely to continue. For instance,
legislation has been proposed in Congress from time to time that would
reclassify certain oil and gas production wastes as "hazardous wastes," which
reclassification would make such wastes subject to much more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted, it
could have a significant impact on the operating costs of the Company, as well
as the oil and gas industry in general. It is not anticipated that the Company
will be required in the near future to expend amounts that are material in
relation to its total capital expenditure program by reason of environmental
laws and regulations, but because such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of such compliance.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills in
United States waters. A "responsible party" includes the owner or operator of a
facility or vessel, or the lessee or permittee of the area in which an offshore
facility is located. The OPA assigns liability to each responsible party for oil
removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Few defenses exist to the
liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party,
including proof of financial responsibility to cover at least some costs in a
potential spill. On August 25, 1993, the MMS published an advance notice of its
intention to adopt a rule under the OPA that would require owners and operators
of offshore oil and gas facilities to establish $150 million in financial
responsibility. Under the proposed rule, financial responsibility could be
established through insurance, guaranty, indemnity, surety bond, letter of
credit, qualification as a self-insurer or a combination thereof. There is
substantial uncertainty as to whether insurance companies or underwriters will
be willing to provide coverage under the OPA because the statute provides for
direct lawsuits against insurers who provide financial responsibility coverage,
and most insurers have strongly protested this requirement. The financial tests
or other criteria that will be used to judge self-insurance are also uncertain.
The Company cannot predict the final form of the financial responsibility rule
that will be adopted by the MMS, but such rule has the potential to result in
the imposition of substantial additional annual costs on the Company or
otherwise materially adversely affect the Company. The impact of the rule should
not be any more adverse to the Company than it will be to other similarly
situated or less capitalized owners or operators in the Gulf of Mexico.
The OPA also imposes other requirements, such as the preparation of an
oil spill contingency plan. The Company has such a plan in place. Failure to
comply with ongoing requirements or inadequate cooperation during a spill event
may subject a responsible party to civil or criminal enforcement actions.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances and under
CERCLA such persons or companies would be subject to joint and several liability
for the costs of cleaning up the hazardous substances that have been released
into the environment and for damages to natural resources. It is not uncommon
for neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
Operational Hazards and Insurance
The Company maintains insurance of various types to cover its
operations. Ultimate limits provided under such policies are $50 million. In
addition, the Company maintains operator's extra expense coverage that provides
for care, custody and control of wells drilled or completed by the Company. The
occurrence of a significant adverse event, the risks of which are not fully
covered by insurance, could have a material adverse affect on the Company's
financial condition and results of operations. Moreover, no assurance can be
given that the Company will be able to maintain adequate insurance in the future
at rates it considers reasonable.
11
<PAGE>
Executive Officers of the Registrant
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------- --- -----------------------------------------------
<S> <C> <C>
Michael R, Gilbert 46 President, Chief Executive Officer and Director
J. Munro M. Sutherland 41 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Robert P. Murphy 37 Vice President--Exploration
A. Allen Paul 53 Vice President--Finance
Susan H. Rader 44 Secretary and Land Manager
</TABLE>
No family relationship exists among any of the Company's executive
officers or directors. The Company's executive officers are elected to hold
office until the next annual meeting of directors.
Michael R. Gilbert has served as the President, Chief Executive Officer
and a Director of the Company since February 27, 1992. Mr. Gilbert was the
President of Cairn USA from its inception in March 1989 until the Merger in
September 1992. From 1982 to 1989, Mr. Gilbert served as Executive Vice
President of Canyon Oil and Gas Company, an oil and gas acquisition company and
a subsidiary of Slawson Companies, Inc., an oil and gas company.
J. Munro M. Sutherland has served as Senior Vice President, Chief
Financial Officer and Treasurer of the Company since November 1993. Mr.
Sutherland has been a director of the Company since June 1993. From 1988 to
October 1993, Mr. Sutherland was the Finance Director of Cairn Energy PLC,
formerly the Company's majority stockholder and an independent oil and gas
exploration and production company ("Cairn PLC"). He was a nonexecutive director
of Cairn PLC from November 1, 1993 until August 31, 1994. From 1986 to 1988, Mr.
Sutherland served as director of Cairn Energy Management Limited, an oil and gas
management company.
Robert P. Murphy joined Cairn USA in 1990 as an exploration geologist and
became the Company's Vice President--Exploration in March 1993. From 1984 to
1990, Mr. Murphy served as an exploration geologist for Enserch Exploration, an
oil and gas company. Mr. Murphy holds a M.S. in geology from The University of
Texas at Dallas.
A. Allen Paul has served as Vice President-Finance of the Company since
September 1992 and from September 1992 to November 1993 was Treasurer of the
Company. From April 1990 to August 1992 Mr. Paul was Vice President--Finance for
Rosco Wallcovering, Inc., a company specializing in the wholesale distribution
of wallpaper. From January 1986 to April 1990, Mr. Paul was a self-employed
certified public accountant. Prior to January 1986, Mr. Paul was employed in
various capacities with AMOCO Oil Co., Tesoro Petroleum Corp. and Hunt Energy
Corporation.
Susan H. Rader has served as Secretary of the Company since September
1992. From Cairn USA's inception in March 1989 until the Merger in September
1992, Ms. Rader served as Assistant Secretary and as a petroleum land manager
for Cairn USA. Prior to March 1989, Ms. Rader was a petroleum land manager for
Western Natural Gas Company, an oil and gas company.
Employees
At December 31, 1995, the Company had 16 employees. None of the
Company's employees is subject to a collective bargaining agreement. The Company
considers its relations with its employees to be good.
12
<PAGE>
Title to Properties
As is customary in the oil and gas industry, the Company performs a
minimal title investigation before acquiring undeveloped properties. The Company
has obtained title opinions on substantially all of its producing properties and
believes that it has satisfactory title to such properties in accordance with
standards generally accepted in the oil and gas industry. The Company's
properties are subject to customary royalty interests, liens incident to
operating agreements, liens for current taxes and other burdens that the Company
believes do not materially interfere with the use of or affect the value of such
properties. Substantially all of the Company's oil and gas properties are and
will continue to be mortgaged to secure borrowings under the Company's credit
facility. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Capital Resources and Liquidity."
Offices
The Company leases approximately 6,100 square feet of office space in
Dallas, Texas under a lease that expires in October 1996. The Company is
investigating the possibility of either expanding the office space at its
present location or moving to a new location at the end of the current lease in
order to expand to approximately 8,000 square feet of office space.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation from time to time. Such
litigation in which the Company is currently involved is not material to the
Company's consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock is traded on the Nasdaq National Market tier of the
Nasdaq Stock Market ("NNM") under the symbol "CEUS." The following table sets
forth the high and low sales prices for the Common Stock from January 1, 1994 to
February 29, 1996.
<TABLE>
<CAPTION>
Year High Low
- ---- ------ ------
<S> <C> <C>
1994
First Quarter.............................................................. 5-3/4 5
Second Quarter............................................................. 7 5
Third Quarter.............................................................. 8-1/4 5-3/4
Fourth Quarter............................................................. 8-3/8 6-3/4
1995
First Quarter.............................................................. 8-3/4 7-3/8
Second Quarter............................................................. 11 8-1/2
Third Quarter.............................................................. 12-3/4 10-3/8
Fourth Quarter............................................................. 14-1/8 11-3/8
1996
First Quarter (through February 29, 1996).................................. 14-1/8 10-7/8
</TABLE>
The high and low sales prices for the Common Stock were reported by the
NNM.
13
<PAGE>
As of February 29, 1996, the Company had 17,557,821 outstanding shares
of Common Stock held by approximately 632 stockholders of record.
The Company's policy is to retain its earnings to support the growth of
the Company's business. According, the Board of Directors has never declared
dividends on the Common Stock and does not plan to do so in the foreseeable
future. Pursuant to the terms of the Company's credit facility (the "INCC Credit
Agreement") with Internationale Nederaland (U.S.) Capital Corporation ("INCC")
and MeesPierson, N.V. ("MeesPierson"), the Company is not permitted to pay or
declare any cash or property dividends or otherwise make any distribution of
capital. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 3 of Notes to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data as of and for the
years December 31, 1991, 1992, 1993, 1994, and 1995 have been derived from the
audited Consolidated Financial Statements of the Company. The data should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company, the Company's Consolidated
Financial Statements, related notes thereto, schedules and other financial
information of the Company included elsewhere herein.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues:
Crude oil and natural gas..................... $11,443 $14,035 $13,490 $9,494 $25,742
Other revenue................................. 94 59 59 206 217
-- -- -- --- ---
Total revenues............................ 11,537 14,095 13,549 9,700 25,959
Expenses:
Lease operating expenses and production taxes. 2,840 3,766 3,826 2,274 3,101
Depreciation, depletion and amortization (1).. 15,142 6,792 5,654 4,328 13,616
Administrative expenses....................... 924 774 1,266 1,330 1,507
Interest...................................... 2,880 1,193 1,045 1,114 2,500
----- ----- ----- ----- -----
Total expenses............................ 21,786 12,525 11,791 9,046 20,724
------ ------ ------ ----- ------
Income (loss) before minority interest and
extraordinary item............................ (10,249) 1,570 1,758 654 5,235
Minority interest in net loss of Omni......... -- 245 -- -- --
Extraordinary item--loss on early extinguishmen
of debt....................................... -- -- (248) -- --
-- -- ---- -- --
Net income (loss)............................. $(10,249) $ 1,815 $ 1,474 $ 654 $ 5,235
======== ======= ======= ======= =======
Net income (loss) per common and common
equivalent share.............................. $ (1.28) $ 0.18 $ 0.13 $ 0.05 $ 0.32
======== ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding................. 7,992 10,048 11,260 13,259 16,422
======== ======= ======= ======= =======
Statements of cash flows data:
Net income (loss).................................. $(10,249) $ 1,815 $ 1,474 $ 654 $ 5,235
Depreciation, depletion and amortization........... 15,142 6,792 5,654 4,328 13,616
Other non-cash charges (credits)................... 99 (137) 414 223 355
Net change in operating assets and liabilities..... 1,096 2 841 1,148 (3,361)
Net cash provided by operating activities.......... 6,088 8,472 8,383 6,353 15,845
Net cash used in investing activities.............. (5,631) (7,574) (9,519) (17,208) (23,080)
Net cash provided by (used in) financing activities (400) (212) 564 12,694 8,606
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
------- -------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets....................................... $43,503 $46,100 $49,629 $89,181 $106,811
Working capital (deficit).......................... 1,525 (1,029) 877 514 815
Advances from Cairn Energy PLC..................... 2,609 2,609 -- -- --
Long-term debt, less current maturities............ 19,000 15,917 9,600 23,500 15,500
Stockholders' equity............................... 20,461 22,893 37,890 61,798 83,786
</TABLE>
- --------------------
(1) The Company recorded additional depreciation depletion and amortization
expense of $5.6 million for the year ended December 31, 1991, to reduce the
carrying value of oil and gas properties to the capitalized cost ceiling
required under the full-cost method of accounting.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the consolidated results of operation and
financial condition of the company for each of the years in the three-year
period ended December 31, 1995 should be read in conjunction with the Company's
Consolidated Financial Statements and related notes thereto included elsewhere
herein
General
The Company follows the full-cost method of accounting for its
investments in oil and gas properties. The Company capitalizes all acquisition,
exploration, and development costs incurred. Proceeds from sales of oil and gas
properties are credited to the full-cost pool. Capitalized costs of oil and gas
properties are amortized on an overall unit-of-production method using proved
oil and gas reserves as determined by independent petroleum engineers. Costs
amortized include all capitalized costs (less accumulated amortization); the
estimated future expenditures (based on current costs) to be incurred in
developing proved reserves; and estimated dismantlement, restoration, and
abandonment costs. See Note 2 of Notes to Consolidated Financial Statements.
Results of Operations
The following table sets forth certain information regarding the
production volumes of, average sales prices received for, and average production
costs associated with, and depletion rate associated with the Company's sales of
oil and gas for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Net Production:
Gas (MMcf)................................................................ 5,226 3,940 10,403
Oil (MBbls)............................................................... 116.1 100.1 430.8
Average Sales Price:
Gas (per Mcf)(1).......................................................... $ 2.18 $ 1.99 $ 1.70
Oil (per Bbl)............................................................. $16.04 $14.35 $18.14
Average Production Cost:
(per MCFE)(2)............................................................. $ 0.65 $ 0.50 $ 0.24
Depletion Rate:
(per MCFE)................................................................ $ 0.94 $ 0.94 $ 1.04
</TABLE>
- --------------------
(1) Includes natural gas liquids.
15
<PAGE>
(2) Includes direct lifting costs (labor, repairs and maintenance, materials
and supplies) and the administrative costs of production offices,
insurance and property and severance taxes.
1995 Compared with 1994
Revenues. Total revenues increased $16.3 million (168%) to $26.0 million
for 1995 from $9.7 million for 1994. The increase in revenues was due primarily
to the new production from the Company's interest in East Cameron Blocks
331/332, Matagorda Block 710 and Ship Shoal Block 251 coupled with higher
average oil prices in 1995 partially offset by lower average gas prices in 1995.
Expenses. Total expenses increased $11.6 million (129%) to $20.7 million
for 1995 from $9.1 million for 1994. An increase in depreciation, depletion and
amortization ("DD&A") is the primary source for the increase in expenses. DD&A
increased $9.3 million (215%) to $13.6 million for 1995 from $4.3 million in
1994 due to increased production coupled with an increase in the depletion rate.
Interest expense increased $1.4 million (124%) to $2.5 million for 1995 from
$1.1 million for 1994 because of an increase in average outstanding debt and
higher average interest rates. Lease operating costs and production taxes
increased $827,000 (36%) to $3.1 million for 1995 compared with $2.3 million for
1994. Lease operating expenses increased because of increased production.
Reflected in the 1994 lease operating expense amount are expenses related to the
Texas Panhandle properties that were sold in August 1994. Production costs on a
per unit basis decreased significantly because East Cameron Blocks 331/332,
Matagorda Block 710 and Ship Shoal Block 251 all have a low per unit operating
cost, while the Texas Panhandle properties sold in August 1994 had a high per
unit operating cost. Administrative expenses increased $177,000 (13%) to $1.5
million in 1995 from $1.3 million in 1994 principally due to an increase in
legal, salary and printing expenses partially offset by increased overhead
capitalization relating to technical staff associated with exploration activity.
Net Income. Net income increased $4.6 million (700%) to $5.2 million, or
$0.32 per share, from $654,000, or $0.05 per share, in 1994. The primary reason
for the increase in net income was the increase in production.
1994 Compared with 1993
Revenues. Total revenues decreased $3.8 million (28%) to 9.7 million for
1994 from $13.5 million for 1993. The decrease in revenues was due principally
to a natural decline in production from the Company's properties coupled with
lower product prices, and also to the sale of non-strategic properties in both
1993 and 1994.
Expenses. Total expenses decreased $2.7 million (23%) to $9.1 million for
1994 from $11.8 million for 1993. Lease operating costs and production taxes
decreased $1.5 million (41%) to $2.3 million for 1994 compared with $3.8 million
for 1993 due primarily to reduced transportation fees on the Galveston 343/363
field coupled with the sale of certain producing properties whose associated
costs are reflected in 1993. Depreciation, depletion and amortization decreased
$1.3 million (23%) to $4.4 million for 1994 from $5.7 million for 1993. This
decrease was primarily due to lower production volumes in 1994. There was only a
nominal increase in general and administrative expenses due mainly to an
increase in the number of technical personnel. There was also a nominal increase
in interest expense due to an increase in outstanding debt.
Net Income. Net income of $654,000, or $0.05 per share, was generated for
1994, compared with $1.5 million, or $0.13 per share, after an extraordinary
charge of $284,000 or $(0.03) per share, in 1993. The extraordinary charge in
1993 was in connection with the write-off of unamortized issuance costs
attributable to the Company's prior credit facility. The decrease in net income
was primarily the result of the decrease in revenues due to decreased
production, partially offset by decreased production and depletion expenses.
Capital Resources and Liquidity
At December 31, 1995, the Company had existing cash and cash investments of
$3.6 million. Net cash provided by operating activities was $15.8 million for
1995, compared with $6.4 million for 1994. The primary reason for this increase
in cash provided by operating activities was higher results of operations (or
earnings before depreciation, depletion and amortization) offset by increased
working capital requirements. Net cash used in investing activities for 1995 was
$23.1 million compared with $17.2 million in 1994. The $23.1 million is net of
$3.9 million received by the Company for consideration paid for an acquisition
in 1994. This increase was principally due to expenditures for exploration and
development prospects.
16
<PAGE>
Net cash provided by financing activities for 1995 was $8.6 million compared
with $12.7 million in 1994. The cash provided by financing activities during
1995 consisted of $16.6 million in net proceeds from a public offering of Common
Stock partially offset by a reduction in net borrowings under the Company's
revolving credit facility of $8 million.
In general, because the Company's oil and gas reserves are depleted by
production, the success of its business strategy is dependent on a continuous
exploration and development program. Therefore, the Company's capital
requirements relate primarily to the acquisition of undeveloped leasehold
acreage and exploration and development activities. Company is currently
pursuing a number of existing exploration prospects.
The Company's operating needs and capital spending programs have been funded
by borrowing under its bank credit facilities, proceeds from public offerings of
its Common Stock and cash flow from operations. The Company expects capital
expenditures for development during 1996 to total approximately $26 million. At
December 31, 1995, the Company's capital resources consisted primarily of
available borrowing capacity under the INCC Credit Agreement and cash flow from
operations. Management believes that cash flow from operations along with the
amount available under the INCC Credit Agreement will be sufficient to finance
the currently planned development expenditures.
If the Company is successful in substantially all of its currently scheduled
exploration prospects, additional funds may be required in order to conduct the
necessary development activities. If necessary, the Company may seek to raise
additional capital in public or private equity or debt markets. No assurance can
be given that the Company may seek to raise additional capital in public or
private equity or debt markets. No assurance can be given that the Company will
be able to raise such capital if needed or on terms that are favorable to the
Company. Any resulting lack of sufficient capital may require the Company to
reduce its interest in such properties or to forego developing such reserves. In
addition, the Company normally does not act as operator with respect to its
properties. The Company may not be able to control the development activities or
the associated costs with respect to properties operated by other properties.
Credit Facility. The Company has a $50 million credit facility (the "INCC
Credit Agreement") with INCC and MeesPierson, under which the current borrowing
base is $45 million. The INCC Credit Agreement is secured by substantially all
of the Company's assets. It contains financial covenants which require the
Company to maintain a ration of current assets to current liabilities (excluding
the current portion of related debt) of no less than 1.0 to 1.0 and a tangible
net worth of not less than $40 million. The Company is currently in compliance
with such financial covenants. Outstanding borrowings accrue interest at either
INCC's fluctuation base rate or INCC's reserve adjusted Eurodollar rate plus
1.50%, at the Company's option. On March 31, 1997, the borrowings outstanding
under this facility will be converted to a term loan that requires various
quarterly principal payments through December 31, 1999. Interest is payable
quarterly on any base rate borrowings and payable on maturity of any Eurodollar
borrowings.
The INCC Credit Agreement does not permit the Company to pay or declare any
cash or property dividends or otherwise make any distribution of capital. The
Company is obligated to pay a quarterly fee equal to one-half of 1% per annum of
the unused portion of the borrowing base under the facility.
The Company's ability to borrow under the INCC Credit Agreement is dependent
upon the reserve value of its oil and gas properties. If the reserve value of
the Company's borrowing base declines, the amount available to the Company under
the INCC Credit Agreement will be reduced and, to the extent that the borrowing
base is less than the amount then outstanding under the INCC Credit Agreement,
the Company will be obligated to repay such excess amount on thirtyday's notice
from INCC or to provide additional collateral. INCC and MeesPierson have
substantial discretion in determining the reserve value of the borrowing base.
The following table illustrates the borrowing base, the outstanding
borrowings, an outstanding letter of credit and the available borrowings under
the Credit Facility at December 31, 1995.
<TABLE>
<CAPTION>
Borrowing Outstanding Letter Available
Base Borrowings of Credit Borrowings
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Credit Facility....................................... $45,000,000 $15,500,000 $4,500,000 $25,000,000
</TABLE>
17
<PAGE>
The Company believes that available borrowings under the Credit
Facility combined with cash flows from the operations will be sufficient to fund
its currently anticipated development and exploration expenses. If the Company
is successful in substantially all of its currently scheduled exploration
prospects, additional funds will be required in order to conduct the necessary
development activities. Any resulting lack of sufficient capital may require the
Company to reduce its interest in such properties or to forego developing such
reserves. In addition, the Company does not act as operator with respect to most
of its properties. Therefore, the Company may not be able to control the
development activities or the associated costs with respect to properties
operated by other parties.
Net Operating Losses. For federal income tax purposes, at December 31,
1995, the Company had net operating losses ("NOLs") of approximately $51.0
million. Those NOLs include approximately $10.3 million of estimated NOLs that
carried over to the Company from Smith as a result of the Smith Acquisition.
The Internal Revenue Code of 1986, as amended (the "Code"), permits a
corporation to carryback an NOL from the year in which it is incurred to the
immediately preceding three years and then carry forward any unused portion of
the NOL up to 15 years. However, the Code contains a further limitation
regarding a corporation's use of its NOLs following a statutorily defined
"change in ownership". Generally, this limitation permits the corporation to use
in each year subsequent to the ownership change a prescribed amount of the NOLs
(hereinafter referred to as the annual limitation amount), subject however to
the general restriction that a corporation cannot carry forward a NOL more than
15 years.
The Company's NOLs of approximately $22 million which accumulated
through August 1993, are subject to an annual limitation of $2.1 million. From
September 1993 through October 1994, the Company incurred additional NOLs of
approximately $3.0 million, and although a change in ownership occurred in
October 1994, the annual limitation attributable to such a change in ownership
is anticipated to exceed the NOLs. The Smith NOLs of approximately $10.3 million
to which the Company succeeded in the Smith Acquisition are subject to an annual
limitation that the Company currently expects will be $1.0 million.
The Company's NOLs accumulated through 1994 will expire principally in
2005 through 2010.
For alternative minimum tax purposes, NOLs may be further adjusted to
determine the allowable alternative tax NOL, and the alternative tax NOLs can be
used to offset no more than 90% of alternative minimum taxable income.
Accordingly, the Company may owe an alternative minimum tax even though its NOLs
otherwise eliminated its regular tax liability.
Changes in Prices and Inflation
The Company's revenues and the value of its oil and gas properties have
been and will continue to be affected by changes in oil and gas prices. The
Company's ability to maintain its current borrowing capacity and to obtain
additional capital on attractive terms is also substantially dependent on oil
and gas prices. Oil and gas prices are subject to significant seasonal and other
fluctuations that are beyond the Company's ability to control or predict.
Although certain of the Company's costs and expenses are affected by the level
of inflation, inflation has not had a significant effect on the Company's
results of operations during 1993, 1994 or 1995.
In an effort to reduce the effects of the volatility of the price of
oil and gas on the Company's operations, management has adopted a policy of
hedging oil and gas prices, usually when such prices are at or in excess of the
prices anticipated in the Company's operating budget, through the use of
commodity futures, options, forward contracts and swap agreements. Hedging
transactions are limited by the Board of Directors such that no transaction may
fix an oil and gas price for a term of more than 12 months, and the aggregate
oil and gas production covered by all transactions may not exceed 50% of the
Company's budgeted production for any 12-month period from the date of the
transaction or 75% of the Company's budgeted production for any single month
from the date of the transaction. By hedging its oil and gas prices, the Company
intends to mitigate the risk of future declines in oil and gas prices. Under
certain contracts should oil or gas prices increase above the contract rate, the
Company will not participate in the higher prices for the production.
The Company has entered into a number of gas price swap transactions
under which the Company receives a fixed price per MMBtu and pays a floating
price based on the settlement prices for the NYMEX Natural Gas futures contract
for the delivery month. In total under these contracts the Company has fixed the
price of 3,345,000 MMBtu of gas for the period January to September 1996 at an
average price of $1.935 per MMBtu.
18
<PAGE>
The Company may enter into certain interest rate hedging contracts. By
hedging its interest rate under its credit facility, the Company would intend to
mitigate the risk of future increases in interest rates. Should interest rates
decrease below the contract rate, the Company will not participate in the lower
interest rate for the portion of the credit facility under the hedging contract.
The Company currently has no interest rate hedging contracts in place.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Financial Statement
Schedules included on page 23 herein.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEMS 10 through 13.
The information for these items has been omitted inasmuch as the
registrant will file a definitive proxy statement with the Commission pursuant
to Regulation 14A within 120 days of the close of the fiscal year ended December
31, 1994, except for the information regarding executive officers that is
provided in a separated caption, "Executive Officers of the Registrant," and is
included in Item 1 and 2 in Part I of this Form 10-K.
19
<PAGE>
Cairn Energy USA, Inc.
Index to Consolidated Financial Statements
Page
Report of Independent Auditors............................................ 21
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995............ 22
Consolidated Statements of Operations for the years ended
December 31, 1993, 1994, and 1995........................................25
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1993, 1994, and 1995..................................27
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995....................................... 29
Notes to Consolidated Financial Statements.............................. 31
20
<PAGE>
Report of Independent Auditors
Board of Directors
Cairn Energy USA, Inc.
We have audited the accompanying consolidated balance sheets of Cairn Energy
USA, Inc. (the Company), as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cairn
Energy USA, Inc., at December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
February 16, 1996
21
<PAGE>
Cairn Energy USA, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1995
-------- --------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,182 $ 3,553
Accounts receivable 2,031 4,340
Receivable from Cairn Energy PLC 48 --
Prepaid expenses 136 447
-------- --------
Total current assets 4,397 8,340
Property and equipment, at cost:
Oil and gas properties, based on full-cost accounting 129,758 157,100
Other equipment 564 712
-------- --------
130,322 157,812
Less accumulated depletion, depreciation, and amortization 46,373 59,905
-------- --------
83,949 97,907
Deferred charges, net of amortization 835 564
Total assets $ 89,181 $106,811
======== ========
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $ 1,286 $ 499
Accrued lease operating expenses 528 578
22
<PAGE>
Accrued well costs 1,701 6,194
Deferred revenue 152 --
Other accrued liabilities 216 254
-------- --------
Total current liabilities 3,883 7,525
Long-term debt 23,500 15,500
Contingencies (Notes 3, 7, and 8) -- --
Stockholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized -- --
Common stock, $.01 par value: 30,000,000 shares authorized;
shares issued and outstanding: December 31, 1994 - 15,963,0 160 176
and December 31, 1995 - 17,550,480
Additional paid-in capital 77,983 94,720
Accumulated deficit (16,345) (11,110)
Total stockholders' equity 61,798 83,786
-------- --------
Total liabilities and stockholders' equity $ 89,181 $106,811
======== ========
</TABLE>
23
<PAGE>
See accompanying notes.
24
<PAGE>
Cairn Energy USA, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1993 1994 1995
------- ------ ------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Oil and gas $13,490 $9,494 $25,742
Other 59 206 217
------- ------ -------
Total revenues 13,549 9,700 25,959
Expenses:
Lease operating expenses and production taxes 3,826 2,274 3,101
Depletion, depreciation, and amortization 5,654 4,328 13,616
Administrative expense 1,266 1,330 1,507
Interest 1,045 1,114 2,500
------- ------ -------
Total expenses 11,791 9,046 20,724
------- ------ -------
Income before extraordinary item 1,758 654 5,235
Extraordinary item - loss on early extinguishment of debt (284) - -
------- ------ -------
Net income $ 1,474 $ 654 $ 5,235
======= ====== =======
Net income per common and common equivalent share:
Income before extraordinary item $ .16 $ .05 $ .32
======= ======= =======
Net income $ .13 $ .05 $ .32
======= ======= =======
Weighted average common and common equivalent shares
used in per share computations 11,260 13,259 16,422
======= ======= =======
</TABLE>
See accompanying notes.
25
<PAGE>
Cairn Energy USA, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Accumulated Total
Paid-In Stockholder's
---------------- ------------------- --------- ------------ -------------
Shares Amount Shares Amount Capital Deficit Equity
------ --------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992
200 $ 2 8,472 $ 85 $ 41,279 $ (18,473) $ 22,893
Common stock issued for cash, net
- - 4,000 40 17,093 - 17,133
Redemption of preferred stock
(200) (2) - - (3,598) - (3,600)
Other - - (9) - (10) - (10)
Net income - - - - - 1,474 1,474
-------- --------- -------- --------- -------- ------------ ------------
Balance at
December 31, 1993 - - 12,463 125 54,764 (16,999) 37,890
Common stock issued for oil and
gas assets of Smith
- - 3,500 35 23,219 - 23,254
Net income - - - - - 654 654
-------- --------- -------- --------- -------- ------------ ------------
Balance at
December 31, 1994 - - 15,963 160 77,983 (16,345) 61,798
Common stock issued for cash, net
- - 1,562 16 16,573 - 16,589
Exercise of stock
options - - 20 - 102 - 102
Other - - 5 - 62 - 62
Net income - - - - - 5,235 5,235
-------- --------- -------- --------- -------- ------------ ------------
Balance at
December 31, 1995 - $ - 17,550 $ 176 $ 94,720 $ (11,110) $ 83,786
======== ========= ======== ========= ======== ============ ============
</TABLE>
See accompanying notes.
27
<PAGE>
Cairn Energy USA, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Operating Activities
Net income $ 1,474 $ 654 $ 5,235
Adjustments to reconcile net income
to net cash provided by operating activities:
Depletion, depreciation, and amortization 5,654 4,328 13,616
Amortization of loan costs 130 188 355
Extraordinary item 284 -- --
Loss on disposal of other equipment -- 35 --
Changes in operating assets and liabilities:
Accounts receivable (40) 473 (2,309)
Note receivable 54 -- --
Prepaid expenses 52 32 (311)
Accounts payable 37 811 (788)
Accrued liabilities 922 (272) 151
Deferred revenue -- 152 (152)
Advances (repayments) from (to) Cairn Energy PLC (184) (48) 48
------- ------- -------
Net cash provided by operating activities 8,383 6,353 15,845
Investing Activities
Exploration and development expenditures (10,093) (20,501) (28,668)
Acquisition of oil and gas assets of Smith -- (281) 3,900
Proceeds from sale of oil and gas properties 747 3,727 1,920
Additions to other equipment (173) (157) (234)
Proceeds from disposal of other equipment -- 4 2
Net cash used in investing activities (9,519) (17,208) (23,080)
Financing Activities
Issuance of common stock 17,133 -- 16,588
Redemption of preferred stock (3,600) -- --
Repayment of advances from Cairn Energy PLC (2,608) -- --
Proceeds from long-term debt 20,700 14,000 11,000
Reductions of long-term debt (30,335) (100) (19,000)
Financing costs and other (726) (1,206) 18
Net cash provided by financing activities 564 12,694 8,606
Increase (decrease) in cash and cash equivalents (572) 1,839 1,371
Cash and cash equivalents at beginning of year 915 343 2,182
-------- -------- --------
Cash and cash equivalents at end of year $ 343 $ 2,182 $ 3,553
======== ======== ========
Supplemental cash flow information -
interest paid in cash $ 941 $ 943 $ 2,143
======== ======== ========
</TABLE>
See accompanying notes.
30
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
1. Significant Accounting and Reporting Policies
Principles of Consolidation and Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Cairn Energy USA,
Inc. (the Company) and its wholly owned subsidiary. All intercompany accounts
and transactions have been eliminated in consolidation.
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 these estimates.
The Company's former principal shareholder, Cairn Energy PLC paid certain
operating and administrative expenses for the Company. Prior to the sale of all
remaining shares of the Company's common stock held by Cairn Energy PLC during
1995, payments that had not been reimbursed by the Company were classified as
"Advances from Cairn Energy PLC" in current liabilities. Amounts reimbursed in
excess of these payments were classified as "Receivable from Cairn Energy PLC"
in current assets.
The Company is engaged in the exploration for and production of oil and gas.
Property and Equipment
The Company follows the full-cost method of accounting for its investments in
oil and gas properties. The Company capitalizes all direct and certain indirect
costs associated with acquisition, exploration, and development costs of oil and
gas properties. Proceeds from sales of oil and gas properties are credited to
the full-cost pool. Capitalized costs of proved oil and gas properties are
amortized on a unit-of-production method using proved oil and gas reserves as
determined by independent petroleum engineers. Costs amortized include all
capitalized costs (less accumulated amortization); the estimated future
expenditures (based on current costs) to be incurred in developing proved
reserves; and estimated dismantlement, restoration, and abandonment costs.
Estimated future abandonment, dismantlement, and site restoration costs include
costs to dismantle, relocate, and dispose of the Company's offshore production
platforms, gathering systems, wells, and related structures. Such costs related
to onshore properties, net of estimated salvage values, are not expected to be
significant.
31
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
1. Significant Accounting and Reporting Policies (continued)
The Company capitalized approximately $615,000, $866,000, and $1,200,000 of
internal costs during the years ended December 31, 1993, 1994, and 1995,
respectively. Such capitalized costs include salaries and related benefits of
individuals directly involved in the Company's acquisition, exploration, and
development activities, based on a percentage of their time devoted to such
activities.
Under rules of the Securities and Exchange Commission ("SEC") for the full-cost
method of accounting, the net carrying value of oil and gas properties is
limited to the sum of the present value (10% discount rate) of estimated future
net cash flows from proved reserves, based on period-end prices and costs, plus
the lower of cost or estimated fair value of unproved properties.
Furniture and equipment are depreciated on a straight-line basis based on the
estimated useful lives of the respective assets.
Cash and Cash Equivalents
Cash and cash equivalents include certificates of deposit or other highly liquid
investments with maturities of three months or less when purchased.
Deferred Charges
Deferred charges include loan costs that are amortized on a straight-line basis
over the terms of the respective loans. Accumulated amortization at December 31,
1993, 1994, and 1995, was $89,000, $260,000, and $355,000, respectively.
Concentrations of Credit Risk
The Company operates exclusively in the oil and gas industry in the United
States. Accounts receivable terms are generally for 30 days. The Company does
not require collateral. Management periodically performs reviews as to the
creditworthiness of their customers. The Company has not sustained any
significant credit losses on sales of oil and gas.
32
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
1. Significant Accounting and Reporting Policies (continued)
Overhead Reimbursement Fees
Fees from overhead charges billed to working-interest owners, including the
Company, of $429,000, $192,000, and $4,000 for the years ended December 31,
1993, 1994, and 1995, respectively, have been classified as a reduction of
general and administrative expenses in the accompanying consolidated statements
of operations.
Gas Imbalances
The Company follows the sales method of accounting for gas imbalances, which
recognizes over and under lifts of gas when sold, to the extent sufficient gas
reserves or balancing agreements are in place. Gas revenues are not
significantly different from the Company's share of production.
Oil and Gas Hedging Activities
In an effort to reduce the effects of the volatility of the price of oil and gas
on the Company's operations, management has adopted a policy of hedging oil and
gas prices whenever such prices are in excess of the prices anticipated in the
Company's operating budget and profit plan through the use of commodity swap
agreements with major financial institutions. These agreements involve the
receipt of fixed priced amounts in exchange for variable payments based on NYMEX
prices and specific volumes. The differential to be paid or received is recorded
in the month of the related production and recognized as a component of oil and
gas revenues. Hedging transactions are limited by the Board of Directors to 50%
of budgeted production for the succeeding 12 months and no more than 75% of
budgeted production in any one month. The Company does not hold or issue
financial instruments for trading purposes.
Earnings (Loss) Per Common Share
Earnings (loss) per common share data is computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding. For
purposes of these computations for the year ended December 31, 1993, the Series
A Preferred Stock is classified as a common stock equivalent. Fully diluted
earnings per share data is not presented because it would not differ from the
amounts shown.
33
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
1. Significant Accounting and Reporting Policies (continued)
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued its
Statement No. 123, "Accounting for Stock Based Compensation" ("FAS 123") which
establishes an alternative method of accounting for stock based compensation to
the method set forth in Accounting Principles Board Opinion No. 25 ("ARB 25").
FAS 123 encourages, but does not require, adoption of a fair valued based method
of accounting for stock options and similar equity instruments granted to
employees. The Company will continue to account for such grants under the
provisions of ARB No. 25 and will adopt the disclosure provisions of FAS 123 in
the first quarter of 1996. Accordingly, adoptions of FAS 123 will not effect the
Company's financial statements.
2. Acquisition of Oil and Gas Assets of Smith Offshore Exploration II
On October 10, 1994, the Company purchased substantially all of the oil and gas
assets (the Assets) of Smith Offshore Exploration II (Smith) from Phemus
Corporation (Phemus), a subsidiary of the President and Fellows of Harvard
College and sole stockholder of Smith, in exchange for 4,500,000 shares of the
Company's common stock, subject to adjustment pursuant to the terms of the
Agreement, and the assumption of certain liabilities related to the Smith
Assets. The acquisition gave the Company interests in 22 additional blocks in
the Outer Continental Shelf of the Gulf of Mexico. The Agreement provided that
1,000,000 of the shares issued be placed in escrow (the Escrow Shares) at the
closing and, thereafter, the Escrow Shares and certain warrants to acquire up to
a maximum of 800,000 shares of Common Stock would be issued to Phemus or
returned to the Company based on a valuation of oil and gas reserves
attributable to the Assets at a date to be selected prior to June 30, 1995, but
could be extended under certain circumstances until December 31, 1995.
In order for Phemus to receive all 1,000,000 Escrow Shares, this valuation had
to be equal to or greater than $31,500,000. If the valuation was less than
$31,500,000, 100,000 of such Escrow Shares would be returned to the Company for
each $750,000 of value below $33,750,000 (rounded to the nearest $750,000 below
$33,750,000), and the balance would be released to Phemus. If the valuation was
less than $26,250,000, Smith and Phemus, jointly and severally, would be
obligated to pay the Company the amount by which $26,250,000 exceeded the
valuation, up to a maximum of $3,900,000.
34
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
2. Acquisition of Oil and Gas Assets of Smith Offshore Exploration II
(continued)
The acquisition of Smith did not have a material effect on the results of
operations of the Company for 1994.
In conjunction with this transaction, the Company's principal shareholder, Cairn
Energy PLC, sold 2,000,000 shares of the Company's common stock to Phemus at a
price of $7.50 per share. Cairn Energy PLC also sold 2,500,000 shares of Company
common stock resulting in Cairn Energy PLC reducing its ownership to
approximately 17.5% of the Company's common stock in 1994.
On the basis of a valuation of the Smith properties as of June 30, 1995, by
independent petroleum engineers reflecting a range of values below the Minimum
Valuation, Phemus and the Company entered into an agreement regarding the
purchase price adjustment under the Smith Acquisition Agreement pursuant to
which Phemus returned the Escrow Shares and paid $3.9 million to the Company.
The $3.9 million payment to the Company is reflected as a reduction of the cost
of the Smith properties. There was no adjustment in the Company's financial
statements for the return of the Escrow Shares because for financial accounting
purposes, the Escrow Shares were never recorded as having been issued.
3. Long-Term Debt
The Company has a $50 million credit facility (the "INCC Credit Agreement") with
Internationale Nederlanden (U.S.) Capital Corporation (INCC) and Mees Pierson,
under which the current borrowing base is $45 million. The INCC Credit Agreement
is secured by substantially all of the Company's assets. It contains financial
covenants which require the Company to maintain a ratio of current assets to
current liabilities (excluding the current portion of related debt) of no less
than 1.0 to 1.0 and a tangible net worth of not less than $40 million. The
Company is currently in compliance with such financial covenants. At December
31, 1995, the Company had outstanding borrowings of $15.5 million and a letter
of credit of $4.5 million under this facility. Outstanding borrowings accrue
interest at either INCC's fluctuating base rate or INCC's reserve adjusted
Eurodollar rate plus 1.5%, at the Company's option. On March 31, 1997, the
borrowings outstanding under this facility will be converted to a term loan that
requires various quarterly principal payments through December 31, 1999.
Interest is payable quarterly on any base rate borrowings and payable on
maturity of any Eurodollar borrowings. The
35
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
3. Long-Term Debt (continued)
weighted average interest rates on borrowings under the facility at December 31,
1994 and 1995 were 7.7% and 7.1%, respectively.
The INCC Credit Agreement does not permit the Company to pay or declare any cash
or property dividends or otherwise make any distribution of capital. The Company
has obligated to pay a quarterly fee equal to one-half of 1% per annum of the
unused portion of the borrowing base under the facility and a Letter of Credit
fee for each Letter of Credit in the amount of one and one-half percent (1.5%)
per annum of the face amount of such Letter of Credit.
The Company's ability to borrow under the INCC Restated Credit Agreement is
dependent upon the reserve value of its oil and gas properties. If the reserve
value of the Company's borrowing base declines, the amount available to the
Company under the INCC Credit Agreement will be reduced and, to the extent that
the borrowing base is less than the amount then outstanding under the INCC
Credit Agreement, the Company will be obligated to repay such excess amount on
30-days' notice from INCC or to provide additional collateral. INCC and Mees
Pierson have substantial discretion in determining the reserve value of the
borrowing base.
At December 31, 1995, the future minimum principal payments on the Company's
long-term debt subsequent to December 31, 1996, were: $5.8 million in 1997; $5.2
million in 1998; and $4.5 million in 1999, based on borrowings outstanding at
December 31, 1995.
The Company recorded an extraordinary charge of approximately $284,000 in 1993
in connection with the write-off of unamortized issuance costs attributable to a
previous credit facility.
The carrying value of the Company's long-term debt approximates fair value.
4. Stockholders' Equity
The Company's Certificate of Incorporation provides that its Board of Directors
can designate and issue up to 5,000,000 shares of preferred stock, par value
$0.01 per share, in one or more series or classes with such dividend rate,
redemption provisions, liquidation preference, conversion provisions, and voting
rights as the board of directors might designate. In 1992, the Company issued
200,000 preferred shares designated as Series A Preferred Stock to Cairn Energy
PLC. Each share of Series A Preferred Stock was convertible, at the holder's
option, into 9.68 shares of Common Stock at any time after September 29, 1993.
The Series A Preferred Stock was redeemed in accordance with its terms on August
9, 1993, at a redemption price of $18.00 per share.
A public offering of 4,000,000 shares of Common Stock at an offering price of
$4.75 per share was closed on August 6, 1993. The net proceeds, aggregating
approximately $17.1 million, were used to repay $2.6 million of advances from
Cairn Energy PLC, to redeem the Series A Preferred Stock, and to reduce
borrowings under the Company's credit agreement (Note 3) by $10.6 million.
36
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
4. Stockholders' Equity (continued)
On October 10, 1994, the Company purchased substantially all of the oil and gas
assets of Smith in exchange for 4,500,000 shares of the Company's common stock,
subject to adjustment pursuant to the terms of the Agreement and the assumption
of certain liabilities (Note 2). For accounting purposes, the 1,000,000 Escrow
Shares were not recorded as issued as a result of the June 30, 1995 valuation.
A public offering of 1,562,500 shares of Common Stock at an offering price of
$11.25 per share was closed on September 18, 1995. The net proceeds, aggregating
approximately $16.6 million, were used to reduce borrowings under the Company's
credit agreement (Note 3). In conjunction with this offering, the Company's
principal shareholder, Cairn Energy PLC, sold all of its remaining 2,750,000
shares of the Company's common stock.
5. Income Taxes
The reconciliation of income taxes computed at the U.S. federal statutory tax
rates to income tax expense for the years ended December 31, 1993, 1994, and
1995, is as follows (in thousands):
<TABLE>
<CAPTION>
Liability Method
------------------------------------
1993 1994 1995
----- ------ -------
<S> <C> <C> <C>
Income tax expense at
statutory rate $ 502 $ 222 $ 1,780
Utilization of net operating loss (502) (222) (1,780)
$ - $ - $ -
===== ====== =======
</TABLE>
The computation of the net deferred tax asset (liability) at December 31, 1993
and 1994, follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $(7,302) $(11,814)
Deferred tax assets:
Net operating loss carryforward 12,641 17,495
Other 15 -
------- --------
5,354 5,681
Less valuation allowance 5,354 5,681
$ - $ -
======= ========
</TABLE>
37
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
5. Income Taxes (continued)
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $51 million. The net operating
losses will expire principally in 2005 through 2010, if not previously utilized.
Utilization of approximately $22 million of net operating loss accumulated
through August 1993, is subject to an annual limitation of $2.1 million because
of changes of ownership, as defined in the Internal Revenue Code. Utilization of
approximately $10.3 million of net operating losses is subject to an annual
limitation of approximately $1 million per year due to the change in ownership
of Smith. The transactions in connection with the acquisition of the oil and gas
assets of Smith and sales of Common Stock by Cairn Energy PLC caused a further
change in ownership of the Company as defined in the Internal Revenue Code. The
Company's annual limitation due to this change in ownership exceeds $5 million
per year. As a result, the Company does not believe this stock ownership change
caused any material adverse federal income tax consequences. Additional net
operating loss limitations may be imposed because of subsequent changes in stock
ownership of the Company.
6. Employee Benefit Plans
The Company sponsors a plan to provide retirement benefits under the provisions
of Section 401(k) of the Internal Revenue Code (the 401(k) Plan) for all
full-time employees. Employees may elect to contribute up to 15% of their
compensation. The Company matches 100% of the employee's contributions, up to 5%
of the employee's compensation. Beginning in 1995, at the end of each year, the
Company contributes Company common stock to each eligible employee's account
valued the equivalent of 5% of each such employee's compensation. Benefits under
the 401(k) Plan are limited to the assets of the 401(k) Plan. The Company's
contributions to the 401(k) Plan were $75,824, $98,385, and $62,678 for the
years ended December 31, 1993, 1994, and 1995, respectively.
Company's Employee Incentive Bonus Plan, which was adopted in 1993 and revised
in 1994. The Employee Incentive Bonus Plan rewards those employees when the
Company has added proved reserves for the year in excess of its production for
the year, but only when such additional reserves have a finding and development
cost less than $1.00 per Mcf. Under the Employee Incentive Bonus Plan, the bonus
cannot exceed $250,000 in the aggregate and is allocated among the specified
employees based upon preset percentages except that individual bonuses can not
exceed 50% of salary. Any bonus earned for the year vests and is paid out to the
employees in three equal annual installments, subject to continued employment
with the Company. Based on reserve additions, the Company's employees were
awarded bonuses in the aggregate amount of $106,875, $242,028, and $0 for the
years ended December 31, 1993, 1994, and 1995, respectively, under the Employee
Incentive Bonus Plan. Such bonuses are being accrued over the respective vesting
periods.
In May 1993, the Company's stockholders ratified the adoption of the 1993 Stock
Option Plan and the 1993 Directors' Stock Option Plan. The 1993 Stock Option
Plan authorizes the granting of incentive stock options and nonstatutory stock
options to key employees, including executive officers and directors of the
Company. The Company's Compensation Committee administers the 1993 Stock Option
Plan. Options granted under the 1993 Stock Option Plan may be either incentive
stock options or nonstatutory stock options, as determined in the discretion of
the Compensation Committee. The exercise price per share for an option shall be
any price determined by the Compensation Committee; provided, however, that the
exercise price per share of incentive stock options shall not be less than the
fair market value of the Common Stock on the date of the grant of the option.
Each option is
38
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
6. Employee Benefit Plans
exercisable in such amounts, at such intervals, and on such terms as the
Compensation Committee determines in its sole discretion. However, no option
shall be exercisable during the six-month period following the date of its
grant, and no option shall be exercisable more than 10 years after the date of
its grant. In May 1995, the Company's stockholders approved an increase in the
number of shares reserved for issuance under the 1993 Stock Option Plan from
400,000 shares to 650,000 shares.
The 1993 Directors' Stock Option Plan authorizes the granting of nonstatutory
stock options to directors of the Company who are not and have not been
employees of the Company or any affiliated corporations except Cairn Energy PLC
(a Nonemployee Director). On the date a Nonemployee Director begins each term
that he serves as a member of the Board of Directors, such Nonemployee Director
will automatically receive an option to purchase 10,000 shares of Common Stock.
The exercise price per share for an option granted under the 1993 Directors'
Stock Option Plan shall be the fair market value of the Common Stock on the date
of the grant. Each option is fully exercisable six months after the date of its
grant. However, no option may be exercised more than five years after the date
of its grant. A total of 150,000 shares of Common Stock has been reserved for
issuance under the 1993 Directors' Stock Option Plan.
Option transactions are summarized below:
<TABLE>
<CAPTION>
Number of Option Price
Shares Range
--------- ------------------
<S> <C> <C>
Outstanding at December 31, 1992 -- --
Granted 260,000 $ 5.125 - $ 5.75
-------
Outstanding (67,500 options exercisable) at December 31, 1993
260,000 $ 5.125 - $ 5.75
Granted 200,000 $ 6.00 - $ 6.875
-------
Outstanding (171,000 options exercisable) at December 31, 1994
460,000 $ 5.125 - $ 6.875
Exercised (20,000) $5.125
Granted 290,000 $10.00 - $12.50
-------
Outstanding (324,500 options exercisable) at December 31, 1995
730,000 $ 5.25 - $12.50
=======
</TABLE>
39
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
7. Oil and Gas Hedging Activities and Commitments
While the use of hedging arrangements limits the downside risk of adverse price
movements, it may also limit future gains from favorable movements. All hedging
is accomplished pursuant to exchange-traded contracts or master swap agreements
based upon standard forms. The Company addresses market risk by selecting
instruments whose value fluctuations correlate strongly with the underlying
commodity being hedged. Credit risk related to hedging activities, which is
minimal, is managed by requiring minimum credit standards for counterparties,
periodic settlements, and mark to market valuations. The Company has not
historically been required to provide any significant amount of collateral
relating to its hedging activities.
At December 31, 1995, the Company has entered into various swap agreements to
fix selling prices for natural gas at a weighted average NYMEX price of $1.962
per MMBtu for 2,280,000 MMBtus during 1996. While these contracts have no
carrying value, their fair value (the estimated amount that would have been paid
by the Company upon termination of the swaps at December 31, 1995) was
approximately $700,000.
During the years ended December 31, 1993, 1994, and 1995, oil and gas revenues
were reduced by $0 and $54,000 and increased by $323,000, respectively, as a
result of hedging transactions.
8. Legal Proceedings and Claims
The Company is subject to certain legal proceedings and claims that arise in the
ordinary conduct of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions, will not materially
affect the consolidated financial condition or results of operations of the
Company.
9. Operations
Nature of Operations
The Company, explores for, develops and produces oil and gas, principally in the
shallow waters of the Outer Continental Shelf ("OCS") of the Gulf of Mexico. The
Company's strategy is to expand its reserve base and production principally
through exploration and associated development drilling. The OCS of the Gulf of
Mexico is a well-established area of oil and gas production where the Company's
management and staff have both experience and expertise and where the
application of advances in 3-D and 2-D seismic and computer-aided exploration
technology is particularly suited. The Company participates mainly on a
nonoperating basis, thereby minimizing staffing requirements and overhead costs.
As a nonoperator, the Company generally preserves its rights through operating
and other agreements to influence and in many instances initiate exploration and
development projects in which it is participating. Exploration and development
activities are directed by a small, experienced technical team which makes use
of extensive in-house computer capabilities.
The Company's principal producing properties are located in the Gulf of Mexico
and consist of East Cameron Blocks 331/332, which began production in the fourth
quarter of 1994, Ship Shoal Block 251 and Matagorda Block 710, which begin
production in the first quarter of 1995, and Galveston 343/363 Field which began
production in 1990. Revenues from these four properties comprised approximately
85.2% of the Company's total revenues for the year ended December 31, 1995.
10. Supplementary Information
Capitalized Costs Related to Oil and Gas Producing Activities
40
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
The following table summarizes capitalized costs related to oil and gas
producing activities and the related amounts of accumulated depletion,
depreciation, and amortization at December 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- --------
<S> <C> <C>
Proved oil and gas properties $101,549 $126,898
Unproven properties 28,209 30,202
Accumulated depletion, depreciation, and amortization (46,012) (59,502)
-------- --------
Net capitalized costs $ 83,746 $ 97,598
======== ========
</TABLE>
41
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
10. Supplementary Information (continued)
The unproven properties are excluded from the amortization base and consist
primarily of acreage acquisition costs, related geological and geophysical costs
and exploration drilling costs in progress or awaiting evaluation. The majority
of these costs are expected to be evaluated during the Company's 1996 and 1997
drilling programs.
Costs Incurred in Property Acquisition, Exploration, and Development Activities
The table below represents costs incurred in oil and gas producing activities
(in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Acquisition of properties:
Proved $ -- $ 1,405 $ --
Unproved -- 22,939 (3,900)(1)
Development costs 1,106 11,683 14,105
Exploration costs 8,987 9,872 19,057
-------- -------- --------
$ 10,093 $ 45,899 $ 29,262
======== ======== ========
</TABLE>
(1) Represents the purchase price adjustment under the Smith Acquisition
Agreement. See Note 2.
42
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
Results of Operations from Oil and Gas Producing Activities
The table below presents revenue and expenses related to oil and gas producing
activities (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Oil and gas sales $13,490 $ 9,494 $25,742
Expenses:
Operating costs 3,613 2,159 2,289
Production taxes 213 115 812
Depletion, depreciation, and amortization 5,551 4,255 13,490
------- ------- -------
9,377 6,529 16,591
------- ------- -------
Income from oil and gas producing activities $ 4,113 $ 2,965 $ 9,151
======= ======= =======
Depletion rate per equivalent Mcf $ .94 $ .94 $ 1.04
======= ======= =======
</TABLE>
43
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
10. Supplementary Information (continued)
The Company's oil and gas production is sold to various purchasers. The
following table lists purchasers of the Company's natural gas which accounted
for more than 10% of total revenues for the years indicated:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Coastal Corporation - - 22%
Dow Hydrocarbons and Resources, Inc. 32% 21% -
Walter Oil and Gas Corporation 14% 11% -
Mark Resources Corporation - 11% -
Samedan Oil Corporation - - 12%
Amoco Production Co. - 20% -
</TABLE>
During 1995, Samedan Oil Corporation also purchased oil from the Company
representing approximately 20% of the Company's total revenues. Management
believes that the loss of these purchasers would not have a material impact on
the Company's consolidated financial condition or consolidated results of
operations.
Reserve Quantity Information (Unaudited)
All of the Company's reserves are located in the continental United States. The
Company's proved reserves were prepared by the Company and reviewed by Ryder
Scott Company, an independent petroleum engineering firm, at December 31, 1994
and 1995.
Proved reserves (developed and undeveloped) are estimated quantities of oil and
gas that geological and engineering data demonstrate with reasonable certainty
to be recoverable in future years from known reservoirs under current economic
and operating conditions. The estimation of reserves is an interpretive process
that is subject to continuing revision as additional information becomes
available.
The Company's proved developed reserves are categorized as such based on the
availability of current production data, open-hole and cased-hole logs analyses,
and other productivity indications.
The estimation of proved undeveloped reserves was limited to direct offset
locations to existing wellbores and to geological formations that have shown to
be productive in the area.
44
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
10. Supplementary Information (continued)
Reserve estimates are imprecise and may be expected to change as additional
information becomes available. Furthermore, estimates of oil and gas reserves,
of necessity, are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated. The Company
emphasizes with respect to the estimates prepared by independent petroleum
engineers that the discounted future net cash inflows should not be construed as
representative of the fair market value of the proved oil and gas properties
belonging to the Company, since discounted future net cash inflows are based
upon projected cash inflows which do not provide for changes in oil and gas
prices nor for escalation of expenses and capital costs. The meaningfulness of
such estimates is highly dependent upon the accuracy of the assumptions upon
which they are based.
The following is a reconciliation of the Company's estimated net quantities of
proved developed and undeveloped oil and gas reserves for the years ended
December 31, 1992, 1993, and 1994 (in thousands):
<TABLE>
<CAPTION>
Gas Oil
(Mmcf) (Mbbl)
------ -----
<S> <C> <C>
Balance at December 31, 1992 46,948 1,318
Sales of reserves in-place (674) (26)
Revisions of previous estimates 547 60
Extensions and discoveries 11,287 907
Production (5,226) (116)
------- -----
Balance at December 31, 1993 52,882 2,143
Acquisitions of reserves in-place 3,018 32
Sales of reserves in-place (2,902) (256)
Revisions of previous estimates (1,690) (34)
Extensions and discoveries 13,515 527
Production (3,940) (100)
------- -----
Balance at December 31, 1994 60,883 2,312
Acquisitions of reserves in-place - -
Sales of reserves in-place (2,060) (111)
Revisions of previous estimates (4,596) (277)
Extensions and discoveries 23,079 790
Production (10,403) (431)
------- -----
Balance at December 31, 1995 66,903 2,283
======= =====
Proved developed reserves:
December 31, 1992 24,096 603
December 31, 1993 20,637 525
December 31, 1994 44,893 1,813
December 31, 1995 52,996 1,292
</TABLE>
45
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
10. Supplementary Information (continued)
The Company's principal developed properties are located in the Gulf of Mexico,
and are East Cameron Blocks 331/332, Ship Shoal Block 251, Matagorda Block 710,
and Galveston 343/363 Field. The estimated proved reserves for these four
properties were approximately 330 and 236 billion equivalent cubic feet (Bcfe)
at December 31, 1994, and December 31, 1995, respectively. As of December 31,
1994 and 1995, the Company's net interest in the proved reserves of these
properties was approximately 56.4 Bcfe and 40.7 Bcfe, respectively. The
Company's development expenditures for 1996 are anticipated to be approximately
$26 million.
Standardized Measure of Discounted Future Net Cash Flows from Estimated
Production of Proved Oil and Gas Reserves After Income Taxes (Unaudited)
In the opinion of the Company's management, no major discovery or adverse event
has occurred since December 31, 1995, that would cause a significant change in
proved reserve quantities as estimated at December 31, 1995. Reserves cannot be
measured exactly because reserve estimates involve subjective judgments. The
estimates must be reviewed periodically and adjusted to reflect additional
information gained from reservoir performance, new geological and geophysical
data, and economic changes. The values expressed are estimates only and may not
reflect realizable values or fair market values of the oil and gas ultimately
extracted and recovered. The estimated future net revenues may not accurately
reflect proceeds of production to be received in the future from the sale of
crude oil, condensate, and natural gas currently owned. The present value of
estimated future net revenues does not necessarily reflect the actual costs that
would be incurred to acquire equivalent oil and gas reserves.
The following table sets forth a standardized measure of the discounted future
net cash flows attributable to the Company's proved oil and gas reserves. Future
cash inflows were computed by applying year-end oil and gas prices to the
estimated future production of proved reserves. The future production and
development costs represent the estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves, assuming
continuation of existing economic conditions. The timing of future development
costs is based on management's evaluation of the Company's projected cash flows
and financing resources. Future income tax expenses were computed by applying
statutory income tax rates to the difference between pretax net cash flows
relating to the Company's proved oil and gas reserves and the tax basis of
proved oil and gas properties and available net operating loss carryforwards and
statutory depletion, reduced by investment tax credits. Discounting the annual
net cash inflows at 10% illustrates the impact of timing on these future cash
inflows.
46
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
10. Supplementary Information (continued)
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1995
-------- --------
(in thousands)
<S> <C> <C>
Future cash inflows $142,871 $204,357
Future production costs 22,255 27,261
Future development costs 14,517 18,884
-------- --------
Future net cash inflows before future income taxes 106,099 158,212
Future income taxes 5,481 16,378
-------- --------
Future net cash inflows 100,618 141,834
Adjustments to discount future annual inflows at 10% 25,983 38,272
-------- --------
Standardized measure of discounted future net cash
inflows $ 74,635 $103,562
======== ========
</TABLE>
The average price for natural gas in the above computations was $1.72 and $2.40
per Mcf at December 31, 1994 and 1995, respectively. The average price used for
crude oil in the above computations was $15.67 and $18.27 per barrel at December
31, 1994 and 1995, respectively.
47
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
10. Supplementary Information (continued)
Summary of Changes in the Standardized Measure of Discounted Future Net
Cash Flows from Estimated Production of Proved Oil and Gas Reserves After Income
Taxes (Unaudited)
The following table summarizes the principal factors comprising the changes in
the standardized measure of discounted future cash inflows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Standardized measure at beginning of year $ 48,161 $ 67,593 $ 74,635
Sales and transfers, net of production costs (9,664) (7,220) (22,641)
Net change in sales prices and production costs 145 (16,683) 15,078
Acquisitions of reserves in-place -- 1,531 --
Extensions, discoveries, and improved recovery, 31,999 19,495 46,251
net of future production and development costs
Changes in estimated future
development costs (3,041) (7,085) (16,719)
Development costs incurred
during the period 1,106 11,683 14,105
Revisions of quantity estimates 1,047 (2,028) (8,803)
Sales of reserves in place (954) (6,119) (3,262)
Accretion of discount 5,550 7,834 7,870
Net change in income taxes (5,073) 7,354 (8,630)
Changes in production rates
(timing) and other (1,683) (1,720) 5,678
-------- -------- ---------
Standardized measure at end of year $ 67,593 $ 74,635 $ 103,562
======== ======== =========
</TABLE>
49
<PAGE>
Cairn Energy USA, Inc.
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
11. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1995 and 1994 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995:
Revenues $5,034 $7,850 $7,206 $5,869
Net income 807 1,564 1,297 1,567
Net income per common and
common equivalent share $ .05 $ .10 $ .08 $ .09
1994:
Revenues $2,978 $2,404 $1,993 $2,325
Net income 400 202 20 32
Net income per common and
common equivalent share $ .03 $ .02 $ .00 $ .00
</TABLE>
50
<PAGE>
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, AND REPORTS ON
FORM 8-K
(a)(1) and (2) Consolidated Financial Statements:
See Index to Financial Statements on page 20 herein. All
other schedules have been omitted because the required
information is either inapplicable, insignificant or
included in the financial statements and notes thereto.
(a)(3) Exhibits:
2.1 Purchase and Sale dated July 12, 1994, by and among Smith
Offshore Exploration Company, II, Phemus Corporation, and
Cairn Energy USA, Inc. (without exhibits) (the exhibits
and schedules to the Agreement have been omitted pursuant
to Item 601(b)(2) of Regulation S-K). (Incorporated by
reference from the Company's Current Report on Form 8-K
dated July 12, 1994 filed with the Commission on July 27,
1994).
2.2 Common Stock Purchase Agreement dated July 12, 1994 by
and between Cairn Energy PLC and Phemus Corporation.
(Incorporated by reference from the Company's Current
Report on Form 8-K dated July 12, 1994 filed with the
Commission on July 27, 1994).
3.1 First Amended and Restated Certificate of Incorporation
of the Company, as amended to date (Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1993).
3.2 Bylaws of the Company, as amended to date (Incorporated
by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1992).
9.1 Voting Agreement by and between Cairn Energy PLC and
Phemus Corporation (to be entered into pursuant to the
Stock Purchase Agreement). (Incorporated by reference
from the Company's Current Report on Form 8-K dated July
12, 1994 filed with the Commission on July 27, 1994).
10.1 Agreement and Plan of Merger, dated June 29, 1992, by
and between Cairn Energy USA, Inc. and Omni Exploration,
Inc. (Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K filed with the
Commission on July 14, 1992).
10.2+ Cairn Energy USA, Inc. 1993 Stock Option Plan, as amended
(Incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for Fiscal Year
Ended December 31, 1993).
10.3+ Cairn Energy USA, Inc. 1993 Directors Stock Option Plan
(Incorporated by reference to Exhibit 10.6 to the
Company's 1993 Registration Statement on Form S-1,
registration no. 33-64646).
10.4+ Form of Stock Option Agreement under the Cairn Energy
USA, Inc. 1993 Directors Stock Option Plan (Incorporated
by reference to Exhibit 10.7 to the Company's 1993
Registration Statement on Form S-1, registration no.
33-64646).
51
<PAGE>
10.5+ Incentive Bonus Plan, as amended (Incorporated by
reference to Exhibit 10.9 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1993).
10.6+ Form of Incentive Stock Option Agreement. (Incorporated
by reference to Exhibit 10.5 to the Registration State-
ment on Form S-3, Registration No. 33-80526; filed with
the Commission on June 21, 1994).
10.7 Form of Nonstatutory Stock Option Agreement.
(Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-3, Registration No.
33-80526; filed with the Commission on June 21, 1994).
10.8 Registration Rights Agreement by and between Cairn Energy
USA, Inc. and Phemus Corporation (to be entered into
pursuant to the Agreement). (Incorporated by reference
from the Company's Current Report on Form 8-K dated July
12, 1994 filed with the Commission on July 27, 1994).
10.9+* Amended and Restated Employment Agreement, dated as of
May 24, 1995, between the Company and Michael R. Gilbert.
10.10+* Amended and Restated Employment Agreement, dated as of
May 24, 1995, between the Company and Robert P. Murphy.
10.11+* Amended and Restated Employment Agreement, dated as of
May 24, 1995, between the Company and J. Munro M.
Sutherland.
10.12 Amended and Restated Credit Agreement, dated December 20,
1994, between the Company and Internationale Nederlanden
(U.S.) Capital Corporation (incorporated by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
10.13+* Cairn Energy USA, Inc. Separate Phemus Stock Option Plan.
10.14+* Form of Nonstatutory Stock Option Agreement under the
Cairn Energy USA, Inc. Separate Phemus Stock Option Plan.
10.15+* Cairn Energy USA, Inc. Separate PLC Stock Option Plan.
10.16+* Form of Nonstatutory Stock Option Agreement under the
Cairn Energy USA, Inc. Separate PLC Stock Option Plan.
10.17* First Amendment to First Amended and Restated Credit
Agreement, dated December 12, 1995, among the Company,
Internationale (U.S.) Capital Corporation and Meespierson
N.V.
10.18* Second Amendment to First Amended and Restated Credit
Agreement, dated January 15, 1996, among the Company,
Internationale (U.S.) Capital Corporation and Meespierson
N.V.
10.19+* Amendment No. 1 to the Cairn Energy USA, Inc. 1993
Directors Stock Option Plan.
52
<PAGE>
11.1* Schedule of Computation of Earnings Per Share
21.1 Subsidiary of the Company. (Incorporated by reference to
Exhibit 22.1 to the Company's Annual Report on Form 10-K
of the fiscal year ended December 31, 1992).
23.1* Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Ryder Scott Company, petroleum engineers.
- ------------------------
* Filed herewith.
+ Stock option plan, management contract or compensatory arrangement.
53
<PAGE>
GLOSSARY
The terms defined in this glossary are used throughout this annual
report.
2-D Seismic. The method by which an image of the earth's subsurface is
created through the interpretation of collected seismic data.
3-D Seismic. The method by which a three dimensional image of the
earth's subsurface is created through the interpretation of collected seismic
data. 3-D surveys allow for a more detailed understanding of the subsurface than
do conventional surveys and contribute significantly to field appraisal,
development and production.
AVO Analysis. A geophysical technique that when applied under certain
conditions allows interpreters to distinguish gas bearing sands from other
bright spot causes such as hard streaks, wet sands and lignite.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to crude oil or other liquid hydrocarbons.
Bcf. One billion cubic feet.
BCFE. One billion cubic feet of natural gas equivalents using a con-
version rate of six thousand cubic feet of natural gas for each barrel of oil.
Developed Acreage. The number of acres which are allocated or assign-
able to producing wells or wells capable of production.
Development Well. A well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
Discounted Present Value. A method of determining the present value of
proved reserves. Under the SEC method, the future net revenues before income
taxes from proved reserves are estimated assuming that oil and natural gas
prices and production costs remain constant. The resulting stream of revenues is
then discounted at the rate of 10% per year to obtain the present value.
Dry Well. A well found to be incapable of producing either oil or gas
in sufficient quantities to justify completion as an oil or gas well.
Exploratory Well. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
Farm-out/Farm-in. An agreement pursuant to which the owner of a working
interest in an oil and gas lease delivers the contractual right to earn the
working interest or a portion thereof to another party who desires to drill on
the leased acreage. Generally, the assignee is required to drill one or more
wells in order to earn a working interest in the acreage. The assignor usually
retains a royalty or a working interest in the lease after payout. The assignor
is said to have "farmed-out" the acreage. The assignee is said to have
"farmed-in" the acreage.
Finding Costs. Expressed in dollars per MCFE, is calculated by dividing
the amount of total capital expenditures by the amount of total reserves added
during the same period as a result of drilling activities, property
acquisitions, reserve revisions and improved recovery.
Gross Acres or Gross Wells. The total acres or wells, as the case may
be, in which a working interest is owned.
MBbl. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet.
54
<PAGE>
MCFE. One thousand cubic feet of natural gas equivalents using a
conversion rate of six thousand cubic feet of natural gas for each barrel of
oil.
MMBbl. One million barrels of crude oil or other liquid hydrocarbons.
MMcf. One million cubic feet.
MMCFE. One million cubic feet of natural gas equivalents using a
conversion rate of six thousand cubic feet of natural gas for each barrel of
oil.
Net Acres or Net Wells. The sum of the fractional working interests
owned in gross acres or gross wells.
Pay. An industry term used to describe reservoirs in the subsurface
that contain hydrocarbons.
Productive Well. A well that is producing oil or gas or that is
capable of production.
Proved Developed Reserves. Reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Proved Reserves. 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.
Proved Undeveloped Reserves. 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.
Royalty Interest. An interest in an oil and gas property entitling the
owner to a share of oil and gas production free of costs of production.
Undeveloped Acreage. Lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains proved
reserves.
Working Interest. The operating interest which gives the owner the
right to drill, produce and conduct operating activities on the property and a
share of production, subject to all royalties, overriding royalties and other
burdens and to all costs of exploration, development and operations and all
risks in connection therewith.
55
<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 Annual Report on Form
10-K to be signed on its behalf by the undersigned thereunto duly authorized.
CAIRN ENERGY USA, INC.
(Registrant)
Date: March 4, 1996 By: /s/ Michael R. Gilbert
----------------------
Michael R. Gilbert,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Office Date
- ----------------------- ----------------------------------- ---------------
/s/ Michael R. Gilbert President and Chief Executive March 4, 1996
- --------------------- Officer and Director (Principal
Michael R. Gilbert Executive Officer)
/s/J. Munro M. Sutherland Senior Vice President, Chief March 4, 1996
- --------------------- Financial Officer, Treasurer and
J. Munro M. Sutherland Director (Principal Financial
Officer)
/s/ A. Allen Paul Vice President--Finance (Principal March 4, 1996
- --------------------- Accounting Officer)
A. Allen Paul
/s/ Jack O. Nutter Director March 4, 1996
- ---------------------
Jack O. Nutter, II
- --------------------- Director
William B. B. Gammell
/s/ Michael E. McMahon Director March 4, 1996
- ----------------------
Michael E. McMahon
/s/ John C. Halsted Director March 4, 1996
- ----------------------
John C. Halsted
/s/ Daniel Robins Director March 4, 1996
- ----------------------
R. Daniel Robins
56
<PAGE>
EXHIBIT 10.9
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT, made and entered into as of
the 24th day of May, 1995, by and between Cairn Energy USA, Inc. ("Company"), a
Delaware corporation, and Michael R. Gilbert ("Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by and to serve the Company in the capacities and for the term
and compensation and subject to the terms and conditions hereinafter set forth;
and
WHEREAS, the Company and Employee desire to amend and restate as set
forth herein the terms of the Employment Agreement between Employee and the
Company dated as of January 1, 1993, as amended on March 1, 1994, May 1, 1994
and October 1, 1994.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and Employee mutually undertake and agree as
follows:
1. Employment of Employee. The Company hereby employs Employee, and
Employee hereby accepts employment with the Company and agrees to serve the
Company in the capacities hereinafter set forth for the term and compensation
and upon and subject to the terms and conditions hereinafter set forth.
2. General Duties of Company and Employee.
2.1. The Company agrees to employ Employee and Employee agrees to
accept employment by the Company and to serve as President of the Company. The
duties and responsibilities of Employee shall include those described for the
President in the Bylaws of the Company or other documents of the Company, and
shall also include such other or additional duties as may from time-to-time be
assigned to Employee by the Board of Directors of the Company or any duly
authorized committee thereof.
2.2. While employed hereunder, Employee shall obey the lawful
directions of the Board of Directors of the Company, or any duly authorized
committee thereof, and shall use his best efforts to promote the interests of
the Company and to maintain and to promote the reputation thereof. While
employed hereunder, Employee shall devote his time, efforts, skills and
attention to the affairs of the Company in order that he shall faithfully
perform his duties and obligations hereunder and such as may be assigned to or
vested in him by the Board of Directors of the Company, or any duly authorized
committee thereof.
2.3. While this Agreement is in effect, Employee may from time to time
engage in any businesses or activities that do not compete directly and
materially with the Company, provided that such businesses or activities do not
materially interfere with his performance of the duties
<PAGE>
assigned to him in compliance with this Agreement by the Board of Directors of
the Company or any duly authorized committee thereof. In any event, Employee is
permitted to (i) invest his personal assets as a passive investor in such form
or manner as Employee may choose in his discretion, (ii) participate in various
charitable efforts, and (iii) serve as a director or officer of any other entity
or organization that does not compete with the Company.
3. Compensation and Benefits.
3.1. As compensation for services rendered, or to be rendered to the
Company in the capacity set forth above or in such other and/or further capacity
as may be assigned to Employee by the Board of Directors of the Company,
Employee shall be paid by the Company an annual base salary of $130,000 for
1994, $165,000 for 1995, $185,000 for 1996 and $200,000 for 1997, payable at
such times as the Company pays all of its Senior Executive employees, subject to
the customary withholding of appropriate amounts for taxes, FICA and similar
items. The Board of Directors of the Company have the discretion, but will not
be required to, supplement the Employee's salary with a bonus in the amount, if
any, that the Board of Directors shall determine in its discretion. Except for
bonuses already granted under the Company's Incentive Bonus Plan (the "Bonus
Plan"), Employee will not be eligible to participate in future bonuses under the
Bonus Plan.
3.2. Upon Employee's furnishing to the Company customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties hereunder
(including, without limitation, travel and entertainment expenses) and
containing sufficient information to establish the amount, date, place and
essential character of the expenditure, Employee shall be reimbursed for such
reasonable costs and expenses in accordance with the Company's normal expense
reimbursement policy.
3.3. As long as this Agreement is in effect, the Company shall provide
Employee with the use of an automobile for his business and personal use, such
automobile to be approved by the Compensation Committee. The Company shall pay
all expenses of operating, maintaining and repairing the automobile and shall
procure and maintain automobile liability insurance with respect thereto, with
coverage insuring the Employee in the minimum amount of $1,000,000 for bodily
injury, death or property damage for each occurrence.
3.4. As long as this Agreement is in effect, the Company shall maintain
medical (including hospitalization) and dental insurance coverage on Employee
and Employee's immediate family members. If an annual physical examination for
Employee is not covered by such insurance, the Company will pay for such
examination per calendar year.
3.5. As long as this Agreement is in effect, the Company shall maintain
for Employee's benefit a guaranteed renewable term life insurance policy having
a death benefit of not less than $50,000. Unless prohibited by any policy or
plan under which such insurance is provided, Employee will have the right to
purchase at Employee's cost additional coverage under such policy or plan. The
Company will not permit, even in the event of termination of this
<PAGE>
Agreement for any reason, any such policy to lapse without offering Employee the
opportunity to take up the premium payments and continue the policy in force.
3.6. As long as this Agreement is in effect, the Company shall maintain
for Employee's benefit a comprehensive long-term disability insurance policy.
The Company will not permit, even in the event of termination of this Agreement
for any reason, any such policy to lapse without offering Employee the
opportunity to take up the premium payments and continue the policy in force.
3.7. To the extent that the Company maintains an insurance plan for its
executive officers, the requirements of paragraphs 3.4., 3.5. and 3.6. are
satisfied. Employee shall have the right to participate in any additional
compensation, benefit, life insurance or other plan or arrangement of the
Company now or hereafter existing for the benefit of executive officers of the
Company. To the extent that the Company maintains a pension plan for its
executive officers, Employee shall be allowed to participate therein.
3.8. Employee shall be entitled to such vacation (in no event less than
two (2) weeks per year), holiday and other paid or unpaid leave of absence as
consistent with the Company's normal policies or as otherwise approved by the
Board of Directors.
4. Term. The term of this Agreement shall commence on January 1, 1993 (the
"Commencement Date") and shall continue in full force and effect until December
31, 1997. Notwithstanding the foregoing provisions, this Agreement may be
terminated at any time by the Company or Employee as hereinafter provided.
5. Termination other than by Expiration of the Term. The Company or
Employee may terminate Employee's employment under this Agreement at any time,
but only on the following terms:
5.1. The Company may terminate Employee's employment under this
Agreement at any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of the Company that "due cause" exists
for the termination of the employment relationship. As used herein, the term
"due cause" shall mean any of the following events:
(i) any intentional misapplication by Employee of the
Company's funds, or any other act of dishonesty injurious to the
Company committed by Employee; or
(ii) Employee's conviction of a crime involving moral
turpitude; or
(iii) Employee's breach, non-performance or non-observance in any
material respect of a material term of this Agreement if such breach,
non-performance or non-observance shall continue beyond a period of
sixty (60) business days immediately after notice thereof by the
Company to Employee; or
<PAGE>
(iv) any other action by the Employee involving willful and
deliberate malfeasance or gross negligence in the performance of
Employee's duties.
5.2. In the event Employee is incapacitated by accident, sickness or
otherwise so as to render Employee mentally or physically incapable of
performing the services required under paragraph 2 of this Agreement for a
period of one hundred eighty (180) consecutive business days, and such
incapacity is confirmed by the written opinion of two (2) practicing medical
doctors licensed by and in good standing in the state in which they maintain
offices for the practice of medicine, upon the expiration of such period or at
any time reasonably thereafter, or in the event of Employee's death, the Company
may terminate Employee's employment under this Agreement upon giving Employee or
his legal representative written notice at least thirty (30) days' prior to the
termination date. Employee agrees, after written notice by the Board of
Directors of the Company or a duly authorized committee or officer of the
Company, to submit to examinations by such practicing medical doctors selected
by the Board of Directors of the Company or a duly authorized committee or
officer of the Company.
5.3. The Company may terminate Employee's employment under this
Agreement at any time for any reason whatsoever, even without "due cause," by
giving a written notice of termination to Employee, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
5.4. Employee may, at any time after the Commencement Date by giving
the Company prior written notice, terminate this Agreement for any one or more
of the following reasons:
(i) if there is a material adverse alteration or diminution of
Employee's position, duties, responsibilities, reporting relationship,
authority or status (including corresponding prerequisites) from those
in effect, or otherwise accorded to Employee, on the effective date of
this Agreement;
(ii) if the Company requires that the Employee perform a
substantial portion of the services required hereunder outside the
Dallas/Fort Worth metropolitan area; or
(iii) if the Company fails to comply with its obligations
under paragraph 3 hereof.
6. Effect of Termination.
6.1. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.1, he shall be entitled to receive all compensation due
him as of the effective date of his termination and no more.
6.2. If Employee's employment under this Agreement is terminated pursuant
to paragraph 5.2, he shall be entitled to receive (i) all compensation due him
as of the effective date of his termination and (ii) in one lump payment, the
total of all bonus compensation
<PAGE>
allocated for the Employee under the Company's Bonus Plan in prior fiscal years,
that remains unpaid, notwithstanding the payment terms and vesting provisions of
the Bonus Plan.
6.3. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.3. or 5.4., he shall be entitled to receive (i) all
compensation due him under this Agreement and to participate in all other
benefits provided by this Agreement for one year plus a severance payment in the
amount of one times the Employee's annual base salary and (ii) in one lump
payment, the total of all bonus compensation allocated for the Employee under
the Company's Bonus Plan in prior fiscal years, that remains unpaid,
notwithstanding the payment terms and vesting provisions of the Bonus Plan.
6.4. In no event shall any payments to Employee under paragraph 6.3(i)
exceed three times Employee's annual base salary at the time of termination.
7. Change in Control.
7.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Company occurs after the
Commencement Date and, within twenty-four months from the date of the Change in
Control, the Company terminates the Employee's employment without due cause as
provided in paragraph 5.3 or the Employee voluntarily terminates his employment
under paragraph 5.4, then the Employee, even though no longer employed by the
Company, shall be entitled to all payments provided in paragraph 6.3 hereof plus
a payment in the amount of one times the Employee's annual base salary, payable
at the option of the Employee in either a lump sum within thirty days after the
date of termination or monthly over a 1-year period.
7.2. For the purposes of this Agreement, the term "Change in Control"
of the Company shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended) other than any Company employee stock ownership plan or the
Company, becomes the beneficial owner (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities, or (ii) the Board ceases to
consist of a majority of Continuing Directors as hereinafter defined. For
purposes of this Agreement, a "Continuing Director" shall mean a member of the
Board of Directors who either (i) is a member of the Board of Directors at the
Commencement Date or (ii) is nominated or appointed to serve as a director by a
majority of the then Continuing Directors.
7.3. Notwithstanding any other provision of this Agreement, if after
the Commencement Date (a) there is a change in the ownership or effective
control of the Company or (b) in the ownership of a substantial portion of the
assets of the Company within the meaning of Section 280G of the Internal Revenue
Code ("Section 280G"), the payments to be paid to the Employee in the nature of
compensation to be received by or for the benefit of the Employee and contingent
upon such event (the "Termination Payments") would create an "excess parachute
payment" within the meaning of Section 280G, then the Company shall make the
Termination
<PAGE>
Payments in substantially equal installments, the first installment being due
within thirty days after the date of termination and each subsequent installment
being due on January 31 of each year, such that the aggregate present value of
all Termination Payments, whether pursuant to this Agreement or otherwise, will
be as close as possible to, but not exceed 299% of, the Employee's base salary,
within the meaning of Section 280G. It is the intention of this paragraph 7.3.
to avoid excise taxes on the Employee under Section 4999 of the Code and the
disallowance of a deduction to the Company pursuant to Section 280G.
7.4. In no event shall any payment under paragraphs 6.3(i) and 7.1
exceed three times Employee's annual base salary at the time of termination.
8. Confidential and Proprietary Information. Employee acknowledges and
agrees that he will not, without the prior written consent of the Company, at
any time during the term of this Agreement or any time thereafter, except as may
be required by competent legal authority, use or disclose to any person, firm or
other legal entity, any confidential records, secrets or information related to
the Company or any parent, subsidiary or affiliated person or entity. Employee
acknowledges and agrees that all information and secrets of the Company and/or
its affiliates that he has acquired, or may acquire, were received, or will be
received in confidence and as a fiduciary of the Company. Employee will exercise
utmost diligence to protect and guard such information and secrets.
9. Injunctive Relief. Employee acknowledges that the breach, or
threatened breach, by the Employee of the provisions of this Agreement shall
cause irreparable harm to the Company, which harm cannot be fully redressed by
the payment of damages to the Company. Accordingly, the Company shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to an inunction enjoining or restraining Employee from any violation or
threatened violation of this Agreement.
10. Miscellaneous.
10.1. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and the Company and Employee agree that
the state and federal courts situated in Dallas County, Texas shall have
personal jurisdiction over the Company and Employee to hear all disputes arising
under this Agreement. This agreement is to be at least partially performed in
Dallas County, Texas, and, as such, the Company and Employee agree that venue
shall be proper with the state or federal courts in Dallas County, Texas to hear
such disputes. In the event either the Company or Employee is not able to effect
service of process upon the other with respect to such disputes, the Company and
Employee expressly agree that the Secretary of State for the State of Texas
shall be an agent of the Company and/or the Employee to receive service of
process on behalf of the Company and/or the Employee with respect to such
disputes.
10.2. If any court of competent jurisdiction should determine that any
provision this Agreement is too broad to be enforceable, such court shall modify
and revise such provision (to
<PAGE>
the minimum extent necessary) so that it shall comply with applicable law. The
provision as so revised shall be fully binding on the Employee.
10.3. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Employee and
the Company with respect to the subject matter of this Agreement. This Agreement
may not be modified in any respect by any verbal statement, representation or
agreement made by any employee, officer, or representative of the Company or by
any written agreement unless signed by an officer of the Company who is
expressly authorized by the Company to execute such document.
10.4. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
10.5. All covenants and agreements set forth in this Agreement by or on
behalf of the Company shall bind its corporate successors and assigns, and all
covenants and agreements set forth in this Agreement by or on behalf of Employee
shall inure to the benefit of and be enforceable by the Company and its
corporate successors and assigns.
10.5. Any notice under this Agreement will be in writing and will be
deemed to have been given when delivered personally or the second business day
after deposit in the United States mail, and addressed as follows:
if to the Company:
Cairn Energy USA, Inc.
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
Attn: President
if to Employee:
Michael R. Gilbert
3450 Shiloh Road
Flower Mound, Texas 75028
10.6. If either party should file a lawsuit against the other to
enforce any right such party has hereunder, the prevailing party shall also be
entitled to recover reasonable attorneys' fees and costs of suit in addition to
any other relief awarded such prevailing party.
10.7. If any provision of this Agreement should be held invalid or
unenforceable, no other provision shall be affected thereby, and it shall be
construed as if such invalid or unenforceable provision had never been a part of
it.
10.8. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.
<PAGE>
10.9. Employee and the Company shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
IN WITNESS WHEREOF, parties hereto have executed and delivered this
Agreement as of the day and year first above written.
CAIRN ENERGY USA, INC.
By:________________________
MICHAEL R. GILBERT:
___________________________
<PAGE>
EXHIBIT 10.10
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT, made and entered into as of
the 24th day of May, 1995, by and between Cairn Energy USA, Inc. ("Company"), a
Delaware corporation, and Robert P. Murphy ("Employee").
W I T N E S S E T H:
WHEREAS, The Company desires to employ Employee, and Employee desires
to be employed by and to serve the Company in the capacities and for the term
and compensation and subject to the terms and conditions hereinafter set forth,
and
WHEREAS, the Company and Employee desire to amend and restate as set
forth herein the terms of the Employment Agreement between Employee and the
Company dated as of January 1, 1993, as amended on March 1, 1994, May 1, 1994
and October 1, 1994.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and Employee mutually undertake and agree as
follows:
1. Employment of Employee. The Company hereby employs Employee, and
Employee hereby accepts employment with the Company and agrees to serve the
Company in the capacities hereinafter set forth for the term and compensation
and upon and subject to the terms and conditions hereinafter set forth.
2. General Duties of Company and Employee.
2.1. The Company agrees to employ Employee and Employee agrees to
accept employment by the Company and to serve as Vice President - Exploration of
the Company. The duties and responsibilities of Employee shall include those
described for the Vice President in the Bylaws of the Company or other documents
of the Company, and shall also include such other or additional duties as may
from time-to-time be assigned to Employee by the President of the Company.
2.2. While employed hereunder, Employee shall obey the lawful
directions of the Board of Directors of the Company, or any duly authorized
committee thereof, and shall use his best efforts to promote the interests of
the Company and to maintain and to promote the reputation thereof. While
employed hereunder, Employee shall devote his time, efforts, skills and
attention to the affairs of the Company in order that he shall faithfully
perform his duties and obligations hereunder and such as may be assigned to or
vested in him by the Board of Directors of the Company, or any duly authorized
committee thereof.
2.3. While this Agreement is in effect, Employee may from time to time
engage in any businesses or activities that do not compete directly and
materially with the Company, provided that such businesses or activities do not
materially interfere with his performance of the duties
<PAGE>
assigned to him in compliance with this Agreement by the Board of Directors of
the Company or any duly authorized committee thereof. In any event, Employee is
permitted to (i) invest his personal assets as a passive investor in such form
or manner as Employee may choose in his discretion, (ii) participate in various
charitable efforts, and (iii) serve as a director or officer of any other entity
or organization that does not compete with the Company.
3. Compensation and Benefits.
3.1. As compensation for services rendered, or to be rendered to the
Company in the capacity set forth above or in such other and/or further capacity
as may be assigned to Employee by the Board of Directors of the Company,
Employee shall be paid by the Company an annual base salary of $84,000 for 1994,
$105,000 for 1995, $125,000 for 1996, and $135,000 for 1997, payable at such
times as the Company pays all of its Senior Executive employees, subject to the
customary withholding of appropriate amounts for taxes, FICA and similar items.
The Board of Directors of the Company have the discretion, but will not be
required to, supplement the Employee's salary with a bonus in the amount, if
any, that the Board of Directors shall determine in its discretion. Employee
shall participate in the Company's Incentive Bonus Plan (the "Bonus Plan")
relating to the net additions to reserves, which amounts shall be paid in three
annual installments as provided under the Bonus Plan.
3.2. Upon Employee's furnishing to the Company customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties hereunder
(including, without limitation, travel and entertainment expenses) and
containing sufficient information to establish the amount, date, place and
essential character of the expenditure, Employee shall be reimbursed for such
reasonable costs and expenses in accordance with the Company's normal expense
reimbursement policy.
3.3. As long as this Agreement is in effect, the Company shall provide
Employee with an allowance of up to $500 per month for the lease of an
automobile for his business and personal use. The Company shall pay all expenses
of operating, maintaining and repairing the automobile and shall procure and
maintain automobile liability insurance with respect thereto, with coverage
insuring the Employee in the minimum amount of $1,000,000 for bodily injury,
death or property damage for each occurrence.
3.4. As long as this Agreement is in effect, the Company shall maintain
medical (including hospitalization) and dental insurance coverage on Employee
and Employee's immediate family members. If an annual physical examination for
Employee is not covered by such insurance, the Company will pay for such
examination per calendar year.
3.5. As long as this Agreement is in effect, the Company shall maintain
for Employee's benefit a guaranteed renewable term life insurance policy having
a death benefit of not less than $50,000. Unless prohibited by any policy or
plan under which such insurance is provided, Employee will have the right to
purchase at Employee's cost additional coverage under such policy or plan. The
Company will not permit, even in the event of termination of this
<PAGE>
Agreement for any reason, any such policy to lapse without offering Employee the
opportunity to take up the premium payments and continue the policy in force.
3.6. As long as this Agreement is in effect, the Company shall maintain
for Employee's benefit a comprehensive long-term disability insurance policy.
The Company will not permit, even in the event of termination of this Agreement
for any reason, any such policy to lapse without offering Employee the
opportunity to take up the premium payments and continue the policy in force.
3.7. To the extent that the Company maintains an insurance plan for its
executive officers, the requirements of paragraphs 3.4., 3.5. and 3.6. are
satisfied. Employee shall have the right to participate in any additional
compensation, benefit, life insurance or other plan or arrangement of the
Company now or hereafter existing for the benefit of executive officers of the
Company. To the extent that the Company maintains a pension plan for its
executive officers, Employee shall be allowed to participate therein.
3.8. Employee shall be entitled to such vacation (in no event less than
two (2) weeks per year), holiday and other paid or unpaid leave of absence as
consistent with the Company's normal policies or as otherwise approved by the
Board of Directors.
4. Term. The term of this Agreement shall commence on January 1, 1993 (the
"Commencement Date") and shall continue in full force and effect until December
31, 1997. Notwithstanding the foregoing provisions, this Agreement may be
terminated at any time by the Company or Employee as hereinafter provided.
5. Termination other than by Expiration of the Term. The Company or
Employee may terminate Employee's employment under this Agreement at any time,
but only on the following terms:
5.1. The Company may terminate Employee's employment under this
Agreement at any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of the Company that "due cause" exists
for the termination of the employment relationship. As used herein, the term
"due cause" shall mean any of the following events:
(i) any intentional misapplication by Employee of the
Company's funds, or any other act of dishonesty injurious to the
Company committed by Employee; or
(ii) Employee's conviction of a crime involving moral
turpitude; or
(iii) Employee's breach, non-performance or non-observance in any
material respect of a material term of this Agreement if such breach,
non-performance or non-observance shall continue beyond a period of
sixty (60) business days immediately after notice thereof by the
Company to Employee; or
<PAGE>
(iv) any other action by the Employee involving willful and
deliberate malfeasance or gross negligence in the performance of
Employee's duties.
5.2. In the event Employee is incapacitated by accident, sickness or
otherwise so as to render Employee mentally or physically incapable of
performing the services required under paragraph 2 of this Agreement for a
period of one hundred eighty (180) consecutive business days, and such
incapacity is confirmed by the written opinion of two (2) practicing medical
doctors licensed by and in good standing in the state in which they maintain
offices for the practice of medicine, upon the expiration of such period or at
any time reasonably thereafter, or in the event of Employee's death, the Company
may terminate Employee's employment under this Agreement upon giving Employee or
his legal representative written notice at least thirty (30) days' prior to the
termination date. Employee agrees, after written notice by the Board of
Directors of the Company or a duly authorized committee or officer of the
Company, to submit to examinations by such practicing medical doctors selected
by the Board of Directors of the Company or a duly authorized committee or
officer of the Company.
5.3. The Company may terminate Employee's employment under this
Agreement at any time for any reason whatsoever, even without "due cause," by
giving a written notice of termination to Employee, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
5.4. Employee may, at any time after the Commencement Date by giving
the Company prior written notice, terminate this Agreement for any one or more
of the following reasons:
(i) if there is a material adverse alteration or diminution of
Employee's position, duties, responsibilities, reporting relationship,
authority or status (including corresponding prerequisites) from those
in effect, or otherwise accorded to Employee, on the effective date of
this Agreement;
(ii) if the Company requires that the Employee perform a
substantial portion of the services required hereunder outside the
Dallas/Fort Worth metropolitan area; or
(iii) if the Company fails to comply with its obligations
under paragraph 3 hereof.
6. Effect of Termination.
6.1. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.1, he shall be entitled to receive all compensation due
him as of the effective date of his termination and no more.
6.2. If Employee's employment under this Agreement is terminated pursuant
to paragraph 5.2, he shall be entitled to receive (i) all compensation due him
as of the effective date of his termination and (ii) in one lump payment, the
total of all bonus compensation
<PAGE>
allocated for the Employee under the Company's Bonus Plan in prior fiscal years,
that remains unpaid, notwithstanding the payment terms and vesting provisions of
the Bonus Plan.
6.3. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.3. or 5.4., he shall be entitled to receive (i) all
compensation due him under this Agreement and to participate in all other
benefits provided by this Agreement for one year plus a severance payment in the
amount of one times the Employee's annual base salary and (ii), in one lump
payment, the total of all bonus compensation allocated for the Employee under
the Company's Bonus Plan in prior fiscal years, that remains unpaid,
notwithstanding the payment terms and vesting provisions of the Bonus Plan.
6.4. If Employee voluntarily terminates his employment under this
Agreement other than pursuant to paragraph 5.4 or if Employee's employment is
terminated pursuant to paragraph 5.1, then Employee agrees that for a period of
one year from the date of such termination, he shall not (without the express
written consent of the Company, which consent may be given or withheld in the
Company's sole and absolute discretion), directly or indirectly, individually or
as an owner, employee, agent, consultant, partner, joint venturer, officer,
director or stockholder or in any other capacity whatsoever of any person, firm
association, partnership, corporation or other entity, attempt to acquire or
acquire, whether by lease, purchase or otherwise, any oil or gas property or
interest that is within the boundaries of a prospect or proposal that is
generated by the Company prior to the date of such termination.
6.5. In no event shall any payment to Employee under paragraph 6.3(i)
exceed three times Employee's annual base salary at the time of termination.
7. Change in Control.
7.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Company occurs after the
Commencement Date and, within twenty-four months from the date of the Change in
Control, the Company terminates the Employee's employment without due cause as
provided in paragraph 5.3 or the Employee voluntarily terminates his employment
under paragraph 5.4, then the Employee, even though no longer employed by the
Company, shall be entitled to all payments provided in paragraph 6.3 hereof plus
a payment in the amount of one times the Employee's annual base salary, payable
at the option of the Employee in either a lump sum within thirty days after the
date of termination or monthly over a 1-year period.
7.2. For the purposes of this Agreement, the term "Change in Control"
of the Company shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended) other than any Company employee stock ownership plan or the
Company, becomes the beneficial owner (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities, or (ii) the Board ceases to
consist of a majority of Continuing Directors as hereinafter defined. For
purposes of this Agreement, a
<PAGE>
"Continuing Director" shall mean a member of the Board of Directors who either
(i) is a member of the Board of Directors at the Commencement Date or (ii) is
nominated or appointed to serve as a director by a majority of the then
Continuing Directors.
7.3. Notwithstanding any other provision of this Agreement, if after
the Commencement Date (a) there is a change in the ownership or effective
control of the Company or (b) in the ownership of a substantial portion of the
assets of the Company within the meaning of Section 280G of the Internal Revenue
Code ("Section 280G"), the payments to be paid to the Employee in the nature of
compensation to be received by or for the benefit of the Employee and contingent
upon such event (the "Termination Payments") would create an "excess parachute
payment" within the meaning of Section 280G, then the Company shall make the
Termination Payments in substantially equal installments, the first installment
being due within thirty days after the date of termination and each subsequent
installment being due on January 31 of each year, such that the aggregate
present value of all Termination Payments, whether pursuant to this Agreement or
otherwise, will be as close as possible to, but not exceed 299% of, the
Employee's base salary, within the meaning of Section 280G. It is the intention
of this paragraph 7.3. to avoid excise taxes on the Employee under Section 4999
of the Code and the disallowance of a deduction to the Company pursuant to
Section 280G.
7.4. In no event shall any payments under paragraphs 6.3(i) and 7.1
exceed three times Employee's annual base salary at the time of termination.
8. Confidential and Proprietary Information. Employee acknowledges and
agrees that he will not, without the prior written consent of the Company, at
any time during the term of this Agreement or any time thereafter, except as may
be required by competent legal authority, use or disclose to any person, firm or
other legal entity, any confidential records, secrets or information related to
the Company or any parent, subsidiary or affiliated person or entity. Employee
acknowledges and agrees that all information and secrets of the Company and/or
its affiliates that he has acquired, or may acquire, were received, or will be
received in confidence and as a fiduciary of the Company. Employee will exercise
utmost diligence to protect and guard such information and secrets.
9. Injunctive Relief. Employee acknowledges that the breach, or
threatened breach, by the Employee of the provisions of this Agreement shall
cause irreparable harm to the Company, which harm cannot be fully redressed by
the payment of damages to the Company. Accordingly, the Company shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to an inunction enjoining or restraining Employee from any violation or
threatened violation of this Agreement.
10. Miscellaneous.
10.1. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and the Company and Employee agree that
the state and federal courts situated in Dallas County, Texas shall have
personal jurisdiction over the Company
<PAGE>
and Employee to hear all disputes arising under this Agreement. This agreement
is to be at least partially performed in Dallas County, Texas, and, as such, the
Company and Employee agree that venue shall be proper with the state or federal
courts in Dallas County, Texas to hear such disputes. In the event either the
Company or Employee is not able to effect service of process upon the other with
respect to such disputes, the Company and Employee expressly agree that the
Secretary of State for the State of Texas shall be an agent of the Company
and/or the Employee to receive service of process on behalf of the Company
and/or the Employee with respect to such disputes.
10.2. If any court of competent jurisdiction should determine that any
provision of the Agreement is too broad to be enforceable, such court shall
modify and revise such provision (to the minimum extent necessary) so that it
shall comply with applicable law. The provision as so revised shall be fully
binding on the Employee.
10.3. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Employee and
the Company with respect to the subject matter of this Agreement. This Agreement
may not be modified in any respect by any verbal statement, representation or
agreement made by any employee, officer, or representative of the Company or by
any written agreement unless signed by an officer of the Company who is
expressly authorized by the Company to execute such document.
10.4. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
10.5. All covenants and agreements set forth in this Agreement by or on
behalf of the Company shall bind its corporate successors and assigns, and all
covenants and agreements set forth in this Agreement by or on behalf of Employee
shall inure to the benefit of and be enforceable by the Company and its
corporate successors and assigns.
10.6. Any notice under this Agreement will be in writing and will be
deemed to have been given when delivered personally or the second business day
after deposit in the United States mail, and addressed as follows:
if to the Company:
Cairn Energy USA, Inc.
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
Attn: President
<PAGE>
if to Employee:
Robert P. Murphy
6639 Lakeshore Drive
Dallas, Texas 75214
10.7. If either party should file a lawsuit against the other to
enforce any right such party has hereunder, the prevailing party shall also be
entitled to recover reasonable attorneys' fees and costs of suit in addition to
any other relief awarded such prevailing party.
10.8. If any provision of this Agreement should be held invalid or
unenforceable, no other provision shall be affected thereby, and it shall be
construed as if such invalid or unenforceable provision had never been a part of
it.
10.9. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.
10.10. Employee and the Company shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
IN WITNESS WHEREOF, parties hereto have executed and delivered this
Agreement as of the day and year first above written.
CAIRN ENERGY USA, INC.
By:________________________
ROBERT P. MURPHY:
___________________________
<PAGE>
EXHIBIT 10.11
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), made and
entered into as of the 1st day of September, 1995, by and between Cairn Energy
USA, Inc. ("Company"), a Delaware corporation, and J. Munro M. Sutherland
("Employee"), a citizen of the United Kingdom.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by and to serve the Company in the capacities and for the term
and compensation and subject to the terms and conditions hereinafter set forth;
and
WHEREAS, the Company and Employee desire to amend and restate as set
forth herein the terms of the Employment Agreement between Employee and the
Company dated as of September 8, 1993, as amended on March 1, 1994, May 1, 1994
and October 1, 1994, among other things, to extend the terms of such agreement
through December 31, 1997 and to provide for compensation through such extended
term.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and Employee mutually undertake and agree as
follows:
1. Employment of Employee. The Company hereby employs Employee, and
Employee hereby accepts employment with the Company and agrees to serve the
Company in the capacities hereinafter set forth for the term and compensation
and upon and subject to the terms and conditions hereinafter set forth.
2. General Duties of Company and Employee.
2.1. The Company agrees to employ Employee and Employee agrees to
accept employment by the Company and to serve as Senior Vice President and
Treasurer of the Company. The duties and responsibilities of Employee shall
include those described for a Vice President and Treasurer in the Bylaws of the
Company or other documents of the Company. Employee shall report to the
President of the Company, and the duties of the Employee shall also include such
other or additional duties as may from time-to-time be assigned to Employee by
the President, the Board of Directors of the Company or any duly authorized
committee thereof.
2.2. While employed hereunder, Employee shall obey the lawful
directions of the President or the Board of Directors of the Company, or any
duly authorized committee thereof, and shall use his best efforts to promote the
interests of the Company and to maintain and to promote the reputation thereof.
While employed hereunder, Employee shall devote his time, efforts, skills and
attention to the affairs of the Company in order that he shall faithfully
perform his duties and obligations hereunder and such as may be assigned to or
vested in him by the President, the Board of Directors of the Company or any
duly authorized committee thereof.
<PAGE>
2.3. While employed hereunder, Employee may from time to time engage in
any businesses or activities that do not compete directly and materially with
the Company, provided that such businesses or activities do not materially
interfere with his performance of the duties assigned to him in compliance with
this Agreement by the Board of Directors of the Company or any duly authorized
committee thereof. In any event, Employee is permitted to (i) invest his
personal assets as a passive investor in such form or manner as Employee may
choose in his discretion, (ii) participate in various charitable efforts, and
(iii) serve as a director or officer of any other entity or organization that
does not compete with the Company provided that Employee discloses to the
President his position with such other entity or organization prior to taking
such position.
3. Compensation and Benefits.
3.1. As compensation for services rendered, or to be rendered to the
Company in the capacity set forth above or in such other and/or further capacity
as may be assigned to Employee by the Board of Directors of the Company,
Employee shall be paid by the Company an annual base salary of $130,000 for
1995, $135,000 for 1996 and $140,000 for 1997, payable at such times as the
Company pays all of its Senior Executive employees, subject to the customary
withholding of appropriate amounts for taxes, FICA and similar items. The
Employee will not be eligible to participate in any bonus plan (including the
Company's Incentive Bonus Plan).
3.2. Upon Employee's furnishing to the President of the Company
customary and reasonable documentary support (such as receipts or paid bills)
evidencing costs and expenses incurred by him in the performance of his services
and duties hereunder (including, without limitation, travel and entertainment
expenses) and containing sufficient information to establish the amount, date,
place and essential character of the expenditure, Employee shall be reimbursed
for such reasonable costs and expenses in accordance with the Company's normal
expense reimbursement policy.
3.3. As long as this Agreement is in effect, the Company shall provide
Employee with an automobile allowance of up to $500 per month. The Company shall
pay all expenses of operating, maintaining and repairing the automobile and
shall procure and maintain automobile liability insurance with respect thereto,
with coverage insuring the Employee in the minimum amount of $1,000,000 for
bodily injury, death or property damage for each occurrence.
3.4. As long as this Agreement is in effect, the Company shall maintain
medical (including hospitalization) and dental insurance coverage on Employee
and Employee's immediate family members. If an annual physical examination for
Employee is not covered by such insurance, the Company will pay for such
examination per calendar year.
3.5. Employee shall be entitled to such vacation (in no event less than
two (2) weeks per year), holiday and other paid or unpaid leave of absence as
consistent with the Company's normal policies or as otherwise approved by the
Board of Directors.
<PAGE>
3.6 Except as otherwise provided in this Agreement, the Company shall
pay to Employee deferred compensation ("Deferred Compensation") equal to $19,167
for each one (1) year complete year of service beginning on the Commencement
Date (as defined below) under this Agreement up to a maximum amount of $57,501.
Except as otherwise provided in this Agreement, the Company shall pay the
Deferred Compensation to Employee in two (2) equal annual installments, with the
first installment due January 1, 1998. All Deferred Compensation shall be
subject to the customary withholding of appropriate amounts for taxes, FICA and
similar items. This Deferred Compensation agreement is intended to be an
unfunded compensation agreement between the Company and Employee. The amounts
payable under this Agreement shall be a general, unsecured obligation to
Employee payable solely from the general assets of the Company and neither
Employee nor his beneficiaries shall have any interest in any assets of the
Company.
4. Term. The term of this Agreement commenced on the 1st day of November
1993 (the "Commencement Date") and shall continue in full force and effect until
December 31, 1997. Notwithstanding the foregoing provisions, this Agreement may
be terminated at any time by the Company or Employee as hereinafter provided.
5. Termination other than by Expiration of the Term. The Company or
Employee may terminate Employee's employment under this Agreement at any time,
but only on the following terms:
5.1. The Company may terminate Employee's employment under this
Agreement at any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of the Company that "due cause" exists
for the termination of the employment relationship. As used herein, the term
"due cause" shall mean any of the following events:
(i) any intentional misapplication by Employee
of the Company's funds, or any other act of dishonesty injurious to the
Company committed by Employee; or
(ii) Employee's conviction of a crime involving moral
turpitude; or
(iii) Employee's breach, non-performance or
non-observance in any material respect of a material term of this
Agreement if such breach, non-performance or non-observance shall
continue beyond a period of sixty (60) business days immediately after
notice thereof by the Company to Employee; or
(iv) any other action by the Employee involving willful
and deliberate malfeasance or gross negligence in the performance of
Employee's duties.
5.2. In the event Employee is incapacitated by accident, sickness or
otherwise so as to render Employee mentally or physically incapable of
performing the services required under paragraph 2 of this Agreement for a
period of one hundred eighty (180) consecutive business days, and such
incapacity is confirmed by the written opinion of two (2) practicing medical
<PAGE>
doctors licensed by and in good standing in the state in which they maintain
offices for the practice of medicine, upon the expiration of such period or at
any time reasonably thereafter, or in the event of Employee's death, the Company
may terminate Employee's employment under this Agreement upon giving Employee or
his legal representative written notice at least thirty (30) days' prior to the
termination date. Employee agrees, after written notice by the Board of
Directors of the Company or a duly authorized committee or officer of the
Company, to submit to examinations by such practicing medical doctors selected
by the Board of Directors of the Company or a duly authorized committee or
officer of the Company.
5.3. The Company may terminate Employee's employment under this
Agreement at any time for any reason whatsoever, even without "due cause," by
giving a written notice of termination to Employee, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
5.4. Employee may, at any time after the Commencement Date by giving
the Company prior written notice, terminate this Agreement for any one or more
of the following reasons:
(i) if there is a material adverse alteration or diminution of
Employee's position, duties, responsibilities, reporting relationship,
authority or status (including corresponding prerequisites) from those
in effect, or otherwise accorded to Employee, on the effective date of
this Agreement;
(ii) if the Company requires that the Employee perform a
substantial portion of the services required hereunder outside the
Dallas/Fort Worth metropolitan area; or
(iii) if the Company fails to comply with its obligations
under paragraph 3 hereof.
6. Effect of Termination.
6.1. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.1 or the Employee voluntarily terminates his employment
other than by reason of paragraph 5.2 or 5.4, he shall be entitled to receive
all base salary due him as of the effective date of his termination and no more.
6.2. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.2, he shall be entitled to receive (i) all base salary
due him as of the effective date of his termination and (ii) in one lump
payment, the total of Deferred Compensation allocated for the Employee under
paragraph 3.6 that remains unpaid, notwithstanding the payment terms of the plan
or arrangement.
6.3. If Employee's employment under this Agreement is terminated
pursuant to paragraph 5.3 or 5.4, he shall be entitled to receive (i) all
compensation due him under this Agreement plus a severance payment in the amount
of one times the Employee's annual base salary at the time of termination and
(ii), in one lump payment, the total of all Deferred Compensation allocated for
the Employee under paragraph 3.6 that remains unpaid, notwithstanding the
payment terms of the plan or arrangement.
<PAGE>
6.4. If Employee terminates his employment with the Company upon the
termination of this Agreement, he shall be entitled to receive (i) all base
salary due him under this Agreement and (ii) in one lump payment, the total of
all Deferred Compensation allocated for the Employee under paragraph 3.6 that
remains unpaid, notwithstanding the payment terms of the plan or arrangement.
6.5. In no event shall any payments to Employee under paragraph 6.3(i)
exceed three times Employee's annual base salary at the time of termination.
7. Change in Control.
7.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Company occurs after the
Commencement Date and, within twenty-four months from the date of the Change in
Control, the Company terminates the Employee's employment without due cause as
provided in paragraph 5.3 or the Employee voluntarily terminates his employment
under paragraph 5.4, then the Employee, even though no longer employed by the
Company, shall be entitled to all payments provided in paragraph 6.3 hereof,
plus a payment in the amount of one times the Employee's annual base salary,
payable at the option of the Employee in either a lump sum within thirty days
after the date of termination or monthly over a 1-year period.
7.2. For the purposes of this Agreement, the term "Change in Control"
of the Company shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended) other than any Company employee stock ownership plan or the
Company, becomes the beneficial owner (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities, or (ii) the Board ceases to
consist of a majority of Continuing Directors as hereinafter defined. For
purposes of this Agreement, a "Continuing Director" shall mean a member of the
Board of Directors who either (i) is a member of the Board of Directors at the
Commencement Date or (ii) is nominated or appointed to serve as a director by a
majority of the then Continuing Directors.
7.3. Notwithstanding any other provision of this Agreement, if after
the Commencement Date (a) there is a change in the ownership or effective
control of the Company or (b) in the ownership of a substantial portion of the
assets of the Company within the meaning of Section 280G of the Internal Revenue
Code ("Section 280G"), the payments to be paid to the Employee in the nature of
compensation to be received by or for the benefit of the Employee and contingent
upon such event (the "Termination Payments") would create an "excess parachute
payment" within the meaning of Section 280G, then the Company shall make the
Termination Payments in substantially equal installments, the first installment
being due within thirty days after the date of termination and each subsequent
installment being due on January 31 of each
<PAGE>
year, such that the aggregate present value of all Termination Payments, whether
pursuant to this Agreement or otherwise, will be as close as possible to, but
not exceed 299% of, the Employee's base salary, within the meaning of Section
280G. It is the intention of this paragraph 7.3. to avoid excise taxes on the
Employee under Section 4999 of the Code and the disallowance of a deduction to
the Company pursuant to Section 280G.
7.4. In no event shall any payment under paragraphs 6.3(i) and 7.1
exceed three times Employee's annual base salary at the time of termination.
8. Confidential and Proprietary Information. Employee acknowledges and
agrees that he will not, without the prior written consent of the Company, at
any time during the term of this Agreement or any time thereafter, except as may
be required by competent legal authority, use or disclose to any person, firm or
other legal entity, any confidential records, secrets or information related to
the Company or any parent, subsidiary or affiliated person or entity. Employee
acknowledges and agrees that all information and secrets of the Company and/or
its affiliates that he has acquired, or may acquire, were received, or will be
received in confidence and as a fiduciary of the Company. Employee will exercise
utmost diligence to protect and guard such information and secrets.
9. Injunctive Relief. Employee acknowledges that the breach, or
threatened breach, by the Employee of the provisions of this Agreement shall
cause irreparable harm to the Company, which harm cannot be fully redressed by
the payment of damages to the Company. Accordingly, the Company shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to an inunction enjoining or restraining Employee from any violation or
threatened violation of this Agreement.
10. Miscellaneous.
10.1. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and the Company and Employee agree that
the state and federal courts situated in Dallas County, Texas shall have
personal jurisdiction over the Company and Employee to hear all disputes arising
under this Agreement. This agreement is to be at least partially performed in
Dallas County, Texas, and, as such, the Company and Employee agree that venue
shall be proper with the state or federal courts in Dallas County, Texas to hear
such disputes. In the event either the Company or Employee is not able to effect
service of process upon the other with respect to such disputes, the Company and
Employee expressly agree that the Secretary of State for the State of Texas
shall be an agent of the Company and/or the Employee to receive service of
process on behalf of the Company and/or the Employee with respect to such
disputes.
10.2. If any court of competent jurisdiction should determine that any
provision this Agreement is too broad to be enforceable, such court shall modify
and revise such provision (to the minimum extent necessary) so that it shall
comply with applicable law. The provision as so revised shall be fully binding
on the Employee.
<PAGE>
10.3. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Employee and
the Company with respect to the subject matter of this Agreement. This Agreement
may not be modified in any respect by any verbal statement, representation or
agreement made by any employee, officer, or representative of the Company or by
any written agreement unless signed by an officer of the Company who is
expressly authorized by the Company to execute such document.
10.4. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
10.5. All covenants and agreements set forth in this Agreement by or on
behalf of the Company shall bind its corporate successors and assigns, and all
covenants and agreements set forth in this Agreement by or on behalf of Employee
shall inure to the benefit of and be enforceable by the Company and its
corporate successors and assigns.
10.5. Any notice under this Agreement will be in writing and will be
deemed to have been given when delivered personally or the second business day
after deposit in the United States mail, and addressed as follows:
if to the Company:
Cairn Energy USA, Inc.
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
Attn: President
if to Employee:
J. Munro M. Sutherland
3904 Southwestern Boulevard
Dallas, Texas 75225
10.6. If either party should file a lawsuit against the other to
enforce any right such party has hereunder, the prevailing party shall also be
entitled to recover reasonable attorneys' fees and costs of suit in addition to
any other relief awarded such prevailing party.
10.7. If any provision of this Agreement should be held invalid or
unenforceable, no other provision shall be affected thereby, and it shall be
construed as if such invalid or unenforceable provision had never been a part of
it.
10.8. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement.
<PAGE>
10.9. Employee and the Company shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
IN WITNESS WHEREOF, parties hereto have executed and delivered this
Agreement as of the day and year first above written.
CAIRN ENERGY USA, INC.
By: /s/ Michael R. Gilbert
------------------------
Michael R. Gilbert,
President
J. MUNRO M. SUTHERLAND
/s/ J. Munro M. Sutherland
---------------------------
J. Munro M. Sutherland
<PAGE>
EXHIBIT 10.13
<PAGE>
CAIRN ENERGY USA, INC.
SEPARATE PHEMUS STOCK OPTION PLAN
Scope and Purpose of Plan
This Cairn Energy USA, Inc. Separate Phemus Stock Option Plan provides
for the granting of Nonstatutory Options (defined below) to certain directors of
the Corporation (defined below) who are not employees of the Corporation or of
its Affiliates (defined below) and who are not entitled to receive any Options
(defined below) under the Corporation's Directors Plan (defined below).
The purpose of the Plan is to provide an incentive for certain
non-employee directors of the Corporation or its Affiliates who are not entitled
to receive any Options under the Directors Plan to serve as directors of the
Corporation, to extend to them the opportunity to acquire a proprietary interest
in the Corporation so that they will apply their best efforts for the benefit of
the Corporation, and to aid the Corporation in attracting able persons to serve
as directors of the Corporation.
SECTION 1. Definitions.
1.1. "Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or superseding statute or statutes.
1.2. "Affiliates" shall mean (a) any corporation, other than the
Corporation, in an unbroken chain of corporations ending with the Corporation if
each of the corporations, other than the Corporation, owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain and (b) any corporation,
other than the Corporation, in an unbroken chain of corporations beginning with
the Corporation if each of the corporations, other than the last corporation in
the unbroken chain, owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
1.3. "Agreement" shall mean the written agreement between the
Corporation and a Holder evidencing the Option granted by the Corporation under
this Plan and the understanding of the parties with respect to the Option.
1.4. "Board of Directors" shall mean the board of directors of
the Corporation.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6. "Committee" shall mean the committee appointed pursuant to
Section 3 of the Plan by the Board of Directors to administer this Plan.
1.7. "Corporation" shall mean Cairn Energy USA, Inc., a
Delaware corporation, and its successors or assigns.
1.8 "Directors Plan" shall mean that Nonstatutory Option plan adopted
by the Board of Directors on April 8, 1993, and ratified on May 19, 1993, by the
stockholders of the Company, as amended.
1.9. "Disability" shall mean a total and permanent disability
as defined in section 105(d)(4) of the Code, as it existed immediately prior to
its repeal.
1.10. "Eligible Individual" shall mean a member of the Board of
Directors of the Corporation (i) who is not, and has not been, an employee of
the Corporation or one of its Affiliates; (ii) who is not entitled to receive
any Options under the Directors Plan; and (iii) who is an employee or officer or
director of Phemus Corporation or an affiliate of Phemus Corporation. The term
affiliate for purposes of the definition of Eligible Individual and Permitted
Transferee shall mean a person or entity that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, Phemus Corporation. For purposes of the Plan, the Chairman of the
Board of Directors of the Corporation shall not be deemed an employee of the
Corporation.
1.11. "Fair Market Value" shall mean:
58
<PAGE>
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange at
the date of determining the Fair Market Value, the last reported sale price on
such exchange on the last business day prior to the date in question; or
(b) If shares of Stock of the same class shall not be listed or
admitted to unlisted trading privileges as provided in Subparagraph 1.11(a) and
sales prices for such shares in the over-the- counter market shall be reported
by the National Association of Securities Dealers, Inc. Automated Quotations,
Inc. ("NASDAQ") National Market System at the date of determining the Fair
Market Value, the last reported sale price so reported on the last business day
prior to the date in question; or
(c) If shares of Stock of the same class shall not be listed or
admitted to unlisted trading privileges as provided in Subparagraph 1.11(a) and
sales prices for such shares shall not be reported by the NASDAQ National Market
System as provided in Subparagraph 1.11(b), and bid and asked prices therefor in
the over-the-counter market shall be reported by NASDAQ (or, if not so reported,
by the National Quotation Bureau Incorporated or the OTC Bulletin Board) at the
date of determining the Fair Market Value, the average of the closing bid and
asked prices on the last business day prior to the date in question; and
(d) If shares of Stock of the same class shall not be listed or
admitted to unlisted trading privileges as provided in Subparagraph 1.11(a) and
sales prices or bid and asked prices for such shares shall not be reported by
NASDAQ (or the National Quotation Bureau Incorporated) as provided in
Subparagraph 1.11(b) or Subparagraph 1.11(c) at the date of determining the Fair
Market Value, the value determined in good faith by the Board of Directors.
1.12. "Holder" shall mean an Eligible Individual to whom an
Option has been granted or any permitted transferee as that term is defined in
Section 6.3.
1.13. "Nonstatutory Options" and "Option" shall mean stock
options that do not satisfy the requirements of section 422 of the Code.
1.15. "Permitted Transferee" shall mean Phemus Corporation or an
affiliate of Phemus Corporation.
1.16. "Plan" shall mean the Cairn Energy USA, Inc. Separate
Phemus Stock Option Plan.
1.17. "Securities Act" shall mean the Securities Act of 1933, as
amended or any similar or superseding statute or statutes.
1.18. "Stock" shall mean the Corporation's authorized common stock,
$0.01 par value, together with any other securities with respect to which
Options granted under the Plan may become exercisable.
SECTION 2. Stock and Maximum Number of Shares Subject to the Plan.
2.1. Description of Stock and Maximum Shares Allocated. The Stock which
may be issued upon the exercise of an Option may either be unissued or
reacquired shares of Stock, as the Board of Directors may, in its sole and
absolute discretion, from time to time determine.
Subject to the adjustments provided in Paragraph 6.4, the aggregate
number of shares of Stock to be issued pursuant to the exercise of all Options
granted under the Plan may equal but shall not exceed 30,000 shares of Stock.
2.2. Restoration of Unpurchased Shares. If an Option granted under the
Plan expires or terminates for any reason during the term of this Plan and prior
to the exercise of the Option in full, the shares of Stock subject to, but not
issued under, such Option shall again be available for Options granted under the
Plan after such shares become available again.
SECTION 3. Administration of the Plan.
3.1. Committee. The Plan shall be administered by the
Committee. The Committee shall be the Compensation Committee of the Board of
Directors; provided, however, that for purposes of this Plan, the Committee
shall consist of not less than two individuals.
3.2. Duration, Removal, Etc. The members of the Committee
shall serve at the pleasure of the Board of Directors, which shall have the
power, at any time and from time to time, to remove members from the Committee
59
<PAGE>
or to add members to the Committee. Vacancies on the Committee, however caused,
shall be filled by action of the Board of Directors.
3.3. Meetings and Actions of Committee. The Committee shall elect one
of its members as its Chairman and shall hold its meetings at such times and
places as it may determine. All decisions and determinations of the Committee
shall be made by the majority vote or decision of all of its members present at
a meeting; provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting duly called and held. The
Committee may make any rules and regulations for the conduct of its business
that are not inconsistent with the provisions of this Plan and with the bylaws
of the Corporation as it may deem advisable.
3.4. Committee's Powers. Subject to the express provisions of this
Plan, the Committee shall have the authority, in its sole and absolute
discretion, (a) to adopt, amend, and rescind administrative and interpretive
rules and regulations relating to the Plan; (b) to determine the terms and
provisions of the respective Agreements (which need not be identical); provided,
however, such terms and provisions shall not be inconsistent with this Plan,
including the extent to which the transferability of shares of Stock issued upon
exercise of Options is restricted, but in all events shall such shares of Stock
issued upon exercise of Options be assignable to a Permitted Transferee; (c) to
construe the terms of any Agreement and the Plan; and (d) to make all other
determinations and perform all other acts necessary or advisable for
administering the Plan, including the delegation of such ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any Agreement in the manner and to the extent it shall deem expedient to
carry it into effect, and it shall be the sole and final judge of such
expediency. The Committee shall have full discretion to make all determinations
on the matters referred to in this Paragraph, and such determinations shall be
final, binding and conclusive.
SECTION 4. Eligibility and Participation.
4.1. Eligible Individuals. Options may be granted under the
Plan only to persons who are Eligible Individuals at the time of the Option's
grant.
4.2. No Right to Option. The adoption of the Plan shall not be
deemed to give any person a right to be granted an Option.
SECTION 5. Automatic Grant of Options and Certain Terms of the
Agreements.
Subject to the express provisions of this Section, each Eligible
Individual shall be automatically granted an Option to purchase 10,000 shares of
Stock under the Plan at each of the following dates: (i) the first meeting of
each term he serves as a member of the Board of Directors, and (ii) solely with
respect to the first year for which the Plan is adopted, the date that the Plan
is adopted.
The date of the first meeting of each term an Eligible Individual
serves as a member of the Board of Directors shall be the date on which the
Option covered by an Agreement is granted, even though certain terms of the
Agreement may not be at such time determined and even though the Agreement may
not be executed until a later time. In no event, however, shall an optionee gain
any rights in addition to those specified by the Committee in its grant,
regardless of the time that may pass between the grant of the Option and the
actual execution of the Agreement by the Corporation and the optionee.
Each Option granted under the Plan shall be evidenced by an Agreement,
executed by the Corporation and the Eligible Individual to whom the Option is
granted, incorporating such terms as the Committee shall deem necessary or
desirable; provided, however, that in all events each Option shall be assignable
to a Permitted Transferee. More than one Option may be granted to the same
Eligible Individual and be outstanding concurrently. In the event an Eligible
Individual is granted one or more Nonstatutory Options, such grants shall be
evidenced by separate Agreements, one for each of the Nonstatutory Option
grants.
Each Agreement may contain or otherwise provide for such restrictions
on the transferability of shares of the Stock acquired pursuant to an Option as
the Committee, in its sole and absolute discretion, shall deem proper or
advisable; provided, however, that in all events shall the shares of Stock
acquired pursuant to an Option be assignable to a Permitted Transferee. Such
restrictions on transferability may include, but need not be limited to, options
and rights of first refusal in favor of the Corporation and stockholders of the
Corporation other than a Holder who is a party to the particular Agreement or a
subsequent person who is bound by such Agreement.
60
<PAGE>
SECTION 6. Terms and Conditions of Options.
All Options granted under the Plan shall comply with, be deemed to
include, and shall be subject to the following terms and conditions:
6.1. Exercise Price. Each Agreement shall state the exercise price per
share of Stock. The exercise price per share of Stock subject to a Nonstatutory
Option shall be the Fair Market Value of a share of Stock on the date of grant
of the Option; provided, however, that with respect to the Options granted on
the date of the adoption of the Plan, the exercise price shall be the same
exercise price set for those Options granted on May 24, 1995, under the
Directors Plan.
6.2. Medium and Time of Payment, Method of Exercise, and
Withholding Taxes. The exercise price of an Option shall be payable upon the
exercise of the Option
(a) in cash
(b) by certified or cashier's check payable to the order of
the Corporation, or
(c) by wire transfer of immediately available funds.
Exercise of an Option shall not be effective until the Corporation has received
written notice of exercise. Such notice must specify the number of whole shares
to be purchased and be accompanied by payment in full of the aggregate exercise
price of the number of shares purchased. The Corporation shall not in any case
be required to sell, issue, or deliver a fractional share of Stock with respect
to any Option.
The Committee may, in its discretion, require a Holder to pay to the
Corporation at the time of exercise of an Option (or portion of an Option) the
amount that the Corporation deems necessary to satisfy its obligation to
withhold federal, state or local income or other taxes incurred by reason of the
exercise. Where the exercise of an Option does not give rise to an obligation to
withhold Federal income or other taxes on the date of exercise, the Corporation
may, in its discretion, require a Holder to place shares of Stock purchased
under the Option in escrow for the benefit of the Corporation until such time as
Federal income or other tax withholding is no longer required with respect to
such shares or until such withholding is required on amounts included in the
gross income of the Holder as a result of the exercise of an Option or the
disposition of shares of Stock acquired pursuant to the exercise. At such later
time, the Corporation, in its discretion, may require a Holder to pay to the
Corporation the amount that the Corporation deems necessary to satisfy its
obligation to withhold Federal, state or local income or other taxes incurred by
reason of the exercise of the Option or the disposition of shares of Stock. Upon
receipt of such payment by the Corporation, such shares of Stock shall be
released from escrow to the Holder.
6.3. Term, Time of Exercise and Transferability of Options. In addition
to such other terms and conditions as may be included in a particular Agreement
granting an Option, an Option shall be exercisable during a Holder's lifetime
only by the Holder or by the Holder's guardian or legal representative or a
Permitted Transferee.
An Option shall not be transferrable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder; provided, however, that each Eligible Individual shall be
permitted to assign its rights to an Option to a Permitted Transferee.
Each Option shall be for a term of sixty (60) calendar months,
beginning on the date of the Option's grant.
The Option evidenced by the Agreement may be exercised in full or in
part as to any number of shares subject to the Option at any time or from time
to time during the term of the Option; provided, however, that notwithstanding
the foregoing, no part of an Option may be exercised during the six (6) month
period beginning on the date the Option was granted. Except as provided above
and unless otherwise provided in any Agreement, an Option may be exercised at
any time or from time to time during the term of the Option. Such exercise may
be as to any or all whole (but no fractional) shares which have become
purchasable under the Option.
Within a reasonable time (or such time as may be permitted by law)
after the Corporation receives written notice that the Holder has elected to
exercise all or a portion of an Option, such notice to be accompanied by payment
in full of the aggregate Option exercise price of the number of shares of Stock
purchased, the Corporation shall issue and deliver a certificate representing
the shares acquired in consequence of the exercise and any other amounts payable
in consequence of such exercise. The number of the shares of Stock transferrable
due to an exercise of an Option under
61
<PAGE>
this Plan shall not be increased due to the passage of time, except as may be
provided in an Agreement; provided, however, the number of such shares of Stock
which are transferrable may increase due to the occurrence of certain events
which are fully described in Paragraph 6.4.
Nothing in the Plan or in any Option granted under the Plan shall
require the Corporation to issue any shares upon exercise of any Option if such
issuance would, in the opinion of counsel for the Corporation, require
registration under the Securities Act or any other applicable statute or
regulation, as then in effect. At the time of any exercise of an Option, the
Corporation may, as a condition precedent to the exercise of such Option,
require from the Holder (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning his sophistication, financial means, access to information
about the Corporation and intentions with regard to the retention or disposition
of the shares being acquired by exercise of such Option and such written
covenants and agreements, if any, as to the manner of disposal of such shares
as, in the opinion of counsel to the Corporation, may be necessary to ensure
that any disposition by such Holder (or in the event of his death, his legal
representatives, heirs, legatees, or distributees), will not involve a violation
of the Securities Act or any other applicable state or federal statute or
regulation, as then in effect. Certificates for shares of Stock, when issued,
may have the following or similar legend, or statements of other applicable
restrictions, endorsed on them, and may not be immediately transferable:
The shares of stock evidenced by this certificate have been issued to
the registered owner in reliance upon written representations that
these shares have been purchased for investment. These shares have not
been registered under the Securities Act of 1933, as amended, or any
applicable state securities laws, in reliance upon an exemption from
registration. Without such registration, these shares may not be sold,
transferred, assigned or otherwise disposed of unless, in the opinion
of the Corporation and its legal counsel, such sale, transfer,
assignment or disposition will not be in violation of the Securities
Act of 1933, as amended, applicable rules and regulations of the
Securities and Exchange Commission, and any applicable state securities
laws.
6.4. Adjustments Upon Changes in Capitalization, Merger, Etc.
Notwithstanding any other provision in the Plan to the contrary, in the event of
any change in the number of outstanding shares of Stock
(a) effected without receipt of consideration by the
Corporation by reason of a stock dividend, split,
combination, exchange of shares or other recapitalization,
merger, or otherwise, in which the Corporation is the
surviving corporation, or
(b) by reason of a spin-off of a part of the Corporation into
a separate entity, or assumptions and conversions of out-
standing grants due to an acquisition by the Corporation
of a separate entity,
(1) the aggregate number and class of the reserved shares, (2) the number and
class of shares subject to each outstanding Option and (3) the exercise price of
each outstanding Option shall be automatically adjusted to accurately and
equitably reflect the effect of such change. In the event of a dispute
concerning such adjustment, the Committee has full discretion to determine the
resolution of the dispute. Such determination shall be final, binding and
conclusive. The number of reserved shares or the number of shares subject to any
outstanding Option shall be automatically reduced by any fraction which results
from any adjustment made pursuant to this Paragraph.
The following provisions of this Paragraph shall apply unless a
Holder's Agreement provides otherwise. In the event of:
(a) a dissolution or liquidation of the Corporation,
(b) a merger or consolidation (other than a merger effecting a
re-incorporation of the Corporation in another state or
any other merger or a consolidation in which the stock-
holders of the surviving corporation and their
proportionate interests therein immediately after the
merger or consolidation are substantially identical to the
stockholders of the Corporation and their proportionate
interests therein immediately prior to the merger or
consolidation) in which the Corporation is not the
surviving corporation (or survives only as a subsidiary of
another corporation in a transaction in which the stock-
holders of the parent of the Corporation and their
proportionate interests therein immediately after the
transaction are not substantially identical to the stock-
holders of the Corporation and their proportionate
interests therein immediately prior to the transaction;
provided, however, that the Board of Directors may at any
time prior to such a merger or consolidation provide by
resolution that the foregoing provisions of this
parenthetical shall not apply if a majority of the board
of directors of such parent immediately after the trans-
action consists of individuals who constituted a majority
of the Board of Directors immediately prior to the trans-
action), or
62
<PAGE>
(c) a transaction in which any person becomes the owner of 50%
or more of the total combined voting power of all classes
of stock of the Corporation (provided, however, that the
Board of Directors may at any time prior to such trans-
action provide by resolution that this Subparagraph shall
not apply if such acquiring person is a corporation and a
majority of the board of directors of the acquiring
corporation immediately after the transaction consists of
individuals who constituted a majority of the Board of
Directors immediately prior to the acquisition of such 50%
or more total combined voting power)
a Holder shall be entitled to receive, upon the exercise of such Option, with
respect to each share of Stock (i) the number of shares of stock of the
surviving corporation (or equity interest in any other entity) and (ii) any
other notes, evidences of indebtedness or other property that Holder would have
received in connection with such transaction had he exercised the Option with
respect to such shares of Stock immediately prior to the record date of
consummation of such transaction.
6.5. Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Option until a certificate
representing such shares is issued to the Holder. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Paragraph 6.4.
6.6. Modification, Extension and Renewal of Options. No modification of
an Option granted under the Plan shall, without the consent of the Holder, alter
or impair any rights or obligations under any Option previously granted under
the Plan to such Holder under the Plan.
6.7. Furnish Information. Each Holder shall furnish to the
Corporation all information requested by the Corporation to enable it to comply
with any reporting or other requirement imposed upon the Corporation by or under
any applicable statute or regulation.
6.8. Obligation to Exercise. The granting of an Option under
the Plan shall impose no obligation upon the Holder to exercise it or any part
of it.
6.9. Agreement Provisions. The Agreements authorized under the Plan
shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee shall deem advisable.
SECTION 7. Remedies and Specific Performance.
7.1. Remedies. The Corporation shall be entitled to recover
from a Holder reasonable attorneys' fees incurred in connection with the
enforcement of the terms and provisions of the Plan and any Agreement, whether
by an action to enforce specific performance, or an action for damages for its
breach or otherwise.
7.2. Specific Performance. The Corporation shall be entitled to enforce the
terms and provisions of this Section, including the remedy of specific
performance, in Dallas County, Texas.
SECTION 8. Duration of Plan.
No Options may be granted under the Plan after the expiration of the
Director Plan.
SECTION 9. Amendment of Plan.
For purposes of complying with changes in the Code or ERISA, the Board
of Directors may amend, modify, suspend or terminate the Plan at any time. For
purposes of meeting or addressing any other changes in legal requirements or any
other purpose, the Board of Directors may amend, modify, suspend or terminate
the Plan. No Option may be granted during any suspension of the Plan or after
the Plan has been terminated, and no amendment, suspension or termination shall,
without a Holder's consent, alter or impair, other than as provided in the Plan
and the Holder's Agreement, any of the rights or obligations under any Option
previously granted to such Holder under the Plan.
SECTION 10. General.
10.1. Application of Funds. The proceeds received by the
Corporation from the sale of shares pursuant to Options shall be used for
general corporate purposes.
63
<PAGE>
10.2. Right to Terminate Director Status. Nothing contained in
the Plan, or in any Agreement, shall confer upon any Holder the right to
continue as a director of the Corporation, or interfere in any way with the
rights to terminate his status as a director.
10.3. No Liability for Good Faith Determinations. Neither the members
of the Board of Directors nor any member of the Committee shall be liable for
any act, omission, or determination taken or made in good faith with respect to
the Plan or any Option granted under it, and members of the Board of Directors
and the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit (provided such settlement is
approved by independent legal counsel selected by the Corporation) and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising from such claim, loss, damage, or expense to the full extent
permitted by law and under any directors' and officers' liability or similar
insurance coverage that may from time to time be in effect.
10.4. Information Confidential. As partial consideration for the
granting of each Option under the Plan, the Agreement may, in the Committee's
sole and absolute discretion, provide that the Holder shall agree with the
Corporation that he will keep confidential all information and knowledge that he
has relating to the manner and amount of his participation in the Plan;
provided, however, that such information may be disclosed as required by law and
may be given in confidence to the Holder's spouse, tax and financial advisors,
or to a financial institution to the extent that such information is necessary
to secure a loan. In the event any breach of this promise comes to the attention
of the Committee, it shall take into consideration such breach, in determining
whether to recommend the grant of any future Option to such Holder, as a factor
militating against the advisability of granting any such future Option to such
individual.
10.5. Other Benefits. The Options granted under this Plan shall be in
addition to regular directors' fees and other benefits granted with respect to
the position of a member of the Board of Directors. Neither the Plan nor any
Option granted under the Plan shall confer upon any person a right to serve as a
member of the Board of Directors.
10.6. Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
of the Plan, shall, to the extent thereof, be in full satisfaction of all claims
of such persons under the Plan. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt for such payment in such form as it
shall determine.
10.7. No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock from loss or depreciation.
10.8. Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Affiliates; provided,
however, the Corporation or an Affiliate may recover any and all damages, fees,
expenses and costs arising out of any actions taken by the Corporation or an
Affiliate to enforce its rights under the Plan.
10.9. Corporation Records. Records of the Corporation or its
Affiliates regarding the Holder's period of service, termination of service and
the reason for such termination, and other matters shall be conclusive for all
purposes under the Plan, unless determined by the Committee to be incorrect.
10.10. Information. The Corporation and its Affiliates shall,
upon request or as may be specifically required under the Plan, furnish or cause
to be furnished all of the information or documentation that is necessary or
required by the Committee to perform its duties and functions under the Plan.
10.11. No Liability of Corporation. The Corporation assumes no
obligation or responsibility to the Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
10.12. Corporation Action. Any action required of the
Corporation relating to the Plan shall be by resolution of its Board of
Directors, Compensation Committee of the Board of Directors or by a person
authorized to act by resolution of the Board of Directors or such Compensation
Committee.
10.13. Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions of the Plan, but such provision shall be fully
severable, and the Plan shall be construed and enforced as if the illegal or
invalid provision had never been included in the Plan.
64
<PAGE>
10.14. Notices. Whenever any notice is required or permitted under the
Plan, such notice must be in writing and personally delivered or sent by mail or
by a nationally recognized courier service. Any notice required or permitted to
be delivered under this Agreement shall be deemed to be delivered on the date on
which it is personally delivered, or, if mailed, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has previously specified by written
notice delivered in accordance with this Paragraph or, if by courier,
twenty-four (24) hours after it is sent, addressed as described in this
Paragraph. The Corporation or a Holder may change, at any time and from time to
time, by written notice to the other, the address which it or he had previously
specified for receiving notices. Until changed in accordance with the Plan, the
Corporation and each Holder shall specify as its and his address for receiving
notices the address set forth in the Agreement pertaining to the shares to which
such notice relates.
10.15. Waiver of Notice. Any person entitled to notice under the
Plan may waive such notice.
10.16. Successors. The Plan shall be binding upon the Holder,
his legal representatives, heirs, legatees and distributees, upon the
Corporation, its successors, and assigns, and upon the Committee, and its
successors.
10.17. Headings. The titles and headings of Sections and
Paragraphs are included for convenience of reference only and are not to be
considered in construction of the Plan's provisions.
10.18. Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Texas except to the extent Texas law is preempted by federal law or
Delaware corporate law that is controlling. Questions arising with respect to
the provisions of an Agreement that are matters of contract law shall be
governed by the laws of the state specified in the Agreement, except to the
extent preempted by federal law and except to the extent that Delaware corporate
law conflicts with the contract law of such state, in which event Delaware
corporate law shall govern. The obligation of the Corporation to sell and
deliver Stock under the Plan is subject to applicable laws and to the approval
of any governmental authority required in connection with the authorization,
issuance, sale, or delivery of such Stock.
10.19. Word Usage. Words used in the masculine shall apply to
the feminine where applicable, and wherever the context of this Plan dictates,
the plural shall be read as the singular and the singular as the plural.
The Plan shall take effect on January 10, 1996, the date it was adopted
by the Board of Directors.
IN WITNESS WHEREOF, Cairn Energy USA, Inc. acting by and through its
duly authorized officer, has executed this Plan on this the 10th day of January,
1996.
CAIRN ENERGY USA, INC.
By: /s/ Susan H. Rader
------------------------------------
Susan H. Rader, Secretary
65
<PAGE>
EXHIBIT 10.14
66
<PAGE>
CAIRN ENERGY USA, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 10th day of January,
1996, between Cairn Energy USA, Inc., a Delaware corporation (the
"Corporation"), and John C. Halsted (the "Holder") in connection with the grant
of a Nonstatutory Option (defined below) under the Cairn Energy USA, Inc.
Separate Phemus Stock Option Plan (the "Plan")
W I T N E S S E T H:
WHEREAS, the Holder is a director of the Corporation and is not an
employee of the Corporation or one of its Affiliates (defined below);
WHEREAS, the Holder is not entitled to receive any Options under the
Directors Plan;
WHEREAS, the Corporation desires to encourage the Holder to own Stock
(defined below) and to give him added incentive to advance the interests of the
Corporation through the Plan; and
WHEREAS, the Corporation desires to grant the Holder a Nonstatutory
Option to purchase shares of Stock of the Corporation under terms and conditions
established by the Plan.
NOW, THEREFORE, in consideration of these premises, the parties agree
that the following shall constitute the Agreement between the Corporation and
the Holder:
1. Definitions. For purposes of this Agreement, defined terms
shall have the meanings given to them by the Plan except as specified below:
1.1 "Agreement" shall mean this document as executed by the
Corporation and the Holder, and as it may be subsequently amended.
1.2 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or superseding statute or statutes.
1.4 "Nonstatutory Option" and "Option" shall mean a stock option
granted pursuant to this Agreement that does not satisfy the requirements of
section 422 of the Code.
1.5. "Permitted Transferee" shall mean Phemus Corporation or an
affiliate of Phemus Corporation. The term affiliate for purposes of the
definition of Permitted Transferee shall mean a person or entity that directly,
or indirectly through one or more intermediaries, controls or is under common
control with, Phemus Corporation.
1.6 "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar or superseding statute or statutes.
2. Grant of Nonstatutory Option. Subject to the terms and conditions
set forth in this Agreement, the Corporation grants to the Holder a Nonstatutory
Option to purchase from the Corporation during the period ending sixty (60)
calendar months from the date of this Agreement 10,000 shares of Stock at a
price of $10.00 per share, subject to adjustment, if any, as provided in this
Agreement. This Nonstatutory Option is exercisable with respect to all of the
shares of Stock subject to the Option only after the six month anniversary of
the date this Option is granted.
3. Notice of Exercise. This Nonstatutory Option may be exercised
in whole or in part, from time to time, in accordance with Paragraph 2, by
written notice to the Corporation at the address provided in this Agreement,
which notice shall:
(a) specify the number of whole shares of Stock to be
purchased and the exercise price to be paid for such shares;
(b) if the person exercising this Nonstatutory Option is not
the Holder himself, contain or be accompanied by evidence satisfactory to the
Committee of such person's right to exercise this Nonstatutory Option; and
67
<PAGE>
(c) be accompanied by payment in full of the purchase price in
the form of cash, a certified or cashier's check to the order of the Corporation
or a wire transfer of immediately available funds.
This Option may be exercised only in increments at least equal to the
lesser of one hundred (100) shares or ten percent (10%) of the number of whole
shares as to which it is exercisable.
4. Investment Letter. The Holder agrees that the shares of Stock
acquired on exercise of this Nonstatutory Option shall be acquired for his own
account for investment only and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act or other applicable securities laws. If the Committee so
determines, any Stock certificates issued upon exercise of this Nonstatutory
Option shall bear a legend to the effect that the shares have been so acquired.
The Corporation may, but in no event shall be required to, file a registration
statement with respect to the Options or any shares of Stock acquired upon
exercise of the Options or otherwise bear any expenses of complying with the
Securities Act, other applicable securities laws or the rules and regulations of
any national securities exchange or other regulatory authority in connection
with the registration, qualification, or transfer, as the case may be, of this
Nonstatutory Option or any shares of Stock acquired upon the exercise of this
Nonstatutory Option. The foregoing restrictions on the transfer of the shares of
Stock shall be inoperative if (a) the Corporation previously shall have been
furnished with an opinion of counsel, satisfactory to it, to the effect that
such transfer will not involve any violation of the Securities Act or other
applicable securities laws, or (b) the shares of Stock shall have been duly
registered in compliance with the Securities Act and other applicable securities
laws.
5. Transfer and Exercise of Nonstatutory Option. This Nonstatutory
Option shall not be transferable except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder; provided, however, that Holder shall be permitted to assign its
rights to the Option to a Permitted Transferee. No assignment or transfer of
this Nonstatutory Option, whether voluntary or involuntary, by operation of law
or otherwise, except a transfer by will or the laws of descent or distribution,
pursuant to a qualified domestic relations order as defined in the Code or Title
I of the Employee Retirement Income Security Act or the rules thereunder, or to
a Permitted Transferee shall vest in the assignee or transferee any interest or
right whatsoever in this Nonstatutory Option.
During the Holder's lifetime, this Nonstatutory Option may be exercised
only by him, his guardian or his legal representative or a Permitted Transferee.
6. Status of Holder. The Holder shall not be deemed a stockholder of
the Corporation with respect to any of the shares of Stock subject to this
Nonstatutory Option, except to the extent that such shares shall have been
purchased and transferred to him. The Corporation shall not be required to issue
or transfer any certificates for shares of Stock purchased upon exercise of this
Nonstatutory Option until all applicable requirements of law have been satisfied
and, if applicable, such shares shall have been duly listed on any securities
exchange on which the Stock may then be listed.
7. No Effect on Capital Structure. This Nonstatutory Option shall not
affect the right of the Corporation or any Affiliate to reclassify, recapitalize
or otherwise change its capital or debt structure or to merge, consolidate,
convey any or all of its assets, dissolve, liquidate, windup, or otherwise
reorganize.
8. Expiration of Nonstatutory Option. This Option shall expire
only upon the earlier of the date it is completely exercised or the Option's
expiration date as determined under Paragraph 2.
9. Committee Authority. Any question concerning the
interpretation of this Agreement, any adjustments required to be made under this
Agreement, and any controversy which may arise under this Agreement shall be
determined by the Committee in its sole discretion.
10. Plan Controls. The terms of this Agreement are governed by the
terms of the Plan, a copy of which is attached as Exhibit A and made a part of
this Agreement as if fully set forth in this Agreement, and in the case of any
inconsistency between the terms of this Agreement and the terms of the Plan, the
terms of the Plan shall control.
11. Notice. Whenever any notice is required or permitted under this
Agreement, such notice must be in writing and personally delivered, telecopied
(if confirmed) or sent by mail. Any notice required or permitted to be delivered
under this Agreement shall be deemed to be delivered on the date which it is
personally delivered, or, whether actually received or not, on the third
business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address which such person has previously specified by written notice delivered
in accordance with this Agreement. The Corporation or Holder may change, at any
time and
68
<PAGE>
from time to time, by written notice to the other, the address previously
specified for receiving notices. Until changed in accordance with this
Agreement, the Corporation and the Holder specify their respective addresses as
set forth below:
Corporation: Cairn Energy USA, Inc.
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
Attention: Michael R. Gilbert, President
Holder: John C. Halsted
Phemus Corporation
600 Atlantic Avenue
Boston, Massachusetts 02210-2203
12. Information Confidential. As partial consideration for the granting
of this Nonstatutory Option, the Holder agrees that he will keep confidential
all information and knowledge that he has relating to the manner and amount of
participation in the Plan; provided, however, that such information may be
disclosed as required by law and may be given in confidence to the Holder's
spouse, tax and financial advisors, or to a financial institution to the extent
that such information is necessary to secure a loan.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and the Holder has executed this Agreement on the day and year first
above written.
"CORPORATION"
CAIRN ENERGY USA, INC.
By:________________________
Title:_____________________
"HOLDER"
___________________________
John C. Halsted
69
<PAGE>
EXHIBIT 10.15
70
<PAGE>
CAIRN ENERGY USA, INC.
SEPARATE PLC STOCK OPTION PLAN
Scope and Purpose of Plan
This Cairn Energy USA, Inc. Separate PLC Stock Option Plan provides
for the granting of Nonstatutory Options (defined below) to certain directors of
the Corporation (defined below) who are not employees of the Corporation or of
its Affiliates (defined below) and who are not entitled to receive any Options
(defined below) under the Corporation's Directors Plan (defined below).
The purpose of the Plan is to provide an incentive for certain
non-employee directors of the Corporation or its Affiliates who are not entitled
to receive any Options under the Directors Plan to serve as directors of the
Corporation, to extend to them the opportunity to acquire a proprietary interest
in the Corporation so that they will apply their best efforts for the benefit of
the Corporation, and to aid the Corporation in attracting able persons to serve
as directors of the Corporation.
SECTION 1. Definitions.
1.1. "Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar or superseding statute or statutes.
1.2. "Affiliates" shall mean (a) any corporation, other than the
Corporation, in an unbroken chain of corporations ending with the Corporation if
each of the corporations, other than the Corporation, owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain and (b) any corporation,
other than the Corporation, in an unbroken chain of corporations beginning with
the Corporation if each of the corporations, other than the last corporation in
the unbroken chain, owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
1.3. "Agreement" shall mean the written agreement between the
Corporation and a Holder evidencing the Option granted by the Corporation under
this Plan and the understanding of the parties with respect to the Option.
1.4. "Board of Directors" shall mean the board of directors of the
Corporation.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6. "Committee" shall mean the committee appointed pursuant to
Section 3 of the Plan by the Board of Directors to administer this Plan.
1.7. "Corporation" shall mean Cairn Energy USA, Inc., a Delaware
corporation, and its successors or assigns.
1.8 "Directors Plan" shall mean that Nonstatutory Option plan adopted
by the Board of Directors on April 8, 1993, and ratified on May 19, 1993, by the
stockholders of the Company, as amended.
1.9. "Disability" shall mean a total and permanent disability as
defined in section 105(d)(4) of the Code, as it existed immediately prior to its
repeal.
1.10. "Eligible Individual" shall mean a member of the Board of
Directors of the Corporation (i) who is not, and has not been, an employee of
the Corporation or one of its Affiliates; (ii) who is not entitled to receive
any Options under the Directors Plan; and (iii) who is an employee or officer or
director of Cairn Energy PLC or an affiliate of Cairn Energy PLC. The term
affiliate for purposes of the definition of Eligible Individual and Permitted
Transferee shall mean a person or entity that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, Cairn Energy PLC. For purposes of the Plan, the Chairman of the
Board of Directors of the Corporation shall not be deemed an employee of the
Corporation.
1.11. "Fair Market Value" shall mean:
71
<PAGE>
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange at
the date of determining the Fair Market Value, the last reported sale price on
such exchange on the last business day prior to the date in question; or
(b) If shares of Stock of the same class shall not be listed or
admitted to unlisted trading privileges as provided in Subparagraph 1.11(a) and
sales prices for such shares in the over-the- counter market shall be reported
by the National Association of Securities Dealers, Inc. Automated Quotations,
Inc. ("NASDAQ") National Market System at the date of determining the Fair
Market Value, the last reported sale price so reported on the last business day
prior to the date in question; or
(c) If shares of Stock of the same class shall not be listed or
admitted to unlisted trading privileges as provided in Subparagraph 1.11(a) and
sales prices for such shares shall not be reported by the NASDAQ National Market
System as provided in Subparagraph 1.11(b), and bid and asked prices therefor in
the over-the-counter market shall be reported by NASDAQ (or, if not so reported,
by the National Quotation Bureau Incorporated or the OTC Bulletin Board) at the
date of determining the Fair Market Value, the average of the closing bid and
asked prices on the last business day prior to the date in question; and
(d) If shares of Stock of the same class shall not be listed or
admitted to unlisted trading privileges as provided in Subparagraph 1.11(a) and
sales prices or bid and asked prices for such shares shall not be reported by
NASDAQ (or the National Quotation Bureau Incorporated) as provided in
Subparagraph 1.11(b) or Subparagraph 1.11(c) at the date of determining the Fair
Market Value, the value determined in good faith by the Board of Directors.
1.12. "Holder" shall mean an Eligible Individual to whom an Option has
been granted or any permitted transferee as that term is defined in Section 6.3.
1.13. "Nonstatutory Options" and "Option" shall mean stock options
that do not satisfy the requirements of section 422 of the Code.
1.15. "Permitted Transferee" shall mean Cairn Energy PLC or an
affiliate of Cairn Energy PLC.
1.16. "Plan" shall mean the Cairn Energy USA, Inc. Separate PLC Stock
Option Plan.
1.17. "Securities Act" shall mean the Securities Act of 1933, as
amended or any similar or superseding statute or statutes.
1.18. "Stock" shall mean the Corporation's authorized common stock,
$0.01 par value, together with any other securities with respect to which
Options granted under the Plan may become exercisable.
SECTION 2. Stock and Maximum Number of Shares Subject to the Plan.
2.1. Description of Stock and Maximum Shares Allocated. The Stock
which may be issued upon the exercise of an Option may either be unissued or
reacquired shares of Stock, as the Board of Directors may, in its sole and
absolute discretion, from time to time determine.
Subject to the adjustments provided in Paragraph 6.4, the aggregate
number of shares of Stock to be issued pursuant to the exercise of all Options
granted under the Plan may equal but shall not exceed 30,000 shares of Stock.
2.2. Restoration of Unpurchased Shares. If an Option granted under the
Plan expires or terminates for any reason during the term of this Plan and prior
to the exercise of the Option in full, the shares of Stock subject to, but not
issued under, such Option shall again be available for Options granted under the
Plan after such shares become available again.
SECTION 3. Administration of the Plan.
3.1. Committee. The Plan shall be administered by the Committee. The
Committee shall be the Compensation Committee of the Board of Directors;
provided, however, that for purposes of this Plan, the Committee shall consist
of not less than two individuals.
3.2. Duration, Removal, Etc. The members of the Committee shall serve
at the pleasure of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from the Committee
72
<PAGE>
or to add members to the Committee. Vacancies on the Committee, however caused,
shall be filled by action of the Board of Directors.
3.3. Meetings and Actions of Committee. The Committee shall elect one
of its members as its Chairman and shall hold its meetings at such times and
places as it may determine. All decisions and determinations of the Committee
shall be made by the majority vote or decision of all of its members present at
a meeting; provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting duly called and held. The
Committee may make any rules and regulations for the conduct of its business
that are not inconsistent with the provisions of this Plan and with the bylaws
of the Corporation as it may deem advisable.
3.4. Committee's Powers. Subject to the express provisions of this
Plan, the Committee shall have the authority, in its sole and absolute
discretion, (a) to adopt, amend, and rescind administrative and interpretive
rules and regulations relating to the Plan; (b) to determine the terms and
provisions of the respective Agreements (which need not be identical); provided,
however, such terms and provisions shall not be inconsistent with this Plan,
including the extent to which the transferability of shares of Stock issued upon
exercise of Options is restricted, but in all events shall such shares of Stock
issued upon exercise of Options be assignable to a Permitted Transferee; (c) to
construe the terms of any Agreement and the Plan; and (d) to make all other
determinations and perform all other acts necessary or advisable for
administering the Plan, including the delegation of such ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any Agreement in the manner and to the extent it shall deem expedient to
carry it into effect, and it shall be the sole and final judge of such
expediency. The Committee shall have full discretion to make all determinations
on the matters referred to in this Paragraph, and such determinations shall be
final, binding and conclusive.
SECTION 4. Eligibility and Participation.
4.1. Eligible Individuals. Options may be granted under the Plan only
to persons who are Eligible Individuals at the time of the Option's grant.
4.2. No Right to Option. The adoption of the Plan shall not be deemed
to give any person a right to be granted an Option.
SECTION 5. Automatic Grant of Options and Certain Terms of the Agreements.
Subject to the express provisions of this Section, each Eligible
Individual shall be automatically granted an Option to purchase 10,000 shares of
Stock under the Plan at each of the following dates: (i) the first meeting of
each term he serves as a member of the Board of Directors, and (ii) solely with
respect to the first year for which the Plan is adopted, the date that the Plan
is adopted.
The date of the first meeting of each term an Eligible Individual
serves as a member of the Board of Directors shall be the date on which the
Option covered by an Agreement is granted, even though certain terms of the
Agreement may not be at such time determined and even though the Agreement may
not be executed until a later time. In no event, however, shall an optionee gain
any rights in addition to those specified by the Committee in its grant,
regardless of the time that may pass between the grant of the Option and the
actual execution of the Agreement by the Corporation and the optionee.
Each Option granted under the Plan shall be evidenced by an Agreement,
executed by the Corporation and the Eligible Individual to whom the Option is
granted, incorporating such terms as the Committee shall deem necessary or
desirable; provided, however, that in all events each Option shall be assignable
to a Permitted Transferee. More than one Option may be granted to the same
Eligible Individual and be outstanding concurrently. In the event an Eligible
Individual is granted one or more Nonstatutory Options, such grants shall be
evidenced by separate Agreements, one for each of the Nonstatutory Option
grants.
Each Agreement may contain or otherwise provide for such restrictions
on the transferability of shares of the Stock acquired pursuant to an Option as
the Committee, in its sole and absolute discretion, shall deem proper or
advisable; provided, however, that in all events shall the shares of Stock
acquired pursuant to an Option be assignable to a Permitted Transferee. Such
restrictions on transferability may include, but need not be limited to, options
and rights of first refusal in favor of the Corporation and stockholders of the
Corporation other than a Holder who is a party to the particular Agreement or a
subsequent person who is bound by such Agreement.
73
<PAGE>
SECTION 6. Terms and Conditions of Options.
All Options granted under the Plan shall comply with, be deemed to
include, and shall be subject to the following terms and conditions:
6.1. Exercise Price. Each Agreement shall state the exercise price per
share of Stock. The exercise price per share of Stock subject to a Nonstatutory
Option shall be the Fair Market Value of a share of Stock on the date of grant
of the Option; provided, however, that with respect to the Options granted on
the date of the adoption of the Plan, the exercise price shall be the same
exercise price set for those Options granted on May 24, 1995, under the
Directors Plan.
6.2. Medium and Time of Payment, Method of Exercise, and Withholding
Taxes. The exercise price of an Option shall be payable upon the exercise of the
Option
(a) in cash
(b) by certified or cashier's check payable to the order of
the Corporation, or
(c) by wire transfer of immediately available funds.
Exercise of an Option shall not be effective until the Corporation has received
written notice of exercise. Such notice must specify the number of whole shares
to be purchased and be accompanied by payment in full of the aggregate exercise
price of the number of shares purchased. The Corporation shall not in any case
be required to sell, issue, or deliver a fractional share of Stock with respect
to any Option.
The Committee may, in its discretion, require a Holder to pay to the
Corporation at the time of exercise of an Option (or portion of an Option) the
amount that the Corporation deems necessary to satisfy its obligation to
withhold federal, state or local income or other taxes incurred by reason of the
exercise. Where the exercise of an Option does not give rise to an obligation to
withhold Federal income or other taxes on the date of exercise, the Corporation
may, in its discretion, require a Holder to place shares of Stock purchased
under the Option in escrow for the benefit of the Corporation until such time as
Federal income or other tax withholding is no longer required with respect to
such shares or until such withholding is required on amounts included in the
gross income of the Holder as a result of the exercise of an Option or the
disposition of shares of Stock acquired pursuant to the exercise. At such later
time, the Corporation, in its discretion, may require a Holder to pay to the
Corporation the amount that the Corporation deems necessary to satisfy its
obligation to withhold Federal, state or local income or other taxes incurred by
reason of the exercise of the Option or the disposition of shares of Stock. Upon
receipt of such payment by the Corporation, such shares of Stock shall be
released from escrow to the Holder.
6.3. Term, Time of Exercise and Transferability of Options. In
addition to such other terms and conditions as may be included in a particular
Agreement granting an Option, an Option shall be exercisable during a Holder's
lifetime only by the Holder or by the Holder's guardian or legal representative
or a Permitted Transferee.
An Option shall not be transferrable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder; provided, however, that each Eligible Individual shall be
permitted to assign its rights to an Option to a Permitted Transferee.
Each Option shall be for a term of sixty (60) calendar months,
beginning on the date of the Option's grant.
The Option evidenced by the Agreement may be exercised in full or in
part as to any number of shares subject to the Option at any time or from time
to time during the term of the Option; provided, however, that notwithstanding
the foregoing, no part of an Option may be exercised during the six (6) month
period beginning on the date the Option was granted. Except as provided above
and unless otherwise provided in any Agreement, an Option may be exercised at
any time or from time to time during the term of the Option. Such exercise may
be as to any or all whole (but no fractional) shares which have become
purchasable under the Option.
Within a reasonable time (or such time as may be permitted by law)
after the Corporation receives written notice that the Holder has elected to
exercise all or a portion of an Option, such notice to be accompanied by payment
in full of the aggregate Option exercise price of the number of shares of Stock
purchased, the Corporation shall issue and deliver a certificate representing
the shares acquired in consequence of the exercise and any other amounts payable
in consequence of such exercise. The number of the shares of Stock transferrable
due to an exercise of an Option under
74
<PAGE>
this Plan shall not be increased due to the passage of time, except as may be
provided in an Agreement; provided, however, the number of such shares of Stock
which are transferrable may increase due to the occurrence of certain events
which are fully described in Paragraph 6.4.
Nothing in the Plan or in any Option granted under the Plan shall
require the Corporation to issue any shares upon exercise of any Option if such
issuance would, in the opinion of counsel for the Corporation, require
registration under the Securities Act or any other applicable statute or
regulation, as then in effect. At the time of any exercise of an Option, the
Corporation may, as a condition precedent to the exercise of such Option,
require from the Holder (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning his sophistication, financial means, access to information
about the Corporation and intentions with regard to the retention or disposition
of the shares being acquired by exercise of such Option and such written
covenants and agreements, if any, as to the manner of disposal of such shares
as, in the opinion of counsel to the Corporation, may be necessary to ensure
that any disposition by such Holder (or in the event of his death, his legal
representatives, heirs, legatees, or distributees), will not involve a violation
of the Securities Act or any other applicable state or federal statute or
regulation, as then in effect. Certificates for shares of Stock, when issued,
may have the following or similar legend, or statements of other applicable
restrictions, endorsed on them, and may not be immediately transferable:
The shares of stock evidenced by this certificate have been issued to
the registered owner in reliance upon written representations that
these shares have been purchased for investment. These shares have not
been registered under the Securities Act of 1933, as amended, or any
applicable state securities laws, in reliance upon an exemption from
registration. Without such registration, these shares may not be sold,
transferred, assigned or otherwise disposed of unless, in the opinion
of the Corporation and its legal counsel, such sale, transfer,
assignment or disposition will not be in violation of the Securities
Act of 1933, as amended, applicable rules and regulations of the
Securities and Exchange Commission, and any applicable state securities
laws.
6.4. Adjustments Upon Changes in Capitalization, Merger, Etc.
Notwithstanding any other provision in the Plan to the contrary, in the event of
any change in the number of outstanding shares of Stock
(a) effected without receipt of consideration by the
Corporation by reason of a stock dividend, split,
combination, exchange of shares or other recapitalization,
merger, or otherwise, in which the Corporation is the
surviving corporation, or
(b) by reason of a spin-off of a part of the Corporation into
a separate entity, or assumptions and conversions of out-
standing grants due to an acquisition by the Corporation
of a separate entity,
(1) the aggregate number and class of the reserved shares, (2) the number and
class of shares subject to each outstanding Option and (3) the exercise price of
each outstanding Option shall be automatically adjusted to accurately and
equitably reflect the effect of such change. In the event of a dispute
concerning such adjustment, the Committee has full discretion to determine the
resolution of the dispute. Such determination shall be final, binding and
conclusive. The number of reserved shares or the number of shares subject to any
outstanding Option shall be automatically reduced by any fraction which results
from any adjustment made pursuant to this Paragraph.
The following provisions of this Paragraph shall apply unless a
Holder's Agreement provides otherwise. In the event of:
(a) a dissolution or liquidation of the Corporation,
(b) a merger or consolidation (other than a merger effecting a
re-incorporation of the Corporation in another state or
any other merger or a consolidation in which the stock-
holders of the surviving corporation and their
proportionate interests therein immediately after the
merger or consolidation are substantially identical to the
stockholders of the Corporation and their proportionate
interests therein immediately prior to the merger or
consolidation) in which the Corporation is not the
surviving corporation (or survives only as a subsidiary of
another corporation in a transaction in which the stock-
holders of the parent of the Corporation and their
proportionate interests therein immediately after the
transaction are not substantially identical to the stock-
holders of the Corporation and their proportionate
interests therein immediately prior to the transaction;
provided, however, that the Board of Directors may at any
time prior to such a merger or consolidation provide by
resolution that the foregoing provisions of this paren-
thetical shall not apply if a majority of the board of
directors of such parent immediately after the transaction
consists of individuals who constituted a majority of the
Board of Directors immediately prior to the transaction),
or
75
<PAGE>
(c) a transaction in which any person becomes the owner of 50%
or more of the total combined voting power of all classes
of stock of the Corporation (provided, however, that the
Board of Directors may at any time prior to such trans-
action provide by resolution that this Subparagraph shall
not apply if such acquiring person is a corporation and a
majority of the board of directors of the acquiring
corporation immediately after the transaction consists of
individuals who constituted a majority of the Board of
Directors immediately prior to the acquisition of such 50%
or more total combined voting power)
a Holder shall be entitled to receive, upon the exercise of such Option, with
respect to each share of Stock (i) the number of shares of stock of the
surviving corporation (or equity interest in any other entity) and (ii) any
other notes, evidences of indebtedness or other property that Holder would have
received in connection with such transaction had he exercised the Option with
respect to such shares of Stock immediately prior to the record date of
consummation of such transaction.
6.5. Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Option until a certificate
representing such shares is issued to the Holder. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Paragraph 6.4.
6.6. Modification, Extension and Renewal of Options. No modification
of an Option granted under the Plan shall, without the consent of the Holder,
alter or impair any rights or obligations under any Option previously granted
under the Plan to such Holder under the Plan.
6.7. Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
6.8. Obligation to Exercise. The granting of an Option under the Plan
shall impose no obligation upon the Holder to exercise it or any part of it.
6.9. Agreement Provisions. The Agreements authorized under the Plan
shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee shall deem advisable.
SECTION 7. Remedies and Specific Performance.
7.1. Remedies. The Corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement of
the terms and provisions of the Plan and any Agreement, whether by an action to
enforce specific performance, or an action for damages for its breach or
otherwise.
7.2. Specific Performance. The Corporation shall be entitled to
enforce the terms and provisions of this Section, including the remedy of
specific performance, in Dallas County, Texas.
SECTION 8. Duration of Plan.
No Options may be granted under the Plan after the expiration of the
Director Plan.
SECTION 9. Amendment of Plan.
For purposes of complying with changes in the Code or ERISA, the Board
of Directors may amend, modify, suspend or terminate the Plan at any time. For
purposes of meeting or addressing any other changes in legal requirements or any
other purpose, the Board of Directors may amend, modify, suspend or terminate
the Plan. No Option may be granted during any suspension of the Plan or after
the Plan has been terminated, and no amendment, suspension or termination shall,
without a Holder's consent, alter or impair, other than as provided in the Plan
and the Holder's Agreement, any of the rights or obligations under any Option
previously granted to such Holder under the Plan.
SECTION 10. General.
10.1. Application of Funds. The proceeds received by the Corporation
from the sale of shares pursuant to Options shall be used for general corporate
purposes.
76
<PAGE>
10.2. Right to Terminate Director Status. Nothing contained in the
Plan, or in any Agreement, shall confer upon any Holder the right to continue as
a director of the Corporation, or interfere in any way with the rights to
terminate his status as a director.
10.3. No Liability for Good Faith Determinations. Neither the members
of the Board of Directors nor any member of the Committee shall be liable for
any act, omission, or determination taken or made in good faith with respect to
the Plan or any Option granted under it, and members of the Board of Directors
and the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit (provided such settlement is
approved by independent legal counsel selected by the Corporation) and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising from such claim, loss, damage, or expense to the full extent
permitted by law and under any directors' and officers' liability or similar
insurance coverage that may from time to time be in effect.
10.4. Information Confidential. As partial consideration for the
granting of each Option under the Plan, the Agreement may, in the Committee's
sole and absolute discretion, provide that the Holder shall agree with the
Corporation that he will keep confidential all information and knowledge that he
has relating to the manner and amount of his participation in the Plan;
provided, however, that such information may be disclosed as required by law and
may be given in confidence to the Holder's spouse, tax and financial advisors,
or to a financial institution to the extent that such information is necessary
to secure a loan. In the event any breach of this promise comes to the attention
of the Committee, it shall take into consideration such breach, in determining
whether to recommend the grant of any future Option to such Holder, as a factor
militating against the advisability of granting any such future Option to such
individual.
10.5. Other Benefits. The Options granted under this Plan shall be in
addition to regular directors' fees and other benefits granted with respect to
the position of a member of the Board of Directors. Neither the Plan nor any
Option granted under the Plan shall confer upon any person a right to serve as a
member of the Board of Directors.
10.6. Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
of the Plan, shall, to the extent thereof, be in full satisfaction of all claims
of such persons under the Plan. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt for such payment in such form as it
shall determine.
10.7. No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock from loss or depreciation.
10.8. Payment of Expenses. All expenses incident to the
administration, termination, or protection of the Plan, including, but not
limited to, legal and accounting fees, shall be paid by the Corporation or its
Affiliates; provided, however, the Corporation or an Affiliate may recover any
and all damages, fees, expenses and costs arising out of any actions taken by
the Corporation or an Affiliate to enforce its rights under the Plan.
10.9. Corporation Records. Records of the Corporation or its
Affiliates regarding the Holder's period of service, termination of service and
the reason for such termination, and other matters shall be conclusive for all
purposes under the Plan, unless determined by the Committee to be incorrect.
10.10. Information. The Corporation and its Affiliates shall, upon
request or as may be specifically required under the Plan, furnish or cause to
be furnished all of the information or documentation that is necessary or
required by the Committee to perform its duties and functions under the Plan.
10.11. No Liability of Corporation. The Corporation assumes no
obligation or responsibility to the Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
10.12. Corporation Action. Any action required of the Corporation
relating to the Plan shall be by resolution of its Board of Directors,
Compensation Committee of the Board of Directors or by a person authorized to
act by resolution of the Board of Directors or such Compensation Committee.
10.13. Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions of the Plan, but such provision shall be fully
severable, and the Plan shall be construed and enforced as if the illegal or
invalid provision had never been included in the Plan.
77
<PAGE>
10.14. Notices. Whenever any notice is required or permitted under the
Plan, such notice must be in writing and personally delivered or sent by mail or
by a nationally recognized courier service. Any notice required or permitted to
be delivered under this Agreement shall be deemed to be delivered on the date on
which it is personally delivered, or, if mailed, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has previously specified by written
notice delivered in accordance with this Paragraph or, if by courier,
twenty-four (24) hours after it is sent, addressed as described in this
Paragraph. The Corporation or a Holder may change, at any time and from time to
time, by written notice to the other, the address which it or he had previously
specified for receiving notices. Until changed in accordance with the Plan, the
Corporation and each Holder shall specify as its and his address for receiving
notices the address set forth in the Agreement pertaining to the shares to which
such notice relates.
10.15. Waiver of Notice. Any person entitled to notice under the Plan
may waive such notice.
10.16. Successors. The Plan shall be binding upon the Holder, his
legal representatives, heirs, legatees and distributees, upon the Corporation,
its successors, and assigns, and upon the Committee, and its successors.
10.17. Headings. The titles and headings of Sections and Paragraphs
are included for convenience of reference only and are not to be considered in
construction of the Plan's provisions.
10.18. Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Texas except to the extent Texas law is preempted by federal law or
Delaware corporate law that is controlling. Questions arising with respect to
the provisions of an Agreement that are matters of contract law shall be
governed by the laws of the state specified in the Agreement, except to the
extent preempted by federal law and except to the extent that Delaware corporate
law conflicts with the contract law of such state, in which event Delaware
corporate law shall govern. The obligation of the Corporation to sell and
deliver Stock under the Plan is subject to applicable laws and to the approval
of any governmental authority required in connection with the authorization,
issuance, sale, or delivery of such Stock.
10.19. Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
The Plan shall take effect on January 10, 1996, the date it was adopted
by the Board of Directors.
IN WITNESS WHEREOF, Cairn Energy USA, Inc. acting by and through its
duly authorized officer, has executed this Plan on this the 10th day of January,
1996.
CAIRN ENERGY USA, INC.
By: /s/ Susan H. Rader
--------------------------------------
Susan H. Rader, Secretary
78
<PAGE>
EXHIBIT 10.16
79
<PAGE>
CAIRN ENERGY USA, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 10th day of January,
1996, between Cairn Energy USA, Inc., a Delaware corporation (the
"Corporation"), and William B.B. Gammell (the "Holder") in connection with the
grant of a Nonstatutory Option (defined below) under the Cairn Energy USA, Inc.
Separate PLC Stock Option Plan (the "Plan").
W I T N E S S E T H:
WHEREAS, the Holder is a director of the Corporation and is not an
employee of the Corporation or one of its Affiliates (defined below);
WHEREAS, the Holder is not entitled to receive any Options under the
Directors Plan;
WHEREAS, the Corporation desires to encourage the Holder to own Stock
(defined below) and to give him added incentive to advance the interests of the
Corporation through the Plan; and
WHEREAS, the Corporation desires to grant the Holder a Nonstatutory
Option to purchase shares of Stock of the Corporation under terms and conditions
established by the Plan.
NOW, THEREFORE, in consideration of these premises, the parties agree
that the following shall constitute the Agreement between the Corporation and
the Holder:
1. Definitions. For purposes of this Agreement, defined terms shall
have the meanings given to them by the Plan except as specified below:
1.1 "Agreement" shall mean this document as executed by the
Corporation and the Holder, and as it may be subsequently amended.
1.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or superseding statute or statutes.
1.4 "Nonstatutory Option" and "Option" shall mean a stock option
granted pursuant to this Agreement that does not satisfy the requirements of
section 422 of the Code.
1.5. "Permitted Transferee" shall mean Cairn Energy PLC or an
affiliate of Cairn Energy PLC. The term affiliate for purposes of the definition
of Permitted Transferee shall mean a person or entity that directly, or
indirectly through one or more intermediaries, controls or is under common
control with, Cairn Energy PLC.
1.6 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar or superseding statute or statutes.
2. Grant of Nonstatutory Option. Subject to the terms and conditions
set forth in this Agreement, the Corporation grants to the Holder a Nonstatutory
Option to purchase from the Corporation during the period ending sixty (60)
calendar months from the date of this Agreement 10,000 shares of Stock at a
price of $10.00 per share, subject to adjustment, if any, as provided in this
Agreement. This Nonstatutory Option is exercisable with respect to all of the
shares of Stock subject to the Option only after the six month anniversary of
the date this Option is granted.
3. Notice of Exercise. This Nonstatutory Option may be exercised in
whole or in part, from time to time, in accordance with Paragraph 2, by written
notice to the Corporation at the address provided in this Agreement, which
notice shall:
(a) specify the number of whole shares of Stock to be purchased and
the exercise price to be paid for such shares;
80
<PAGE>
(b) if the person exercising this Nonstatutory Option is not the
Holder himself, contain or be accompanied by evidence satisfactory to the
Committee of such person's right to exercise this Nonstatutory Option; and
(c) be accompanied by payment in full of the purchase price in the
form of cash, a certified or cashier's check to the order of the Corporation or
a wire transfer of immediately available funds.
This Option may be exercised only in increments at least equal to the
lesser of one hundred (100) shares or ten percent (10%) of the number of whole
shares as to which it is exercisable.
4. Investment Letter. The Holder agrees that the shares of Stock
acquired on exercise of this Nonstatutory Option shall be acquired for his own
account for investment only and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act or other applicable securities laws. If the Committee so
determines, any Stock certificates issued upon exercise of this Nonstatutory
Option shall bear a legend to the effect that the shares have been so acquired.
The Corporation may, but in no event shall be required to, file a registration
statement with respect to the Options or any shares of Stock acquired upon
exercise of the Options or otherwise bear any expenses of complying with the
Securities Act, other applicable securities laws or the rules and regulations of
any national securities exchange or other regulatory authority in connection
with the registration, qualification, or transfer, as the case may be, of this
Nonstatutory Option or any shares of Stock acquired upon the exercise of this
Nonstatutory Option. The foregoing restrictions on the transfer of the shares of
Stock shall be inoperative if (a) the Corporation previously shall have been
furnished with an opinion of counsel, satisfactory to it, to the effect that
such transfer will not involve any violation of the Securities Act or other
applicable securities laws, or (b) the shares of Stock shall have been duly
registered in compliance with the Securities Act and other applicable securities
laws.
5. Transfer and Exercise of Nonstatutory Option. This Nonstatutory
Option shall not be transferable except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder; provided, however, that Holder shall be permitted to assign its
rights to the Option to a Permitted Transferee. No assignment or transfer of
this Nonstatutory Option, whether voluntary or involuntary, by operation of law
or otherwise, except a transfer by will or the laws of descent or distribution,
pursuant to a qualified domestic relations order as defined in the Code or Title
I of the Employee Retirement Income Security Act or the rules thereunder, or to
a Permitted Transferee shall vest in the assignee or transferee any interest or
right whatsoever in this Nonstatutory Option.
During the Holder's lifetime, this Nonstatutory Option may be exercised
only by him, his guardian or his legal representative or a Permitted Transferee.
6. Status of Holder. The Holder shall not be deemed a stockholder of
the Corporation with respect to any of the shares of Stock subject to this
Nonstatutory Option, except to the extent that such shares shall have been
purchased and transferred to him. The Corporation shall not be required to issue
or transfer any certificates for shares of Stock purchased upon exercise of this
Nonstatutory Option until all applicable requirements of law have been satisfied
and, if applicable, such shares shall have been duly listed on any securities
exchange on which the Stock may then be listed.
7. No Effect on Capital Structure. This Nonstatutory Option shall not
affect the right of the Corporation or any Affiliate to reclassify, recapitalize
or otherwise change its capital or debt structure or to merge, consolidate,
convey any or all of its assets, dissolve, liquidate, windup, or otherwise
reorganize.
8. Expiration of Nonstatutory Option. This Option shall expire only
upon the earlier of the date it is completely exercised or the Option's
expiration date as determined under Paragraph 2.
9. Committee Authority. Any question concerning the interpretation of
this Agreement, any adjustments required to be made under this Agreement, and
any controversy which may arise under this Agreement shall be determined by the
Committee in its sole discretion.
10. Plan Controls. The terms of this Agreement are governed by the
terms of the Plan, a copy of which is attached as Exhibit A and made a part of
this Agreement as if fully set forth in this Agreement, and in the case of any
inconsistency between the terms of this Agreement and the terms of the Plan, the
terms of the Plan shall control.
11. Notice. Whenever any notice is required or permitted under this
Agreement, such notice must be in writing and personally delivered, telecopied
(if confirmed) or sent by mail. Any notice required or permitted to be delivered
under this Agreement shall be deemed to be delivered on the date which it is
personally delivered, or, whether actually received or not, on the third
business day after it is deposited in the United States mail, certified or
registered,
81
<PAGE>
postage prepaid, addressed to the person who is to receive it at the address
which such person has previously specified by written notice delivered in
accordance with this Agreement. The Corporation or Holder may change, at any
time and from time to time, by written notice to the other, the address
previously specified for receiving notices. Until changed in accordance with
this Agreement, the Corporation and the Holder specify their respective
addresses as set forth below:
Corporation: Cairn Energy USA, Inc.
8235 Douglas Avenue, Suite 1221
Dallas, Texas 75225
Attention: Michael R. Gilbert, President
Holder: William B.B. Gammell
Cairn Energy PLC
Cairn House
61 Dublin Street
Edinburgh, Scotland EH3 6NL
12. Information Confidential. As partial consideration for the granting
of this Nonstatutory Option, the Holder agrees that he will keep confidential
all information and knowledge that he has relating to the manner and amount of
participation in the Plan; provided, however, that such information may be
disclosed as required by law and may be given in confidence to the Holder's
spouse, tax and financial advisors, or to a financial institution to the extent
that such information is necessary to secure a loan.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and the Holder has executed this Agreement on the day and year first
above written.
"CORPORATION"
CAIRN ENERGY USA, INC.
By:________________________
Title:_____________________
"HOLDER"
___________________________
William B.B. Gammell
82
<PAGE>
EXHIBIT 10.17
83
<PAGE>
FIRST AMENDMENT TO FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is made as of the 12th day of December, 1995, by and among
CAIRN ENERGY USA, INC., a Delaware corporation ("Borrower"), INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION, as agent ("Agent"), and INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION and MEESPIERSON N.V., as lenders
("Lenders").
R E C I T A L S:
Borrower, Agent and Lenders entered into that certain First Amended and
Restated Credit Agreement dated as of December 20, 1994 (the "Original
Agreement"), for the purposes and consideration therein expressed, pursuant to
which Lenders made and became obligated to make loans to Borrower as therein
provided; and Borrower, Agent and Lenders desire to amend the Original Agreement
as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I - Definitions and References
1.1 Terms Defined in the Original Agreement. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment, and the following terms when used in this Amendment shall have
the following meanings:
"Amendment/Allonge" has the meaning given it in Section 3.1(h) hereof.
"Amendment" means this First Amendment to First Amended and Restated
Credit Agreement.
"Credit Agreement" means the Original Agreement as amended hereby.
ARTICLE II - Amendments to Original Agreement
2.1 Amendment to Defined Terms. The definition of "Commitment Period"
set forth in Section 1.1 of the Original Agreement is hereby amended in its
entirety to read as follows:
"Commitment Period" means the period from and including
December 20, 1994 until and including March 31, 1997 (or, if earlier,
the day on which the Notes first become due and payable in full).
2.2 Amendment to Regular Payments. Section 2.8 of the Original
Agreement is hereby amended in its entirety to read as follows:
Section 2.8 Regular Payments. Borrower will pay interest on the Loans
as specified in the Notes. Borrower will repay the aggregate principal
amount of the Loans outstanding on the last day of the Commitment
Period in eleven (11) quarterly installments, on the last day of each
March, June, September and December, beginning June 30, 1997. Each of
the first three (3) such installments shall be in an amount equal to
twelve and fifty-nine hundredths percent (12.59%) of the aggregate
unpaid principal balance of the Loans at the end of the Commitment
Period; each of the next four (4) such installments shall be in an
amount equal to eight and three hundred thirty-three thousandths
percent (8.333%) of the aggregate unpaid principal balance of the Loans
at the end of the Commitment Period; each of the next three (3) such
installments shall be in an amount equal to seven and two hundred
twenty-two thousandths percent (7.222%) of the aggregate unpaid
principal balance of the Loans at the end of the Commitment Period; and
the last such installment shall be in an amount equal to seven and two
hundred twenty-three thousandths percent (7.223%) of the aggregate
unpaid principal balance of the Loans at the end of the Commitment
Period. Such amounts shall be rounded upwards to the nearest $1,000.
Agent shall determine the amount of each such principal installment,
which amount shall be conclusive, absent manifest error.
84
<PAGE>
2.3 Hedging Contracts. The first clause of Section 5.2(c)(i) of the
Original Agreement is hereby amended as follows:
(i) contracts entered into with the purpose and effect of
fixing prices on oil or gas expected to be produced by the Related
Persons, provided that at all times: (1) no such contract fixes a price
for a term of more than twelve (12) months; (2) the aggregate monthly
production covered by all such contracts (determined, in the case of
contracts that are not settled on a monthly basis, by a monthly
proration acceptable to Agent) for any single month does not in the
aggregate exceed seventy-five percent (75%) of the Related Persons'
aggregate Projected Oil and Gas Production anticipated to be sold in
the ordinary course of the Related Persons' businesses for such month,
(3) no such contract [other than gas commodities futures contracts
through INDC as broker; provided that the aggregate monthly production
covered by such contract (determined, in the case of contracts that are
not settled on a monthly basis, by a monthly proration acceptable to
Agent) for any single month does not in the aggregate exceed thirty
percent (30%) of Borrower's aggregate Projected Oil and Gas Production
anticipated to be sold in the ordinary course of Borrower's business
for such month] requires any Related Person to put up money, assets,
letters of credit or other security against the event of its
nonperformance prior to actual default by such Related Person in
performing its obligations thereunder, and (4) each such contract is
with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its
Affiliates) at the time the contract is made has long-term obligations
rated BB+ or Bal or better, respectively, by either Rating Agency.
2.4 Borrowing Base. As contemplated in and pursuant to Section 2.11 of
the Credit Agreement, Agent hereby designates the new Borrowing Base under the
Credit Agreement as $45,000,000, effective as of the date hereof and continuing
until but not including the next date as of which the Borrowing Base is
redetermined.
ARTICLE III - Conditions of Effectiveness
3.1 Effective Date. This Amendment shall become effective as of the
date first above written when (i) Lender shall have received this Amendment at
Lender's office duly authorized, executed and delivered by Borrower, (ii)
Borrower shall have issued and delivered to each Lender an Amendment and Allonge
(each an "Amendment/Allonge") to each Note in the form attached hereto as
Attachment 1, duly executed on behalf of Borrower, (iii) Borrower shall have
paid to Agent (A) an agency fee for its own account in the amount of $5,000, and
(B) an extension fee in the amount of $25,000 for the account of Lenders, and
(iv) Lender shall have additionally received all of the following documents each
being duly authorized, executed and delivered, and in form and substance
satisfactory to Lender:
(a) Opinion of Counsel for Borrower. A written opinion of
Jenkens & Gilchrist, a Professional Corporation, counsel for Borrower,
dated as of the date of this Amendment, addressed to Agent and Lenders,
to the effect that this Amendment and each Amendment/Allonge have been
duly authorized, executed and delivered by Borrower and that the Credit
Agreement and the Note and each Amendment/Allonge constitute the legal,
valid and binding obligations of Borrower, enforceable in accordance
with their terms (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency and similar laws and to general
principles of equity).
(b) Omnibus Certificate. An Omnibus Certificate of the
Secretary and of the Chairman of the Board or President of Borrower of
even date with this Amendment, which shall contain the names and
signatures of the officers authorized to execute this Amendment and
each Amendment/Allonge and which shall certify to the truth,
correctness and completeness of. (i) all of the exhibits attached to
that certain Omnibus Certificate dated as of December 20, 1994, made by
such officers of Borrower, and (ii) a copy of resolutions duly adopted
by the Board of Directors of Borrower and in full force and effect at
the time this Amendment is entered into, authorizing the execution of
this Amendment and each Amendment/Allonge.
(c) Compliance Certificate. A Compliance Certificate of the
Chief Financial Officer of Borrower, of even date with this Amendment,
in which such officer shall certify, to the best of his knowledge and
belief after due inquiry, to the satisfaction of the conditions set out
in subsections (a) through (d), inclusive, of Section 3.2 of the
Original Agreement as of the date hereof.
85
<PAGE>
ARTICLE IV - Representations, Warranties and Covenants
4.1 Representations, Warranties and Covenants of Borrower. In order to
induce Agent and Lenders to enter into this Amendment, Borrower represents,
warrants and covenants to Agent and each Lender that:
(a) The representations and warranties contained in Section
4.1 of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof, except to the extent that such
representations and warranties are made in the Original Agreement only
in reference to a specific date and except to the extent that the facts
upon which such representations are based have been changed by the
extension of credit under the Credit Agreement.
(b) Borrower is duly authorized to execute and deliver this
Amendment and,each Amendment/Allonge and is and will continue to be
duly authorized to borrow and to perform its obligations under the
Credit Agreement. Borrower has duly taken all corporate action
necessary to authorize the execution and delivery of this Amendment and
each Amendment/Allonge and to authorize the performance of the
obligations hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment
and each Amendment/Allonge and the performance by it of its obligations
hereunder and under the Credit Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not
conflict with any provision of law, statute, rule or regulation or of
the articles of incorporation or bylaws of Borrower or of any material
agreement, judgment, license, order or permit applicable to or binding
upon Borrower or result in the creation of any lien, charge or
encumbrance upon any assets or properties of Borrower, except as
expressly contemplated in the Loan Documents. Except for those which
have been duly obtained, no consent, approval, authorization or order
of any court or governmental authority or third party is required in
connection with the execution and delivery by Borrower of this
Amendment and each Amendment/Allonge or to consummate the transactions
contemplated hereby and thereby.
(d) When this Amendment is duly executed and delivered, each
of this Amendment, the Credit Agreement and each Amendment/Allonge will
be a legal and binding instrument and agreement of Borrower,
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency and similar laws and by general principles of
equity.
(e) The audited annual Consolidated financial statements of
Borrower dated as of December 31, 1994 and the unaudited quarterly
Consolidated financial statements of Borrower dated as of September 30,
1995 fairly present the Consolidated financial position at such dates
and the Consolidated statement of operations and cash flows for the
periods ending on such dates for Borrower. Copies of such financial
statements have heretofore been delivered to Lender. Since September
30, 1995, no material adverse change has occurred in the financial
condition or businesses or in the Consolidated financial condition or
businesses of Borrower.
ARTICLE V - Miscellaneous
5.1 Ratification of Agreements. The Original Agreement as hereby
amended is hereby ratified and confirmed in all respects. The Loan Documents, as
they may be amended or affected by this Amendment and each Amendment/Allonge,
are hereby ratified and confirmed in all respects. Any reference to the Credit
Agreement in any Loan Document shall be deemed to refer to this Amendment also
and any reference in any Loan Document to any other document or instrument
amended, renewed, extended or otherwise affected by this Amendment or each
Amendment/Allonge shall also refer to such Amendment and each Amendment/Allonge.
Any reference to any Note in any other Loan Document shall be deemed to be a
reference to such Note and the Amendment/Allonge to such Note issued and
delivered pursuant to this Amendment. The execution, delivery and effectiveness
of this Amendment and each Amendment/Allonge shall not operate as a waiver of
any right, power or remedy of Agent or any Lender under the Credit Agreement or
any other Loan Document nor constitute a waiver of any provision of the Credit
Agreement or any other Loan Document.
5.2 Survival of Agreements. All representations, warranties, covenants
and agreements of Borrower herein shall survive the execution and delivery of
this Amendment and the performance hereof and the issuance and delivery of each
Amendment/Allonge, including without limitation the making or granting of the
Loans, and shall further survive until all of the Obligations are paid in full.
All statements and agreements contained in any certificate or instrument
delivered by Borrower hereunder or under the Credit Agreement to Agent or any
Lender shall be deemed to constitute representations and warranties by, or
agreements and covenants of, Borrower under this Amendment and under the Credit
Agreement.
86
<PAGE>
5.3 Protection of Security Interests and Liens. Borrower agrees to
deliver to Agent within fifteen days after request any amendments or supplements
to any Security Documents, properly completed and executed (and acknowledged
when required) by Borrower, in form and substance satisfactory to Agent, which
Agent reasonably requests for the purpose of perfecting, confirming, or
protecting any Liens or other rights in Collateral securing any Obligations in
connection with the extension of the maturity date of the Notes as provided
herein and in the Amendment/Allonges thereto.
5.4 Loan Documents. This Amendment and the Amendment/Allonges are each
Loan Documents, and all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto and thereto.
5.5 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA IN ALL RESPECTS, INCLUDING CONSTRUCTION, VALIDITY
AND PERFORMANCE.
5.6 Counterparts. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
CAIRN ENERGY USA, INC.
By:/s/ J. Munro M. Sutherland
---------------------------------
J. Munro M. Sutherland
Senior Vice President
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By:/s/ Trond O. Rokholt
---------------------------------
Trond O. Rokholt
Vice President
MEESPIERSON N.V.
By:/s/ Karel Louman
---------------------------------
Karel Louman
Vice President & Manager
87
<PAGE>
EXHIBIT 10.18
88
<PAGE>
SECOND AMENDMENT TO FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is made as of the 15th day of January, 1996, by and among CAIRN
ENERGY USA, INC, a Delaware corporation ("Borrower"), INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION, as agent ("Agent") and INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION and MEESPIERSON N.V., as lenders ("Lenders").
R E C I T A L S:
Borrower, Agent and Lenders entered into that certain First Amended and
Restated Credit Agreement dated as of December 20, 1994, as amended by a First
Amendment to First Amended and Restated Credit Agreement dated December 12, 1995
(the "Original Agreement"), for the purposes and consideration therein
expressed, pursuant to which Lenders made and became obligated to make loans to
Borrower as therein provided; and Borrower, Agent and Lenders desire to amend
the Original Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement; in consideration
of the loans which may hereafter be made by Lenders to Borrower, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I - Definitions and References
1.1 Terms Defined in the Original Agreement. Unless the context otherwise
requires or unless otherwise expressly defined herein, the terms defined in the
Original Agreement shall have the same meanings whenever used in this Amendment,
and the following terms when used in this Amendment shall have the following
meanings:
"Amendment" means this Second Amendment to First Amended and Restated
Credit Agreement.
"Credit Agreement" means the Original Agreement as amended hereby.
ARTICLE II - Amendments to Original Agreement
2.1 Amendments to Defined Terms. The definitions of "Agent," "Loan
Documents," "Obligations" and "Percentage Share" set forth in Section 1.1 of the
Original Agreement are hereby amended in their entirety to read as follows:
"Agent" means Internationale Nederlanden (U.S.) Capital
Corporation, as Agent hereunder (including its capacity as the issuer
of Letters of Credit hereunder), and its successors in such capacity.
"Loan Documents" means this Agreement, the Notes, the LC
Applications, the Letters of Credit, the Security Documents, and all
other agreements; certificates, documents, instruments and writings at
any time delivered in connection herewith or therewith (exclusive of
term sheets, commitment letters, correspondence and similar documents
used in the negotiation hereof).
"Obligations" means all Debt from time to time owing by any of
the Related Persons to Agent or any Lender under or pursuant to any of
the Loom Documents, including all LC Obligations. "Obligation" means
any part of the Obligations.
"Percentage Share" means, with respect to any Lender (a) when
used in Sections 2.1 or 2.5, in any Request for Advance or when no
Loans or LC Obligations are outstanding hereunder, the percentage set
forth opposite such Lender's name on the signature pages of this
Agreement, and (b) when used otherwise, the percentage obtained by
dividing (j) the sum of the unpaid principal balance of such Lender's
Loan at the time in question plus the Matured LC Obligations which such
Lender has funded pursuant to Section 2A.3(c) plus the portion of the
Maximum Drawing Amount which such Lender might be obligated to fund
under Section
89
<PAGE>
2A.3(c), by (ii) the sum of the aggregate unpaid principal balance of
all Loans at such time plus the aggregate amount of LC Obligations
outstanding at such time.
Section 1.1 of the Original Agreement is hereby amended by adding the
following definitions of TC Application", "LC Collateral", "LC Obligations", "LC
Rate", "Letter of Credit," "Matured LC Obligations" and "Maximum Drawing
Amount":
"LC Application" means any application for a commercial letter
of credit hereafter made by Borrower to Agent.
"LC Collateral" has the meaning given it in Section 2A.6.
"LC Obligations" means at the time in question, the sum of the
Matured LC Obligations plus the Maximum Drawing Amount.
"LC Rate" has the meaning given it in Section 2A.4(c).
"Letter of Credit" means any commercial letter of credit
issued by Agent at the application of Borrower.
"Matured LC Obligations" means at amounts paid by Agent on
drafts or demands for payment drawn or made under or purported to be
under any Letter of Credit (or under or in connection with any LC
Application) which have not been repaid to Agent by Borrower (with the
proceeds of an Advance or otherwise).
"Maximum Drawing Amount" means at the time in question the sum
of the maximum amounts which Agent might then or thereafter be called
upon to advance under all Letters of Credit then outstanding.
2.2 Advances. The first sentence of Section 2.1 of the Original Agreement
is hereby amended in its entirety to read as follows:
Section 2.1. Advances. Subject to the terms and conditions
hereof each Lender agrees to make advances to Borrower (herein called
such Lender's "Advances") upon request from time to time during the
Commitment Period so long as (a) each Advance by such Lender does not
exceed such Lender's Percentage Share of the aggregate amount of
Advances then requested from all Lenders, and (b) the sum of (i) the
aggregate amount of such Under's Advances outstanding at any time, plus
(ii) the Maximum Drawing Amount for which such Lender is liable to
purchase participations under Section 2A.3(c), plus (iii) the Matured
LC Obligations which have been funded by such Lender under such
section, does not exceed such Lender's Percentage Share of the
Borrowing Base determined as of the date on which the requested Advance
is to be made, and (c) the aggregate amount of all Advances plus all LC
Obligations does not exceed the Borrowing Base.
2.3 Use of Proceeds. The first sentence of Section 2.3 of the Original
Agreement is hereby amended in its entirety to read as follows:
Section 2.3. Use of Proceeds. Borrower shall use all funds
from all Advances to provide funds for (i) acquisitions of oil and gas
reserves, (ii) exploratory drilling and developmental drilling with
respect to oil and gas properties owned as of December 1, 1994, (iii)
up to $10,000,000 for exploration and development expenses in respect
to oil and gas properties acquired after December 1, 1994, (iv)
refinancing its Matured LC Obligations and (v) for general corporate
purposes; Borrower shall use all Letters of Credit for its general
corporate purposes.
The reference to "any Advance" in the second sentence of Section 2.3 of
the Original Agreement is hereby amended to refer instead to "any Advance or any
Letter of Credit".
2.4 Commitment Fees. The first sentence of Section 2.5 of the Original
Agreement is hereby amended in its entirety to read as follows:
Section 2.5. Commitment Fees. In consideration of each
Lender's commitment to make Advances, Borrower will pay to Agent for
the account of each Lender a commitment fee determined on a daily basis
by applying a rate of one-half of one percent (0.5%) per annum. to such
Lenders Percentage Share of the unused portion of the Borrowing Base on
each day during the Commitment Period, determined for each such day
by deducting from the amount of the Borrowing Base at the end of such
day the sum of (i) the aggregate unpaid principal balance of the Loans
at the end of such day plus (ii) the amount of all LC Obligations out-
standing at the end of such day.
90
<PAGE>
2.5 Mandatory Prepayments. The first clause of the first sentence of
Section 2.7(a) of the Original Agreement is hereby amended in its entirety to
read as follows:
Section 2.7. Mandatory Prepayments. (a) If the aggregate
unpaid principal balance of the Loans plus the aggregate amount of
outstanding LC Obligations ever exceeds the Borrowing Base, Borrower
shall, within thirty (30) Business Days after Agent gives notice of
such fact to Borrower, either
2.6 Payments to Lenders. The last sentence of Section 2.9 of the Original
Agreement is hereby amended in its entirety to read as follows:
All distributions of amounts described in any of subsections (b) or (c)
above shall be made by Agent pro rata to Agent and each Lender then
owed Obligations described in such subsection in proportion to all
amounts owed to Agent and all Lenders which are described in such
subsection; provided that if any Lender then owes payments to Agent for
the purchase of a participation under Section 2A.6(a) hereof, any
amounts otherwise distributable under this section to such Lender shall
be deemed to belong to Agent, to the extent of such unpaid payments,
and Agent shall apply such amounts to make such unpaid payments rather
than distribute such amounts to such Lender.
2.7 Capital Reimbursement. The reference to "the face amount of such
Lender's. Loan or commitments under this Agreement" contained in the last
sentence of Section 2.13 of the Original Agreement is hereby amended to refer
instead to "the face amount of such Lender's Loan, such Lender's reimbursement
obligations to Agent pursuant to Section 2A.3(c) regarding Letters of Credit, or
any other commitments of such Lender under this Agreement".
2.8 Increased Cost of Fixed Rate Portions and Letters of Credit.
Subsections (a), (b) and (c) of Section 2.14 of the Original Agreement are
hereby amended in their entirety to read as follows:
(a) shall change the basis of taxation of payments to any
Lender of any principal, interest, or other amounts attributable to any
Fixed Rate Portion or otherwise due under this Agreement in respect of
any Fixed Rate Portion or any Letter of Credit (other than taxes
imposed on the overall net income of such Lender or any lending office
of such Under by any jurisdiction in which such Lender or any such
lending office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Fixed Rate Portion of any Lender or any Letter of Credit (excluding
those for which such Lander is fully compensated pursuant to
adjustments made in the definition of Fixed Rate) or against assets of,
deposits with or for the account of or credit extended by, such Lender,
or
(c) shall impose on any Lender or the interbank eurocurrency
deposit market any other condition affecting any Fixed Rate Portion or
Letter of Credit; the result of which is to increase the cost to any
Lender of funding or maintaining any Fixed Rate Portion or of issuing
any Letter or Credit or to reduce the amount of any sum receivable by
any Under in respect of any Fixed Rate Portion or Letter of Credit by
an amount deemed by such Lender to be material,
2.9 Availability. The reference to "(i.e. 'eurodollars')" in clause (a) of
the first sentence of Section 2.15 is hereby amended to refer instead to "(i.e.
'eurodollars') or to issue Letters of Credit," and the reference to "Borrower's
right to elect Fixed Rate Portions" immediately following clause (c) of the flat
sentence of Section 2.15 is hereby amended to refer instead to "Borrower's right
to elect Fixed Rate Portions or to apply for Letters of Credit".
2.10 Reimbursable Taxes. The reference to "Fixed Rate Portions" at the end
of the first sentence of clause (a) of Section 2.17 of the Original Agreement is
hereby amended to refer instead to "Fixed Rate Portions or Letters of Credit."
2.11 Letters of Credit. The Original Agreement is hereby amended by adding
a new Article Two-A, to read as follows:
91
<PAGE>
ARTICLE TWO-A -- LETTERS OF CREDIT
Section 2A.1. Letters of Credit. Subject to the terms and
conditions hereof Borrower may during the Commitment Period request
Agent to issue one or more Letters of Credit, provided that, after
taking such Letter of Credit into account:
(a) the sum of the aggregate amount of Advances
outstanding at such time plus the aggregate amount of LC
Obligations at such time, does not exceed the Borrowing Base
at such time; and
(b) the aggregate amount of LC Obligations at
such time does not exceed $5,000,000; and
(c) the expiration date of such Letter of Credit
is prior to the end of the Commitment Period.
and further provided that:
(d) such Letter of Credit is to be used for
general corporate purposes of Borrower;
(e) such Letter of Credit is not directly or
indirectly used to assure payment of or otherwise support any
Person's Restricted Debt;
(f) the issuance of such Letter of Credit will be in
compliance with all applicable governmental restrictions,
policies, and guidelines and will not subject Agent to any
cost not fully reimbursable by Borrower pursuant to the terms
of this Agreement or otherwise anticipated on the date hereof;
(g) the form and terms of such Letter of Credit
are acceptable to Agent in its sole and absolute discretion;
and
(h) all other conditions in this Agreement to
the issuance of such Letter of Credit have been satisfied.
Agent will honor any such request ff the foregoing conditions (a)
through (h) (in the following Section 2A.2 called the `LC Conditions")
have been met as of the date of issuance of such Letter of Credit.
Agent may, with the written consent of each Lender, choose to honor any
such request for any other Letter of Credit but has no obligation to do
so and may refuse to issue any other requested Letter of Credit for any
reason which Agent in its sole discretion deems relevant.
Section 2A.2. Requesting Letters of Credit. Borrower must make
written application for any Letter of Credit at least three Business
Days before the date on which Borrower desires for Agent to issue such
Letter of Credit, By making any such written application Borrower shall
be deemed to have represented and warranted that the LC Conditions
described in Section 2A.1 and the conditions precedent set forth in
Section 3.2 will be, met as of the date of issuance of such Letter of
Credit. Each such written application for a commercial Letter of Credit
must be made in writing in the form and substance of Exhibit F, the
terms and provisions of which are hereby incorporated herein by
reference (or in such other form as may mutually be agreed upon by
Agent and Borrower), Three Business Days after the LC Conditions for a
Letter of Credit have been met as described in Section 2A.1 (or if
Agent otherwise desires to issue such Letter of Credit), Agent will
issue such Letter of Credit at Agent's office in New York, New York. If
any provisions of any LC Application conflict with any provisions of
this Agreement, the provisions of this Agreement shall govern and
control.
Section 2A.3. Reimbursement and Participations.
(a) Reimbursement by Borrower. Each Matured LC Obligation
shall constitute a loan by Agent to Borrower. Borrower promises to pay
to Agent, or to Agent's order, on demand, the full amount of each
Matured LC Obligation, together with interest thereon at the Late
Payment Rate.
(b) Letter of Credit Advances. If the beneficiary of any
Letter of Credit makes a draft or other demand for payment thereunder
then Borrower may, during the interval between the making thereof and
the honoring thereof by Agent, request Lenders to make Advances to
Borrower in the amount of such draft or demand, which Advances shall be
92
<PAGE>
made concurrently with Agent's payment of such draft or demand and
shall be immediately used by Agent to repay the amount of the resulting
Matured LC Obligation. Such a request by Borrower shall be made in
compliance with all of the provisions hereof, provided that for the
purposes of Section 2A.I(a), the amount of such Advances shall be
considered, but the amount of the Matured LC Obligation to be con-
currently paid by such Advances shall not be considered.
(c) Participation by Lenders. Agent irrevocably agrees to
grant and hereby grants to each Lender, and -- to induce Agent to issue
Letters of Credit hereunder -- each Lender irrevocably agrees to accept
and purchase and hereby accepts and purchases from Agent, on the terms
and conditions hereinafter stated and for such Under's own account and
risk an undivided interest equal to such Lender's Percentage Share of
Agent's obligations and rights under each Letter of Credit issued
hereunder and the amount of each Matured LC Obligation paid by Agent
thereunder. Each Lender unconditionally and irrevocably agrees with
Agent that, if a Matured LC Obligation is paid under any Letter of
Credit for which Agent is not reimbursed in full by Borrower in
accordance 'With the terms of this Agreement and the related LC
Application (including any reimbursement by means of concurrent
Advances or by the application of LC Collateral), such Lender shall (in
all circumstances and without set-off or counterclaim) pay to Agent on
demand, in immediately available funds at Agent's address for notices
hereunder, such Lender's Percentage Share of such Matured LC Obligation
(or any portion thereof which has not been reimbursed by Borrower).
Each Lender's obligation to pay Agent pursuant to the terms of this
subsection is irrevocable and unconditional, except to the extent Agent
is not entitled to reimbursement due to its own individual gross
negligence or willful misconduct, as determined in a final judgment. If
any amount required to be paid by any Lender to Agent pursuant to this
subsection is paid by such Lender to Agent within three Business Days
after the date such payment is due, Agent shag in addition to such
amount be entitled to recover from such Lender, on demand, interest
thereon calculated from such due date at the Base Rate. If any amount
required to be paid by any Lender to Agent pursuant to this subsection
is not paid by such Lender to Agent within three Business Days after
the date such payment is due, Agent shall in addition to such amount be
entitled to recover from such Lender, on demand, interest thereon
calculated from such due date at the Late Payment Rate.
(d) Distributions to Participants. Whenever Agent has in
accordance with this section received from any Lender payment of such
Under's Percentage Share of any Matured LC Obligation, if Agent
thereafter receives any payment of such Matured LC Obligation or any
payment of interest thereon (whether directly from Borrower or by
application of LC Collateral or otherwise, and excluding only interest
for any period prior to Agent's demand that such Lender make such
payment of its Percentage Share), Agent will distribute to such Lender
its Percentage Share of the amounts so received by Agent; provided,
however, that if any such payment received by Agent must thereafter be
returned by Agent, such Lender shall return to Agent the portion
thereof which Agent has previously distributed to it.
(e) Calculations. A written advice setting forth in reasonable
detail the amounts owing under this section, submitted by Agent to
Borrower or any Lender from time to time, shall be conclusive, absent
manifest error, as to the amounts thereof,
Section 2A.4. Letter of Credit Fees. In consideration of
Agent's issuance of any Letter of Credit, Borrower agrees to pay to
Agent, for the account of each Lender in accordance with such Lender's
Percentage Share of the Loans, a letter of credit fee for each
Commercial Letter of Credit in the amount of one and one-half percent
(1.5%) per annum. Each such fee will be calculated on the face amount
of such Letter of Credit and shall be payable quarterly in arrears and
at the expiration or termination of such Letter of Credit.
Section 2A.5. No Duty to Inquire.
(a) Drafts and Demands. Agent is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of
Credit without requiring, and without responsibility for, any
determination as to the existence of any event giving rise to said
draft, either at the time of acceptance of payment or thereafter. Agent
and Lenders are under no duty to determine the proper identity of
anyone presenting such a draft or making such a demand (whether by
tested telex or otherwise) as the officer, representative or agent of
any beneficiary under any Letter of Credit, and payment by Agent to any
such beneficiary when requested by any such purported officer,
93
<PAGE>
representative or agent is hereby authorized and approved. Borrower
agrees to hold Agent and each Lender harmless and indemnified against
any liability or claim in connection with or arising out of the subject
matter of this section, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY
SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT OWED; IN WHOLE
OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR IS
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY AGENT OR ANY LENDER, provided only that Agent or such Lender
shall not be entitled to indemnification for that portion, if any, of
any liability or claim which is proximately caused by its own
individual gross negligence or willful misconduct, as determined in a
final judgment.
(b) Extension of Maturity. If the maturity of any Letter of
Credit is extended by its terms or by law or governmental action, if
any extension of the maturity or time for presentation of drafts or any
other modification of the terms of any Letter of Credit is made at the
request of any Related Person, or if the amount of any Letter of Credit
is increased at the request of any Related Person, this Agreement shall
be binding upon all Related Persons with respect to such Letter of
Credit as so extended, increased or otherwise modified, with respect to
drafts and property covered thereby, and with respect to any action
taken by Agent or any of Agent's correspondents in accordance with such
extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit
provides that it is transferable, Agent shall have no duty to determine
the proper identity of anyone appearing as transferee of such Letter of
Credit, nor shall Agent be charged with responsibility of any nature or
character for the validity or correctness of any transfer or successive
transfers, and payment by Agent to any purported transferee or
transferees as determined by Agent is hereby authorized and approved,
and Borrower further agrees to hold Agent and each Lender harmless and
indemnified against any liability or claim in connection with or
arising out of the foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR
NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT OWED, IN
WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR IS
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY AGENT OR ANY LENDER, provided only that Agent or such Lender
shall not be entitled to indemnification for that portion, if any, of
any liability or claim which is proximately caused by its own
individual gross negligence or willful misconduct, as determined in a
final judgment.
Section 2A.6. LC Collateral.
(a) LC Obligations in Excess of Borrowing Base. If, after the
making of all mandatory prepayments required under Section 2.7, the
outstanding LC Obligations will exceed the Borrowing Base, then in
addition to prepayment of the entire principal balance of the Loans
Borrower will immediately (i) pay to Agent an amount equal to such
excess or (ii) grant a first priority Lien in favor of Agent for the
benefit of Lenders on its additional oil and gas properties or other
assets acceptable to each Lender with a collateral value satisfactory
to each Lender in its sale discretion. Agent will hold such amount as
security for the remaining LC Obligations (all such amounts held as
security for LC Obligations being herein collectively called "LC
Collateral") until such LC Obligations become Matured LC Obligations,
at which time such LC Collateral may be applied to such Matured LC
Obligations. Neither this subsection nor the following subsection
shall, however, limit or impair any rights which Agent may have under
any other document or agreement relating to any Letter of Credit or LC
Obligation, including any LC Application, or any rights which Agent or
Lenders may have to otherwise apply any payments by Borrower and any LC
Collateral under Section 2.9.
(b) Acceleration of LC Obligations. If the Obligations or any
part thereof become immediately due and payable pursuant to Section 7,1
then, unless Majority Lenders otherwise specifically elect to the
contrary (which election may thereafter by retracted by Majority
Lenders at any time), all. LC Obligations shall become immediately due
and payable without regard to whether or not actual drawings or
payments on the Letters of Credit have occurred, and Borrower shall be
obligated to pay to Agent immediately an amount equal to the aggregate
LC Obligations which are then outstanding. All amounts so paid shall
first be applied to Matured LC Obligations and then held by Agent as LC
Collateral until such LC Obligations become Matured LC Obligations, at
which time such LC Collateral shall be applied to such Matured LC
Obligations.
94
<PAGE>
(c) Investment of LC Collateral. Pending application thereof,
all LC Collateral shall be invested by Agent in such Permitted
Investments as Agent may choose in its sole discretion. AD interest on
such investments shall be reinvested or applied to Matured LC
Obligations. When all Obligations have been satisfied in full,
including all LC Obligations, all Letters of Credit have expired or
been terminated, and all of Borrower's reimbursement obligations in
connection therewith have been satisfied in full, Agent shall release
any remaining LC Collateral. Borrower hereby assigns and grants to
Agent a continuing security interest in all LC Collateral paid by it to
Agent, all investments purchased with such LC Collateral, and all
proceeds thereof to secure its Matured LC Obligations and its
Obligations under this Agreement, the Note, and the other Loan
Documents, and Borrower agrees that such LC Collateral and investments
shall be subject to all of the terms and conditions of the Security
Agreement. Borrower further agrees that Agent shall have all of the
rights and remedies of a secured party under the Uniform Commercial
Code as adopted in the State of New York with respect to such security
interest and that an Event of Default under this Agreement shall
constitute a default for purposes of such security interest.
(d) Payment of LC Collateral. When Borrower is required to
provide LC Collateral for any reason and fails to do so on the day when
required, Agent may without notice to Borrower or any other Related
Person provide such LC Collateral (whether by application of proceeds
of other Collateral, by transfers from other accounts maintained with
Agent, or otherwise) using any available funds of Borrower or any other
Person also liable to make such payments. Any such amounts which are
required to be provided as LC Collateral and which are not provided on
the date required shall, for purposes of each Security Document, be
considered past due Obligations owing hereunder, and Agent is hereby
authorized to exercise its respective rights under each Security
Document to obtain such amounts.
2.12 Additional Conditions Precedent. Section 3.2 of the Original Agreement
is hereby amended in its entirety to read as follows:
Section 3.2. Additional Conditions Precedent. No Lender has
any obligation to make any Advance (including its first), and Agent has
no obligation to issue any Letter of Credit (including its first)
(whether or not otherwise agreed to by such Lender) unless the
following conditions precedent have been satisfied:
(a) All representations and warranties made by any
Related Person in any Loan Document shall be true on and as of
the date of such Advance (except to the extent that the facts
upon which such representations are based have been changed by
the extension of credit hereunder) as if such representations
and warranties bad been made as of the date of such Advance or
issuance of such Letter of Credit,
(b) No Default shall exist at the date of such
Advance or issuance of such Letter of Credit.
(c) No material adverse change shall have occurred to
Borrower's Consolidated financial condition or businesses
since the date of this Agreement.
(d) Each Related Person shall have performed and
complied with all agreements and conditions required in the
Loan Documents to be performed or compiled with by it on or
prior to the date of such Advance or the issuance of such
Letter of Credit.
(e) The meeting of such Advance or issuance of such
Letter of Credit shall not be prohibited by any law or any
regulation or order of any court or governmental agency or
authority and shall not subject any Lender to any penalty or
other onerous condition under or pursuant to any such law,
regulation or order.
(f) Agent shall have received all documents and
instruments which Agent has then requested, in addition to
those described in Section 3.1 (including opinions of legal
counsel for the Related Persons and Agent; corporate documents
and records; documents evidencing governmental authorizations,
consents, approvals, licenses and exemptions; and certificates
of public officials and of officers and representatives of
Borrower and other Persons), as to (i) the accuracy and
validity of or compliance with all representations, warranties
and covenants made by any of the Related Persons in this
Agreement and the other Loan Documents, (ii) the satisfaction
of all conditions contained herein or therein, and (iii)
95
<PAGE>
all other matters pertaining hereto and thereto. AD such
additional documents and instruments shall be satisfactory to
Agent in form, substance and date.
2.13 Current Ratio. Section 5.2(l) of the Original Agreement is hereby
amended in its entirety to read as follows:
(l) Current Ratio. The ratio of Borrower's Consolidated
current assets to Borrower's Consolidated our rent liabilities will
never be less than 1.0 to 1.0. For purposes of this subsection,
Borrower's Consolidated current liabilities will be calculated (i)
including all Matured LC Obligations as current liabilities, regardless
of whether or not contingent (but, without duplication), and (ii)
without including any payments of principal on the Notes which are
required to be repaid within one year from the time of calculation.
2.14 Exhibits. Exhibit B to the Original Agreement is hereby amended in its
entirety to read as set forth in Exhibit B attached hereto, and the Original
Agreement is hereby amended by adding new Exhibit F thereto in the form of
Exhibit F attached hereto.
2.15 Outstanding Letter of Credit. Agent has issued that certain Letter of
Credit No. G7300 dated December 14, 1995 in the face amount of $4,485,000,
naming Triton USA, Inc. as beneficiary, for the account of Borrower, and
Borrower has executed and delivered an "LC Application" to Agent in connection
therewith. Upon the effectiveness of this Amendment, such Letter of Credit and
LC Application shall respectively constitute a Letter of Credit and an LC
Application under the Credit Agreement for all purposes.
ARTICLE III - Conditions of Effectiveness
3.1 Effective Date. This Amendment shall become effective as of the date
first above written when (i) Lender shall have received this Amendment at
Under's office duly authorized, executed and delivered by Borrower, (ii) Lender
shall have additionally received all of the following documents each being duly
authorized, executed and delivered, and in form and substance satisfactory to
Lender:
(a) Opinion of Counsel for Borrower. A written opinion of
Jenkens & Gilchrist, a Professional Corporation, counsel for Borrower,
dated as of the date of this Amendment, addressed to Agent and Lenders,
to the effect that this Amendment has been duly authorized, executed
and delivered by Borrower and that the Credit Agreement constitutes the
legal, valid and binding obligations of Borrower, enforceable in
accordance with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency and similar laws and
to general principles of equity).
(b) Omnibus Certificate. An Omnibus Certificate of the
Secretary and of the Chairman of the Board or President of Borrower of
even date with this Amendment, which shall contain the names and
signatures of the officers authorized to execute this Amendment and
which shall certify to the truth, correctness and completeness of: (i)
all of the exhibits attached to that certain Omnibus Certificate dated
as of December 20, 1994, made by such officers of Borrower, and (fl) a
copy of resolutions duly adopted by the Board of Directors of Borrower
and in fall force and effect at the time this Amendment is entered
into, authorizing the execution of this Amendment.
(c) Compliance Certificate. A Compliance Certificate of the
Chief Financial Officer of Borrower, of even date with this Amendment,
in which such officer shall certify, to the best of his knowledge and
belief after due inquiry, to the satisfaction of the conditions set out
in subsections (a) through (d), inclusive, of Section 3.2 of the
Original Agreement as of the date hereof.
ARTICLE IV - Representations, Warranties and Covenants
4.1 Representations, Warranties and Covenants of Borrower. In order to
induce Agent and Lenders to enter into this Amendment, Borrower represents,
warrants and covenants to Agent and each Lender that:
(a) The representations and warranties contained in Section
4.1 of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof, except to the extent that such
representations and warranties are made in the Original Agreement only
in reference to a specific date and except to the extent
96
<PAGE>
that the facts upon which such representations are based have been
changed by the extension of credit under the Credit Agreement.
(b) Borrower is duly authorized to execute and deliver this
Amendment and is and will continue to be duly authorized to borrow and
to perform its obligations under the Credit Agreement. Borrower has
duly taken all corporate action necessary to authorize the execution
and delivery of this Amendment and to authorize the performance of the
obligations hereunder.
(c) The execution and delivery by Borrower of this Amendment
and the performance by it of its obligations hereunder and under the
Credit Agreement and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict with any provision of
law, statute, rule or regulation or of the articles of incorporation or
bylaws of Borrower or of any material agreement, judgment, license,
order or permit applicable to or binding upon Borrower or result in the
creation of any lien, charge or encumbrance upon any assets or
properties of Borrower, except as expressly contemplated in the Loan
Documents, Except for those which have been duly obtained, no consent,
approval, authorization or order of any court or governmental authority
or third party is required in connection with the execution and
delivery by Borrower of this Amendment or to consummate the
transactions contemplated hereby.
(d) When this Amendment is duly executed and delivered, each
of this Amendment and the Credit Agreement will be a legal and binding
instrument and agreement of Borrower, enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency and similar laws
and by general principles of equity.
(e) The audited annual Consolidated financial statements of
Borrower dated as of December 31, 1994 and the unaudited quarterly
Consolidated financial statements of Borrower dated as of September 30,
1995 fairly present the Consolidated financial position at such dates
and the Consolidated statement of operations and cash flows for the
periods ending on such dates for Borrower.
Copies of such financial statements have heretofore been
delivered to Lender. Since September 30, 1995, no material adverse
change has occurred in the financial condition or businesses or in the
Consolidated financial condition or businesses of Borrower.
ARTICLE V - Miscellaneous
5.1 Ratification of Agreements. The Original Agreement as hereby amended is
hereby ratified and confirmed in all respects. The Loan Documents, as they may
be amended or affected by this Amendment are hereby ratified and confirmed in
all respects. Any reference to the Credit Agreement in any Loan Document shall
be deemed to refer to this Amendment also and any reference in any Loan Document
to any other document or instrument amended, renewed, extended or otherwise
affected by this Amendment shall also refer to such Amendment. The execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of Agent or any Lender under the Credit Agreement or
any other Loan Document nor constitute a waiver of any provision of the Credit
Agreement or any other Loan Document.
5.2 Survival of Agreements. All representations, warranties, covenants and
agreements of Borrower herein shall survive the execution and delivery of this
Amendment and the performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the Obligations
are paid in full. All statements and agreements contained in any certificate or
instrument delivered by Borrower hereunder or under the Credit Agreement to
Agent or any Lender shall be deemed to constitute representations and warranties
by, or agreements and covenants of, Borrower under this Amendment and under the
Credit Agreement.
5.3 Loan Documents. This Amendment is a Loan Document, and all provisions
in the Credit Agreement pertaining to Loan Documents apply hereto.
5.4 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA IN ALL RESPECTS, INCLUDING CONSTRUCTION, VALIDITY AND
PERFORMANCE.
5.5 Counterparts. This Amendment may be separately executed in counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed shall be deemed to constitute one and the same Amendment.
97
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
CAIRN ENERGY USA, INC.
By:/s/ J. Munro M. Sutherland
----------------------------------------
J. Munro M. Sutherland
Senior Vice President
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By:/s/ Trond O. Rokholt
----------------------------------------
Trond O. Rokholt
Vice President
MEESPIERSON N.V.
By:/s/ Darrell W. Holley
----------------------------------------
Darrell W. Holley
Vice President
98
<PAGE>
EXHIBIT 10.19
99
<PAGE>
AMENDMENT NO. 1
TO
CAIRN ENERGY USA, INC.
1993 DIRECTORS STOCK OPTION PLAN
WHEREAS, the Cairn Energy USA, Inc. 1993 Directors Stock Option Plan
(the "Plan") provides for the granting of Nonstatutory Options to certain
directors of the Cairn Energy USA, Inc. (the "Corporation") who are not
employees of the Corporation or of its Affiliates (as defined in the Plan).
WHEREAS, the Board of Directors desires to amend the Plan to exclude
from participation in the Plan employees of certain stockholders of the
Corporation.
WHEREAS, pursuant to Section 9 of the Plan the Board of Directors may
amend the Plan in this respect without stockholder approval.
NOW, THEREFORE, the Plan is hereby amended as provided below:
1. Section 1.9 of the Plan is hereby amended as restated as
follows:
1.9 "Eligible Individuals" shall mean the members of the
Board of Directors of the Corporation who are not,
and have not been, (a) an employee of the Corporation
or one of its Affiliates or (b) an employee, officer
or director of Cairn Energy PLC or an affiliate
thereof or Phemus Corporation or an affiliate
thereof. The term affiliate for purposes of Section
1.9(b) shall mean a person or entity that directly,
or indirectly through one or more intermediaries,
controls or is controlled by, or is under common
control with, Cairn Energy PLC or Phemus Corporation.
For purposes of the Plan, the Chairman of the Board
of Directors of the Corporation shall not be deemed
an employee of the Corporation and, therefore, is an
Eligible Individual.
2. Except as amended hereby, the Plan remains in full force and
effect.
3. This Amendment to the Plan shall be effective as of May 24,
1995.
IN WITNESS WHEREOF, Cairn Energy USA, Inc. acting by and through its duly
authorized officer, has executed this Amendment No. 1 to the Plan on this the
10th day of January, 1996, but effective as of May 24, 1995.
CAIRN ENERGY USA, INC.
By: /s/ Susan H. Rader
-------------------------------
Susan H. Rader, Secretary
<PAGE>
EXHIBIT 11.1
100
<PAGE>
EXHIBIT 11.1
CAIRN ENERGY USA, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net income............................................... $ 1,474 $ 654 $ 5,235
======= ======= =======
Shares:
Weighted average common shares outstanding...... 10,094 13,259 16,422
Add common shares issued upon assumed
conversion of Series A Preferred Stock(1)....... 1,166 -- --
------- ------- -------
Weighted average common and common
equivalent shares outstanding................... 11,260 13,259 16,422
======= ======= =======
Net income per common and common equivalent share........ $ 0.13 $ 0.05 $ 0.32
======= ======= =======
</TABLE>
(1) All Series A Preferred Stock was redeemed on August 9, 1993.
101
<PAGE>
EXHIBIT 23.1
102
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-77102) of Cairn Energy USA, Inc. and in the Prospectus of our report
dated February 16, 1995, with respect to the consolidated financial statements
of Cairn Energy USA, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 1995.
ERNST & YOUNG LLP
Dallas, Texas
March 4, 1996
<PAGE>
EXHIBIT 23.2
103
<PAGE>
CONSENT OF RYDER SCOTT COMPANY
We hereby consent to the reference to our firm under the
caption "Experts" and the reference to the results of our reserve review letter,
dated March 1, 1996 (the "Reserve Review Letter"), in the Registration Statement
and related Prospectus of Cairn Energy USA, Inc. (the "Company") and to the
incorporation by reference therein of references to our firm and to the Reserve
Review Letter in the Company's Form 10-K for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 1, 1996
104
<PAGE>
